As radio commentator Paul Harvey is fond of saying, having "the rest of the story" leads to fuller understanding of Deepwater's challenges and its achievements. Here are two examples where having "the rest of the story" really matters:
First, it has been reported that costs for the program have grown from $17 billion to $24 billion. This is true, but there's a reasonable explanation for the change. The original Deepwater implementation plan was developed before the tragedy that occurred on 11 September 2001. Following the service's transfer to the Department of Homeland Security in March 2003, we conducted a performance gap analysis, drafted a new mission needs statement, and revised our implementation plan to ensure Deepwater capabilities would support enhanced mission emphasis newly assigned to the Coast Guard; e.g., maritime homeland security. All of these steps were carried out in full consultation with the Bush administration and Congress, who committed to this level of investment. The increased costs can thus largely be attributed to a considered decision to increase capabilities and not to cost overruns, as some have suggested.
Second, it's not readily apparent from most recent coverage that the program has had any success at all, yet dozens of Deepwater assets are already operating in the fleet and making a difference today. A climber who fell down the side of a mountain last July in the Olympic National Forest owes his life to a daring rescue executed by a well-trained air crew from Coast Guard Air Station Port Angeles, Washington. What's the connection? The rescuers were flying a recently delivered HH-65C helicopter, newly re-engined as part of the Deepwater Program. So far, more than 80 B model HH-65s have been converted to Cs, giving them the ability to carry greater loads and remain aloft for longer periods. Had the climber fallen just two weeks earlier—before the station's Charlies were delivered—the rescue would not have been attempted and the outcome would have been very different. Also, sensor and communications equipment upgrades on 39 cutters are directly contributing to the execution of Coast Guard missions worldwide and also facilitate seamless operations with the U.S. Navy.
Fifteen major acquisition projects are currently under way within the Deepwater Program, underscoring its complexity. Imagine the challenges the Navy and U.S. Marine Corps would face if they assigned their top 15 projects to one office. Yet historical circumstances drove the Coast Guard to do exactly that. Here's why.
By the end of the 1990s, most of the Coast Guard's ships and aircraft were at or approaching the end of their service lives. In 1997, the chairman of the Navy League's Coast Guard Affairs Committee exhorted readers of Sea Power magazine to launch a rescue mission for the Coast Guard, noting: "The Coast Guard's capital plant has a value of approximately $19 billion. Based on industry standards—annual replacement of 5 percent of capital assets—the Coast Guard's average acquisition, construction, and improvement expenditures should be $950 million, but actually have been under $200 million, in constant dollars, over the past 20 years."
Forced to Act
This perennial under-funding for capital investments had resulted in imminent block obsolescence, and the service was forced to act immediately to ensure it could continue to save lives, defend 95,000 miles of American coastline, protect natural resources, and support the nation's economy by ensuring the free flow of U.S. trade by sea.
Given the massive task at hand, a traditional, piecemeal replacement of failing assets didn't seem to make much sense. Therefore, we determined it would be more cost-effective and efficient to adopt a mission-based performance approach to acquiring an integrated system of assets—referred to as a "system of systems"—to give the service functional capabilities to perform missions worldwide. With respect to our unique approach, the General Accounting Office, now the General Accountability Office (GAO), in 1998 concluded: "The (Coast Guard's) 'system of systems' approach seems logical as a way to avoid a costly one-for-one replacement of assets."
Originally called the Deepwater Capability Replacement Project, the program was established formally in 1996, following extensive needs analysis, and the Coast Guard developed an acquisition strategy to support the project. In alignment with the Government Performance Results Act, OMB Circular A-109, and other government-wide acquisition reform legislation and regulations, the Deepwater strategy incorporated insights and recommendations from the GAO, the Department of Transportation Office of the Inspector General (OIG), and other independent experts.
The Coast Guard recognized that after years of slim procurement budgets, our cadre of in-house acquisition professionals required greater capacity to harmonize the execution of Deepwater's comprehensive recapitalization program. In what has turned out to be one of the most often discussed aspects of the program, a decision was made to employ from industry a single systems integrator with experience in managing Level I acquisitions, which are large-scale projects in the general cost range of more than $250 million. In selecting our systems integration team from industry, the Coast Guard put primary emphasis on achieving a comprehensive, integrated solution for Deepwater because we believed such a solution would lead to synergies and efficiencies. Following full and open competition, the contract for the Integrated Deepwater System was awarded in 2002 to Integrated Coast Guard Systems, a joint venture of Lockheed Martin and Northrop Grumman.
Nobody ever said recapitalizing the fleet would be easy. Reports from the GAO, OIG, and an array of independent third parties stated that in spite of "excellent" planning it would be hard—really hard—to obtain adequate funding and staffing and provide appropriate levels of oversight to contractors. A team of experts from Acquisition Solutions, Inc. (ASI) perhaps summed it up best in its review of the program, saying: "First, risk is part of every acquisition. There will always be significant cost, schedule and performance risks inherent in projects of this size, scope, and complexity. Second, outsourcing a difficult task does not make it any easier. The Coast Guard still must identify existing, potential, and emerging risks and develop measures to mitigate and manage the risks." And, in an echo of the Navy League's earlier appeal for support to modernize the fleet, ASI continued: "Third, this is a mission—essential, unavoidable requirement and major investment is inevitable."
Our initial projections set the Deepwater budget at $300 million for the first year, and $500 million for each year thereafter. Some believed the projected funding levels were unattainable and even then only minimally reflected necessary costs. Fortunately, thanks to bi-partisan support from Congress, our program funding has increased every year since 2002. We received the program's first $1 billion annual appropriation in 2007. However, we don't take this support for granted and cost control remains foremost in our minds as we take the program into its second five years. Notwithstanding empirical knowledge that rising costs are an economic fact in shipbuilding, the Coast Guard, along with the Navy and industry, has pledged to reduce shipbuilding and other costs wherever possible.
Nevertheless, we have encountered other headwinds that have pushed back against our initial vision and projections of Deepwater's acquisition strategy. For example, a planned conversion of 49 patrol boats from 110 feet to 123 feet—our first project out of the chute—was halted after just eight conversions because of technical problems. Much has been written elsewhere about this disappointing episode, with no need to belabor it here. However, it should be noted that we only attempted such an unorthodox upgrade in the first place because projected budget constraints informed us we could not afford to recapitalize all of our platforms under Deepwater. We realized that choices and trade-offs had to be made, and modernizing our patrol boat fleet through the conversion was one of them. Even now, in light of the hard lessons we have learned through this project, a cross-functional team continues to study our problems with this conversion. The bottom line is that the Coast Guard's leadership is wholly committed to preventing future such occurrences.
Meanwhile, we have had to develop an interim solution to get patrol boats into the fleet as quickly as possible, after early tank testing showed technical risks with the initial composite hull design for our Fast Response Cutter. We're now working to acquire a "parent craft" design based on a vessel already in operation that will require minimal modifications to meet our basic mission requirements.
A recent report by the Department of Homeland Security OIG highlighted concerns with our approach to resolving potential hull fatigue-life issues on our National Security Cutter, the largest of Deepwater's three major classes of cutters. The Coast Guard hasn't built a ship on this scale for 35 years, so we didn't expect entirely smooth sailing. It is not uncommon for first-in-class ships such as the Bertholf (NSC-1) to experience some turbulence during design and construction. Nearly every ship the United States has built has encountered challenges and cost growth. During design review and early construction, the Coast Guard incorporated many changes recommended by the then-chief engineer of the Coast Guard. However, further review of the cutter's design indicated the ship might also experience higher stress levels than anticipated, raising a question of the hull's fatigue life over the course of the cutter's 30-year service life. We have been addressing these concerns for several years now in fact, had begun to address them long before the Inspector General's auditors arrived on the scene in the Summer of 2005—and there has never been a question of safety related to the ship's structure or its ability to complete all assigned missions.
In collaboration with the Coast Guard's current Chief Engineer, who serves as the program's technical authority, and ICGS, we have developed structural enhancements that will be incorporated into the design of the cutters not yet under construction (hulls 3 through 8) and retrofitted into the first two currently being built.
Without question, the Coast Guard has collected a lengthy list of "lessons learned" about program and contract management and execution. ASI was right: outsourcing systems integration didn't make it easy. Although we're convinced the fundamental system of systems concept remains sound, we are adapting our vision for this acquisition program in light of experience. Our approach to Deepwater is evolving as the Coast Guard confronts, forthrightly, the challenges of building budgets under incremental funding profiles, post 9/11 mission requirements, and a Coast Guard acquisition culture that naturally prefers a more hands-on approach to its relationship with industry. We are learning that our original, less-structured approach to system integration must be tempered with stronger oversight and closer partnership ("trust but verify") with our partners in Integrated Coast Guard Systems.
It is prudent to keep in mind that we're in the early stages of what Congress has helped to define as a very long acquisition effort that will continue to evolve as the nation refines its maritime security strategy. Our original vision was a comprehensive program that would feature "one-stop shopping" for modernization and recapitalization. The program was to have demonstrated value added through reduced costs, using largely mature platforms and systems designs and commercial practices.
The reality of Deepwater today is that the Coast Guard has become more involved as a system integrator than we anticipated. The functionality of our Deepwater integrated product team model with industry has proved to be more complex in execution than our early due diligence indicated. Experience has taught us that the government and industry team must redouble its efforts to focus on total ownership cost management and maintaining focus on technical performance and program schedule.
While the challenges we face are formidable, every member of our Deepwater team knows that each day the Coast Guard embarks on dangerous missions in hostile and unforgiving environments. Our men and women require the enhanced capabilities promised by Deepwater. Simply put, the nation's maritime security and the safety of our citizens depend on our success, and we shall not fail to deliver.
The Coast Guard has recognized that Deepwater is entering a new and important phase in its evolution as a program. We have moved past the era of making our case as to why Deepwater is necessary; now we must focus on our commitment to excellence in executing this program. We must demonstrate our willingness to draw on the best practices of a broad cross-section of government and industry acquisition expertise. Under the leadership of our Commandant, Admiral Thad Allen, the service is aggressively implementing a series of improvements in program management to ensure effective oversight, sound stewardship of taxpayer dollars, and timely delivery of these much-awaited assets. Building on the GAO Framework for Acquisition Management, improvements already initiated or completed include:
- Consolidation of Coast Guard acquisition activities (Deepwater, Office of Acquisition, acquisition policy, and the Research and Development Center) into one directorate to increase efficiency and maximize human capital;
- Adoption of a DoD 5000-based revision to the Coast Guard's Major System Acquisition policies;
- Development of new evaluation criteria for the follow-on Deepwater contract term, beginning in June 2007;
- Renewed focus on hiring, certification, and retention of qualified contracting officers and program management personnel; and
- Increased government staffing at Deepwater manufacturing facilities to focus on quality assurance.
In addition, the Coast Guard is committed to independent, third-party analyses of our program, including technical assessments of all new, or principally new, asset designs, such as the Fast Response Cutter (A-class), for which we also recently completed an expanded business case analysis. Last fall, we contracted with the Defense Acquisition University for a "quick look" review to examine the program's key management and technical processes, performance-based acquisition strategy, organizational structure, and our government and industry partnership contract, as well as a study being conducted by the Coast Guard Research and Development Center to provide recommendations for the way ahead on the planned Deepwater Vertical-Launch Unmanned Aerial Vehicle (VUAV).
We believe these important first steps demonstrate our willingness to learn from our experience and to frankly assess our program's strengths and weaknesses. These measures also put us firmly on the path to correcting problems and to building the solutions that will deliver the next generation of capability to the fleet. However, it is the nature of any large acquisition effort that improvements in program management may not be evident for months or even years. Nevertheless, we are confident that, over time, these improvements in our processes and procedures will help us grow into the model, mid-sized federal acquisition entity we know we must become to meet expectations and deliver assets affordably and on schedule.
While we know we owe a debt of gratitude to the Coast Guard, departmental, and congressional leaders who had the vision to initiate the Deepwater Capability Replacement Project, we in Deepwater's second generation must recognize the confidence they placed in us to adjust the acquisition strategy based on lessons learned, funding realities, and current events. It is our duty to realize the program's original promise by recapitalizing the Coast Guard while integrating best practices resulting from both the past challenges, and current successes, of the Deepwater Program.
Rear Admiral Blore assumed the helm as Program Executive Officer of the Coast Guard's Integrated Deepwater System in April 2006.
1. James H. Thach III, Sea Power: Letters , May 1997.
2. GAO Report to the Subcommittee on Transportation, Committee on Appropriations, U.S. Senate (GAO/RCED-99-6), October 1998.
3. Independent Assessment of the United States Coast Guard "Integrated Deepwater System" Acquisition Issue Brief, July 2001.