True Cost and Schedule of Deepwater Program Is Not Known

The Deepwater Program as a whole continues to exceed the cost and  schedule baselines approved by DHS in May 2007, but several factors  preclude a solid understanding of the true cost and schedule of the  program. The Coast Guard has developed baselines for some assets,  most of which have been approved by DHS, that indicate the estimated  total acquisition cost could be as much as $29.3 billion, or about $5 billion  over the $24.2 billion baseline. But additional cost growth is looming  because the Coast Guard has yet to develop revised baselines for all the  Deepwater assets, including the Offshore Patrol Cutter (OPC)—the  largest cost driver in the Deepwater Program. In addition, the Coast  Guard’s most recent 5-year budget plan, included in DHS’s fiscal year  2012 budget request, indicates further cost and schedule changes not yet  reflected in the asset baselines. The reliability of the cost estimates and  schedules for selected assets is also undermined because the Coast  Guard did not follow key best practices for developing these estimates. Coast Guard and DHS officials agree that the annual funding needed to  support all approved Deepwater baselines exceeds current and expected  funding levels in this fiscal climate. The Coast Guard’s acquisition directorate has developed several actionitems to help address this mismatch by prioritizing acquisition program  needs, b ut these action items have not been adopted across the Coast  Guard. Execution of the Deepwater Program Is Progressing, but Key Decisions Remain for the Design and Testing of Deepwater Assets

The Coast Guard continues to strengthen its acquisition management  capabilities. As lead systems integrator, the Coast Guard is faced with  several decisions to help ensure that the promised capabilities of assets  still in design are achieved. For example, whether or not the planned  system-of-systems design is achievable largely depends on the Coast  Guard’s ability to make important decisions regarding the design of the  C4ISR program, as the Coast Guard has continued to define and redefine  its strategy for this program since 2007. For those assets already under  construction and operational, preliminary tests have yielded mixed results  and identified issues that need to be addressed prior to upcoming test  events. As part of its role as lead systems integrator, the Coast Guard is  gaining a better understanding of each asset’s cost, schedule, and  technical risks, but this information is not always fully conveyed in the  Coast Guard’s quarterly reports to Congress. Coast Guard Has Not Completed a Comprehensive Trade-Off Analysis for the Deepwater Assets

To support its role as systems integrator, the Coast Guard planned to  complete a fleet mix analysis in July 2009 to eliminate uncertainty  surrounding future mission performance and to produce a baseline for the  Deepwater acquisition. Because the first phase of the fleet mix analysis was not cost constrained,  it does not address our July 2010 recommendation that the Coast Guard  present to Congress a comprehensive review of the Deepwater Program  that clarifies the overall cost, schedule, quantities, and mix of assets  required to meet mission needs, including trade-offs in light of fiscal  constraints given that the currently approved Deepwater Program is no  longer feasible. A DHS official responsible for this study stated that this  analysis and the Coast Guard’s fleet mix analysis will provide multiple  data points for considering potential changes to the program of record,  including reductions in the quantities planned for some of the surface  assets. However, as noted above, Coast Guard capabilities directorate  officials have no intention of examining fleet mixes smaller than the  current, planned Deepwater program. Recommendations for Executive Action

To provide Congress with information needed to make decisions on  budgets and the number of assets required to meet mission needs within  realistic fiscal constraints, we recommend that the Secretary of Homeland  Security develop a working group that includes participation from DHS  and the Coast Guard’s capabilities, resources, and acquisition  directorates to review the results of multiple studies—including fleet mix  analysis phases 1 and 2 and DHS’s cutter study—to identify cost,  capability, and quantity trade-offs that would produce a program that fits  within expected budget parameters. To help the Coast Guard address the churn in the acquisition project  budgeting process and help ensure that projects receive and can plan to  a more predictable funding stream, we recommend that the Commandant  of the Coast Guard take the following two actions:  Implement GAO’s Cost Estimating and Assessment Guide’s best  practices for cost estimates and schedules as required by the Major  Systems Acquisition Manual, with particular attention to maintaining  current cost estimates and ensuring contractor’s schedules also meet  these best practices.
Why GAO Did This Study

The Deepwater Program includes efforts to build or modernize ships and aircraft, including supporting capabilities. In 2007, the Coast Guard took over the systems integrator role from Integrated Coast Guard Systems (ICGS) and established a $24.2 billion program baseline which included schedule and performance parameters. Last year, GAO reported that Deepwater had exceeded cost and schedule parameters, and recommended a comprehensive study to assess the mix of assets needed in a cost-constrained environment given the approved baseline was no longer feasible. GAO assessed the (1) extent to which the program is exceeding the 2007 baseline and credibility of selected cost estimates and schedules; (2) execution, design, and testing of assets; and (3) Coast Guard's efforts to conduct a fleet mix analysis. GAO reviewed key Coast Guard documents and applied criteria from GAO's cost guide.

What GAO Found

The Deepwater Program continues to exceed the cost and schedule baselines approved by DHS in 2007, but several factors continue to preclude a solid understanding of the program's true cost and schedule. The Coast Guard has developed baselines for some assets that indicate the estimated total acquisition cost could be as much as $29.3 billion, or about $5 billion over the $24.2 billion baseline. But additional cost growth is looming because the Coast Guard has yet to develop revised baselines for all assets, including the OPC--the largest cost driver in the program. In addition, the Coast Guard's most recent capital investment plan indicates further cost and schedule changes not yet reflected in the asset baselines, contributing to the approved 2007 baseline no longer being achievable. The reliability of the cost estimates and schedules for selected assets is also undermined because the Coast Guard did not follow key best practices for developing these estimates. Coast Guard and DHS officials agree that the annual funding needed to support all approved Deepwater baselines exceeds current and expected funding levels, which affects some programs' approved schedules. The Coast Guard's acquisition directorate has developed action items to help address this mismatch by prioritizing acquisition program needs, but these action items have not been adopted across the Coast Guard. The Coast Guard continues to strengthen its acquisition management capabilities, but is faced with several near-term decisions to help ensure that assets still in design will meet mission needs. For example, whether or not the planned system-of-systems design is achievable will largely depend upon remaining decisions regarding the design of the command and control system. Important decisions related to the affordability, feasibility, and capability of the OPC also remain. For those assets under construction and operational, preliminary tests have yielded mixed results and identified concerns, such as design issues, to be addressed prior to initial operational test and evaluation. The Coast Guard is gaining a better understanding of cost, schedule, and technical risks, but does not always fully convey these risks in reports to Congress. As lead systems integrator, the Coast Guard planned to complete a fleet mix analysis to eliminate uncertainty surrounding future mission performance and produce a baseline for Deepwater. This analysis, which the Coast Guard began in 2008, considered the current program to be the "floor" for asset capabilities and quantities and did not impose cost constraints on the various fleet mixes. Consequently, the results will not be used for trade-off decisions. The Coast Guard has now begun a second analysis, expected for completion this summer, which includes an upper cost constraint of $1.7 billion annually--more than Congress has appropriated for the entire Coast Guard acquisition portfolio in recent years. DHS is also conducting a study to gain insight into alternatives that may include options that are lower than the program of record for surface assets. A DHS official stated that this analysis and the Coast Guard's fleet mix analysis will provide multiple data points for considering potential changes to the program of record, but Coast Guard officials stated they have no intention of examining fleet mixes smaller than the current, planned Deepwater program.

What GAO Recommends

GAO is making recommendations to the Department of Homeland Security (DHS) that include identifying trade-offs to the planned Deepwater fleet and ensuring the Offshore Patrol Cutter (OPC) design is achievable and to the Coast Guard that include identifying priorities, incorporating cost and schedule best practices, increasing confidence that assets will meet mission needs, and reporting complete information on risks to Congress in a timely manner. DHS concurred with the recommendations.