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. 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. This evidence, gleaned from information collected during our  site visits and discussions with maintenance personnel, showed  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 March  2005, such measures have not yet been finalized or implemented. Actions to Maintain and Upgrade Deepwater Legacy Assets Are Under Way, but Condition Issues Remain

The Coast Guard has taken several actions to address maintenance issues  and upgrades for its deepwater legacy assets. 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. 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. Coast Guard Has Taken Steps to Hold the System Integrator Accountable for Competition

The Coast Guard reported taking steps to address our recommendations  concerning cost control through competition. While the Coast Guard lacks measures that clearly  demonstrate how this deterioration affects its ability to perform  deepwater-related missions, it is clear that the deepwater legacy assets  are insufficient for the task. 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  have not been funded because they 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. The Coast Guard has begun addressing some problems--for example, putting more emphasis on competition as a way to control costs--but many areas have not been fully addressed. A more aggressive schedule would only heighten the risks.