The acquisition is scheduled to occur over a 30-year  period at a projected cost of $17 billion. In June 2002, the Coast  Guard awarded a contract to ICGS as the system integrator for Deepwater. However, a year and a half into the program, the key management and  oversight components needed to make the program effective have not  been effectively implemented. Integrated product teams (IPT) are the  Coast Guard’s primary tool for managing the program and overseeing the  contractor, but these teams have struggled to collaborate effectively and  accomplish their missions. Further, while it is still early in the program, the transition  from existing Coast Guard assets to the new Deepwater assets has not  been effectively communicated, a particular concern in light of schedule  delays for some of the first assets to be delivered. IPTs Have Had Difficulty Fulfilling Their Critical Management Function

IPTs are the Coast Guard’s primary tool for managing the Deepwater  program and overseeing the system integrator. Inadequate communication among members. High turnover of IPT membership and understaffing. Insufficient training. In addition, the Coast Guard has not adequately addressed the imminent  departure of Coast Guard officials from the Deepwater program. The Coast Guard’s process and procedures for evaluating the system  integrator’s performance during the first year of the contract lacked rigor  in terms of applying quantifiable metrics to assess performance, gathering  input from government performance monitors, and communicating with  and documenting information for the decision makers. Input from  the COTR responsible for gauging the system integrator’s performance for  all efforts related to the design and delivery of ships was not included in  the calculation at all. Ultimately, the program executive officer awarded the system  integrator a rating of 87 percent, resulting in an award fee of $4.0 million  of the maximum $4.6 million annual award fee. In 2001,  the Coast Guard set a goal of developing measures, within a year after  contract award, to conduct annual assessments of the system integrator’s  progress toward achieving the three overarching goals of the Deepwater  program: increased operational effectiveness, lower TOC, and customer  satisfaction. However, the Coast Guard’s time frame for implementing  metrics to gauge progress against these goals has slipped. Control of Future Costs through Competition Remains a Risk because of Weak Oversight of Subcontractor Decisions

Competition is a key component for controlling costs in the Deepwater  program and a guiding principle for DHS’s major acquisitions. However, beyond the first 5-year term, the Coast Guard  has no way to ensure competition is occurring because it does not have  mechanisms in place to measure the extent of competition or to hold the  system integrator accountable for steps taken to achieve competition. The acquisition structure of the Deepwater program is such that the two  first-tier subcontractors, Lockheed Martin and Northrop Grumman—the  companies that formed ICGS and that developed the Deepwater   solution—have sole responsibility for determining whether to hold  competitions for Deepwater assets or to provide these assets themselves. The lack of transparency  into competition and the government’s lack of a mechanism to hold the  contractor accountable raise questions about whether the Coast Guard  will be able to control costs. As a result of the evaluation,  Lockheed Martin identified an alternative CASA aircraft to meet the  Coast Guard’s maritime patrol aircraft mission. The concerns we raised in 2001 about the Coast Guard’s ability to control  costs in future years remain valid today. Appendix I: Comments from the Coast Guard

Appendix II: Status of Selected Deepwater Contract Management and Oversight Plans

	Establishes criteria and procedures used to evaluate Integrated Coast Guard Systems’ (ICGS) management performance, and to determine the amount of award fee earned

Details responsibilities and processes to implement  the contract  Describes activities and processes to ensure  funding is available to execute the program  Establishes structure and method for identifying and  managing risks, and developing and selecting  options to mitigate risks  “Soon after  contract award”
Outlines the processes and procedures used to  implement the program’s quality assurance process  90 days after  contract award  (September 2002)
Why GAO Did This Study

The Coast Guard's Deepwater program, the largest acquisition program in its history, involves modernizing or replacing ships, aircraft, and communications equipment. The Coast Guard awarded the Deepwater contract to Integrated Coast Guard Systems (ICGS) in June 2002. The Coast Guard estimates the program will cost $17 billion over a 30-year period. ICGS is a system integrator, with responsibility for identifying and delivering an integrated system of assets to meet the Coast Guard's missions. GAO was asked to assess whether the Coast Guard is effectively managing the Deepwater program and overseeing the contractor and to assess the implications of using the Deepwater contracting model on opportunities for competition.

What GAO Found

Over a year and a half into the Deepwater contract, the key components needed to manage the program and oversee the system integrator's performance have not been effectively implemented. Integrated product teams, the Coast Guard's primary tool for overseeing the system integrator, have struggled to effectively collaborate and accomplish their missions. They have been hampered by changing membership, understaffing, insufficient training, and inadequate communication among members. In addition, the Coast Guard has not adequately addressed the frequent turnover of personnel in the program and the transition from existing to Deepwater assets. The Coast Guard's assessment of the system integrator's performance in the first year of the contract lacked rigor. For example, comments from the technical specialist responsible for monitoring the design and delivery of ships were not included in the evaluation scores. Further, the factors that formed the basis for the award fee determination were unsupported by quantifiable metrics. Despite documented problems in schedule, performance, cost control, and contract administration, ICGS received a rating of 87 percent, resulting in an award fee of $4.0 million of the maximum $4.6 million annual award fee. Further, the Coast Guard has not yet begun to measure the system integrator's performance on the three overarching goals of the Deepwater program--operational effectiveness, total ownership cost, and customer satisfaction. Its original plan of measuring progress on an annual basis has slipped, and Coast Guard officials have not projected a time frame for when they will be able to hold the contractor accountable for progress against these goals. This information will be essential to the Coast Guard's decision about whether to extend ICGS's contract after the first 5 years. Competition is critical to controlling costs in the Deepwater program and a guiding principle of Department of Homeland Security acquisitions. Concerns about the Coast Guard's ability to rely on competition as a means to control future costs contributed to GAO's description of the Deepwater program in 2001 as "risky." Three years later, the Coast Guard has neither measured the extent of competition among suppliers of Deepwater assets nor held the system integrator accountable for taking steps to achieve competition. Deepwater's acquisition structure is such that the two first-tier subcontractors have sole responsibility for determining whether to hold competitions for assets or to provide these assets themselves. The Coast Guard has taken a hands-off approach to "make or buy" decisions made at the subcontractor level. As a result, questions remain about whether the government will be able to control costs.