1.1.) How Much Is the Project Likely to Cost? To what extent are projected costs for the Deepwater Project consistent with the Coast Guard’s overall budget for its capital projects? We analyzed the Coast Guard’s documents depicting this need, such as the Deepwater Mission Analysis Report and the Mission Needs Statement, and compared the information that these documents presented with other Coast Guard data, such as engineering studies on the condition of Coast Guard ships and aircraft, planned upgrades for extending the service life of ships and aircraft, and records of actual usage. The Coast Guard’s Formal Justification Did Not Accurately or Fully Depict Modernization or Replacement Needs

When it initially proposed the Deepwater Project in 1995, the Coast Guard indicated that most classes of deepwater ships and aircraft would begin reaching the end of their service life within the next 2 to 9 years and would largely need to be phased out by 2010. Delays in providing updated information to the contractor teams could adversely affect the quality of the proposals submitted, in that, the teams could be disadvantaged in developing the most effective economical proposals for the Deepwater Project. Because these ships and aircraft were acquired over a period of years, the DMAR indicated that the oldest of these would need replacement or modernization generally starting from 1998 through 2003. 2.2.) If the Coast Guard ensures that the contractors that are developing the initial deepwater proposals have current, complete information on the condition and capabilities of the agency’s ships and aircraft, potential problems in this area could be minimized and the project could proceed as planned. At this size, the budget would take virtually all of the Coast Guard’s projected spending for its capital projects, thus leaving little room for ongoing and future projects that amount to at least $300 million a year. Absent such fees, the money would most likely need to come from additional appropriations. 3.1.) The Coast Guard currently provides these services but does not charge for them. In July 1998, in their deliberations on the Coast Guard’s fiscal year 1999 budget request, the Subcommittees of the Senate and House Committees on Appropriations with jurisdiction over the Coast Guard’s budget cited their opposition to the new user fees proposed by the administration, and in addition, the House and Senate have prohibited the Coast Guard from planning or implementing any new user fees. Reassessing the Acquisition and Funding Plan for the Deepwater Project Could Reduce the Risk of Cost Increases Later

Now that the Coast Guard knows that many of its deepwater ships and aircraft will have a longer useful life than originally thought, it may be in a position to reassess whether the funding strategy for the Deepwater Project should be changed. The agency’s “system of systems” approach seems logical as a way to avoid a costly one-for-one replacement of assets, and its use of multiple contractors is an attempt to leverage technology and to identify cost-effective alternatives. Contractors have just begun work on developing their proposals for the Deepwater Project.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the extent to which the Coast Guard has: (1) accurately depicted the need to replace or modernize its deepwater ships and aircraft; and (2) aligned the estimated cost of its Deepwater Project with its overall budget for capital projects.

What GAO Found

GAO noted that: (1) although the Coast Guard is correct in starting now to explore how best to modernize or replace its deepwater ships and aircraft, the Deepwater Project's only formal justification developed to date does not accurately or fully depict the need for replacement or modernization; (2) this justification concluded that most deepwater ships and aircraft would need to be phased out starting in the next 2 to 9 years; (3) however, subsequent analyses by the Coast Guard and others have shown that deepwater aircraft likely have a much longer life; (4) the justification asserted that these ships and aircraft were incapable of performing future missions or meeting future demand, but GAO was unable to validate these assertions from the information available; (5) the Coast Guard withdrew the justification on the basis of concerns expressed by the Office of Management and Budget and is now developing more accurate and updated information; (6) several of these studies are still under way, even as contracting teams have already begun work on developing their initial deepwater proposals; (7) any delays in communicating this updated information to the contractors could adversely affect the quality of the proposals submitted; (8) while the Coast Guard's acquisition approach seems an appropriate way to avoid a costly one-for-one replacement of ships and aircraft, the agency could face major financial obstacles in proceeding with a Deepwater Project costing as much as initially proposed for planning purposes; (9) at a projected $500 million a year, expenditures for the project would take virtually all of the Coast Guard's projected spending for all capital projects, which currently include the construction of new buoy tenders and motorized lifeboats; (10) the Coast Guard expects more than $165 million of the annual funding to come from new user fees for domestic ice-breaking and navigational services that the Coast Guard currently provides; (11) however, the congressional subcommittees with jurisdiction over the Coast Guard's budget have expressed opposition to such fees, and the House and Senate have prohibited the Coast Guard from planning or implementing any new user fees; (12) if hoped-for funding does not occur, the Coast Guard may be left having either to reduce the scope of the project or to stretch out the procurement period; and (13) many other government procurement projects have demonstrated that when agencies attempt to address a problem by stretching out the procurement period, administrative and other costs increase, resulting in lower value for the amount of money spent.