Cost and Schedule of Portfolio Remains Unknown Because of Outdated Baselines and Uncertainty Surrounding Affordability

Outdated acquisition program baselines and uncertainty surrounding the  affordability of the Coast Guard’s acquisition portfolio continue to limit  visibility into the current cost and schedule of the Coast Guard’s major  acquisitions. Program has changed in scope, which could have cost and/or  schedule implications, but its DHS-approved baseline does not reflect  these changes. DHS concurred, but has not yet fully  implemented this recommendation. While Coast Guard officials acknowledged that baselines for many of its  major acquisitions do not reflect the current status of the programs, even  using the approved program baselines as of July 2012 and total program  cost for programs with no planned funding beyond fiscal year 2014, the  estimated total acquisition cost of Coast Guard major acquisitions could  be as much as $35.3 billion. This is about $10 billion more than original  baselines which totaled $25.1 billion and represents an increase of  approximately 41 percent. Upcoming Budget Decisions Will Likely Have Portfolio-wide Implications

The mismatch we reported in July 2011 between resources needed to  support all approved program baselines and expected funding levels  continues to affect the Coast Guard, requiring it to make decisions about  which programs to fund and which programs not to fund as part of the  annual budget formulation process. Both DHS and the Coast Guard have acknowledged this resource  challenge, but efforts to address these challenges have not resulted in a  clear strategy for moving forward. Opportunities Exist to Address Affordability through the Requirements Process

Opportunities exist for the Coast Guard to address the affordability of the  fleet and major cutters through the requirements process, which takes  broad mission and capability needs and converts them to system-specific   The Coast Guard completed two efforts to reassess the mix  capabilities.of assets but both efforts only used its program of record, based upon the  2005 Mission Need Statement, as the basis of the analysis and did not  consider realistic fiscal constraints. Although Coast Guard officials stated the way in which teams are  expected to interact with one another is still formalizing, we found that the  following examples illustrate that the Executive Oversight Council  oversees the acquisition governance framework and is well-positioned to  delegate tasks to the other teams or pull information from them as  needed to assist in the management of acquisitions or solve problems  related to acquisitions:
At a June 2011 Executive Oversight Council meeting to discuss the  Patrol Boat and Medium Endurance Cutter Sustainment programs,  the Council tasked the Cutter Resource Council to provide  recommendations for unobligated Patrol Boat project funds. Our best practices work has found that successful commercial companies  assess product investments collectively from an enterprise level, rather  than as independent and unrelated initiatives, and prioritize investments  by integrating the requirements, acquisition, and budget processes. As  we reported in April 2011, Coast Guard officials told us that as it began  assuming the system integrator function from the Deepwater contractor in  2007, it believed it needed a forum to make trade-offs and other program  decisions especially in a constrained budget environment and established   We did identify instances in which the  the Executive Oversight Council.Executive Oversight Council was presented with opportunities to manage  its acquisitions as a portfolio, but tasks were not completed or no action  was taken:
At the request of the Executive Oversight Council, in September 2010,  the Systems Integration Team briefed the Council on strategic  courses of action to revise acquisition program baselines under a  budget constraint, but officials from the Systems Integration Team  stated that the briefing led to no decisions or further taskings.Guard officials stated that the briefing was also given to the Deputy  Commandant for Mission Support and the Deputy Commandant for  Operations. However, the Coast Guard’s current  approach of relying on the budget process to manage the affordability of  its portfolio has proven ineffective. The preparation of the annual budget  request involves immediate trade-offs, but does not provide the best  environment to make decisions to develop a balanced, long-term  portfolio. Conclusions

The Coast Guard has made progress in improving its acquisition  management capabilities. To strengthen the Coast Guard’s acquisition governance framework  and better prepare the Coast Guard in a constrained fiscal  environment, we recommend that the Commandant of the Coast  Guard identify the Executive Oversight Council as the governing body  to oversee the Coast Guard’s acquisition enterprise with a portfolio  management approach. The Executive Oversight Council should  supplement individual program reviews with portfolio-wide reviews to  make performance and affordability trade-off decisions that will help  ensure the Coast Guard is acquiring a balanced portfolio to meet  mission needs, given the Coast Guard is not currently on a path to  achieve several capabilities identified in the 2005 Mission Need  Statement. To assess the steps the Coast Guard has recently taken to develop an  affordable portfolio through its requirements process, we obtained and  analyzed Fleet Mix Analysis Phase One, Fleet Mix Analysis Phase Two,  and the DHS Cutter Study. To examine the Offshore Patrol Cutter’s requirements  development process, we reviewed the Coast Guard’s Major Systems  Acquisition Manual and Requirements Guidance and interviewed officials  in the capabilities directorate to discuss the process and to identify key  documents and studies that guided this process. To assess the extent to which Coast Guard is using cross-directorate  teams to provide oversight and inform acquisition decisions, we  interviewed officials from the acquisition and resource directorates to  identify what teams the Coast Guard has established as part of an  acquisition governance framework.
Why GAO Did This Study

The Coast Guard is in the process of acquiring a multi-billion dollar portfolio of systems intended to conduct missions that range from marine safety to defense readiness. GAO has reported extensively on the Coast Guard's significant acquisition challenges, including those of its former Deepwater program, as well as areas in which it has strengthened its acquisition management capabilities. For this report, GAO assessed (1) the planned cost and schedule of the Coast Guard's portfolio of major acquisitions; (2) the steps the Coast Guard has recently taken to develop an affordable portfolio through its requirements process; and (3) the extent to which the Coast Guard is using cross-directorate teams to provide oversight and inform acquisition decisions. To conduct this work, GAO reviewed the Coast Guard's Major Systems Acquisition Manual, acquisition program baselines, capital investment plans, fleet mix analyses, and cross-directorate teams' charters and meeting documentation, and interviewed relevant Coast Guard and DHS officials.

What GAO Found

The planned cost and schedule of the Coast Guard's portfolio of major acquisitions is unknown because of outdated acquisition program baselines and uncertainty surrounding affordability. The Coast Guard's approved baselines, which reflect cost and schedule estimates, indicate the estimated total acquisition cost of Coast Guard major acquisitions could be as much as $35.3 billion--an increase of approximately 41 percent over the original baselines. However, the approved baselines for 10 of 16 programs do not reflect current cost and schedule plans because programs have breached the cost or schedule estimates in those baselines, changed in scope, or do not expect to receive funding to execute baselines as planned. Furthermore, a continued mismatch between resources needed to support all approved baselines and expected funding levels has required the Coast Guard to make decisions about which programs to fund and which programs not to fund as part of its annual budget process. Both DHS and the Coast Guard have acknowledged this resource challenge, but efforts to address this challenge have not yet resulted in a clear strategy for moving forward.
The Coast Guard has taken steps through its requirements process--a process that takes mission needs and converts them to specific capabilities--to address affordability, but additional efforts are required. For example, in an effort to consider affordability, the Coast Guard made some capability trade-offs when developing requirements for its largest acquisition, the Offshore Patrol Cutter. But whether the cutter ultimately will be affordable depends on some key assumptions in the cost estimate that are subject to change. At the fleet level, the Coast Guard completed two efforts to reassess what mix of assets it requires to meet mission needs, but neither effort used realistic fiscal constraints or considered reducing the number of assets being pursued. The mix of assets the Coast Guard is acquiring is based upon needs identified in 2005, but the Coast Guard may not be on a path to meet these needs and it has not re-examined the portfolio in light of affordability.
The Coast Guard has established an acquisition governance framework that includes the following cross-directorate teams: the Executive Oversight Council, the Systems Integration Team, and Resource Councils. The Executive Oversight Council--composed of admirals and senior executives--is well-positioned to delegate tasks to the other teams or obtain information as needed to assist in managing acquisitions. This Council has been active in meeting to discuss individual acquisitions; however, it has not met to discuss the portfolio as a whole. Coast Guard officials told us it manages portfolio affordability through the budget process. GAO's best practices work has found that successful commercial companies assess product investments collectively from an enterprise level, rather than as independent and unrelated initiatives. The Coast Guard's current approach of relying on the annual budget process to manage portfolio affordability involves immediate trade-offs but does not provide the best environment to make decisions to develop a balanced long-term portfolio.

What GAO Recommends

GAO recommends that the Commandant of the Coast Guard conduct a comprehensive portfolio review to develop revised acquisition program baselines and identify the Executive Oversight Council as the governing body to oversee acquisitions with a portfolio management approach to help ensure the Coast Guard acquires a balanced mix of assets. DHS concurred with both recommendations and noted planned actions to address the recommendations.