In 1996, the Coast Guard began developing what came to be known as the  Integrated Deepwater System acquisition program as its major effort to  replace or modernize these aircraft and cutters. The Deepwater program represents a unique approach to a major  acquisition in that the Coast Guard is relying on a prime contractor—the  system integrator—to identify and deliver the assets needed to meet a set  of mission requirements the Coast Guard has specified. We have been reviewing the  Deepwater program for several years. The existing schedule calls for acquisition of new assets under the Coast  Guard’s Deepwater program to occur over an approximately 20-year  period. Deepwater Legacy Assets Show General Decline in Condition, but Current Measures Do Not Capture True Extent

Coast Guard condition measures show that the deepwater legacy assets  generally declined between 2000 and 2004, but the Coast Guard’s available  condition measures are inadequate to capture the full extent of the decline  in the condition of deepwater assets with any degree of precision. The Coast Guard acknowledges that it  needs better condition measures but has not yet finalized or implemented  such measures. This evidence, gleaned from information collected during our  site visits and discussions with maintenance personnel, indicated  deteriorating and obsolete systems and equipment as a major cause of the  reduction in mission capabilities for a number of deepwater legacy aircraft  and cutters. The Coast Guard has recently recognized the need for improved measures  to more accurately capture data on the extent to which its deepwater  legacy assets are degraded in their mission capabilities, but as of April  2005, such measures had not yet been finalized or implemented. These additional efforts are likely helping to prevent a more  rapid decline in the condition of these assets, but condition problems  continue, and the efforts will likely involve additional costs. For example, during this fiscal year, the  Coast Guard is to begin a maintenance effectiveness project on the 210 foot and 270-foot cutters. So far, the Coast Guard’s budget plans or requests do not  address this potential need. Management Challenges Faced in Acquiring New Assets Remain Significant

Since the inception of the Deepwater program, we have expressed  concerns about the degree of risk in the acquisition approach and the  Coast Guard’s ability to manage and oversee the program. Last year, we  reported that, well into the contract’s second year, key components  needed to manage the program and oversee the system integrator’s  performance had not been effectively implemented. While the Coast Guard is making progress on developing  (1) measures that better demonstrate how the deteriorating condition of  the legacy assets impact on mission capabilities and (2) a strategy to better  prioritize upgrades and maximize capabilities, it is clear that the  deepwater legacy assets are insufficient for meeting all of the Coast  Guard’s missions. The cost  increases and schedule slippages that have already occurred are warning  signs. Some of these problems, such as those on the  378-foot cutters, are included in the compendium the Coast Guard uses to  set sustainment priorities and plan budgets, but the Coast Guard has not  allocated funds because the problems pertain to assets that are among the  first to be replaced.
Why GAO Did This Study

In 2002, the Coast Guard began a multiyear, $19 billion to $24 billion acquisition program to replace or modernize its fleet of deepwater aircraft and cutters, so called because they are capable of operating many miles off the coast. For several years now, the Coast Guard has been warning that the existing fleet--especially cutters--was failing at an unsustainable rate, and it began studying options for replacing or modernizing the fleet more rapidly. Faster replacement is designed to avoid some of the costs that might be involved in keeping aging assets running for longer periods. This testimony, which is based both on current and past GAO work, addresses several issues related to these considerations: (1) changes in the condition of deepwater legacy assets during fiscal years 2000 through 2004; (2) actions the Coast Guard has taken to maintain and upgrade deepwater legacy assets; and (3) management challenges the Coast Guard faces in acquiring new assets, especially if a more aggressive schedule is adopted.

What GAO Found

Available Coast Guard condition measures indicate that the Coast Guard's deepwater legacy aircraft and cutters are generally declining, but these measures are inadequate to capture the full extent of the decline in the condition of deepwater assets with any degree of precision. GAO's field visits and interviews with Coast Guard staff, as well as reviews of other evidence, showed significant problems in a variety of the assets' systems and equipment. The Coast Guard has acknowledged that it needs to develop condition measures that more clearly demonstrate the extent to which asset conditions affect mission capabilities, but such measures have not yet been finalized or implemented. The Coast Guard has taken several types of actions to help keep the deepwater legacy assets operational, but these actions, while helpful, may not fully address mission capability issues and may require additional funding. For example, to help meet mission requirements, Coast Guard staff are performing more extensive maintenance between deployments, but even so, aircraft and cutters continue to lose mission capabilities. One Coast Guard command is using a new approach to help sustain the oldest class of cutters, but this approach will likely require additional funds--something not included thus far in Coast Guard budget plans or requests. If the Coast Guard adopts a more aggressive acquisition schedule, it will likely continue to face a number of challenges that have already affected its ability to effectively manage the Deepwater program. GAO has warned that the Coast Guard's acquisition strategy, which relies on a prime contractor ("system integrator") to identify and deliver the assets needed, carries substantial risks. In 2004, well into the contract's second year, key components for managing the program and overseeing the system integrator's performance had not been effectively implemented. While the Coast Guard has been addressing these problems--for example, putting more emphasis on competition as a means to control costs--many areas have not been fully addressed. A more aggressive acquisition schedule would only heighten the risks.