oversight

Coast Guard: Portfolio Management Approach Needed to Improve Major Acquisition Outcomes

Published by the Government Accountability Office on 2012-09-20.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States Government Accountability Office

GAO              Report to the Ranking Member,
                 Subcommittee on Coast Guard and
                 Maritime Transportation, Committee on
                 Transportation and Infrastructure,
                 House of Representatives
September 2012
                 COAST GUARD

                 Portfolio Management
                 Approach Needed to
                 Improve Major
                 Acquisition Outcomes




GAO-12-918
                                             September 2012

                                             COAST GUARD
                                             Portfolio Management Approach Needed to Improve
Highlights of GAO-12-918, a report to the    Major Acquisition Outcomes
Ranking Member, Subcommittee on Coast
Guard and Maritime Transportation,
Committee on Transportation and
Infrastructure, House of Representatives




Why GAO Did This Study                       What GAO Found
The Coast Guard is in the process of         The planned cost and schedule of the Coast Guard’s portfolio of major
acquiring a multi-billion dollar portfolio   acquisitions is unknown because of outdated acquisition program baselines and
of systems intended to conduct               uncertainty surrounding affordability. The Coast Guard’s approved baselines,
missions that range from marine safety       which reflect cost and schedule estimates, indicate the estimated total acquisition
to defense readiness. GAO has                cost of Coast Guard major acquisitions could be as much as $35.3 billion—an
reported extensively on the Coast            increase of approximately 41 percent over the original baselines. However, the
Guard’s significant acquisition              approved baselines for 10 of 16 programs do not reflect current cost and
challenges, including those of its           schedule plans because programs have breached the cost or schedule estimates
former Deepwater program, as well as
                                             in those baselines, changed in scope, or do not expect to receive funding to
areas in which it has strengthened its
                                             execute baselines as planned. Furthermore, a continued mismatch between
acquisition management capabilities.
For this report, GAO assessed (1) the
                                             resources needed to support all approved baselines and expected funding levels
planned cost and schedule of the             has required the Coast Guard to make decisions about which programs to fund
Coast Guard’s portfolio of major             and which programs not to fund as part of its annual budget process. Both DHS
acquisitions; (2) the steps the Coast        and the Coast Guard have acknowledged this resource challenge, but efforts to
Guard has recently taken to develop          address this challenge have not yet resulted in a clear strategy for moving
an affordable portfolio through its          forward.
requirements process; and (3) the            The Coast Guard has taken steps through its requirements process—a process
extent to which the Coast Guard is
                                             that takes mission needs and converts them to specific capabilities—to address
using cross-directorate teams to
                                             affordability, but additional efforts are required. For example, in an effort to
provide oversight and inform
acquisition decisions. To conduct this       consider affordability, the Coast Guard made some capability trade-offs when
work, GAO reviewed the Coast                 developing requirements for its largest acquisition, the Offshore Patrol Cutter. But
Guard’s Major Systems Acquisition            whether the cutter ultimately will be affordable depends on some key
Manual, acquisition program baselines,       assumptions in the cost estimate that are subject to change. At the fleet level, the
capital investment plans, fleet mix          Coast Guard completed two efforts to reassess what mix of assets it requires to
analyses, and cross-directorate teams’       meet mission needs, but neither effort used realistic fiscal constraints or
charters and meeting documentation,          considered reducing the number of assets being pursued. The mix of assets the
and interviewed relevant Coast Guard         Coast Guard is acquiring is based upon needs identified in 2005, but the Coast
and DHS officials.                           Guard may not be on a path to meet these needs and it has not re-examined the
                                             portfolio in light of affordability.
What GAO Recommends
                                             The Coast Guard has established an acquisition governance framework that
GAO recommends that the                      includes the following cross-directorate teams: the Executive Oversight Council,
Commandant of the Coast Guard                the Systems Integration Team, and Resource Councils. The Executive Oversight
conduct a comprehensive portfolio
                                             Council—composed of admirals and senior executives—is well-positioned to
review to develop revised acquisition
                                             delegate tasks to the other teams or obtain information as needed to assist in
program baselines and identify the
Executive Oversight Council as the           managing acquisitions. This Council has been active in meeting to discuss
governing body to oversee acquisitions       individual acquisitions; however, it has not met to discuss the portfolio as a
with a portfolio management approach         whole. Coast Guard officials told us it manages portfolio affordability through the
to help ensure the Coast Guard               budget process. GAO’s best practices work has found that successful
acquires a balanced mix of assets.           commercial companies assess product investments collectively from an
DHS concurred with both                      enterprise level, rather than as independent and unrelated initiatives. The Coast
recommendations and noted planned            Guard’s current approach of relying on the annual budget process to manage
actions to address the                       portfolio affordability involves immediate trade-offs but does not provide the best
recommendations.                             environment to make decisions to develop a balanced long-term portfolio.
View GAO-12-918. For more information,
contact John Hutton at (202) 512-4841 or
huttonj@gao.gov.

                                                                                      United States Government Accountability Office
Contents


Letter                                                                                               1
                       Background                                                                    3
                       Cost and Schedule of Portfolio Remains Unknown Because of
                         Outdated Baselines and Uncertainty Surrounding Affordability              10
                       Opportunities Exist to Address Affordability through the
                         Requirements Process                                                      21
                       Cross-Directorate Acquisition Oversight Groups Have Potential to
                         Strengthen Management of Portfolio                                        35
                       Conclusions                                                                 43
                       Recommendations for Executive Action                                        44
                       Agency Comments and Our Evaluation                                          45

Appendix I             Scope and Methodology                                                       47



Appendix II            Key Portfolio Management Practices                                          50



Appendix III           Comments from the Department of Homeland Security and
                       Coast Guard                                                                 52



Appendix IV            GAO Contact and Staff Acknowledgments                                       54



Related GAO Products                                                                               55



Tables
                       Table 1: Information on Coast Guard Major Acquisition Programs                4
                       Table 2: Status of 11 Capabilities Identified in the Coast Guard’s
                                2005 Mission Need Statement                                        25
                       Table 3: Major Cutter Requirements and Ship Characteristics
                                Compared to Cost                                                   32
                       Table 4: Overview of the Executive Oversight Council, Systems
                                Integration Team, and Resource Councils                            37
                       Table 5: Key Examples of Executive Oversight Council Actions in
                                2010 and 2011                                                      40


                       Page i                                 GAO-12-918 Coast Guard Major Acquisitions
Figures
          Figure 1: Program Management Responsibilities within the Major
                   Systems Acquisition Management Framework                                          6
          Figure 2: Coast Guard Level I and II Assets within DHS Acquisition
                   Phases and Decision Events as of July 15, 2012                                    8
          Figure 3: Total Acquisition Cost Estimates for Coast Guard
                   Portfolio of Major Programs as of July 2012 (Part 1 of 2)                        13
          Figure 4: Total Acquisition Cost Estimates for Coast Guard
                   Portfolio of Major Programs as of July 2012 (Part 2 of 2)                        14
          Figure 5: Funding Profile in Fiscal Years 2013-2017 Capital
                   Investment Plan Compared to Funding Required for a
                   Subset of Coast Guard Major Acquisitions                                         18
          Figure 6: An Example of an Affordability Assessment                                       20
          Figure 7: Fleet Mix Phase Two Upper and Lower Bounds
                   Compared to Coast Guard’s Past Appropriations and
                   Fiscal Year 2013 President’s Budget Request                                      23




          Abbreviations

          ADE               Acquisition Decision Event
          C4ISR             Command, Control, Communications, Computer,
                            Intelligence, Surveillance, and Reconnaissance
          DHS               Department of Homeland Security
          DOD               Department of Defense
          NM                Nautical Miles




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          Page ii                                        GAO-12-918 Coast Guard Major Acquisitions
United States Government Accountability Office
Washington, DC 20548




                                   September 20, 2012

                                   The Honorable Rick Larsen
                                   Ranking Member
                                   Subcommittee on Coast Guard and Maritime Transportation
                                   Committee on Transportation and Infrastructure
                                   House of Representatives

                                   Dear Mr. Larsen:

                                   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. We have reported extensively on the Coast
                                   Guard’s significant acquisition challenges, including challenges with its
                                   former Deepwater program that was created to build and modernize
                                   ships, aircraft, and other capabilities. 1 This prior work identified problems
                                   in costs, management, and oversight that have led to delivery delays and
                                   other operational challenges for certain assets. Despite these challenges,
                                   our work has also recognized that the Coast Guard has taken steps to
                                   strengthen its acquisition management capabilities including reorganizing
                                   its acquisition directorate, applying the knowledge-based acquisition
                                   policies and practices outlined in its Major Systems Acquisition Manual,
                                   and developing acquisition program baselines for each asset. While these
                                   steps have given the Coast Guard better insight into asset-level
                                   capabilities and costs, we have previously recommended that the
                                   Commandant of the Coast Guard and the Secretary of the Department of
                                   Homeland Security (DHS) take additional actions to balance mission
                                   needs and affordability. For example, last year we recommended that the
                                   Commandant of the Coast Guard take actions—including identifying
                                   acquisition program priorities and incorporating cost and schedule best
                                   practices—to help ensure that programs receive and plan to a more
                                   predictable funding stream. 2 We also recommended that the Secretary of
                                   the Department of Homeland Security develop a working group to review


                                   1
                                    While the Department of Homeland Security (DHS) and the Coast Guard no longer use
                                   the term “Deepwater” for the program aimed at recapitalizing its surface, air, and
                                   information technology capacity, the assets that made up the former Deepwater program
                                   currently constitute the majority of the Coast Guard’s major acquisition programs.
                                   2
                                    GAO, Coast Guard: Action Needed as Approved Deepwater Program Remains
                                   Unachievable, GAO-11-743 (Washington, D.C.: July 28, 2011).




                                   Page 1                                       GAO-12-918 Coast Guard Major Acquisitions
the results of multiple fleet studies to identify cost, capability, and quantity
trade-offs that would produce a program that fits within expected budget
parameters.

We performed our work under the authority of the Comptroller General to
conduct work on GAO’s initiative to assist Congress with its oversight
responsibilities. This report assesses (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 assess the planned cost and schedule of the Coast Guard’s major
acquisitions portfolio, we reviewed the Coast Guard’s Major Systems
Acquisition Manual, key asset documents including acquisition program
baselines and life-cycle cost estimates, the Fiscal Year 2013 President’s
Budget request and the fiscal years 2013-2017 capital investment plan.
To assess the steps the Coast Guard has recently taken to develop an
affordable portfolio through its requirements process, we reviewed the
Coast Guard’s Fleet Mix Analyses and DHS’s Cutter Study. We also
reviewed the Coast Guard’s 2005 Integrated Deepwater System Mission
Need Statement to determine the extent to which the capabilities being
acquired matched the needs set forth in the plan. Further, we compared
the National Security Cutter’s and Offshore Patrol Cutter’s missions,
requirements, and costs to determine similarities and differences. To
assess the extent to which the Coast Guard is using cross-directorate
teams to provide oversight and inform acquisition decisions, we compiled
and analyzed cross-directorate teams’ charters. We also reviewed
meeting minutes and briefing presentations for the Executive Oversight
Council and Resource Councils from calendar years 2010 to 2011 to
identify the extent to which cross-directorate teams are used to inform
acquisition decisions. We interviewed Coast Guard officials in the
acquisitions directorate as well as officials in the directorates responsible
for budgeting and resources and for assessing and developing
operational requirements (the capabilities directorate). In addition, we
interviewed DHS officials from the Office of Program Accountability and
Risk Management and the Office of Policy. Appendix I provides additional
details about our scope and methodology.

We conducted this performance audit from November 2011 to September
2012 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to


Page 2                                    GAO-12-918 Coast Guard Major Acquisitions
             obtain sufficient, appropriate evidence to provide a reasonable basis for
             our findings and conclusions based on our audit objectives. We believe
             the evidence obtained provides a reasonable basis for our findings and
             conclusions based on our audit objectives.


             The Coast Guard is a multimission, maritime military service within DHS.
Background   The Coast Guard has a variety of responsibilities including port security
             and vessel escort, search and rescue, and Polar ice operations. To carry
             out these responsibilities, the Coast Guard operates a number of vessels,
             aircraft, and information technology systems. Since 2001, we have
             reviewed Coast Guard acquisition programs and reported to Congress,
             DHS, and the Coast Guard on the risks and uncertainties inherent in its
             acquisitions. Several of our reports have focused on the Coast Guard’s
             former Deepwater acquisition program that was created to build and
             modernize ships, aircraft, and other capabilities. In our July 2011 report
             on the Deepwater program, we found that the program continues to
             exceed the cost and schedule baselines approved by DHS in 2007, but
             that several factors precluded a solid understanding of the program’s true
             cost and schedule. 3 These factors included approved acquisition program
             baselines that did not reflect the current status of some programs,
             unreliable cost estimates and schedules for selected assets, and a
             mismatch between funding needed to support all approved Deepwater
             baselines and expected funding levels. We concluded that while the
             Coast Guard has strengthened its acquisition management capabilities, it
             needed to take additional actions to address the cost growth, schedule
             delays, and expected changes to planned capabilities.

             The Coast Guard’s current acquisition portfolio includes 16 major
             acquisition programs—12 of which were part of the former Deepwater
             program. Major acquisitions—level I and level II—have life-cycle cost
             estimates equal to or greater than $1 billion (level I) or from $300 million
             to less than $1 billion (level II) as outlined in the Coast Guard’s Major
             Systems Acquisition Manual. Table 1 provides further information about
             the Coast Guard’s major acquisition programs.




             3
             GAO-11-743.




             Page 3                                  GAO-12-918 Coast Guard Major Acquisitions
Table 1: Information on Coast Guard Major Acquisition Programs

                                                                                                        Included as part of
                                   Acquisition                                                          the former Deepwater
Asset                              level            Asset purpose                                       Program (Yes/No)
Surface
Fast Response Cutter               Level I          The Fast Response Cutter, also referred to as the   Yes
                                                    Sentinel class, is a patrol boat designed to have
                                                    high readiness, speed, adaptability, and
                                                    endurance to perform a wide range of missions.
Medium Endurance Cutter            Level I          The Medium Endurance Cutter sustainment           Yes
Sustainment                                         project is intended to improve the cutters’
                                                    operating and cost performance by replacing
                                                    obsolete, unsupportable, or maintenance-intensive
                                                    equipment.
National Security Cutter           Level I          The National Security Cutter is intended to be the Yes
                                                    flagship of the Coast Guard’s fleet, with an
                                                    extended on-scene presence, long transits, and
                                                    forward deployment. The cutter and its aircraft and
                                                    small-boat assets are to operate worldwide.
Offshore Patrol Cutter             Level I          The Offshore Patrol Cutter is intended to conduct Yes
                                                    patrols for homeland security functions, law
                                                    enforcement, and search-and-rescue operations. It
                                                    will be designed for long-distance transit, extended
                                                    on-scene presence, and operations with aircraft
                                                    and small boats.
Patrol Boat Sustainment            Level II         The Patrol Boat Sustainment project is intended to Yes
                                                    improve the cutters’ operating and cost
                                                    performance by replacing obsolete, unsupportable,
                                                    or maintenance-intensive equipment.
Response Boat-Medium               Level I          The Response Boat-Medium replaces the aging         No
                                                    41’ utility boats and other nonstandard boats.
Aviation
HC-130H Long-Range Surveillance    Level I          The HC-130H is the legacy Coast Guard long-         Yes
Aircraft                                            range surveillance aircraft that the Coast Guard
                                                    intends to update in multiple segments.
HC-130J Long-Range Surveillance    Level II         The HC-130J is a four-engine turbo-prop aircraft    Yes
Aircraft                                            that the Coast Guard has deployed with improved
                                                    interoperability, C4ISR (see below), and sensors to
                                                    enhance surveillance, detection, classification,
                                                    identification, and prosecution.
HC-144A Maritime Patrol Aircraft   Level I          The Maritime Patrol Aircraft is a transport and     Yes
                                                    surveillance, fixed-wing aircraft for search and
                                                    rescue, enforcement of laws and treaties, and
                                                    transportation of cargo and personnel.




                                        Page 4                                        GAO-12-918 Coast Guard Major Acquisitions
                                                                                                                   Included as part of
                                      Acquisition                                                                  the former Deepwater
Asset                                 level                   Asset purpose                                        Program (Yes/No)
HH-60 Medium Range Recovery           Level I                 The HH-60 is a medium-range recovery helicopter      Yes
Helicopter                                                    designed to perform search-and-rescue missions
                                                              offshore in all weather conditions. The Coast
                                                              Guard has planned upgrades to the helicopter’s
                                                              avionics and sensors.
HH-65 Multi-mission Cutter Helicopter Level I                 The HH-65 Dolphin is the Coast Guard’s short-        Yes
                                                              range recovery helicopter. It is being upgraded to
                                                              improve its engines, sensors, navigation
                                                              equipment, avionics, and other capabilities in
                                                              multiple segments.
Unmanned Aircraft System              Level I                 The Coast Guard is exploring the use of              Yes
                                                              Unmanned Aircraft Systems to augment the
                                                              service’s cutter-and land-based aviation
                                                              capabilities.
C4 & Information Technology
Command, Control, Communications, Level I                     The Coast Guard is incrementally acquiring C4ISR Yes
Computer, Intelligence, Surveillance,                         capabilities, including upgrades to existing cutters
and Reconnaissance (C4ISR) Suite                              and shore installations, acquisitions of new
                                                              capabilities, and development of a common
                                                              operating picture to provide operationally relevant
                                                              information and knowledge across the full range of
                                                              Coast Guard operations.
Interagency Operations Centers        Level I                 Interagency Operations Centers are intended to       No
                                                              improve operational capabilities; situational
                                                              awareness; tactical decision making; and joint,
                                                              coordinated emergency response.
Nationwide Automatic Identification   Level I                 The Nationwide Automatic Identification System is    No
System                                                        a data collection, processing, and distribution
                                                              system that provides information to enhance
                                                              safety of navigation and improve maritime domain
                                                              awareness.
Rescue 21                             Level I                 Rescue 21 is an advanced command, control, and No
                                                              communications system intended to improve the
                                                              Coast Guard’s Search and Rescue mission by
                                                              leveraging direction-finding technology to more
                                                              accurately locate the source of distress calls.
                                           Source: GAO presentation of Coast Guard data.




                                           Three key Coast Guard directorates—capabilities, resources, and
                                           acquisition—are involved in the major acquisition process. Program
                                           managers in the acquisition directorate are required to integrate input
                                           from these three directorates into a coherent strategy to achieve specific
                                           cost, schedule, and performance parameters for their programs. Figure 1
                                           identifies some key documents that program managers use in this



                                           Page 5                                              GAO-12-918 Coast Guard Major Acquisitions
                                      process and, according to the Major Systems Acquisition Manual, what
                                      should happen if a program manager’s cost estimate for achieving
                                      requirements established by the capabilities directorate does not match
                                      Coast Guard’s approved or proposed budget.

Figure 1: Program Management Responsibilities within the Major Systems Acquisition Management Framework




                                      Additionally, major acquisition programs are to receive oversight from
                                      DHS’s Investment Review Board, which is responsible for reviewing
                                      acquisitions for executable business strategies, resources, management,


                                      Page 6                                   GAO-12-918 Coast Guard Major Acquisitions
accountability, and alignment to strategic initiatives. The Board also
supports the Acquisition Decision Authority in determining the appropriate
direction for an acquisition at key Acquisition Decision Events (ADE). At
each ADE, the Acquisition Decision Authority approves acquisitions to
proceed through the acquisition life-cycle phases upon satisfaction of
applicable criteria. Further, Component Acquisition Executives at the
Coast Guard and other DHS components are responsible in part for
managing and overseeing their respective acquisition portfolios. DHS has
a four-phase acquisition process:

•   Need phase—define a problem and identify the need for a new
    acquisition. This phase ends with ADE-1, which validates the need for
    a major acquisition program.
•   Analyze/Select phase—identify alternatives and select the best
    option. This phase ends with ADE-2A, which approves the acquisition
    to proceed to the obtain phase and includes the approval of the
    acquisition program baseline.
•   Obtain phase—develop, test, and evaluate the selected option and
    determine whether to approve production. During the obtain phase,
    ADE-2B approves a discrete segment if an acquisition is being
    developed in segments and ADE-2C approves low-rate initial
    production. This phase ends with ADE-3 which approves full-rate
    production.
•   Produce/Deploy/Support phase—produce and deploy the selected
    option and support it throughout the operational life cycle.

Figure 2 depicts where level I and II Coast Guard assets currently fall
within these acquisition phases and decision events.




Page 7                                 GAO-12-918 Coast Guard Major Acquisitions
Figure 2: Coast Guard Level I and II Assets within DHS Acquisition Phases and Decision Events as of July 15, 2012




                                         In conjunction with the management of these programs through the
                                         acquisition process, the Coast Guard and DHS have also undertaken a
                                         series of studies in the past several years focused on requirements and
                                         the mix of assets in the Coast Guard’s acquisition portfolio. Many of these
                                         studies have primarily focused on the assets that were part of the
                                         Deepwater program, commonly referred to by the Coast Guard as the
                                         program of record:

                                         •   In September 2003, the Coast Guard completed a performance gap
                                             analysis that determined the Deepwater fleet would have significant
                                             capability gaps in meeting emerging mission requirements following
                                             the September 11, 2001, terrorist attacks. Due to fiscal constraints,
                                             the Coast Guard decided not to make any significant changes to the
                                             planned Deepwater fleet, but did approve several asset capability
                                             changes that were reflected in the 2005 Mission Need Statement,



                                         Page 8                                     GAO-12-918 Coast Guard Major Acquisitions
    which outlines capabilities the Coast Guard needs to meet its mission
    demands.
•   In December 2009, the capabilities directorate completed a fleet mix
    analysis which was intended to be a fundamental reassessment of the
    capabilities and mix of assets the Coast Guard needs to fulfill its
    Deepwater mission.
•   In May 2011, the capabilities directorate completed a second fleet mix
    analysis which primarily assessed the rate at which the Coast Guard
    could acquire the program of record within a range of cost constraints.
•   In August 2011, DHS completed a cutter study which developed
    alternative cutter fleets that equaled the acquisition cost, at the time of
    the analysis, of the cutter fleet program of record, and assessed the
    expected performance of these alternative fleets compared to the
    program of record.

In July 2011, we reported that it was unclear how DHS and the Coast
Guard would reconcile and use these multiple studies to make trade-off
decisions. 4 We recommended that the Secretary of the Department 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 the studies to identify cost, capability,
and quantity trade-offs that would produce a program of record that fits
within expected budget parameters. DHS concurred, but has not yet
implemented this recommendation; the Senate Report accompanying the
2013 DHS Appropriations Bill directs the DHS and the Coast Guard to
develop this working group. 5




4
GAO-11-743.
5
S. Rep. No. 112-169, at 84-85 (2012).




Page 9                                   GAO-12-918 Coast Guard Major Acquisitions
                            Outdated acquisition program baselines and uncertainty surrounding the
Cost and Schedule of        affordability of the Coast Guard’s acquisition portfolio continue to limit
Portfolio Remains           visibility into the current cost and schedule of the Coast Guard’s major
                            acquisitions. Even though the Coast Guard has revised 15 out of 16
Unknown Because of          baselines in its major acquisition portfolio at least once, 10 of those 15
Outdated Baselines          baselines do not reflect the current cost or schedule of the programs.
and Uncertainty             According to the acquisition program baselines that are approved as of
                            July 2012 and total program cost for programs with no planned funding
Surrounding                 beyond fiscal year 2014, the Coast Guard is managing a portfolio of major
Affordability               acquisitions that could cost as much as $35.3 billion—or 41 percent more
                            than the original estimate of $25.1 billion—but the majority of these
                            baselines do not reflect the current status of these programs. DHS and
                            the Coast Guard have acknowledged that affordability of the Coast
                            Guard’s portfolio is a challenge, but the mismatch between resources
                            needed to support all approved baselines and anticipated funding levels
                            continues to affect Coast Guard acquisitions. Some of this mismatch
                            could be alleviated by the Coast Guard’s current five-year budget plan
                            which does not include the final two National Security Cutters; however,
                            Coast Guard officials have stated that, regardless of this plan, it continues
                            to support completing the program of record. A decision to pursue the
                            final two National Security Cutters in the near-term budget years could
                            have significant portfolio-wide implications.


Coast Guard Continues to    The Coast Guard has revised baselines for 15 of the 16 programs in its
Lack Updated Baselines      major acquisition portfolio at least once; however, 10 of the 15 revised
That Identify the Planned   baselines do not reflect the current cost or schedule of the programs. We
                            found that the revised baselines do not reflect current cost and schedule
Cost and Schedule of Its    for one or more of the following reasons:
Portfolio
                            •   Program reported a cost or schedule breach to DHS, but does not
                                have a DHS-approved baseline to reflect corrective actions for the
                                breach as required. 6 Seven out of 16 programs in the Coast Guard’s
                                major acquisition portfolio fall into this category. The dates of these
                                breach notifications range from April 2009 through December 2011.
                            •   Program has changed in scope, which could have cost and/or
                                schedule implications, but its DHS-approved baseline does not reflect



                            6
                             An acquisition program baseline breach of cost, schedule, or performance is an inability
                            to meet the threshold value of the specific parameter.




                            Page 10                                        GAO-12-918 Coast Guard Major Acquisitions
    these changes. Two out of 16 programs in the Coast Guard’s major
    acquisition portfolio fall into this category.
•   Program does not expect to receive funding beyond fiscal year 2014,
    but its DHS-approved baseline still reflects such funding. Four out of
    16 programs in the Coast Guard’s major acquisition portfolio fall into
    this category. Based on the fiscal years 2013-2017 capital investment
    plan, Coast Guard officials do not anticipate funding for these
    programs through fiscal year 2017 which means the programs cannot
    execute their current baselines as planned. 7

These outdated baselines do not provide DHS, Coast Guard, and
Congress with accurate information about the current cost and schedule
of the Coast Guard’s major acquisition portfolio. According to the Major
Systems Acquisition Manual, the acquisition program baseline provides a
critical reference point for measuring and reporting the status of program
implementation and revised baselines should be submitted to DHS within
90 days after reporting a breach. Coast Guard officials acknowledged that
the approved baselines do not reflect the status of many programs, but
stated the update process is lengthy and sometimes interrupted by
decisions made in the budget process each year. For example, the
National Security Cutter program office formally notified DHS of a cost
and schedule breach in November 2011 and program officials told us that
Coast Guard leadership is reviewing a draft baseline. However, officials
stated that the draft baseline may no longer be valid because it was
based on a funding profile that was changed in the fiscal year 2013-2017
capital investment plan submitted to Congress, triggering the need to
update the baseline once again. 8 Likewise, in response to our request for
current cost estimates and schedules for each program, senior resource
directorate officials told us that current estimates were not available for
release because they did not know how they would be affected by future
funding allocations.




7
 The Coast Guard’s capital investment plan is a 5-year plan presented to Congress that
includes acquisition, construction, and improvements. The Coast Guard updates the
capital investment plan annually, and it represents the Coast Guard’s submission for the
President’s budget in any given year. The capital investment plan is approved by DHS and
Office of Management and Budget and, as we have reported in the past, is subject to
significant change each year. See GAO-11-743.
8
 In commenting on a draft of this report, Coast Guard officials stated that a new baseline
was submitted for approval in July 2012.




Page 11                                         GAO-12-918 Coast Guard Major Acquisitions
Without a stable funding profile, program managers will likely always be
at a disadvantage as they must frequently update baselines based on the
budget rather than having a stable budget reflecting program baselines.
Furthermore, our prior Department of Defense (DOD) work has found that
balancing investments late in the budget process often leads to additional
churn in programs, such as increased costs and schedule delays, and
encumbers efforts to meet strategic objectives. 9 We made a
recommendation in July 2011 that the Coast Guard adopt action items
found in the acquisition directorate’s October 2010 Blueprint for
Continuous Improvement (Blueprint) such as promoting stability in the
capital investment plan by measuring the percentage of projects stably
funded year to year in the plan, ensuring acquisition program baseline
alignment with the capital investment plan by measuring the percentage
of projects where the acquisition program baselines fit into the capital
investment plan, and establishing project priorities as a Coast Guard-wide
goal. 10 By promoting stability in the capital investment plan, the Coast
Guard may be able to address the churn in the acquisition program
budgeting process and help ensure that programs receive and can plan to
a more predictable funding stream. DHS concurred, but has not yet fully
implemented this recommendation. Coast Guard officials told us that the
acquisition directorate did develop a metric to measure the percentage of
programs stably funded from year to year, which confirmed wide
fluctuations in funding for most programs from year to year. However, it is
unclear whether the Coast Guard will pursue the remaining action items.

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. Figure 3 compares each major acquisition
asset’s cost from the original program baseline with the latest revised
baselines that have been approved by the Coast Guard, if available. For



9
 GAO, Defense Acquisitions: A Knowledge-Based Funding Approach Could Improve
Major Weapon System Program Outcomes, GAO-08-619 (Washington, D.C.: July 2,
2008).
10
    GAO-11-743.




Page 12                                   GAO-12-918 Coast Guard Major Acquisitions
                                          those programs with no planned funding beyond fiscal year 2014, figure 4
                                          compares the original baseline with estimated total program cost based
                                          on budget data.

Figure 3: Total Acquisition Cost Estimates for Coast Guard Portfolio of Major Programs as of July 2012 (Part 1 of 2)




                                          Note: Dollars in then-year millions.

                                          a
                                           If the revised baselines present both threshold costs (the maximum costs allowable before a breach
                                          occurs) and objective costs (the minimum cost expected), threshold costs are used. For those
                                          programs that comprised the former Deepwater program, this allows traceability to the original $24.2
                                          billion Deepwater baseline (the original baselines) while also showing how much programs could now
                                          cost based upon revised baselines. Furthermore, as identified in the table, costs are expected to
                                          increase further for programs that have reported a cost breach.




                                          Page 13                                             GAO-12-918 Coast Guard Major Acquisitions
Figure 4: Total Acquisition Cost Estimates for Coast Guard Portfolio of Major Programs as of July 2012 (Part 2 of 2)




                                          Note: Dollars in then-year millions.

                                          a
                                           For those programs with no planned funding beyond fiscal year 2014, the estimated total program
                                          cost equals dollars appropriated to date plus planned funding in the fiscal year 2013-2017 capital
                                          investment plan.




                                          Page 14                                             GAO-12-918 Coast Guard Major Acquisitions
b
 GAO reported in February 2012 that Coast Guard officials stated the Interagency Operations
Centers’ cost estimate needs to be updated because it is not accurate, and that those updates would
also be made to the baseline. Coast Guard has stated that in a constrained fiscal environment, it is
not feasible to revise the estimate. See GAO, Maritime Security: Coast Guard Needs to Improve Use
and Management of Interagency Operations Centers, GAO-12-202 (Washington, D.C.: Feb. 13,
2012).
c
 Coast Guard states that other costs including program management do not require a new baseline,
but provided us with an updated estimate.


As we have previously reported, the cost increases associated with many
of these revised baselines reflect the Coast Guard’s and DHS’s efforts to
better understand the acquisition costs of individual assets that formerly
made up the Deepwater program, as well as provide insight into the
drivers of cost growth. 11 For example, the Coast Guard has attributed the
more than $1 billion rise in the Fast Response Cutter’s cost to a reflection
of actual contract cost from the September 2008 contract award and
costs for shore facilities and initial spare parts not included in the original
baseline. Another example of the Coast Guard gaining more insight into
the cost of individual assets is the Offshore Patrol Cutter program. The
initial Deepwater baseline included an $8 billion estimate for the Offshore
Patrol Cutter program. However, program officials stated they did not
have good data for how the lead systems integrator for the Deepwater
program generated the original estimate, and that the current estimate
approved by DHS in April 2012—with a threshold of approximately $12
billion—is higher likely because the original estimate was developed
before the program requirements were established. Program officials also
cited delays in the program, and the corresponding inflation associated
with those delays, as additional reasons for the cost increase. Even
though the Coast Guard used the original 2007 Deepwater Baseline
estimate of $8 billion to characterize the expected cost of the program
multiple times to Congress, it now characterizes the revised acquisition
program baseline as the initial cost estimate for the program.

Without baselines that reflect current cost and schedule, DHS and the
Coast Guard will not have adequate information to determine if the Coast
Guard can afford other major acquisition programs that are expected to
begin within the next few years. The Coast Guard is in the early stages of
planning for several new acquisitions including icebreakers, river buoy
tenders, and a biometrics-enabled identity program. In addition, officials


11
  GAO, Coast Guard: Deepwater Requirements, Quantities, and Cost Require
Revalidation to Reflect Knowledge Gained, GAO-10-790 (Washington, D.C.: July 27,
2010); and GAO-11-743.




Page 15                                             GAO-12-918 Coast Guard Major Acquisitions
                             at the Coast Guard’s Aviation Logistics Center told us they recently
                             identified that the end of service life for the HH-60s and HH-65s could be
                             reached as early as the 2022 time frame—not the 2027 time frame as
                             originally planned. Officials added that this will require the Coast Guard to
                             either buy new HH-60s and HH-65s or conduct a service life extension—
                             previous service life extensions have been funded with acquisition dollars.
                             Coast Guard officials told us that additional research is being conducted
                             regarding the life expectancy of these helicopters, including using
                             forecasting models to update service life limits. Regardless, officials also
                             stated that the Coast Guard plans to maintain continuous operational
                             capability. Furthermore, we recently reported that the medium endurance
                             cutters may also need a service life extension program to limit operational
                             gaps until the Offshore Patrol Cutters are in service. 12 Given that the
                             Coast Guard does not have adequate information concerning the cost of
                             its current portfolio, it is not well positioned to accurately assess the
                             affordability of these programs as requirements are developed for these
                             new assets.


Upcoming Budget              The mismatch we reported in July 2011 between resources needed to
Decisions Will Likely Have   support all approved program baselines and expected funding levels
Portfolio-wide               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
Implications                 annual budget formulation process. For example, in the fiscal year 2013
                             budget request, the following major acquisition programs were funded at
                             a level lower than identified in the programs’ life cycle cost estimates for
                             that year: Maritime Patrol Aircraft, Fast Response Cutter, HC-130J/H, and
                             C4ISR. Combined, the Coast Guard requested approximately $500
                             million less than what was identified in the life cycle cost estimates for
                             these programs. The funding needs for these programs have not gone
                             away and the Coast Guard will have to fund those activities in future fiscal
                             years.

                             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. For example, in an April 2011
                             acquisition decision memorandum concerning Coast Guard acquisition



                             12
                              GAO, Coast Guard: Legacy Vessels’ Declining Conditions Reinforce Need for More
                             Realistic Operational Targets, GAO-12-741 (Washington, D.C.: July 31, 2012).




                             Page 16                                    GAO-12-918 Coast Guard Major Acquisitions
program breaches, DHS stated that future breaches in Coast Guard
programs would almost be inevitable as funding resources diminish. DHS
also directed the Coast Guard to develop a plan for showing program
tradeoffs that illuminates the balance between operational commitments,
recapitalization, and the realities of the capital investment plan. Following
the Coast Guard’s presentation of the plan to DHS, DHS issued a second
acquisition decision memorandum in August 2011 which stated the Coast
Guard presented a global, systematic, and overarching solution to future
funding shortfalls that addressed programmatic, resource, and
operational impacts. However, a senior DHS official involved with this
review told us that the presentation only brought to light the challenges,
and did not present a solution. The briefing slides provided to us were
redacted due to the Coast Guard’s belief that they contained budget
negotiation information so we were unable to reconcile whether a solution
was presented. Coast Guard officials stated they had no other examples
of a similar portfolio-wide review to address future funding shortfalls.
Without a portfolio analysis to establish long-term priorities to guide the
budget process, it will be difficult for Coast Guard to address this
mismatch of funding and understand how decisions concerning one
program affect another program.

Some of the resource challenges in near-term years could be alleviated if
the Coast Guard executed its fiscal year 2013-2017 capital investment
plan. For example, this plan does not include funding for National Security
Cutter 7 in fiscal year 2014 or National Security Cutter 8 in fiscal year
2015, as was the plan in previous years. However, resource and
acquisition directorate officials told us that the Coast Guard continues to
support a program of record of eight National Security Cutters. A senior
Coast Guard acquisition official added that the Coast Guard has an
urgent need for the last two cutters and not buying these two ships would
require major adjustments to other acquisition plans. However, as seen in
figure 5, if the Coast Guard chooses to pursue National Security Cutter 7
in fiscal year 2014 and National Security Cutter 8 in fiscal year 2015,
there will be a significant mismatch in funding required based on life cycle
cost estimates versus expected funding levels in the fiscal year 2013-
2017 capital investment plan—especially given that some of the activities
not funded in fiscal year 2013 are expected to be funded in subsequent
years.




Page 17                                 GAO-12-918 Coast Guard Major Acquisitions
Figure 5: Funding Profile in Fiscal Years 2013-2017 Capital Investment Plan
Compared to Funding Required for a Subset of Coast Guard Major Acquisitions




Note: The major acquisition programs in this comparison include National Security Cutter, Fast
Response Cutter, Offshore Patrol Cutter, HH-65, Maritime Patrol Aircraft, HC-130H, HC-130J, and
C4ISR. The Coast Guard’s fiscal years 2013-2017 capital investment plan shows reduced funding
levels to zero beyond fiscal year 2014 for Response Boat-Medium, Nationwide Automatic
Identification System, Rescue 21, and Interagency Operations Centers as well as indefinitely defers
plans for some HH-60 upgrades. These programs are not included in this comparison. Unmanned
Aircraft Systems and Icebreakers are not included in this comparison because these programs are
not at a point in the acquisitions process that requires a life cycle cost estimate. These omissions do
not affect the comparison presented in this figure.


If National Security Cutters 7 and 8 are included in future budgets,
decision makers will likely be faced with a difficult choice: pull funds from
other high-priority federal programs to support Coast Guard acquisitions
or accept that some capabilities the Coast Guard promised will have to be




Page 18                                               GAO-12-918 Coast Guard Major Acquisitions
deferred to later years. 13 However, deferring costs could lead to what is
commonly characterized as a bow-wave—or an impending spike in the
requirement for additional funds—unless the Coast Guard proactively
chooses to make some tradeoff decisions by re-examining requirements.

Coast Guard acquisition officials told us that one way it is trying to
address portfolio affordability is through an update to its Major Systems
Acquisition Manual. According to draft language, the acquisition
directorate’s Office of Resource Management will be required to maintain
a chart to visually depict all competing acquisition program priorities
within the capital investment plan at various points in time. Officials told
us that each acquisition program will be required to include this chart in its
required materials for future acquisition decision events. This update to
the Coast Guard’s acquisition manual follows best practices outlined in
GAO’s Cost Estimating and Assessment Guide with the exception that
the guide notes the affordability assessment should, preferably, be
conducted several years beyond the programming period. 14 Figure 6 is
the chart included in GAO’s Cost Estimating and Assessment Guide.




13
  In the committee reports accompanying the 2013 DHS Appropriations Bills, both the
House and Senate Committees on Appropriations proposed funding for long lead time
                   th
materials for the 7 National Security Cutter in fiscal year 2013. The Senate Committee
also expressed support for buying all 8 National Security Cutters.
14
 GAO, GAO Cost Estimating and Assessment Guide: Best Practices for Developing and
Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: March 2009).




Page 19                                       GAO-12-918 Coast Guard Major Acquisitions
Figure 6: An Example of an Affordability Assessment




Note: FY = fiscal year.

The usefulness of the Coast Guard’s chart will be dependent upon the
extent to which the Coast Guard makes tradeoff decisions now about
which programs it is going to fund in the near-term so that it can develop
and present a realistic depiction of funding needs within expected budget
parameters. For example, Coast Guard officials told us that the Maritime
Patrol Aircraft program will be the first acquisition program required to
include this chart in its prepared materials for its full-rate decision event in
September 2012. However, whether the Maritime Patrol Aircraft program
is affordable within the context of the Coast Guard’s entire acquisition
portfolio is largely dependent upon other programs, including whether the
Coast Guard buys National Security Cutters 7 and 8. Until these near-
term affordability issues are decided and acquisition program baselines
are updated to reflect current costs, the Coast Guard’s chart may be of
limited value because the data may not be accurate and complete.




Page 20                                   GAO-12-918 Coast Guard Major Acquisitions
                             Opportunities exist for the Coast Guard to address the affordability of the
Opportunities Exist to       fleet and major cutters through the requirements process, which takes
Address Affordability        broad mission and capability needs and converts them to system-specific
                             capabilities. 15 The Coast Guard completed two efforts to reassess the mix
through the                  of assets but both efforts only used its program of record, based upon the
Requirements Process         2005 Mission Need Statement, as the basis of the analysis and did not
                             consider realistic fiscal constraints. While the Coast Guard remains
                             committed to this 2005 Mission Need Statement, it may not be on a path
                             to achieve several of the capabilities necessary to respond to mission
                             demands identified after September 11, 2001, or realize its vision for a
                             presence-based operating concept. Combined with cost growth, the
                             Coast Guard is at risk of pursuing a fleet that is not affordable and will not
                             be able to operate in the manner envisioned. Balancing capability and
                             affordability is also a concern for the Coast Guard’s and DHS’s largest
                             acquisition, the Offshore Patrol Cutter—which Coast Guard officials
                             stated is the first acquisition in the Deepwater surface fleet in which the
                             Coast Guard had complete control over the requirements development
                             process. However, even though the Coast Guard has made some
                             changes to reduce the estimated acquisition cost of the Offshore Patrol
                             Cutter, DHS Office of Policy and the Office of the Chief Financial Officer
                             have expressed concern regarding future cost growth and the program
                             crowding out other Coast Guard programs in future budget years. Further,
                             the requirements and missions for the Offshore Patrol Cutter have
                             similarities to those of the National Security Cutter though their costs vary
                             at this time.

Coast Guard Remains          The Coast Guard completed two efforts to reassess the mix of assets that
Committed to the Program     comprised its former Deepwater program but as we reported in May
of Record Amid               2012, both efforts only used its program of record as the basis of the
                             analysis and did not consider realistic fiscal constraints. 16 The Coast
Affordability Concerns and
                             Guard’s first effort, Fleet Mix Phase One, did not use cost constraints and
Capability Shortfalls

                             15
                               The requirements process starts with a mission analysis, which assesses a deficiency in
                             a capability that will prevent the Coast Guard from adequately conducting mission(s) and
                             provides justification for preliminary options for satisfying these deficiencies. This analysis
                             also leads to the development of an operational requirements document, which is the
                             formal statement of the operational performance and related parameters for a proposed
                             concept or system. Requirements development is the key link between the mission
                             capability gap and a material solution.
                             16
                               GAO, Observations on the Coast Guard’s and the Department of Homeland Security’s
                             Fleet Studies, GAO-12-751R (Washington, D.C.: May 31, 2012).




                             Page 21                                          GAO-12-918 Coast Guard Major Acquisitions
found that the Coast Guard requires a fleet that could cost $65 billion to
meet its long term strategic goals, which is about $40 billion more than
the $24.2 billion program of record. Coast Guard officials told us that they
do not consider the $65 billion fleet to be affordable and are not using it to
inform decision making. In the second effort, Fleet Mix Phase Two, the
Coast Guard analyzed how long it would take to buy the program of
record under two different funding constraints: (1) an upper bound of
$1.64 billion per year and (2) a lower bound of $1.2 billion per year for
surface and aviation assets. 17 Both of these bounds kept the aviation
funding level constant at $350 million per year. As we reported in May
2012, and as shown in figure 7, both the upper and lower bound funding
scenarios are greater than the Coast Guard’s past 5 years of
appropriations and its fiscal year 2013 request, indicating the upper
bound funding level is unrealistic and the lower bound is optimistic. 18




17
  Constant fiscal year 2009 dollars. We previously reported that the Coast Guard did not
document its methodology for establishing these constraints and there was confusion
about their genesis. See GAO-11-743.
18
 GAO-12-751R.




Page 22                                        GAO-12-918 Coast Guard Major Acquisitions
Figure 7: Fleet Mix Phase Two Upper and Lower Bounds Compared to Coast
Guard’s Past Appropriations and Fiscal Year 2013 President’s Budget Request




Notes: FY = fiscal year. The aviation funding level used in the study was $350 million/year for both
the upper bound and lower bound constraints.


The program of record that the Coast Guard remains committed to is
based upon its 2005 Mission Need Statement, which Coast Guard
officials told us serves as the guiding document for its recapitalization
effort. This Mission Need Statement outlines capabilities the Coast Guard
needs to meet its mission demands, including 11 capabilities established
after September 11, 2001. In addition, it identifies those capabilities that
would allow the Coast Guard to become more proactive through
increased surveillance and presence, as opposed to responding to events




Page 23                                               GAO-12-918 Coast Guard Major Acquisitions
after they occur. 19 According to the Mission Need Statement, this
presence-based operating concept will lead to operations that detect and
interdict threats as far from the United States as possible.

While the Coast Guard remains committed to this 2005 Mission Need
Statement, it may not be on a path to achieve several of the capabilities
necessary to address gaps that emerged following the September 11,
2001, terrorist attacks. We traced 11 system performance capabilities
identified in the 2005 Mission Need Statement through various program
documents, including the 2007 Deepwater acquisition program baseline,
operational requirements documents, and testing documentation to
identify which capabilities the Coast Guard is currently planning to
acquire. As seen in table 2, the Coast Guard’s progress in acquiring the
capabilities identified in this document is mixed as it has acquired some
capabilities while other capabilities have been refined or clarified over
time, are no longer planned for certain assets, or have been cancelled
altogether.




19
  Effective presence means having the right assets and capabilities at the right place at
the right time.




Page 24                                         GAO-12-918 Coast Guard Major Acquisitions
Table 2: Status of 11 Capabilities Identified in the Coast Guard’s 2005 Mission Need Statement

                            Assets planned
Capabilities identified for in 2007
in the 2005 Mission     Program of            Currently         GAO assessment of extent to which current status is expected to
Need Statement          Record                planned assets        deliver capability identified in Mission Need Statement

Naval Operational           Fast Response     Fast Response             Naval Operational Capabilities—the Fast Response Cutter is designed
Capabilities and DOD        Cutter            Cutter                     to conduct all patrol boat functions in accordance with this concept, but
Interoperability for the                                                 this has not yet been operationally tested.
Fast Response Cuttera                                                    DOD Interoperability—the Coast Guard plans for the Fast Response
                                                                         Cutter to exchange voice and data with DOD and partners. The Fast
                                                                         Response Cutter will not exchange near real time battle data with
                                                                         DOD, which Coast Guard officials told us was never the intent of the
                                                                         Mission Need Statement.

Organic Air Transport for   HC-130J and       HC-130J and               The HC-130J and HC-130H are capable of transporting National Strike
National Strike Force       HC-130H           HC-130H                    Force Teams.
Teams

Airborne Use of Force       HH-60 and HH-     HH-60 and HH-             The Coast Guard has completed the airframe modifications to provide
Capability on all Rotor     65                65                         Airborne Use of Force capability on all HH-60s and HH-65s.
Wing Aviation Assets

Naval Operational           Offshore Patrol   Offshore Patrol           Naval Operational Capabilities—Coast Guard officials stated that there
Capabilities and DOD        Cutter            Cutter                     are no longer plans to use the Offshore Patrol Cutter in accordance
Interoperability for the                                                 with the major cutters section of the Naval Operations Concept due to
Offshore Patrol Cutter                                                   affordability.
                                                                         DOD Interoperability—the Coast Guard plans for the Offshore Patrol
                                                                         Cutter to exchange voice, video, and data with DOD and partners but,
                                                                         according to officials, will not have a key system to exchange near
                                                                         real-time battle data.

Intelligence Information    National Security National                  National Security Cutter—has a facility to interoperate with the
Sharing and Exchange        Cutter            Security Cutter            intelligence community (top secret data).
Capabilities Embedded in    Offshore Patrol   Offshore Patrol            Offshore Patrol Cutter—this capability is an objective requirement so
Maritime Domain             Cutter            Cutter                     the cutter does not have to be designed with this capability. The
Awareness                                                                threshold requirement is that space, weight, and power be designed
                            Fast Response     Fast Response
                            Cutter            Cutter                     into the vessel to add-on such a system in the future.

                            HC-130J           Maritime Patrol            Fast Response Cutter and Maritime Patrol Aircraft—are required to
                                              Aircraft                   have the capability to process secret-level data.
                            HC-130H
                                                                         HC-130J/H—capability deferred for secret-level data.
                            Maritime Patrol
                            Aircraft
                            HH-60
                            HH-65
                            Unmanned Aerial
                            vehicle




                                                 Page 25                                        GAO-12-918 Coast Guard Major Acquisitions
Chemical, Biological,       National Security National             National Security Cutter has a requirement to operate in a
Radiological, Defense and   Cutter            Security Cutter       contaminated area for up to 36 hours, but did not have the required
Decontamination             Offshore Patrol   HC-130J               equipment during the most recent operational test event (January
Capability for all assets   Cutter            (objective)           2011). Coast Guard officials stated that they have since made
                                                                    changes to the National Security Cutter that will enable it to meet this
                            HC-130J                                 requirement. These changes have not yet been operationally tested.
                            HC-130H                                 HC-130J has an objective requirement to operate in a contaminated
                            Maritime Patrol                         area for up to 36 hours. However, this asset has not undergone testing
                            Aircraft                                to see if this requirement has been met.
                            HH-60
                            HH-65

Anti-Terrorism, Force       National Security National             National Security Cutter did not have the systems required to pass this
Protection of deepwater     Cutter            Security Cutter       test in its most recent operational assessment (January 2011). Coast
assets, particularly when   Fast Response     Offshore Patrol       Guard has issued a clarification memo in advance of operational test
operating at the outer      Cutter            Cutter                and evaluation which removes this capability as a key performance
layer with the Navy                                                 parameter, but it remains a critical issue which the testers must
                                                                    examine to evaluate the system’s capability to safely perform its
                                                                    missions.
                                                                    The Offshore Patrol Cutter lists Anti-Terrorism Force Protection
                                                                    capabilities as critical, but the operational requirements document
                                                                    does not identify what enables this capability.

Common Operating            National Security All planned          The Coast Guard planned to buy an integrated C4ISR system for each
Picture capabilities        Cutter            assets except         asset to enable greater awareness. As we reported in July 2011, the
inherent within Maritime    Offshore Patrol   the HH-60 and         Coast Guard has spent over $600 million purchasing a C4ISR system
Domain Awareness for        Cutter            HH-65                 that is difficult to maintain and does not yet achieve the system-of-
data exchange,                                                      systems capability and the Coast Guard’s helicopters are no longer
                            Fast Response
synchronization,                                                    going to be a part of this system.b
correlation, reachback,     Cutter
and command and control     HC-130J
                            HC-130H
                            Maritime Patrol
                            Aircraft
                            HH-60
                            HH-65
                            Unmanned aerial
                            vehicle

Underwater capability to  None                National             The National Security Cutter has a requirement related to vulnerability
detect and avoid                              Security Cutter       against mines/swimmer/underwater objects, but was not built with
swimmers for the National                                           capabilities to detect swimmers or mine-like objects. This shortfall is
Security Cutter                                                     described in Navy evaluations of the National Security Cutter
                                                                    including: (1) a combat systems ship qualifications trials report (August
                                                                    2009), which stated that detecting a person in the water was an
                                                                    unrealistic requirement for National Security Cutter, and by (2) the
                                                                    most recent National Security Cutter operational assessment
                                                                    (January 2011).
                                                                    Coast Guard has issued a clarification memo in advance of
                                                                    operational test and evaluation which requires only space, weight, and
                                                                    power for this capability.




                                                 Page 26                                   GAO-12-918 Coast Guard Major Acquisitions
Air Intercept capability for   None            None                                  This capability is not a requirement for the Maritime Patrol Aircraft and
the Maritime Patrol                                                                   program officials said that there are no plans to change the design.
Aircraft                                                                              The legacy aircraft, HU-25, which conducted air intercept missions has
                                                                                      the capability of traveling 400 knots while the Maritime Patrol Aircraft
                                                                                      can only travel 170 knots.

Capability for Vertical        HH-60 and HH-   None                                  The Coast Guard has suspended its vertical insertion capabilities due
Intercept and Vertical         65                                                     to limited resources.
Delivery of boarding
teams

                                                 Legend:
                                                     Current status expected to deliver capability identified in the Mission Need Statement;
                                                     Current status expected to deliver part of the capability identified in the Mission Need Statement;
                                                     Current status not expected to deliver capability identified in the Mission Need Statement.
                                                 Source: GAO analysis of Coast Guard documentation.
                                                 a
                                                  Naval Operations Concept 2010 (NOC 10) describes when, where and how U.S. naval forces will
                                                 contribute to enhancing security, preventing conflict, and prevailing in war in order to guide Maritime
                                                 Strategy implementation in a manner consistent with national strategy.
                                                 b
                                                  GAO-11-743.


                                                 In addition to these 11 capabilities, the Coast Guard also identified the
                                                 need for persistent wide-area surveillance in the 2005 Mission Need
                                                 Statement to achieve the presence-based vision. Two of the solutions
                                                 required to enable this capability, in addition to the C4ISR system
                                                 discussed in table 2, are data transmission capacity—or bandwidth—and
                                                 Unmanned Aerial Systems. However, the Coast Guard has struggled to
                                                 supply its assets with the bandwidth necessary to support information-
                                                 based operations. Further, as we previously reported, the Unmanned
                                                 Aerial Systems were envisioned as a key component of the Deepwater
                                                 system that would enhance surveillance capability on board the National
                                                 Security Cutter and Offshore Patrol Cutter and also from land. Congress
                                                 has appropriated over $100 million since 2003 to develop an Unmanned
                                                 Aerial System, but the Coast Guard terminated the program due to cost
                                                 increases and technical risks in June 2007. According to Coast Guard
                                                 officials, the Coast Guard established a partnership with the Navy’s Fire
                                                 Scout program in October 2008 and has developed plans to install a
                                                 system that will facilitate a future demonstration of the Fire Scout on the
                                                 National Security Cutter. As an interim solution, the Coast Guard has
                                                 proposed a non-major acquisition to purchase a smaller, less capable,
                                                 and less costly unmanned aerial vehicle. In August 2012, the Coast
                                                 Guard held a technical demonstration on board the National Security
                                                 Cutter that experimented with a possible Navy solution, called the Scan
                                                 Eagle, which may satisfy the Coast Guard’s need for a smaller, less
                                                 capable unmanned aerial vehicle. The Coast Guard currently has plans
                                                 for a more in-depth demonstration in fiscal year 2013.



                                                 Page 27                                                     GAO-12-918 Coast Guard Major Acquisitions
                            Due to these capability shortfalls, the Coast Guard is at risk of purchasing
                            a fleet that will not be able to close all of the gaps identified following the
                            September 11, 2001 terrorist attacks or fully conduct operations in a
                            presence-based manner. While the 2005 Mission Need Statement
                            presented a business case for the Coast Guard’s future investments, the
                            Coast Guard has not re-examined the value of these assets in light of the
                            difficult affordability decisions likely to come. By continuing to pursue
                            some capabilities and not others without reevaluating the portfolio as a
                            whole, the Coast Guard is increasing the risk that it may not accomplish
                            the goals envisioned in 2005 and cannot ensure it is maximizing the value
                            of the assets it is buying.


Coast Guard Took Positive   The Coast Guard took some steps to improve the requirements
Steps to Improve            development process for the Offshore Patrol Cutter—the largest
Requirements                acquisition in DHS’s acquisitions portfolio and, according to officials, the
                            first acquisition in the Deepwater surface fleet in which the Coast Guard
Development and Consider    had complete control over the requirements development process. The
Affordability for the       Coast Guard undertook studies and analysis that, in part, considered the
Offshore Patrol Cutter      measurability and testability as required by guidance of the following four
                            key performance parameters: operating range, operational sustainment
                            and crew, speed, and patrol endurance. For example, the range
                            requirement, which is the distance the cutter can travel between refueling,
                            is clearly stated as a minimum acceptable requirement of 8,500 nautical
                            miles at a constant speed of 14 knots to a maximum level of 9,500
                            nautical miles. Although cutters typically transit at various speeds over the
                            course of a patrol, the Coast Guard conducted analysis to determine that
                            the 14 knots speed at the minimum and maximum ranges would provide
                            enough days between refueling given the percentage of time that the
                            Coast Guard normally operates at certain speeds. By developing a
                            measurable range requirement, the Coast Guard helped to promote a
                            clear understanding of Offshore Patrol Cutter performance by potential
                            shipbuilders and sought to balance the cost of additional range with the
                            value that it provides. Furthermore, officials at the independent test
                            authority—the Navy’s Commander Operational Test and Evaluation
                            Force—told us that they have been actively involved through the
                            requirements development process and many of their questions regarding
                            testability have been resolved.




                            Page 28                                  GAO-12-918 Coast Guard Major Acquisitions
Two other key performance parameters—seakeeping and
interoperability—are not as consistent with the Coast Guard’s guidelines
of measurability and testability as identified in the Major Systems
Acquisition Manual. 20 For example the seakeeping key performance
parameter described in the requirements document states that the
Offshore Patrol Cutter shall be able to launch small boats and helicopters
in 8.2- to 13.1-foot waves. However, in the specifications document,
which is used to translate the requirements document into a level of detail
from which contractors can develop a reasonably priced proposal, the
Coast Guard states that the Offshore Patrol Cutter shall be able to launch
small boats and helicopters in no more than 10.7 foot waves while
transiting in a direction that minimizes the pitch and roll of the vessel—an
important detail not specified in the requirements document. Further, the
interoperability key performance parameter states that the Coast Guard
must be able to exchange voice, video, and data with the Department of
Defense and Homeland Security agencies. However, it does not list
specific external partners or substantial details regarding the systems
required to exchange data and the types and size of these data that could
be examples of measurability and testability. This key performance
parameter does not make this distinction between parts of the military that
the Coast Guard operates with most often, such as the U.S. Navy and the
intelligence community, and simply requires interoperability with all of
DOD. Similarly, the interoperability key performance parameter does not
specify the DHS agencies for which the Coast Guard must exchange data
with, which makes this parameter difficult to test. Coast Guard’s
independent testing officials agreed that this key performance parameter,
as currently written, is not testable in a meaningful way and stated that
there are ongoing efforts to improve the clarity of this requirement.

During the requirements development process for the Offshore Patrol
Cutter, the Coast Guard also made some decisions with respect to
affordability. The following are examples where the Coast Guard made
capability trades that are expected to help lower the program’s acquisition
cost:

•    Speed—after a series of analyses, the Coast Guard decided to
     reduce the minimum acceptable speed from 25 to 22 knots thereby,


20
  Seakeeping refers to a vessel’s ability to withstand harsh sea states to conduct
operations or survive. Sea states refer to the height, period, and character of waves on the
surface of a large body of water.




Page 29                                         GAO-12-918 Coast Guard Major Acquisitions
     according to officials, potentially eliminating the need for two diesel
     engines. According to a study completed by the Coast Guard, this
     trade could reduce the acquisition cost of each cutter by $10 million.
•    Stern Launch—the Coast Guard removed the stern launch ramp
     capability from the Offshore Patrol Cutter design. While this trade-off
     may inhibit the launch and recovery of small boats in certain
     conditions, such as substantial roll or side-to-side movement of the
     vessel, Coast Guard officials stated that it will reduce the cost of the
     cutter because a stern launch ramp requires the cutter to be heavier,
     thus adding cost.
•    C4ISR—the Coast Guard eliminated a minimum requirement for an
     integrated C4ISR system and instead is requiring a system built with
     interfaces to communicate between different software programs.
     According to Coast Guard officials, the Coast Guard now plans to use
     a Coast Guard-developed software system—Seawatch—rather than
     the more costly lead systems integrator-developed software system
     currently installed on the National Security Cutter, even though this
     system does not provide the Coast Guard with the capability to
     exchange near real-time battle data with DOD assets.

The improvements and affordability decisions that the Coast Guard has
made in its requirements development process for the Offshore Patrol
Cutter are even more evident when compared with the process for
generating requirements for its other major cutter—the National Security
Cutter. Due to the nature of the lead systems integrator strategy that the
Coast Guard initially used to buy the National Security Cutter, Integrated
Coast Guard Systems developed the requirements, designed, and began
producing the National Security Cutter before the requirements document
was completed. 21 The Coast Guard did not have an operational
requirements document at the time the Coast Guard awarded the
construction contract for the first cutter in 2004, but the Coast Guard
documented the requirements in 2006. Further, even as the third National
Security Cutter was in production, Coast Guard was refining the
requirements and, in January 2010, made the decision to clarify some key



21
  In June 2002, the Coast Guard awarded a contract to Integrated Coast Guard Systems,
a joint venture formed by Northrop Grumman and Lockheed Martin, as a lead systems
integrator to execute the Deepwater program using a system-of-systems approach. Under
this approach, the Coast Guard provided the contractor with broad, overall performance
specifications—such as the ability to interdict illegal immigrants—and the lead systems
integrator determined the specifications for the Deepwater assets. In 2007, Coast Guard
took over the systems integrator role.




Page 30                                      GAO-12-918 Coast Guard Major Acquisitions
                               performance parameters such as anti-terrorism/force protection and
                               underwater mine detection because the existing requirements were not
                               testable. To further remedy the lack of clear requirements, Coast Guard
                               officials stated that they are currently developing a second version of the
                               requirements document that improves the specificity and definition of
                               many of the National Security Cutter’s requirements and will be used as
                               criteria during operational testing. To date, the Coast Guard has not
                               reduced the National Security Cutter’s capability for the purpose of
                               affordability as it has done for the Offshore Patrol Cutter. However,
                               according to Coast Guard officials, there is a revised acquisition program
                               baseline under review which will reflect an ongoing effort to lower the
                               acquisition cost of the vessel.


Major Cutter Requirements      The requirements and missions for the National Security Cutter and the
and Missions Have              Offshore Patrol Cutter programs have similarities, but the actual cost for
Similarities, but Costs Vary   one National Security Cutter compared to the estimated cost of one
                               Offshore Patrol Cutter varies greatly. Even though the Coast Guard took
Greatly and Concerns           steps to consider affordability while developing the requirements for the
Remain about Affordability     Offshore Patrol Cutter, those affordability decisions do not explain the
                               magnitude in the difference between these two costs. Table 3 compares
                               the expected performance of a National Security Cutter with the
                               objective/threshold requirements of an Offshore Patrol Cutter, the
                               missions each cutter is expected to perform, and the actual/estimated
                               costs for each cutter.




                               Page 31                                GAO-12-918 Coast Guard Major Acquisitions
Table 3: Major Cutter Requirements and Ship Characteristics Compared to Cost

                                       National Security Cutter                             Offshore Patrol Cutter
                                                                       a
Key performance Parameter              Expected performance                                 Objective/threshold

Operating Range                        12,000 nautical miles (nm) at the most               9,500 nm / 8,500 nm at 14 knots sustained
                                       economical speed                                     speed

Interoperability                       •    Exchange voice and data with                    •   Exchange voice, data and video with
                                       •    Coast Guard                                     •   Coast Guard
                                       •    Department of Defense                           •   Department of Defense
                                       •    DHS agencies                                    •   DHS agencies
                                       •    North Atlantic Treaty Organization              •   North Atlantic Treaty Organization
                                       •    international partners                          •   international partners
                                                                                            •   commercial and private vessels or
                                                                                                aircraft

Size of crew                           108 Sailors                                          90 Sailors / 104 sailors

Seakeeping                             All operations through mid-Sea State 5               Primary missions through Sea State 5 / same
                                                                                            for threshold

Speed/maneuverability                  32 knots                                             25 knots / 22 knots

Patrol endurance                       60 days                                              60 days / 45 days
                    b
Statutory missions
                                       •    Defense Readiness                               •   Defense Readiness, but according to
                                       •    Drug Interdiction                                   officials, cannot transit with carrier strike
                                                                                                group
                                       •    Living Marine Resources
                                                                                            •   Drug Interdiction
                                       •    Search and Rescue
                                                                                            •   Living Marine Resources
                                       •    Alien Migrant Interdiction Operations
                                                                                            •   Search and Rescue
                                       •    General Law Enforcement
                                                                                            •   Alien Migrant Interdiction Operations
                                       •    Ports, Waterways, and Coastal
                                            Security                                        •   General Law Enforcement
                                       •    Marine Environmental Protection                 •   Ports, Waterways, and Coastal Security
                          c
Acquisition cost per Cutter            Approximately $760 million                           Approximately $300 million
                                       Source: GAO analysis of Coast Guard documentation.
                                       a
                                        For the National Security Cutter, speed is based on the results of an operational assessment and the
                                       remaining measurements are thresholds that were not tested as a part of the January 2011
                                       operational assessment.
                                       b
                                        The Coast Guard has 11 statutory missions that range from marine safety to defense readiness.
                                       According to the requirements document, the National Security Cutter is expected to conduct
                                       components of other missions, such as international ice patrol (a component of Ice Operations) and
                                       foreign vessel inspection (a component of Marine Safety). While the Offshore Patrol Cutter
                                       requirements document does not specifically call out these mission components, the cutter’s planned
                                       capabilities are expected to conduct these mission components as well.
                                       c
                                        Acquisition costs are in fiscal year 2016 dollars and compare the 5th cutter purchased for each fleet
                                       and, therefore, this comparison holds the learning curve constant.




                                       Page 32                                                  GAO-12-918 Coast Guard Major Acquisitions
This comparison raises questions whether the Offshore Patrol Cutter
could be a less expensive, viable substitute for the National Security
Cutter or whether there are assumptions built into the Offshore Patrol
Cutter cost estimate, not related to requirements, which are driving the
estimated costs down. 22 With respect to the first, DHS, motivated by
concerns about the affordability of the National Security Cutter program,
completed a Cutter Study in August 2011 which included an analysis to
examine the feasibility of varying the combination of objective—or optimal
performing—Offshore Patrol Cutters and National Security Cutters in the
program of record. Through this analysis, DHS found that defense
operations is a key factor in determining the quantity of National Security
Cutters needed and that the Coast Guard only needs 3.5 National
Security Cutters per year to fully satisfy the planned requirement for
defense-related missions. 23 DHS concluded that with six National Security
Cutters the Coast Guard can meet its goals for defense operations and
mitigate some of the near-term capacity loss of the five National Security
Cutter fleet modeled in the Cutter Study. DHS Program Analysis and
Evaluation officials stated that this, in conjunction with other information,
helped to inform the decision to not include the last two National Security
Cutter hulls—hulls 7 and 8—in the fiscal years 2013-2017 capital
investment plan. However, the DHS Cutter Study also notes that the time
line for the two acquisitions makes a trade-off between the National
Security Cutter and the Offshore Patrol Cutter difficult since the National
Security Cutter program is in production whereas the Offshore Patrol
Cutter program is only in the design phase. Similarly, we have reported
that the Coast Guard may face an operational gap in its ability to perform
missions using major cutters due to the condition of the legacy fleet. 24

With respect to the second possibility that there are assumptions built into
the Offshore Patrol Cutter cost estimate that are driving the estimated
costs down, the Coast Guard included three key assumptions in the
Offshore Patrol Cutter’s life cycle cost estimate, generally not related to



22
  For the purposes of this review, we did not assess the Offshore Patrol Cutter’s life cycle
cost estimate in accordance with our best practices.
23
  In the DHS Cutter Study, the defense readiness mission—a mission in which the Coast
Guard provides assets to the Department of Defense to meet its military strategy—is fully
satisfied before other mission areas are assessed. In doing so, defense operations is the
highest mission priority, only to be met through the use of National Security Cutters.
24
     GAO-12-741.




Page 33                                         GAO-12-918 Coast Guard Major Acquisitions
the cutter’s key requirements, which lower the estimated cost in
comparison to the actual cost of the National Security Cutter. These three
assumptions are:

•    Learning Curve. The Coast Guard assumes that the shipyard(s) will
     generally continue to reduce the labor hours required to build the
     Offshore Patrol Cutter through the production of all 25 vessels. This
     may prove optimistic, particularly for later ships in the class, because
     the amount of additional learning per vessel–or efficiencies gained
     during production due to improving the manufacturing process to build
     the ship in a way that requires fewer labor hours–typically decreases
     over time in a shipbuilding program.
•    Military versus Commercial Standards. The life cycle cost estimate
     assumes that certain areas of the Offshore Patrol Cutter’s
     construction and material would reflect an average of 55 percent
     commercial standards—or construction standards that are typically
     used for military sealift ships that provide ocean transportation—and
     45 percent military standards—or construction standards typically
     used for Navy combat vessels. 25 Any changes in this assumption
     could have a significant effect on the cost estimate because military
     standards require more sophisticated construction applications,
     particularly in the areas of shock hardening and signature reduction,
     to prepare a ship to survive battle. Such sensitivity could help to
     explain the difference in costs between the Offshore Patrol Cutter
     program and the National Security Cutter program and officials stated
     that the latter program is being built to about 90 percent military
     standards.
•    Production Schedule. The cost estimate reflects the Coast Guard’s
     plan to switch from building one Offshore Patrol Cutter per year to
     building two Offshore Patrol Cutters per year beginning with the fourth
     and fifth vessel in the class. If the Coast Guard cannot achieve or
     maintain this build rate due to budget constraints, it may choose to
     stretch the schedule for the program which in turn could increase
     costs.



25
  The International Maritime Organization requires a ship’s design and construction to be
approved by ship classification societies, including the American Bureau of Shipping,
which establishes and maintains standards for commercial and naval ships. These
societies also class vessels, which is a determination that a ship meets the appropriate set
of guidelines. Classed commercial ships are designed to conform with the rules for
building these types of vessels while classed naval combat ships are designed to conform
with naval vessel rules.




Page 34                                         GAO-12-918 Coast Guard Major Acquisitions
                        Coast Guard program officials generally agreed that these three variables
                        are important to the cost of the Offshore Patrol Cutter and are key
                        reasons why the Coast Guard expects one Offshore Patrol Cutter to cost
                        less than half of one National Security Cutter. However, these officials
                        recognized that the cost estimate for the Offshore Patrol Cutter is still
                        uncertain since the cutter has yet to be designed—thus, the National
                        Security Cutter’s actual costs are more reliable. Coast Guard program
                        officials also added that the cost estimate for the Offshore Patrol Cutter is
                        optimistic in that it assumes that the cutter will be built in accordance with
                        the current acquisition strategy and planned schedule. They noted that
                        any delays, design issues, or contract oversight problems—all of which
                        were experienced during the purchase of the National Security Cutter—
                        could increase the eventual price of the Offshore Patrol Cutter.

                        According to the April 2012 acquisition decision memorandum, which
                        documents DHS’s approval for the Coast Guard to move forward and
                        award design contracts for the Offshore Patrol Cutter, DHS Office of
                        Policy and the Office of the Chief Financial Officer raised concerns about
                        the potential for cost growth and this program crowding out other Coast
                        Guard programs in future austere budget years. In response to concerns
                        about affordability, DHS is requiring the Coast Guard to return for a
                        special program review—one that is not required by acquisition
                        guidance—before it awards a production contract, which is currently
                        planned for fiscal year 2016. DHS Program Accountability and Risk
                        Management officials told us that a new life cycle cost estimate is not
                        required if the Coast Guard can demonstrate during this meeting that the
                        acquisition cost and schedule in the approved acquisition program
                        baseline are still valid. However, if there is a significant difference from
                        the currently approved life cycle cost estimate, DHS would direct the
                        Coast Guard at that time to update the life cycle cost estimate.


                        The Coast Guard has established an acquisition governance framework
Cross-Directorate       that includes the following teams: Executive Oversight Council, Systems
Acquisition Oversight   Integration Team, and Resource Councils. The Coast Guard is currently
                        working on an update to its Major Systems Acquisition Manual that will
Groups Have             articulate expectations for how these groups will interact. We found that
Potential to            the highest level team, the Executive Oversight Council—a group of
Strengthen              admirals and senior executives—has actively conducted oversight
                        meetings to govern the acquisition process for major acquisitions in the
Management of           Coast Guard’s portfolio. However, these meetings were focused on
Portfolio               individual programs and the Council has not acted upon some information
                        presented to it that could help to manage the portfolio as a whole. Coast


                        Page 35                                 GAO-12-918 Coast Guard Major Acquisitions
                             Guard officials told us that portfolio affordability decisions are handled
                             through the budget process. However, this approach results in year to
                             year adjustments to individual programs that do not optimize the long-
                             term value of the portfolio.


Coast Guard Has              The Coast Guard has established a governance framework to provide
Established an Acquisition   leadership for the Coast Guard’s acquisition enterprise that includes the
Governance Framework         following teams: the Executive Oversight Council, Systems Integration
                             Team, and Resource Councils. All of these teams have cross-directorate
That Is Still Evolving       representation including members from the acquisitions, resources, and
                             requirements directorates. These members are generally senior leaders
                             including admirals, captains, and civilian executives. Each group has a
                             charter to identify their purpose and scope of responsibilities. Table 4
                             provides an overview of each team according to their charters.




                             Page 36                                 GAO-12-918 Coast Guard Major Acquisitions
Table 4: Overview of the Executive Oversight Council, Systems Integration Team, and Resource Councils

Team                          Directorate Chair                        Established                Responsibilities
Executive Oversight Council   Acquisitions Directorate                 November 2010              Charter: Admiral/Senior Executive Service-level
                                                                                                  forum established to monitor major risks, address
                                                                                                  emergent issues, review acquisition phase exit
                                                                                                  criteria, and provide direction to cross-directorate
                                                                                                  teams, as required to support successful execution
                                                                                                  of major and non-major acquisitions.
                                                                                                  Officials told us that members of the Executive
                                                                                                  Oversight Council are also members of the
                                                                                                  Investment Board which is responsible for building
                                                                                                  the Coast Guard’s budget.
Systems Integration Team      Capabilities Directorate                 December 2011              Charter: Captain/GS-15 team established to
                                                                                                  support the Executive Oversight Council and
                                                                                                  Resource Councils to perform systems integration
                                                                                                  functions by providing a forum to discuss and
                                                                                                  resolve project issues that directly or indirectly
                                                                                                  impact cross-directorate stakeholders.
                  a
Resource Councils                                                                                 Charter: Teams of senior officers established to
•  Aviation Resource          •   Capabilities Directorate             •     February             oversee aviation/cutter/C4ISR challenges that
   Council                                                                   2006
                                                                                  b               affect more than one directorate.
                              •   Capabilities Directorate
•  Cutter Resource Council                                             •     September            Officials told us that acquisitions are one facet in
                              •   Capabilities and
                                                                             2010                 the scope of their responsibilities including
•  C4ISR Resource                 Intelligence Directorates
                                                                                                  decommissioning, maintenance, and budget
   Council                                                             •     July 2010
                                                                                                  execution.
                                            Source: GAO presentation of Coast Guard data and interviews.
                                            a
                                             There are two other Resource Councils—Boat and Shore Forces—which have responsibilities not
                                            related to major acquisitions.
                                            b
                                             Coast Guard officials told us that the Aviation Resource Council was the first resource council and
                                            formed several years ago to help ensure that decisions made by Integrated Coast Guard Solutions
                                            under the Deepwater program reflected aviation specific sponsor needs. The Coast Guard approved
                                            an updated charter for this group in September 2010.


                                            The Coast Guard is currently updating its Major Systems Acquisition
                                            Manual to document how these teams will interact within this established
                                            framework. The previous version of the manual highlights the Executive
                                            Oversight Council as a review board that supports a knowledge-based
                                            acquisition management approach, but does not include any references
                                            to the Systems Integration Team or the Resource Councils. Based on
                                            draft language of the update to the manual, the Systems Integration
                                            Team and Resource Councils will serve as senior level advisors to the
                                            Executive Oversight Council. Each of the Resource Councils will report
                                            directly to the Executive Oversight Council for issues within their own
                                            domain—cutter, aviation, or C4ISR—and report to the Systems
                                            Integration Team for issues that cross domains. The Systems Integration
                                            Team will be responsible for coordinating the resolution of these issues



                                            Page 37                                                        GAO-12-918 Coast Guard Major Acquisitions
raised by the Resource Councils as well as providing coordinated
recommendations to the Executive Oversight Council. In addition, the
Systems Integration Team will meet quarterly to review Resource Council
meeting minutes to help ensure issues that affect more than one council
are being appropriately recognized.

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.
•    At an August 2011 Executive Oversight Council meeting to discuss
     the Coast Guard’s acceptance of the third National Security Cutter,
     the issue of the operational usefulness of the ship’s side door was
     raised. Officials suggested that the Cutter Resource Council may
     have a role in this discussion from an engineering perspective.
•    According to officials, in Fall 2011, the Executive Oversight Council
     tasked the Systems Integration Team to assist in producing a strategy
     for sharing unclassified aviation imagery collected on classified
     systems so that it can be available for use throughout the Coast
     Guard. 26 This is a cross-domain issue that was initially raised by the
     Aviation program office and involved the C4ISR and aviation
     stakeholders, among others. Coast Guard officials told us that a
     recommendation is currently in draft form.
•    A February 2012 memo documents Executive Oversight Council
     approval of the C4ISR Resource Council’s recommendations to clarify
     requirements in the Offshore Patrol Cutter’s requirements document.




26
  In July 2011 we reported that operators told us that sharing data gathered by the
Maritime Patrol Aircraft during the Deepwater Horizon spill was difficult because all
information gathered by the aircraft was maintained on a classified system. See
GAO-11-743.




Page 38                                         GAO-12-918 Coast Guard Major Acquisitions
Executive Oversight          The Executive Oversight Council has been active in meeting with
Council Is Conducting        individual programs to discuss the current status of the acquisition or
Program Level Oversight,     particular issues, review key program documents, and help prepare
                             program managers in advance of briefing more senior Coast Guard and
but Opportunities Exist to   DHS officials. According to Coast Guard documentation we reviewed, in
Strengthen Its Review of     2010 and 2011, the Executive Oversight Council met 38 times with
the Acquisitions Portfolio   individual program managers to discuss major acquisitions. 27 The Council
                             conducted its meetings on a program by program basis and did not meet
                             to discuss issues across the portfolio. The results of these meetings
                             generally led to the council members taking one of four actions:

                             •    requesting follow-up information or another meeting,
                             •    elevating issues and/or making a recommendation to the Deputy
                                  Commandant for Mission Support, Deputy Commandant for
                                  Operations, and/or Vice Commandant,
                             •    making an acquisition management decision, or
                             •    determining no further action is necessary as the meeting was
                                  primarily for informational purposes.
                             Table 5 provides some examples of these meeting results:




                             27
                               In addition, the Executive Oversight Council met 23 times to discuss issues outside the
                             scope of major acquisition programs, including non-major acquisitions and administrative
                             acquisitions topics.




                             Page 39                                        GAO-12-918 Coast Guard Major Acquisitions
Table 5: Key Examples of Executive Oversight Council Actions in 2010 and 2011

Executive Oversight
Council meeting outcomes      Acquisition program reviewed                        Targeted outcome                    Coast Guard action
Requested follow-up           Polar Icebreaker                                    To be informed about the            As of the end of 2011, the
information or meeting        Reviewed polar business case analysis               progress of the business case       Coast Guard continued to
                              throughout multiple meetings and                    analysis and be prepared to brief   gather additional
                              requested follow-on discussions                     more senior leadership              information
Elevated issues and/or made   National Security Cutter                            To replace a system that did not    Removed Aircraft Ship
formal recommendation to      Made recommendation to Vice                         work                                Integrated Secure and
more senior officials (Vice   Commandant: Remove Aircraft Ship                                                        Traverse on current and
and Deputy Commandants)       Integrated Secure and Traverse from                                                     future National Security
or DHS                        the National Security Cutter program                                                    Cutters
                              HC 130 H/J                                To streamline program                         Submitted combined
                              Made recommendation to Vice               management and integrate                      baseline to DHS
                              Commandant: revise acquisition            acquisition time lines
                              strategy to consist of a hybrid mix of 11
                              HC-130Hs and 11 HC-130Js into a
                              combined acquisition program baseline
Made an acquisition           Fast Response Cutter                                To follow breach notification   Notified DHS of schedule
management decision           Tasking to Program: submit Breach                   process and document/provide    breach in December 2011
                              Notification Memo, schedule breach                  breach remediation plan and new
                              due to lead ship delivery delay                     baseline
                              CG-LIMS                                             To align expected project cost      Submitted request to DHS
                              Based on program status review,                     with appropriate acquisition
                              Executive Oversight Council moved to                category
                              issue a decision memorandum to
                              inform the Deputy Commandant of
                              Mission Support on the reclassifying of
                              CG-LIMS to a non-major acquisition
Met for informational         Fleet Mix Analysis 2                      To be prepared to inform and                  No action
purposes without actions      Executive Oversight Council received a brief Coast Guard senior
documented                    briefing on the fleet mix analysis phase leadership on relevant issues
                              2 to come to agreement on the
                              pertinent information presented and the
                              evolution of the analysis since fleet mix
                              phase 1, but did not pursue further
                              action on the study
                                          Source: GAO presentation of Coast Guard data.



                                          While the Executive Oversight Council is positioned to have direct access
                                          to complete information on the progress of all acquisition programs as it
                                          conducts acquisitions oversight with support from the Systems Integration
                                          Team and Resource Councils, it has not acted on some information
                                          presented that could help the Coast Guard manage its portfolio as whole.
                                          Our best practices work has found that successful commercial companies
                                          assess product investments collectively from an enterprise level, rather



                                          Page 40                                                   GAO-12-918 Coast Guard Major Acquisitions
than as independent and unrelated initiatives, and prioritize investments
by integrating the requirements, acquisition, and budget processes. 28 This
approach empowers leadership to make decisions about the best way to
invest resources and holds managers accountable for outcomes.
Organizations should use an integrated approach to prioritize needs and
allocate resources in accordance with strategic goals, so they can avoid
pursuing more products than they can afford and optimize return on
investment. Appendix II provides additional details about four key portfolio
management practices including: clearly define and empower leadership;
establish standard assessment criteria, and demonstrate comprehensive
knowledge of the portfolio; prioritize investments by integrating the
requirements, acquisition, and budget processes; and continually make
go/no-go decision to rebalance the portfolio. These best practices
suggest that one potential positive of the Deepwater program as
envisioned was the prospect of making trades within the portfolio as
opposed to trying to manage and optimize each program individually. 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
the Executive Oversight Council. 29 We did identify instances in which the
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. 30 Coast
      Guard officials stated that the briefing was also given to the Deputy
      Commandant for Mission Support and the Deputy Commandant for
      Operations.




28
    GAO-07-388.
29
 GAO, Coast Guard: Opportunities Exist to Further Improve Acquisition Management
Capabilities, GAO-11-480. (Washington, D.C.: April 13, 2011).
30
  While the Systems Integration Team’s charter was not signed until December 2011,
officials told us the team was called upon to complete this task in 2010.




Page 41                                      GAO-12-918 Coast Guard Major Acquisitions
•     The Acquisition Directorate’s October 2010 Blueprint for Continuous
      Improvement included action items for the Executive Oversight
      Council to establish, document and approve project priority review
      time lines as well as publish project priority guidance to support a
      larger goal of developing and implementing effective and efficient
      decisonmaking to maximize results and manage risk within resource
      constraints. The planned completion dates for these activities was the
      end of fiscal year 2011, but these action items have not yet been
      completed. Officials responsible for developing the Blueprint
      explained that the action items and associated completion dates may
      have been optimistic given the amount of cross-directorate
      collaboration required.
•     In May 2011 the Executive Oversight Council received a briefing on
      Fleet Mix Analysis Phase 2, but no decisions or recommendations
      based on this analysis were made. Coast Guard officials stated that
      the briefing was also given to the Deputy Commandant for Mission
      Support and the Deputy Commandant for Operations. A senior Coast
      Guard official who is the point of contact for the Council stated that the
      council’s responsibility was to be informed of the matter but does not
      have a decision authority. We also found no discussion of DHS’s
      Cutter Study—which includes scenarios that could affect the Coast
      Guard’s surface fleet—through our review of meeting minutes from
      2010 and 2011.

While the Executive Oversight Council has had opportunities to discuss
affordability of the entire portfolio and make informed trade-off decisions,
Coast Guard officials told us that all of these decisions are handled
through the annual budget process, which also takes into account
budgeting for operating expenses. 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. As we have previously reported, given that the Coast Guard is
managing more programs than its budget can support, and it does not
review its portfolio outside of the annual budget process, the Coast Guard
has relied on budget decisions each year to drive the acquisitions
process. 31 As a result, program managers react to the budget request
each year as opposed to having a reliable funding profile consistent with


31
    GAO-11-743.




Page 42                                   GAO-12-918 Coast Guard Major Acquisitions
              their approved baselines by which to execute their programs. One of the
              responsibilities in the Executive Oversight Council’s charter is to
              synchronize projects with planning, programming, budgeting, and
              execution milestones to align them for successful completion of key
              milestones, but Coast Guard officials acknowledged that this alignment
              has not yet occurred.


              The Coast Guard has made progress in improving its acquisition
Conclusions   management capabilities. Yet the Coast Guard continues to manage a
              portfolio of acquisitions that lacks up-to-date, DHS-approved baselines to
              reflect current costs and schedules and that will likely cost significantly
              more than originally planned. While its portfolio requires more funding on
              an annual basis than its expected budget can support, the Coast Guard
              has not yet fully implemented our recommendation from July 2011 to
              adopt action items to promote stability in the capital investment plan,
              ensure program baselines are aligned with the capital investment plan,
              and establish project priorities as a Coast Guard-wide goal. In the
              absence of up-to-date program baselines, the Coast Guard makes
              decisions about which programs to fund and which programs not to fund
              as part of its annual budget process as opposed to having a stable and
              meaningful long-term capital investment plan based on identified needs.
              This puts Congress and the taxpayer in the position of having to commit
              resources to individual programs without knowing whether they are
              affordable, or achievable, within the context of the overall portfolio.
              Furthermore, unplanned demands for additional funds are likely as the
              Coast Guard begins to start new acquisition programs. If the Coast Guard
              continues to make expedient decisions in the near-term environment of
              budget decisions without an effective means of portfolio management,
              there is no way to help ensure that near-term budget decisions are
              optimized and in the best interest of the Coast Guard’s acquisition
              portfolio in the long term.

              The Coast Guard has made improvements in its process to develop
              requirements for the Offshore Patrol Cutter in response to concerns about
              affordability, but has not reassessed the mix of assets in its portfolio for
              the same purpose. The Coast Guard may not be on track to acquire many
              of the capabilities identified as necessary after September 11, 2001, while
              stating that those mission needs are still guiding the ongoing acquisitions.
              It is unclear, given the Coast Guard’s decisions not to pursue some of
              these capabilities, whether it will obtain a balanced mix of assets and the
              presence-based operating concept called for in its 2005 Mission Need
              Statement. Furthermore, the Coast Guard remains committed to


              Page 43                                GAO-12-918 Coast Guard Major Acquisitions
                      purchasing its major cutter program of record even though the
                      requirements of the two cutters have similarities, yet have very different
                      expected costs. It is too early to know what the Offshore Patrol Cutter will
                      eventually cost, but the current estimate includes some assumptions that
                      may help explain the differences in the estimated cost of the Offshore
                      Patrol Cutter when compared to the National Security Cutter.

                      The Coast Guard’s initiative to establish an acquisition governance
                      board—the Executive Oversight Council—provides an opportunity for it to
                      strengthen portfolio management practices that we found contribute to the
                      success of commercial companies. For example, given its cross-
                      directorate representation and direct access to complete information on
                      all acquisition programs—with support from the Systems Integration
                      Team and Resource Councils—the Council has the potential to
                      implement key portfolio management practices such as prioritizing
                      investments by integrating the requirements, acquisition, and budget
                      processes. But the Council has not engaged in these portfolio-wide
                      reviews, and instead, the Coast Guard continues to manage its
                      acquisitions through the budget process. Until the Executive Oversight
                      Council begins to use the individual program information it receives to
                      manage its portfolio of acquisitions—including informing strategic trade-
                      off decisions—the Coast Guard will continue to operate in an environment
                      where its needs are not balanced with available resources.


                          To help the Coast Guard create stability in the acquisition process and
Recommendations for   •
                          provide decision makers, including DHS, Office of Management and
Executive Action          Budget, and Congress, with current information to make decisions
                          about budgets, we recommend that the Commandant of the Coast
                          Guard conduct a comprehensive portfolio review to develop revised
                          baselines that reflect acquisition priorities as well as realistic funding
                          scenarios.
                      •   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




                      Page 44                                 GAO-12-918 Coast Guard Major Acquisitions
                         achieve several capabilities identified in the 2005 Mission Need
                         Statement.


Agency Comments      We provided a draft of this report to DHS and the Coast Guard for
and Our Evaluation   comment. In its written comments, DHS concurred with both
                     recommendations. The written comments are reprinted in appendix III.

                     With respect to the first recommendation, that the Coast Guard conduct a
                     comprehensive portfolio review to develop revised baselines that reflect
                     acquisition priorities as well as realistic funding scenarios, DHS agreed
                     and stated the Coast Guard will conduct a portfolio-wide review following
                     submittal of the next President’s budget request. Furthermore, DHS
                     stated that the Coast Guard is committed to ensuring acquisition plans
                     are executable in the current fiscal climate and noted that the Coast
                     Guard is currently revising its acquisition program baselines and several
                     new baselines are in the approval process. However, DHS added that
                     funding has varied considerably over the last several years making it
                     extraordinarily difficult to predict future budget authority with precision
                     and, as a result, it is inevitable that trade-off decisions will need to be
                     made on an annual basis. We understand that the budget process is a
                     dynamic environment in which some trade-off decisions may have to be
                     made on an annual basis, but we believe that the Coast Guard should
                     develop revised baselines that reflect acquisition priorities as well as
                     realistic funding scenarios to minimize the magnitude of trade-offs needed
                     each year resulting from the current mismatch between resources needed
                     to support all approved program baselines and expected funding levels.
                     Without such long-term priorities, program managers will likely always be
                     at a disadvantage of having to continuously update baselines to react to
                     the Coast Guard’s budget planning as opposed to having a stable budget
                     profile reflecting the baselines.

                     In concurring with our second recommendation, DHS stated that the
                     Coast Guard will identify the Executive Oversight Council as the
                     governing body to oversee the Coast Guard’s acquisition enterprise with
                     a portfolio management approach.




                     Page 45                                GAO-12-918 Coast Guard Major Acquisitions
The Coast Guard also provided technical comments that were
incorporated, as appropriate.


We are sending copies of this report to interested congressional
committees, the Secretary of Homeland Security, and the Commandant
of the Coast Guard. In addition, the report is available at no charge on the
GAO website at http://www.gao.gov.

If you or your staff have any questions about this report, please contact
me at (202) 512-4841 or huttonj@gao.gov. Contact points for our Offices
of Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made key contributions to this report
are listed in appendix IV.

Sincerely yours,




John P. Hutton
Director
Acquisition and Sourcing Management




Page 46                                GAO-12-918 Coast Guard Major Acquisitions
Appendix I: Scope and Methodology
             Appendix I: Scope and Methodology




             In conducting this review, we relied in part on the information and analysis
             in our past work, including reports completed in 2010, 2011, and 2012. 1
             Additional scope and methodology information on each objective of this
             report follows.

             To assess the planned cost and schedule of the Coast Guard’s major
             acquisitions portfolio, we reviewed each asset’s original acquisition
             program baseline and revised baseline, if an approved, revised baseline
             was available. To determine whether these baselines reflected the current
             status of the program, we reviewed breach notifications, the fiscal year
             2013 President’s Budget request, and interviewed officials from program
             offices. We also reviewed the Coast Guard’s Major Systems Acquisition
             Manual to identify when programs are required to update baselines. In
             comparing original costs to revised baseline costs, if a revised baseline
             presents both threshold costs and objective costs, threshold costs were
             used. For those programs that comprised the former Deepwater program
             this methodology allows traceability to the original $24.2 billion Deepwater
             baseline while also showing how much programs could now cost based
             upon revised baselines. Furthermore, some programs have reported a
             cost breach to the revised baseline and costs are expected to increase
             beyond the threshold values. In making this comparison for those
             programs with no planned funding beyond fiscal year 2014, the estimated
             total program cost equals dollars appropriated to date plus planned
             funding in the fiscal years 2013-2017 capital investment plan. Further, we
             analyzed the Coast Guard’s fiscal years 2013-2017 expanded capital
             investment plan to identify the planned annual funding levels for each
             major acquisition program. We then compared those planned funding
             levels to the annual funding needs identified in the program’s life cycle
             cost estimate to determine whether there was a match. If an approved life
             cycle cost estimate was not available, we used the annual funding needs
             identified by the Coast Guard in the expanded capital investment plan.
             We also interviewed Coast Guard officials from the acquisitions
             directorate and resources directorate to discuss future funding plans as
             well as to discuss the Coast Guard’s plans for the National Security
             Cutter program to determine how those plans could affect other
             programs. We also interviewed officials from the Department of
             Homeland Security (DHS) Program Accountability and Risk Management




             1
              GAO-10-790, GAO-11-743, and GAO-12-751.




             Page 47                                    GAO-12-918 Coast Guard Major Acquisitions
Appendix I: Scope and Methodology




and DHS Office of Policy to discuss their oversight responsibilities for
Coast Guard programs.

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. We also relied on our past work that reviewed
Coast Guard appropriations from fiscal years 2008 through 2012 and the
President’s budget request for fiscal year 2013 to analyze how fiscal
assumptions in the studies compared with past appropriations. Further,
we examined the 2005 Mission Need Statement to determine the extent
to which the capabilities being acquired matched the needs set forth in
this plan. In doing so, we traced 11 system performance capabilities
identified in the 2005 Mission Need Statement through various program
documents, including the 2007 Deepwater acquisition program baseline,
operational requirements documents, and testing documents to identify
which capabilities the Coast Guard is currently planning to acquire. In
addition to reviewing fleetwide requirements, we also reviewed the
requirements development process for the National Security Cutter and
the Offshore Patrol Cutter. We focused on these two assets as they are
the two largest cost drivers in the Coast Guard’s major acquisition
portfolio. 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. We also compared the
National Security Cutter’s and Offshore Patrol Cutter’s missions,
requirements, and costs to determine similarities and differences. We
used Coast Guard budget documentation to determine the cost of the fifth
National Security Cutter and then used the Offshore Patrol Cutter’s life
cycle cost estimate which identified the average cost of the fourth and fifth
Offshore Patrol Cutters. We discussed the comparison between the
National Security Cutter and Offshore Patrol Cutter with DHS and Coast
Guard officials.

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. We also reviewed the charters for
each of those teams. We then collected and analyzed meeting minutes
and briefing presentations for the Executive Oversight Council and
Resource Councils from calendar years 2010-2011, but we did not do the


Page 48                                 GAO-12-918 Coast Guard Major Acquisitions
Appendix I: Scope and Methodology




same for the Systems Integration Team because it was just forming
during this time period. We also reviewed the acquisition directorate’s
Blueprint to identify what action items had been tasked to these teams.
We interviewed senior representatives from the Executive Oversight
Council, Systems Integration Team, and chairs of the Aviation, Cutter and
C4ISR Resource Councils to understand their specific roles and
responsibilities for managing acquisition programs and informing
recapitalization decisions. We also interviewed stakeholders from the
acquisitions and resources directorates to gather their understanding of
the roles of the Executive Oversight Council, Systems Integration Team
and Resource Councils, and the nature and extent of their interaction with
these groups. Furthermore, we referred to previous GAO work on best
practices for portfolio management to identify the extent to which the
Coast Guard’s framework implements this management approach.

To support our review, we requested information and documents
pertaining to the current cost estimates and schedules for each asset in
the Coast Guard’s major acquisitions portfolio, a copy of the DHS-
directed briefing in which Coast Guard was to develop a plan for showing
program tradeoffs, and several sets of Executive Oversight Council
meeting minutes. The Coast Guard did not provide us current cost
estimates and schedules, the complete DHS-directed briefing, or all sets
of meeting minutes because officials stated these documents included
budget negotiation information.

We conducted this performance audit from November 2011 to September
2012 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit to
obtain sufficient, appropriate evidence to provide a reasonable basis for
our findings and conclusions based on our audit objectives. We believe
the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.




Page 49                               GAO-12-918 Coast Guard Major Acquisitions
Appendix II: Key Portfolio Management
                             Appendix II: Key Portfolio Management
                             Practices



Practices

                             The following list identifies several key practices that can improve
                             outcomes when managing a portfolio of multiple programs.


Clearly define and           •   Those responsible for product investment decisions and oversight
empower leadership               should be clearly identified and held accountable for outcomes.
                             •   Portfolio managers should be empowered to make decisions about
                                 the best way to invest resources.
                             •   Portfolio managers should be supported with cross-functional teams
                                 composed of representatives from key functional areas.

Establish standard           •   Specific criteria should be used to ensure transparency and
assessment criteria, and         comparability across alternatives.
                             •   Investments should be ranked and selected using a disciplined
demonstrate                      process to assess the costs, benefits, and risks of alternative
comprehensive knowledge          products.
of the portfolio             •   Knowledge should encompass the entire portfolio, including needs,
                                 gaps, and how to best meet the gaps.

Prioritize investments by    •   Requirements, acquisition, and budget processes should be
integrating the                  connected to promote stability and accountability.
                             •   Organizations should use an integrated approach to prioritize needs
requirements, acquisition,       and allocate resources, so they can avoid pursuing more products
and budget processes             than they can afford, and optimize return on investment.
                             •   Resource allocation across the portfolio should align with strategic
                                 goals/objectives, and investment review policy should use long-range
                                 planning.

Continually make go/no-go    •   Program requirements should be reviewed annually to make
decisions to rebalance the       recommendations on proposed changes/descoping options.
                             •   As potential new products are identified, portfolios should be
portfolio                        rebalanced based on those that add the most value.
                             •   If project estimates breach established thresholds, the product should
                                 be immediately reassessed within the context of the portfolio to
                                 determine whether it is still relevant and affordable.
                             •   Agencies should use information gathered from post-implementation
                                 reviews of investments, as well as information learned from other
                                 organizations, to fine-tune the investment process and the portfolios
                                 to shape strategic outcomes.




                             Page 50                                 GAO-12-918 Coast Guard Major Acquisitions
                                Appendix II: Key Portfolio Management
                                Practices




Previous Reports Establishing       •     Defense Acquisitions: Assessments of Selected Weapon
Key Acquisition Management                Programs, GAO-10-388SP (Washington, D.C.: March 30, 2010)
Practices                           •     Department of Homeland Security: Billions Invested in Major
                                          Programs Lack Appropriate Oversight, GAO-09-29 (Washington,
                                          D.C.: November 18, 2008)
                                    •     Best Practices: An Integrated Portfolio Management Approach to
                                          Weapon System Investments Could Improve DOD’s Acquisition
                                          Outcomes, GAO-07-388 (Washington, D.C.: March 30, 2007)
                                    •     Information Technology Investment Management: A Framework
                                          for Assessing and Improving Process Maturity, GAO-04-394G
                                          (Washington, D.C.: March 2004)
                                    •     Executive Guide: Leading Practices in Capital Decision-Making,
                                          GAO/AIMD-99-32 (Washington, D.C.: December 1998)




                                Page 51                                 GAO-12-918 Coast Guard Major Acquisitions
Appendix III: Comments from the
             Appendix III: Comments from the Department
             of Homeland Security and Coast Guard



Department of Homeland Security and Coast
Guard




             Page 52                                      GAO-12-918 Coast Guard Major Acquisitions
Appendix III: Comments from the Department
of Homeland Security and Coast Guard




Page 53                                      GAO-12-918 Coast Guard Major Acquisitions
Appendix IV: GAO Contact and Staff
                  Appendix IV: GAO Contact and Staff
                  Acknowledgments



Acknowledgments

                  John P. Hutton, (202) 512-4841 or huttonj@gao.gov.
GAO Contact
                  In addition to the contact named above, individuals making key
Staff             contributions to this report include Katherine Trimble, Assistant Director;
Acknowledgments   Molly Traci; Jose Cardenas; Mya Dinh; Laurier Fish; Laura Greifner;
                  Kristine Hassinger; and Andrea Yohe.




                  Page 54                                 GAO-12-918 Coast Guard Major Acquisitions
Related GAO Products
             Related GAO Products




             Coast Guard: Legacy Vessels’ Declining Conditions Reinforce Need for
             More Realistic Operational Targets. GAO-12-741. Washington, D.C.: July
             31, 2012.

             Observations on the Coast Guard’s and the Department of Homeland
             Security’s Fleet Studies. GAO-12-751R. Washington, D.C.: May 31, 2012.

             Coast Guard: Observations on Arctic Requirements, Icebreakers, and
             Coordination with Stakeholders. GAO-12-254T. Washington, D.C.:
             December 1, 2011.

             Coast Guard: Action Needed as Approved Deepwater Program Remains
             Unachievable. GAO-12-101T. Washington, D.C.: October 4, 2011.

             Coast Guard: Action Needed as Approved Deepwater Program Remains
             Unachievable. GAO-11-743. Washington, D.C.: July 28, 2011.

             Coast Guard: Observations on Acquisition Management and Efforts to
             Reassess the Deepwater Program. GAO-11-535T. Washington, D.C.:
             April 13, 2011.
             Coast Guard: Opportunities Exist to Further Improve Acquisition
             Management Capabilities. GAO-11-480. Washington, D.C.: April 13,
             2011.
             Coast Guard: Deepwater Requirements, Quantities, and Cost Require
             Revalidation to Reflect Knowledge Gained. GAO-10-790. Washington,
             D.C.: July 27, 2010.

             Department of Homeland Security: Assessments of Selected Complex
             Acquisitions. GAO-10-588SP. Washington, D.C.: June 30, 2010.

             Coast Guard: Observations on the Requested Fiscal Year 2011 Budget,
             Past Performance, and Current Challenges. GAO-10-411T. Washington,
             D.C.: February 25, 2010.

             Coast Guard: Better Logistics Planning Needed to Aid Operational
             Decisions Related to the Deployment of the National Security Cutter and
             Its Support Assets. GAO-09-497. Washington, D.C.: July 17, 2009.

             Coast Guard: As Deepwater Systems Integrator, Coast Guard Is
             Reassessing Costs and Capabilities but Lags in Applying Its Disciplined
             Acquisition Approach. GAO-09-682. Washington, D.C.: July 14, 2009.




             Page 55                               GAO-12-918 Coast Guard Major Acquisitions
           Related GAO Products




           Coast Guard: Observations on Changes to Management and Oversight of
           the Deepwater Program. GAO-09-462T. Washington, D.C.: March 24,
           2009.

           Coast Guard: Change in Course Improves Deepwater Management and
           Oversight, but Outcome Still Uncertain. GAO-08-745. Washington, D.C.:
           June 24, 2008.

           Coast Guard: Strategies for Mitigating the Loss of Patrol Boats Are
           Achieving Results in the Near Term, but They Come at a Cost and
           Longer Term Sustainability Is Unknown. GAO-08-660. Washington, DC:
           Jun 23, 2008.

           Status of Selected Assets of the Coast Guard’s Deepwater Program.
           GAO-08-270R. Washington, D.C.: March 11, 2008.




(121020)
           Page 56                             GAO-12-918 Coast Guard Major Acquisitions
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