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Report to the Ranking Minority Member, Committee on Commerce, Science,
and Transportation,
U.S. Senate:
United States General Accounting Office:
GAO:
March 2004:
CONTRACT MANAGEMENT:
Coast Guard's Deepwater Program Needs Increased Attention to Management
and Contractor Oversight:
GAO-04-380:
GAO Highlights:
Highlights of GAO-04-380, a report to the Ranking Minority Member,
Committee on Commerce, Science, and Transportation, U.S. Senate
Why GAO Did This Study:
The Coast Guard’s Deepwater program, the largest acquisition program in
its history, involves modernizing or replacing ships, aircraft, and
communications equipment. The Coast Guard awarded the Deepwater
contract to Integrated Coast Guard Systems (ICGS) in June 2002. The
Coast Guard estimates the program will cost $17 billion over a 30-year
period. ICGS is a system integrator, with responsibility for
identifying and delivering an integrated system of assets to meet the
Coast Guard’s missions.
GAO was asked to assess whether the Coast Guard is effectively managing
the Deepwater program and overseeing the contractor and to assess the
implications of using the Deepwater contracting model on opportunities
for competition.
What GAO Found:
Over a year and a half into the Deepwater contract, the key components
needed to manage the program and oversee the system integrator’s
performance have not been effectively implemented. Integrated product
teams, the Coast Guard’s primary tool for overseeing the system
integrator, have struggled to effectively collaborate and accomplish
their missions. They have been hampered by changing membership,
understaffing, insufficient training, and inadequate communication
among members. In addition, the Coast Guard has not adequately
addressed the frequent turnover of personnel in the program and the
transition from existing to Deepwater assets.
The Coast Guard’s assessment of the system integrator’s performance in
the first year of the contract lacked rigor. For example, comments from
the technical specialist responsible for monitoring the design and
delivery of ships were not included in the evaluation scores. Further,
the factors that formed the basis for the award fee determination were
unsupported by quantifiable metrics. Despite documented problems in
schedule, performance, cost control, and contract administration, ICGS
received a rating of 87 percent, resulting in an award fee of $4.0
million of the maximum $4.6 million annual award fee.
Further, the Coast Guard has not yet begun to measure the system
integrator’s performance on the three overarching goals of the
Deepwater program operational effectiveness, total ownership cost, and
customer satisfaction. Its original plan of measuring progress on an
annual basis has slipped, and Coast Guard officials have not projected
a time frame for when they will be able to hold the contractor
accountable for progress against these goals. This information will be
essential to the Coast Guard’s decision about whether to extend ICGS’s
contract after the first 5 years.
Competition is critical to controlling costs in the Deepwater program
and a guiding principle of Department of Homeland Security
acquisitions. Concerns about the Coast Guard’s ability to rely on
competition as a means to control future costs contributed to GAO’s
description of the Deepwater program in 2001 as “risky.” Three years
later, the Coast Guard has neither measured the extent of competition
among suppliers of Deepwater assets nor held the system integrator
accountable for taking steps to achieve competition. Deepwater’s
acquisition structure is such that the two first-tier subcontractors
have sole responsibility for determining whether to hold competitions
for assets or to provide these assets themselves. The Coast Guard has
taken a hands-off approach to "make or buy" decisions made at the
subcontractor level. As a result, questions remain about whether the
government will be able to control costs.
What GAO Recommends:
GAO recommends that the Secretary of Homeland Security direct the
Commandant of the Coast Guard to take a number of actions to improve
Deepwater management and contractor oversight. The Department of
Homeland Security forwarded GAO the Coast Guard’s written comments on a
draft of this report. The Coast Guard welcomed GAO’s observations and
concurred with GAO’s recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-04-380.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact William T. Woods at (202)
512-4841 or woodsw@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Key Components of Management and Oversight Have Not Been Effectively
Implemented:
Process for Assessing System Integrator's Ongoing Performance Lacked
Rigor:
Coast Guard Has Not Begun to Measure Contractor Performance against
Deepwater Program Goals:
Control of Future Costs through Competition Remains a Risk because of
Weak Oversight of Subcontractor Decisions:
Conclusion:
Recommendations for Executive Action:
Agency Comments:
Scope and Methodology:
Appendix I: Comments from the Coast Guard:
Appendix II: Status of Selected Deepwater Contract Management and
Oversight Plans:
Tables:
Table 1: Deepwater Program Appropriations:
Table 2: Comments from Coast Guard Management Reports on IPT
Performance:
Table 3: Breakdown of Coast Guard Obligations to ICGS (Includes Planned
Subcontracts to First Tier Subcontractors as of September 30, 2003):
Table 4: Breakdown of ICGS Obligations to Lockheed Martin (Planned
Subcontracts and Second-Tier Obligations as of September 30, 2003):
Table 5: Breakdown of ICGS Obligations to Northrop Grumman (Planned
Subcontracts and Second-Tier Obligations as of September 30, 2003):
Figure:
Figure 1: Contracting Relationship between Coast Guard, ICGS, and
Subcontractors:
Abbreviations:
COTR: contracting officer's technical representative:
C4ISR: command, control, communications, computer, intelligence,
surveillance, and reconnaissance:
DHS: Department of Homeland Security:
FAR: Federal Acquisition Regulation:
GAO: General Accounting Office:
ICGS: Integrated Coast Guard Systems, LLC:
IPT: integrated product team:
TOC: total ownership cost:
VUAV: vertical take-off and landing unmanned aerial vehicle:
United States General Accounting Office:
Washington, DC 20548:
March 9, 2004:
The Honorable Ernest F. Hollings:
Ranking Minority Member:
Committee on Commerce, Science, and Transportation:
United States Senate:
Dear Senator Hollings:
The Coast Guard is undergoing a major transformation through its
Deepwater program, the largest acquisition project in its history. The
program involves modernizing or replacing cutters, aircraft, and
communications equipment used for missions that generally occur beyond
50 miles from shore. These missions include drug interdiction, alien
migrant interdiction, search and rescue, overseas port security and
defense, and offshore inspection of foreign vessels bound for U.S.
ports. The three goals of the Deepwater program are to maximize
operational effectiveness, minimize total ownership cost (TOC), and
satisfy the customer. On March 1, 2003, the Coast Guard became part of
the Department of Homeland Security (DHS), and the Deepwater program,
estimated to cost $17 billion over a 30-year period,[Footnote 1] is one
of the largest acquisitions in the department.
In June 2002, the Coast Guard awarded a contract to Integrated Coast
Guard Systems, LLC (ICGS) as the system integrator for Deepwater to
develop and deliver an improved, integrated system of ships, aircraft,
unmanned aerial vehicles, command, control, communications, computer,
intelligence, surveillance and reconnaissance (C4ISR), and supporting
logistics. The contract has a 5-year base period with five additional
5-year options. ICGS is a business entity jointly owned by Northrop
Grumman Ship Systems (Northrop Grumman) and Lockheed Martin Corporation
(Lockheed Martin). Northrop Grumman and Lockheed Martin are the two
first-tier subcontractors for the Deepwater program. They, in turn,
provide Deepwater assets or award second-tier subcontracts for the
assets. Figure 1 depicts the relationship of the various parties
involved in executing the Deepwater program.
Figure 1: Contracting Relationship between Coast Guard, ICGS, and
Subcontractors:
[See PDF for image]
[End of figure]
The Deepwater contract is performance-based, meaning that the Coast
Guard has specified the outcomes it is seeking to achieve and has given
the system integrator responsibility for identifying and delivering the
assets needed to achieve these outcomes. In 2001, we described the
Deepwater project as "risky," due to the unique, untried acquisition
strategy for a project of this magnitude within the Coast
Guard.[Footnote 2] We highlighted concerns about the Coast Guard's
ability to ensure that procedures and personnel would be in place to
manage and oversee the system integrator and raised concerns about the
agency's ability to keep costs under control in future program years by
ensuring adequate competition for Deepwater assets. Now that the
Deepwater program is underway, you asked us to assess whether the Coast
Guard is effectively managing the acquisition program and overseeing
the contractor and to assess the implications of using the Deepwater
contracting model on opportunities for competition. Specifically, we
assessed whether the Coast Guard (1) has a structure in place to
effectively manage the program and oversee the system integrator, (2)
has established adequate criteria by which to assess and reward the
system integrator's performance, (3) has the information needed to make
a decision about extending the contract after the first 5 years, and
(4) is addressing the role and extent of competition for Deepwater
assets.
Results in Brief:
More than a year and a half into the Deepwater contract, the key
components needed to manage the program and oversee the system
integrator's performance have not been effectively implemented.
Integrated product teams, comprised of Coast Guard, ICGS, and
subcontractor employees, are the Coast Guard's primary tool for
managing the program and overseeing the contractor. However, the
effectiveness of the teams has been weakened due to changing
membership, understaffing, insufficient training, lack of authority for
decision making, and inadequate communication among members. In
addition, while the Coast Guard has a Deepwater human capital plan in
place to address turnover, in practice the plan is not being followed
and vacancies exist for key Deepwater personnel. Finally, although
delivery of some of the first assets is imminent, the Coast Guard has
not effectively communicated to its operational personnel decisions on
how new and old assets will be integrated and how maintenance
responsibilities will be divided between government and contractor
personnel. Some of these initial assets have already experienced
schedule delays.
The Coast Guard has not developed quantifiable metrics or adhered to
effective procedures for holding the system integrator accountable for
its ongoing performance. The process by which the Coast Guard assessed
performance after the first year of the contract lacked rigor. The
factors on which ICGS was rated lacked objective measures on which to
assess performance, and the first annual award fee determination was
based largely on unsupported calculations because the Coast Guard did
not fully adhere to its award fee process. For example, comments from
the technical specialist responsible for monitoring the contractor's
performance in designing and delivering ships were not included in the
evaluation scores, and it was unclear how numerical scores were
assigned to the comments made by another Coast Guard performance
monitor. Despite documented problems in schedule, performance, cost
control, and contract administration throughout the first year of the
contract, the program executive officer awarded the system integrator
an overall rating of 87 percent, which falls in the "very good" range.
This rating resulted in an award fee of $4.0 million of the maximum
$4.6 million annual award fee.
The Coast Guard has not begun to measure the system integrator's
performance on the three overarching goals of the Deepwater program--
maximizing operational effectiveness, minimizing total ownership cost,
and satisfying the customers. This information is essential for
determining whether to extend ICGS's contract. In 2001, the Coast Guard
planned to develop appropriate metrics and to assess the system
integrator's performance on an annual basis so that, in the fourth year
of the contract, information would be available to determine whether to
award the first 5-year option. Coast Guard officials stated that
because it is early in the Deepwater program and the metrics have not
yet been finalized, they cannot accurately assess the contractor's
progress against the three goals. More troubling is that the Coast
Guard has not projected a time frame for when it will be able to
measure progress. In addition, the baseline for measuring total
ownership cost has been fundamentally changed from the original plan.
At present, the Coast Guard is using as a baseline ICGS's proposed cost
for Deepwater plus an additional 10 percent, rather than using the
originally planned baseline of what the total ownership cost would have
been under a traditional procurement approach.[Footnote 3] The Coast
Guard is now working with ICGS to develop a contingency strategy in the
event that the system integrator needs to be replaced after 5 years.
Coast Guard officials indicated, however, that since ICGS proposed the
specific assets that comprise the Deepwater program, it is unrealistic
to believe that the contract could be terminated without revising the
entire Deepwater acquisition strategy.
Although competition among subcontractors is a key vehicle for
controlling costs, the Coast Guard has neither measured the extent of
competition among the suppliers of Deepwater assets nor held the system
integrator accountable for taking steps to achieve competition.
Although the competition that resulted in the initial award of this
contract may be viewed as sufficient for the base period, Deepwater's
acquisition structure provides little protection against cost growth
during the option periods. The two first-tier subcontractors, Lockheed
Martin and Northrop Grumman, have sole responsibility for determining
whether to hold competitions for Deepwater assets or to provide these
assets themselves. ICGS has stated that its use of sourcing guidance,
termed the open business model, guides the subcontractors' decisions
about whether to "make or buy" the Deepwater assets. However, this
guidance is a philosophy--not a formal process with clear criteria and
specific decision points--that encourages, but does not require,
competition. In some cases, teaming agreements formed with second-tier
subcontractors during the initial proposal phase of Deepwater have
carried over as sole-source arrangements. The Coast Guard's hands-off
approach to make or buy decisions and its failure to assess the extent
of competition raise questions about whether the government will be
able to control costs in the Deepwater program.
We are recommending that the Secretary of Homeland Security direct the
Commandant of the Coast Guard to take actions to (1) improve program
management, (2) improve contractor accountability, and (3) facilitate
cost control through competition for Deepwater assets. We received
written comments on a draft of this report from the Coast Guard,
forwarded by DHS. The Coast Guard welcomed our observations and, in a
subsequent e-mail, concurred with the recommendations. The Coast
Guard's letter is reproduced in appendix I.
Background:
Deepwater is the largest and most complex procurement project in the
Coast Guard's history. The acquisition is scheduled to occur over a 30-
year period at a projected cost of $17 billion. It includes the
modernization and replacement of an aging fleet of over 90 cutters and
200 aircraft used for missions that generally occur beyond 50 miles
from shore. Deepwater currently accounts for almost one-third of the
Coast Guard's acquisition staff and one-third of support personnel
funding.
Rather than using the traditional approach of replacing classes of
ships or aircraft through a series of individual acquisitions, the
Coast Guard chose to employ a "system-of-systems" acquisition strategy
that would replace its aging deepwater assets with a single, integrated
package of new or modernized assets. The primary objectives of the
Deepwater program are to maximize operational effectiveness and to
minimize TOC while satisfying the needs of the customer--the
operational commanders, aircraft pilots, cutter crews, maintenance
personnel, and others who will use the assets.
The Deepwater program has been in development for a number of years.
Between 1998 and 2001, three industry teams competed to identify and
provide the assets--aircraft, helicopters, cutters, logistics, and
C4ISR--needed to transform the Coast Guard. In June 2002, the Coast
Guard awarded a contract to ICGS as the system integrator for
Deepwater. Under a 5-year base contract with five additional 5-year
options, ICGS is responsible for designing, constructing, deploying,
supporting, and integrating the Deepwater assets to meet Coast Guard
requirements. ICGS, a business entity comprised of a nine-member Board
of Directors, is jointly owned by Northrop Grumman and Lockheed Martin.
Northrop Grumman and Lockheed Martin are the two first-tier
subcontractors for the Deepwater program. They, in turn, provide
Deepwater assets themselves or award second-tier subcontracts for the
assets.
In our 2001 report, we identified several areas of risk for Deepwater.
First, the Coast Guard faced potential risk in the overall management
and day-to-day administration of the contract. We reported on the major
challenges in developing and implementing plans for establishing
effective human capital practices, having key management and oversight
processes and procedures in place, and tracking data to measure system
integrator performance. In addition, we, as well as the Office of
Management and Budget, expressed concerns about the potential lack of
competition during the program's later years and the reliance on a
single system integrator for procuring the Deepwater equipment. We also
reported there was little evidence that the Coast Guard had analyzed
whether the approach carried any inherent risks for ensuring the best
value to the government and, if so, what to do about them.
Since fiscal year 2002, Congress has appropriated almost $1.5 billion
for the Deepwater program (see table 1), and as of September 2003, the
Coast Guard had obligated $596 million to ICGS and $120.4 million for
government program management, legacy asset sustainment, and facilities
design work.
Table 1: Deepwater Program Appropriations:
Dollars in millions.
Fiscal year: 2002; Appropriation: $320.
Fiscal year: 2003; Appropriation: 478.
Fiscal year: 2004; Appropriation: 668.
Total; Appropriation: $1,466.
Source: Coast Guard.
[End of table]
In response to congressional direction to assess the feasibility of
accelerating the Deepwater program,[Footnote 4] the Coast Guard
reported in March 2003 that it could accelerate the implementation
schedule from 20 years to 10 years and that this acceleration would
provide increased operational capability sooner to support maritime
homeland security.
On March 1, 2003, the Coast Guard became part of DHS. A December 22,
2003, acquisition decision memorandum from the DHS Investment Review
Board's (the Board) acting chairperson to the Coast Guard Commandant
stated that the Deepwater program has been designated as a level 1
investment, meaning that it will be reviewed at the highest levels
within the department.[Footnote 5] Further, because Deepwater
interoperability within DHS and with the Department of Defense will be
a major program challenge, the DHS Joint Requirements Council[Footnote
6] will be kept informed of Deepwater developments. While decisions as
to specific assets or capabilities have been deferred to the Coast
Guard acquisition executive, the Board will meet to discuss actual or
projected changes to the program that affect cost, schedule, or
performance. Noting that the Coast Guard has proposed accelerating the
Deepwater program in fiscal year 2005, the Board directed the Coast
Guard to ensure that risk management planning receives appropriate
attention, that TOC is kept current, and that cost, schedule, and
performance are monitored by measuring actual data against the baseline
and projections to completion.
Key Components of Management and Oversight Have Not Been Effectively
Implemented:
Complex, performance-based contracts such as Deepwater require
effective government oversight to ensure that the intended results are
achieved and that taxpayer dollars are not wasted. Both Coast Guard and
ICGS officials have acknowledged that an unusually large degree of
collaboration and partnership between the government and the system
integrator must be in place for the Deepwater acquisition to be
successful. However, a year and a half into the program, the key
management and oversight components needed to make the program
effective have not been effectively implemented. Integrated product
teams (IPT) are the Coast Guard's primary tool for managing the program
and overseeing the contractor, but these teams have struggled to
collaborate effectively and accomplish their missions. While the Coast
Guard has a Deepwater human capital plan in place to guide strategic
planning for turnover among Deepwater personnel, the plan is not being
followed and vacancies exist in key positions. Further, while it is
still early in the program, the transition from existing Coast Guard
assets to the new Deepwater assets has not been effectively
communicated, a particular concern in light of schedule delays for some
of the first assets to be delivered. Finally, a number of plans
integral to the organization and management of the Deepwater program
were finalized much later than anticipated. Appendix II contains
additional information on these plans.
IPTs Have Had Difficulty Fulfilling Their Critical Management Function:
IPTs are the Coast Guard's primary tool for managing the Deepwater
program and overseeing the system integrator. More than 30 of these
teams, comprised of Coast Guard, ICGS, and subcontractor employees from
Lockheed Martin and Northrop Grumman, are responsible for overall
program planning and management, asset integration, and overseeing the
delivery of specific Deepwater assets. However, the teams have
struggled to effectively carry out their missions. Our prior work at
the Department of Defense has shown that effective IPTs have (1)
expertise to master different facets of product development, (2)
responsibility for day-to-day decisions and product delivery, (3) key
members who are either physically collocated or connected through
virtual means to facilitate team cohesion and the ability to share
information, and (4) control over their membership, with membership
changes driven by each team's need for different knowledge.[Footnote 7]
The Deepwater program manager reported IPT performance shortcomings as
an issue in 14 of the 16 monthly program assessment reports provided to
us. The following comments, made in Deepwater management reports by
Coast Guard officials involved on a number of different IPTs, convey
the difficulties faced by the teams in the first year and a half of the
program. Though the comments in table 2 are not exhaustive, they
demonstrate that the Deepwater IPTs have not been effective.
Table 2: Comments from Coast Guard Management Reports on IPT
Performance:
June 2002 through Dec. 2002;
* Teams are still forming but are hindered with unfamiliarity of Web-
based data environment, integrated design and management processes
immaturity, and geographic separation;
* Because of aggressiveness of schedule, team development and
collaboration have been negatively affected;
* Team is making progress, but most other teams are not yet productive.
Team leaders are challenged by intense pace of work needed to keep up
with asset implementation plan.
Jan. 2003 through June 2003;
* High demands and limited resources inhibit commitment to
collaboration;
* Team progress is slowed by ineffective collaboration, resulting in
missed milestones;
* Limited collaboration in addressing design and production issues.
Team has been unable to resolve some comments in a timely fashion.
July 2003 through Dec. 2003;
* Demands on limited personnel resources have restricted collaboration
in addressing some items in contract data requirements list in a timely
fashion for the 123-foot cutter;
* Team meetings for one asset have been canceled due to workload
associated with another. Team lead has been vacant for several months,
requiring the duties to be assumed by the Aviation Technical Director
and/or Aviation Program Manger. Task order performance has suffered,
and issues have not been resolved in a timely manner;
* Team has been unable to resolve some comments in a timely fashion.
Human resources within the team are taxed due to multi-tasking;
* There has been a lack of participation by some of the team members.
Meeting minutes, decisions, and such have not been documented as
outlined in the IPT charters. Important action items and risk
mitigation plans are not being consistently addressed, tracked, and
resolved in a timely manner;
* Team disconnects have contributed to delay in delivery of Coast Guard
cutter Matagorda.
Source: Coast Guard.
[End of table]
Based on our review of program reports, we identified four major issues
that have impeded the effective performance of the IPTs.
* Lack of timely charters to vest IPTs with authority for decision
making. Authority for day-to-day decisions--required for program
success in meeting cost, schedule, and performance objectives--is
vested in IPTs through charters; yet charters for most of the Deepwater
IPTs were not developed in a timely manner. In fact, 27 of the 31 IPT
charters were not approved until after the first year of the contract.
More than merely a paperwork exercise, sound IPT charters are critical
because they detail each team's purpose, membership, performance goals,
authority, responsibility, accountability, and relationships with
other groups, resources, and schedules. Between June 2002 and June
2003, 20 delivery task orders,[Footnote 8] authorized for issuance by
the contracting officer, were executed by IPTs that did not have
charters in place. Similarly, we found that some sub-IPTs, which
address specific issues at a subasset or component level, were
operating on an ad hoc basis without charters. For example, a November
2002 management report states that sub-IPTs addressed numerous issues
concerning requirements for the national security cutter, even though
their charters were not approved until a year later. In addition, two
other sub-IPTs were not chartered.[Footnote 9]
* Inadequate communication among members. The Coast Guard's Deepwater
program management plan has identified collocation of IPT members as a
key program success factor, along with effective communications within
and among teams. Face-to-face informal communication enhances
information flow, cohesion, and understanding of other members' roles-
-all of which help foster team unity and performance. Yet only 3 of the
31 operating IPTs are entirely collocated, meaning that every IPT
member is in the same building. The IPTs responsible for assets
frequently have members in multiple locations. For example, the
logistics process and policy development IPT has members in 6 different
locations. As noted in table 2, Coast Guard IPT members have raised
geographic separation as an issue of concern. ICGS developed a Web-
based system for government and contractor employees to regularly
access and update technical information, training materials, and other
program information, in part to mitigate the challenges of having team
members in multiple locations. However, Coast Guard documents indicate
that the system is not being updated or used effectively by IPTs. In
fact, the Deepwater program executive officer reported that, while the
system has great potential, it is a long way from becoming the virtual
enterprise and collaborative environment required by the contractor's
statement of work.
* High turnover of IPT membership and understaffing. Most of the
Deepwater IPTs have experienced membership turnover and staffing
difficulties, resulting in a loss of team knowledge, overbooked
schedules, and crisis management. In a few instances, such as the
national security cutter and maritime patrol aircraft, even the IPT
leadership has changed. Also, key system integrator officials serving
on the management IPTs have left the company. Both the Chief Financial
Officer and the President of ICGS left their positions during the
latter half of 2003, and an additional six of the nine ICGS Board
members have changed. In addition, Coast Guard and system integrator
representatives have also been staffed on multiple IPTs, and, in many
cases meetings were attended by fewer than 50 percent of IPT members. A
December 2002 Coast Guard document summarizing various programmatic
recommendations cited a contractor study that recommended individuals
be assigned to IPTs on a full-time basis and that they not serve on
more than two teams. However, as of December 2003, 15 individuals were
serving on three or more IPTs.
* Insufficient training. The system integrator has had difficulty
training IPT members in time to ensure that they could effectively
carry out their duties, and program officials have referred to IPT
training as deficient. IPT charters state that members must complete
initial training before beginning team deliberations regarding
execution of new contracts for Deepwater assets. IPT training is to
address, among other issues, developing team goals and objectives, key
processes, use of the Web-based system, and team rules of behavior.
According to a Coast Guard evaluation report, IPT training was
implemented late, which has contributed to a lack of effective
collaboration among team members.
The Coast Guard hired a consultant to survey IPT members concerning
teams' performance from July 2002 to September 2003. Three surveys
consisted of questions about mission, team member cooperation,
performance, communication, and integrated product and process
development.[Footnote 10] The final report on the survey results
highlighted the need for improved communications both within and among
teams. Respondents were also concerned that workloads were too
high.[Footnote 11]
Human Capital Issues Pose a Challenge:
In our 2001 report,[Footnote 12] we noted that as the Deepwater program
got off the ground, tough human capital challenges would need to be
addressed. A critical challenge we raised was the need to recruit and
train enough staff to manage and oversee the contract. To date, the
Coast Guard has not funded the number of staff requested by the
Deepwater program and has not adhered to the processes outlined in its
human capital plan for addressing turnover of Deepwater officials.
These staffing shortfalls have contributed to the problems IPT members
have identified--such as the struggle to keep pace with the workload
and the difficulties in making decisions due to inconsistent attendance
at IPT meetings.
Although the Deepwater program has identified the need for a total of
264 staff in fiscal year 2004, only 224 positions have been funded, and
only 209 have been assigned to the program. The Coast Guard's fiscal
year 2004 funding for personnel was increased to $70 million; however,
the Coast Guard did not request sufficient funds to fill the 40
positions that the Deepwater program identified as necessary. According
to Coast Guard officials, $70 million is insufficient to fund their
fiscal year 2004 personnel plan because they need $67 million of this
amount just to fund current personnel levels. The assistant commandant
has imposed a temporary hiring freeze and plans to monitor expenditures
throughout the year to identify any available funding for additional
positions. Although we asked, Coast Guard officials did not explain why
they did not request sufficient funds to adequately staff the program.
In addition, the Coast Guard has not adequately addressed the imminent
departure of Coast Guard officials from the Deepwater program. Coast
Guard officials will leave each year due to the normal rotational cycle
of military members (every 3 to 4 years) and retirements. The Deepwater
human capital plan sets a goal of a 95 percent or higher "fill rate"
annually for both military and civilian positions and proposes using a
"floating" training position that can be filled by replacement
personnel reporting for duty a year before the departure of the
military incumbents. This position is meant to ensure that incoming
personnel receive acquisition training and on-the-job training with
experienced Deepwater personnel. However, the 2004 request for this
training position was not funded, nor was funding provided for
additional new positions identified as critical. In December 2003, the
Director of Resources and Metrics and the Chief Contracting Officer
left the Deepwater program, and the program manager is slated to leave
in March 2004. In addition, by July 1, 2004, five key Coast Guard
officials who oversee the work of the asset IPTs are scheduled to
leave. Coast Guard officials told us that they have identified the
military replacements that will join the program in the summer of 2004.
Transition Planning for New Assets Needs Attention:
Although Deepwater is still in the early stages, assets will start to
be delivered incrementally to operating units soon. The first Deepwater
assets--the 123-foot cutter and short range prosecutor[Footnote 13]--
are scheduled to be delivered to operating divisions in 2004. Operating
units will receive additional ships, aircraft, or C4ISR every year
thereafter until the Deepwater program ends. However, the Coast Guard
has not communicated decisions on how the new and old assets are to be
integrated during the transition and whether Coast Guard or contractor
personnel--or both--will be responsible for maintenance. Coast Guard
field personnel, including senior-level operators and naval engineering
support command officials, told us that they have not received
information about how they will be able to continue meeting their
missions using current assets while being trained on the new assets.
They are also unclear as to whether the system integrator or Coast
Guard personnel will be responsible for maintenance of the new assets.
For example, although Deepwater officials have stated that maintenance
on the new assets will be a joint responsibility, naval engineering
support command staff had received no instruction on how this joint
responsibility is to be carried out. Coast Guard officials told us that
guidance on joint maintenance responsibility has not been completely
disseminated throughout the Coast Guard, but said that ICGS has
recently added representatives at the key maintenance and logistics
sites to coordinate maintenance issues.
One of the first Deepwater assets to be delivered is the 123-foot
cutter. The Coast Guard is modifying its 110-foot cutter by adding 13
feet of deck and hull, a stern ramp, a superstructure, and
communication equipment. The 123-foot cutter is an example of the
transition challenges facing the Coast Guard. First, there is confusion
over which of the cutters will be modified and when. The contract with
ICGS calls for all 49 cutters to be modified; however, Deepwater
officials are considering curtailing the modification efforts and
accelerating the development of the fast response cutter instead. (The
fast response cutter was originally planned to be delivered in 2018 as
a replacement for the 123-foot cutter). In addition, the Coast Guard
identified 22 of the 110-foot cutters that, due to unexpectedly severe
hull corrosion, required additional inspection and repair separate from
the Deepwater modification plans. To date, $14.7 million in non-
Deepwater funds has been made available to repair 8 of these cutters.
Further, Coast Guard officials note that there are 4 cutters in
operation in the Persian Gulf, which makes them unavailable for
modification at this time. System integrator and Coast Guard officials
expressed confusion about the status of the cutter modifications, hull
repair program, and fast response cutter schedule. For example, ICGS
officials indicated that they did not know what the Coast Guard plans
for the 123-foot cutter modification. The Coast Guard is considering
several options and has not made a final decision on the cutter
modification effort.
Transitioning the staffing and operations of current Coast Guard assets
to Deepwater assets may be further complicated by schedule delays.
Reliable information on the delivery of Deepwater assets is important
to the planning and budgeting efforts of Coast Guard operators and
maintenance personnel to ensure that current missions are met and
existing assets are maintained. Delivery of the first 123-foot cutter
and short range prosecutor is scheduled for March 2004, slipping from
the original delivery date of November 2003, and the rescheduled date
of December 2003. This delay is affecting the schedules for the
remaining cutters under contract, according to the most recent program
manager assessment. Program management reports also indicate that
schedule milestones have slipped for the maritime patrol aircraft. The
first two aircraft are currently scheduled to be delivered to operating
divisions in late 2006 or early 2007, compared with the original plan
of 2005. The IPT is working toward design of the aircraft, even though
Coast Guard approval to proceed has not been set forth in the form of a
definitized contract for this asset.[Footnote 14] The target date for
definitizing the contract is now April 2004.
Process for Assessing System Integrator's Ongoing Performance Lacked
Rigor:
According to Office of Federal Procurement Policy guidance, a
performance-based contract such as Deepwater should have measurable
performance standards and incentives to motivate contractor
performance. Contractors should be rewarded for good performance based
on measurement against predetermined performance standards. In general,
the contractor is to meet the government's performance objectives, at
appropriate performance quality levels, and be rewarded for outstanding
work. Further, sound internal controls are important to ensure that
plans, methods, and procedures are in place to support performance-
based management. Relevant information should be recorded and
communicated to management and others in a form and a time frame that
enables them to carry out their responsibilities.[Footnote 15]
The Coast Guard's process and procedures for evaluating the system
integrator's performance during the first year of the contract lacked
rigor in terms of applying quantifiable metrics to assess performance,
gathering input from government performance monitors, and communicating
with and documenting information for the decision makers. The process
used to hold the system integrator accountable for results was not
transparent and, in fact, contained several inconsistencies that raise
questions as to whether the Coast Guard's decision to give the
contractor 87 percent of the award fee[Footnote 16] was based on
accurate information.
Quantifiable Award Fee Metrics Are Still Being Developed:
The Coast Guard measures the system integrator's ongoing performance
based on periodic assessments using weighted evaluation factors. The
award fee for the first year of performance of the overall integration
and management of the Deepwater program was based on an evaluation of
the following five factors:[Footnote 17]
* overall program management,
* cost monitoring and control,
* quality,
* innovation, and:
* flexibility.
These evaluation factors are further defined in the contract's award
fee plan. For example, innovation is the "extent to which innovation,
designs, processes, and concepts have been introduced that result in
operational performance improvements and/or total ownership cost
reductions." While there will inevitably be a degree of subjectivity in
award fee decisions, the Coast Guard lacks quantifiable metrics to make
an assessment of the contractor's performance. Given the lack of
specificity of the metrics, it is not clear how they could be used to
make such an assessment, particularly on a program as complex as
Deepwater. Coast Guard officials acknowledged that the factors need to
be better-defined, with supporting metrics that would provide a more
objective basis for future award fee assessments.
In the meantime, a May 31, 2003, Coast Guard memorandum to ICGS
indicates that the contractor will be rated based on three factors for
the second year of performance rather than five. However, the factors
are vague and undefined: quality, program management, and system
engineering. Further, supporting metrics to measure these performance
factors have not been developed.
Information Was Not Gathered and Communicated Accurately:
Under the Deepwater contract's award fee plan[Footnote 18] and the
program management plan, technical specialists, known as contracting
officers' technical representatives (COTR), are to provide their
observations to a program evaluation board comprised of the contracting
officer, the program manager, and two COTRs. The Deepwater program
executive officer then makes the final award fee determination based on
the board's recommendations. The Coast Guard's award fee evaluation of
the first year of ICGS's performance was based on unsupported
calculations and relied heavily on subjective considerations. As a
result, the basis for the final decision to provide the contractor an
award fee rating of 87 percent, which falls in the "very good" range,
was not well-supported.[Footnote 19]
For example, while all COTRs submitted comments, the assessment did not
include numerical and adjectival ratings from all COTRs. Input from the
COTR responsible for gauging the system integrator's performance for
all efforts related to the design and delivery of ships was not
included in the calculation at all. Prior to speaking with us, the COTR
did not know his input was absent from final performance monitor
calculations, which resulted in a recommended rating of 82.5 percent.
Input from two other COTRs was provided for some but not all of the
five evaluation factors. A fourth COTR provided only adjectival
ratings, whereas others provided numerical scores. Subsequently, and
unbeknownst to the COTR, a program evaluation board member calculated a
numerical score for this COTR's observations. While an adjectival
rating of "good," for example, could range from a score of 71 to 80,
the board member scored each of the factors in the midrange. Scoring
this COTR's adjectival ratings in the low or high end of the range
would have produced a different outcome. Program evaluation board
officials were not aware of the inconsistencies in the calculations
until we informed them.
One program evaluation board member raised concerns that the board's
subsequent award fee recommendation of 90 percent was too high and that
the assessment focused disproportionately on the system integrator's
performance in the last part of the year rather than its performance
over the entire year. In addition, the program manager's assessment
stated that "overall program management…needs substantial
improvement." Further, Coast Guard management reports throughout the
first year of the contract cited various schedule, performance, cost
control, and contract administration problems that required attention.
Among the assets cited as needing attention were the maritime patrol
aircraft, the short range prosecutor, the 123-foot cutter, and the
logistics integration management system. Ultimately, the program
executive officer awarded the system integrator a rating of 87 percent,
resulting in an award fee of $4.0 million of the maximum $4.6 million
annual award fee.
Coast Guard officials told us that they will now assess ICGS's
performance every 6 months, rather than annually. However, the contract
has not been modified to reflect either the changes to the evaluation
factors, discussed previously, or the new assessment period. The first
6-month assessment was scheduled for completion in December 2003, but
as of March 2004, Coast Guard officials told us it is currently
ongoing.
The contractor was eligible for a second award fee of up to $1.5
million in August 2003 for performance related to the continuous
improvement of elements common to C4ISR and life cycle and logistics
engineering for all assets. Coast Guard officials said that they
awarded the system integrator 79 percent of the maximum award fee;
however, they did not provide us with supporting documentation of the
award fee determination process.
Coast Guard Has Not Begun to Measure Contractor Performance against
Deepwater Program Goals:
The Coast Guard is scheduled to decide on extending ICGS's contract by
June 2006, 1 year prior to the end of the first 5-year contract term.
In 2001, the Coast Guard set a goal of developing measures, within a
year after contract award, to conduct annual assessments of the system
integrator's progress toward achieving the three overarching goals of
the Deepwater program: increased operational effectiveness, lower TOC,
and customer satisfaction. However, the Coast Guard's time frame for
implementing metrics to gauge progress against these goals has slipped.
Further, the baseline the Coast Guard is using to assess TOC will not
provide the government with critical information it needs about the
efficiencies of using the Deepwater approach. Therefore, the Coast
Guard is not in a position to begin the decision-making process about
whether or not to extend the contract past the 5-year base period.
The time frame for the first review of the contractor's performance
against the Deepwater goals has slipped. It was originally rescheduled
for 18 months after contract award (December 2003), 6 months later than
planned. Deepwater officials told us that the performance review is
currently ongoing and is expected to be completed in March 2004. While
the Coast Guard has begun to develop models to measure the extent to
which Deepwater is achieving increased operational effectiveness and
reduced TOC, a decision has not yet been made as to which specific
suite of models will be used. The former Deepwater chief contracting
officer told us he anticipates that the metrics will be in place in
year 4 of the contract, the same year the decision needs to be made to
extend the contract. Other officials acknowledged that it is difficult
to hold the contractor accountable for progress toward the goals this
early in the program, but could not offer a projection as to when the
operational effectiveness and TOC results would be forthcoming.
Coast Guard officials noted the large degree of complexity involved in
attempting to measure the system integrator's progress toward the
Deepwater goals. In previous work, we found that assessing improvements
in operational effectiveness and TOC may be difficult because
performance data may reflect factors that did not result from the
contractor's actions. Because the Deepwater program includes legacy
assets, modified assets, and new assets, the line of accountability
between the government and the system integrator is blurred. It is not
always clear who is responsible between Coast Guard and ICGS for the
change in performance or costs of Deepwater assets. Measuring the 123-
foot cutter's performance, for example, is complicated by the fact that
ICGS is responsible for the new 13 feet of deck and hull and other
modifications, while the engine and the other 110 feet of the deck and
hull are the Coast Guard's responsibility.
Coast Guard officials said that they are measuring "operational
performance," such as the number of search and rescue, drug
interdiction, and migrant interdiction missions carried out by the
current assets. However, they could not explain how these measures will
be used to assess ICGS's progress toward improving operational
effectiveness with Deepwater assets. The officials stated that the
models they are using to measure operational performance for the
various Coast Guard missions lack the fidelity to capture whether
improvements may be due to Coast Guard or contractor actions, the
capability of specific Deepwater assets, or even outside factors such
as improved intelligence on drug smugglers. Program officials noted
that it is difficult to hold the contractor accountable for operational
effectiveness at this point, before Deepwater assets are delivered.
Establishing a solid baseline against which to measure progress in
lowering TOC is critical to holding the contractor accountable.
However, the Coast Guard is using as the baseline ICGS's own projected
cost of $70.97 billion plus 10 percent (in fiscal year 2002 dollars).
Therefore, the government will not have the TOC information it needs to
make a contract extension decision. Measurement of ICGS's cost as
compared to its own cost proposal will tell the Coast Guard nothing
about the efficiencies it may be getting using the Deepwater
performance-based approach. Further, the baseline the Coast Guard is
using has been significantly changed from that originally envisioned.
The Deepwater program management plan, approved in December 2003,
states that the estimated cost to replace individual Coast Guard assets
under a traditional approach, (i.e., without the ICGS Deepwater "system
of systems" solution), is to be the "upper limit for TOC" that the
contractor should not exceed. The officials could not explain why the
program management plan, which sets forth the overall framework for
managing Deepwater, contains a different TOC baseline than the one they
are using.
Further, changes in such variables as fuel costs or cutters' operating
tempo could result in additional changes being made to the TOC
baseline. Coast Guard officials explained that proposed changes to the
baseline would be approved by the program executive officer on a case-
by-case basis. However, the Coast Guard has not developed criteria for
potential upward or downward adjustments to the baseline.
The Coast Guard has only recently begun to address the contractor's
progress in meeting the third overall goal of Deepwater, customer
satisfaction. A January 9, 2004, report indicates that the Coast Guard
had not yet identified the metrics needed to measure this goal. As a
start, on January 12, 2004, a survey was sent to 25 senior leaders and
program managers.
The Coast Guard decided to use the system integrator approach 6 years
ago. In our previous work,[Footnote 20] we found that given the Coast
Guard's reliance on a single system integrator for the Deepwater
program, the agency would be at serious risk if it decides not to
extend the contract. Because ICGS proposed the specific assets that
became the Deepwater solution, a decision not to extend the current
contract would require a new Deepwater acquisition strategy to be
developed. Exit strategies and other means to deal with potential poor
performance by the system integrator are important to mitigate these
program risks. However, the Coast Guard is just beginning an internal
review of the system integrator's plan to transition out of the program
in the event such action would be necessary. Further, Deepwater program
officials indicated that it is not realistic to believe the Coast Guard
would switch system integrators at this point in the program. They
stated that they viewed their relationship with the contractor as a
partnership and are committed to making it work.
Control of Future Costs through Competition Remains a Risk because of
Weak Oversight of Subcontractor Decisions:
Competition is a key component for controlling costs in the Deepwater
program and a guiding principle for DHS's major acquisitions. The
benefits of competition may be viewed as sufficient in the contract's
early years because, for the initial 5-year contract period, prices
proposed by ICGS for equipment and software were based on competitions
held among various subcontractors. However, beyond the first 5-year
term, the Coast Guard has no way to ensure competition is occurring
because it does not have mechanisms in place to measure the extent of
competition or to hold the system integrator accountable for steps
taken to achieve competition.
The acquisition structure of the Deepwater program is such that the two
first-tier subcontractors, Lockheed Martin and Northrop Grumman--the
companies that formed ICGS and that developed the Deepwater solution--
have sole responsibility for determining whether to hold competitions
for Deepwater assets or to provide these assets themselves. Over 40
percent of the funds obligated to Lockheed Martin and Northrop Grumman
have either remained with those companies or been awarded to their
subsidiaries. Further, the system integrator uses a Lockheed Martin
sourcing document, termed the open business model, to guide competition
decisions made by the subcontractors. However, this guidance is a
philosophy--not a formal process involving specific actions--that
encourages competition but does not require it. The lack of
transparency into competition and the government's lack of a mechanism
to hold the contractor accountable raise questions about whether the
Coast Guard will be able to control costs.
Coast Guard Lacks Visibility into Subcontractors' Make or Buy
Decisions:
Neither the Coast Guard nor the system integrator determines how
suppliers for Deepwater assets are chosen. A Coast Guard official told
us that the system integrator was hired to make these decisions because
the agency lacked the expertise to do so. However, Lockheed Martin and
Northrop Grumman, as the subcontractors, are solely responsible for
deciding whether to hold competitions for Deepwater assets or provide
them to the Coast Guard themselves (often referred to as "make or buy"
decisions).
Moreover, the Coast Guard has no contractual requirements with ICGS
that provide transparency into significant make or buy decisions.
Although the Coast Guard has decided to include achieving competition
as one of the factors to be considered in decisions about extending the
contract for future option terms, this review will occur after such
subcontracting decisions are made. The subcontractors are not required
to notify the Coast Guard prior to making a decision to provide
Deepwater assets themselves rather than holding a competition. The
Coast Guard's review of competition included in its award term
plan[Footnote 21] will not address Lockheed Martin or Northrop Grumman
decisions--increasingly important in subsequent years--of whether
significant equipment should be procured from outside sources or built
in-house.
As of September 30, 2003, the Coast Guard had awarded $596 million in
orders to the system integrator, ICGS. Table 3 shows that over 98
percent of this amount was then passed through to the two first-tier
subcontractors.
Table 3: Breakdown of Coast Guard Obligations to ICGS (Includes Planned
Subcontracts to First Tier Subcontractors as of September 30, 2003):
Dollars in millions.
ICGS[A];
Dollar value: $9; Percentage: 1.5.
Subcontracts to Lockheed Martin;
Dollar value: $393; Percentage: 65.9.
Subcontracts to Northrop Grumman;
Dollar value: $194; Percentage: 32.6.
Total; Dollar value: $596; Percentage: 100.
Source: Coast Guard.
[A] Obligations to ICGS consist of general and administrative charges
exclusively.
[End of table]
To date, the subcontractors managing the acquisition have frequently
performed the work themselves. Based on their respective work scopes,
the two companies either issue orders to second-tier subcontractors or
retain the work for themselves.[Footnote 22] Table 4 shows that, as of
September 30, 2003, Lockheed Martin planned to retain 42 percent of its
obligated dollars and to award 58 percent to second-tier
subcontractors. Most of these second-tier dollars will go to major
subcontractors, i.e., those with obligations greater than $5 million.
Table 4: Breakdown of ICGS Obligations to Lockheed Martin (Planned
Subcontracts and Second-Tier Obligations as of September 30, 2003):
Dollars in millions.
Subcontractor: Lockheed Martin in-house work;
Dollar value: $121; Percentage: 31.
Subcontractor: Subcontracts to Lockheed Martin subsidiaries;
Dollar value: $42; Percentage: 11.
Other second-tier subcontractors: Major second-tier subcontractors[A];
Dollar value: $206; Percentage: 52.
Other second-tier subcontractors: Other suppliers;
Dollar value: $24; Percentage: 6.
Total;
Dollar value: $393; Percentage: 100.
Source: Coast Guard.
[A] Lockheed Martin defines major subcontractors as those with
obligations of more than $5 million.
[End of table]
As shown in table 5, Northrop Grumman planned to retain 51 percent of
its obligated dollars.
Table 5: Breakdown of ICGS Obligations to Northrop Grumman (Planned
Subcontracts and Second-Tier Obligations as of September 30, 2003):
Dollars in millions.
Subcontractor: Northrop Grumman in-house work;
Dollar value: $96; Percentage: 49.
Subcontractor: Subcontracts to Northrop Grumman subsidiaries;
Dollar value: $3; Percentage: 2.
Subcontractor: Other second-tier subcontractors;
Dollar value: $95; Percentage: 49.
Total;
Dollar value: $194; Percentage: 100.
Source: Coast Guard.
[End of table]
The System Integrator's Open Business Model Does Not Ensure Competition
Is Considered:
The open business model, meant to guide the supplier sourcing process
in the Deepwater program, has been characterized by the system
integrator as a means of ensuring competition for Deepwater assets
throughout the life of the program, thereby keeping costs under
control. In October 2003, ICGS issued a policy statement on the open
business model. The stated business approach of the guidance is to
encourage second-tier suppliers to remain innovative and competitive by
directing Lockheed Martin and Northrop Grumman, as the first-tier
subcontractors, to (1) generally avoid the use of teaming agreements
with suppliers and prohibit teaming agreements based on guaranteed work
share,[Footnote 23] (2) defer second-tier supplier decisions as long as
practicable so that changes in the marketplace can be considered, and
(3) actively solicit market information and new suppliers. However,
this guidance is a philosophy--not a formal process involving specific
decision points--that does not ensure that competition will be
considered. The December 2003 Deepwater performance measurement plan
requests that the contractor prepare self-assessments of its efforts to
promote competition. However, the Coast Guard has no means of obtaining
insight into the basis for the contractor's self-assessments. Moreover,
the government still lacks a mechanism to hold the contractor
accountable for ensuring that competition occurs.
To date, there have been varying degrees of competition for the second-
tier subcontracting relationships Lockheed Martin and Northrop Grumman
have in place for the design, development, or production of Deepwater
assets. Lockheed Martin and Northrop Grumman follow their own
procurement procedures and guidance for determining whether competition
will occur and selecting the suppliers who will be invited to compete
for Deepwater assets. The competitions are not "full and open"[Footnote
24] in the way a typical government procurement would be, nor are they
required to be. The federal procurement system requires "full and open"
competition except in cases where certain statutory exceptions are met.
"Full and open" competition means that all responsible sources are
permitted to compete.
ICGS officials identified four specific assets for which they believe
the open business model philosophy was effective: the conversion of
110-foot to 123-foot cutters, the national security cutter, the
maritime patrol aircraft, and the vertical take-off and landing
unmanned aerial vehicle (VUAV). We found that, in some cases, teaming
agreements were implemented in the proposal phase of Deepwater and were
carried over when ICGS won the contract. In other cases, some degree of
competition had occurred.
* In December 1998, Lockheed Martin Corporation, Ingalls Shipbuilding,
Inc.,[Footnote 25] and Halter-Bollinger Joint Venture, L.L.C entered
into a teaming agreement that included the 123-foot cutter
modification. The agreement was established to make the capabilities of
both Halter and Bollinger available to Lockheed Martin for all phases
of the Deepwater program. Despite the open business model's prohibition
of work share agreements, such an agreement is in place between
Lockheed Martin and Halter-Bollinger. Halter-Bollinger will be
responsible for the design and construction of all vessels equal to or
less than 200 feet in overall length, with the exception of the
national security cutter. For those ships greater than 200 feet and
less than 241 feet, the company's work share is 25 percent of the total
effort.
* The national security cutters are being designed and constructed by
Northrop Grumman. Northrop Grumman awarded a contract to M. Rosenblatt
& Son, Inc. for the cutters' preliminary design, but Northrop Grumman
is responsible for the detailed design and construction. Lockheed
Martin is responsible for the electronics. However, Northrop Grumman
plans to hold competitions for the long-lead materials--such as the gas
turbine, bulkhead seals, stern tubes,[Footnote 26] and rudder--for the
cutters and has solicited pricing proposals from a number of
subcontractors.
* Prior to the contract award to ICGS, Lockheed Martin solicited
information from a number of companies for the maritime patrol
aircraft, evaluating 16 aircraft proposals. In October 2000, Lockheed
Martin signed a memorandum of understanding with CASA Aircraft USA,
Inc. to provide an airframe for Deepwater and to help develop and
market ICGS's Deepwater proposal. After some Coast Guard officials
expressed concern about the aircraft model that had been selected for
Deepwater, ICGS was awarded a task order to pay for an evaluation of
alternative aircraft. As a result of the evaluation, Lockheed Martin
identified an alternative CASA aircraft to meet the Coast Guard's
maritime patrol aircraft mission.
* For the VUAV, Lockheed Martin conducted a competition between six
models. Bell Helicopter, Inc. was initially identified as the solution.
After ICGS submitted its Deepwater proposal to the Coast Guard,
Lockheed Martin identified a potential Northrop Grumman product based
on market research. However, after evaluation of this alternative,
Lockheed Martin selected one of the Bell products.
Conclusion:
The Coast Guard has embarked on a major transformational effort using
an acquisition strategy that allows a system integrator to identify the
Deepwater assets and to manage the acquisition process, with
subcontractors retaining authority for all make or buy decisions. Such
a strategy carries inherent risks that must be mitigated by effective
government oversight of the contractor. The Coast Guard faces a tough
challenge in holding ICGS accountable for results, while facing the
daunting prospect of starting over with a new approach should the
contractor fail. Nevertheless, the integrity of the contractor
oversight process must be enforced through such mechanisms as effective
IPTs and a rigorous and transparent award fee determination process.
Further, the Coast Guard must determine how to hold the contractor
accountable for achieving the basic goals of the Deepwater program in
order to position itself to make a contract extension decision. While
there is no question that the success of Deepwater depends on an
effective partnership between the government and the contractor, the
Coast Guard must preserve its ability to change course if necessary.
Solid baselines need to be developed so actual costs and operational
effectiveness of the Deepwater assets can be accurately measured and
reported. The current use of the contractor's proposed costs, plus 10
percent, as the TOC baseline--rather than the estimated cost to replace
the assets via a traditional procurement approach--is troublesome.
Further, because the program management plan does not reflect the
change to the TOC baseline, we question whether this decision was well
thought-out and in the government's best interest.
In addition to contractor oversight, the Coast Guard has not invested
the resources needed to ensure that its own personnel are trained and
staffed in sufficient numbers to carry out their duties. The disconnect
between the process outlined in the human capital plan for ensuring a
smooth transition as military personnel rotate out of Deepwater and the
current situation--where key Deepwater officials are leaving the
program without a chance to adequately train their replacements--is
cause for concern as the Deepwater program moves forward. It is unclear
why the Coast Guard has not devoted adequate attention to human capital
needs. In addition, although the first Deepwater assets are just
starting to be delivered, the lack of a solid and well-developed
transition plan from legacy to Deepwater assets is already causing
problems, as evidenced by the 123-foot cutter modification
difficulties. The schedule delays for several of the assets further
highlight the need for more focus on the transition to Deepwater
assets.
The concerns we raised in 2001 about the Coast Guard's ability to
control costs in future years remain valid today. Without a mechanism
to hold the system integrator accountable for ensuring adequate
competition, the Coast Guard cannot be sure that competition will be
used to guard against cost increases that could jeopardize the program.
This situation is especially risky given the acquisition structure of
Deepwater, whereby the subcontractors, not the system integrator or the
Coast Guard, are responsible for determining whether competition will
occur for Deepwater assets.
Recommendations for Executive Action:
We recommend that the Secretary of Homeland Security direct the
Commandant of the Coast Guard to take the following three actions to
address Deepwater program management:
* In collaboration with the system integrator, take the necessary steps
to make IPTs effective, including:
* training IPT members in a timely manner,
* chartering the sub-IPTs, and:
* making improvements to the electronic information system that would
result in better information sharing among IPT members who are
geographically dispersed.
* Follow the procedures outlined in the human capital plan to ensure
that adequate staffing is in place and turnover among Deepwater
personnel is proactively addressed.
* As Deepwater assets begin to be delivered to operational units,
ensure that field operators and maintenance personnel are provided with
timely information and training on how the transition will occur and
how maintenance responsibilities are to be divided between system
integrator and Coast Guard personnel.
Further, we recommend that the Secretary direct the Commandant to take
the following six actions to improve contractor accountability:
* Develop and adhere to measurable award fee criteria consistent with
the Office of Federal Procurement Policy's guidance.
* In all future award fee assessments, ensure that the input of COTRs
is considered and set forth in a more rigorous manner.
* Hold the system integrator accountable in future award fee
determinations for improving the effectiveness of IPTs.
* Based on the current schedule for delivery of Deepwater assets,
establish a time frame for when the models and metrics will be in place
with the appropriate degree of fidelity to be able to measure the
contractor's progress toward improving operational effectiveness.
* Establish a TOC baseline that can be used to measure whether the
Deepwater acquisition approach is providing the government with
increased efficiencies compared to what it would have cost without this
approach.
* Establish criteria to determine when the TOC baseline should be
adjusted and ensure that the reasons for any changes are documented.
To facilitate controlling future costs through competition, we also
recommend that the Secretary direct the Commandant to take the
following two actions:
* Develop a comprehensive plan for holding the system integrator
accountable for ensuring an adequate degree of competition among
second-tier suppliers in future program years. This plan should include
metrics to measure outcomes and consideration of how these outcomes
will be taken into account in future award fee decisions.
* For subcontracts over $5 million awarded by ICGS to Lockheed Martin
and Northrop Grumman, require Lockheed Martin and Northrop Grumman to
notify the Coast Guard of a decision to perform the work themselves
rather than contracting it out. The documentation should include an
evaluation of the alternatives considered.
Agency Comments:
DHS forwarded us the Coast Guard's written comments on a draft of this
report, which are reproduced in appendix I. The Coast Guard provided us
with additional technical comments, which we incorporated as
appropriate. In an e-mail sent subsequent to the written comments, the
Coast Guard stated that it agreed with our recommendations.
The Coast Guard noted that the agency is learning and evolving as the
Deepwater program matures and pointed out that many aspects of the
Deepwater program--working with a system integrator, employing IPTs
across multiple acquisition domains, and using a performance-based
strategy for such a long-term undertaking--are new to the Coast Guard.
The agency agreed that, because the IPT structure is new to the Coast
Guard, many adjustments must be made to improve the teams'
effectiveness. The Coast Guard clarified that the IPTs are, for the
most part, contractor-led and that Coast Guard IPT members provide
support and oversight. The focus of this report, however, is on the
government's ability to oversee and manage the contractor. Deepwater
management documents assert, as we point out in our report, that IPTs
are the Coast Guard's primary tool for managing and overseeing the
contractor.
Regarding the award fee process, the Coast Guard stated that it has
taken action to assimilate objective factors into future evaluations
but expressed concern that our draft report may not have completely
reflected the rigor that was applied in the first award fee decision.
The Coast Guard states that "no input from any of the monitors was left
out of the evaluation process." While we revised our report to state
that all COTRs submitted comments, the input from the COTR responsible
for ships was not included in the numerical scores, which were then
passed on to the fee determining official. Further, the Coast Guard
said that the score of 87 percent is "much lower than industry
averages." In our view, however, the relevant consideration in
determining the award fee amount is not industry averages, but rather
the purpose an award fee is intended to serve. The rationale for
offering award fees is to motivate superior effort on specific task and
delivery orders, assets, or system performance attributes. Of
importance here, the narrative description in the Deepwater award fee
plan associated with a score of 87 percent ("very good") is "very
effective performance, fully responsive to contract requirements . . .
only minor deficiencies." As we state in our report, program management
reports throughout the first year of the contract cited various
schedule, performance, cost control, and contract administration
problems that required attention.
The Coast Guard agreed that competition is critical to controlling
costs and indicated that it is planning efforts that will result in
greater visibility and increased accountability to ensure competitive
practices are being used to manage costs.
Scope and Methodology:
To determine the steps taken by the Coast Guard to manage the Deepwater
program and oversee system integrator performance, we examined the
Deepwater contract, the program management plan, the human capital
plan, briefings, budget justifications, and monthly and quarterly
management reports. We analyzed IPT charters, membership lists, survey
data, and staffing data, and we observed IPT and working group
meetings. We interviewed various Deepwater program officials
representing the Coast Guard, the system integrator, and the
subcontractors, including program and asset-level program managers,
contracting officers, and ICGS representatives in Arlington, Virginia,
and Washington, D.C. We visited the First and Seventh Coast Guard
Districts in Boston, Massachusetts, and Miami, Florida, and interviewed
operators and systems specialists for Coast Guard cutters, aircraft,
and helicopters at those locations. We also met with Lockheed Martin
and Northrop Grumman employees in Avondale, Louisiana, and Moorestown,
New Jersey. We reviewed our prior reports and testimonies on the
Deepwater project and integrated product teams.
To assess Coast Guard efforts to establish effective criteria to assess
and reward the system integrator's performance after the first year of
the contract, we reviewed the award fee plan, the performance
incentives plan, the interim and final award fee reports for the first
year of contract performance, and other management documents. We
interviewed Coast Guard and ICGS officials. Our analysis of this issue
was hindered by the Coast Guard's failure to provide us with two
additional award fee determinations, despite our repeated requests.
To assess whether the Coast Guard has put in place measures to assess
the contractor's progress in meeting the three overarching goals of
Deepwater, we reviewed the performance measurement plan, the award term
plan, and other performance measurement documents. Additionally, we
interviewed the Deepwater program's Resources and Metrics staff, Coast
Guard operations personnel, and program managers. We also reviewed our
prior report on performance-based contracting attributes.
To determine whether the Coast Guard is addressing the role and extent
of competition for Deepwater assets, we examined ICGS's open business
model policy statement and excerpts from Lockheed Martin's procurement
manual and Northrop Grumman's acquisition policy manual. We discussed
the open business model with officials from the Coast Guard, ICGS,
Lockheed Martin, and Northrop Grumman. In addition, we reviewed
financial data, including contract orders and ICGS spreadsheets. The
Coast Guard provided us with the obligations to ICGS, Lockheed Martin,
and Northrop Grumman. We did not independently verify the financial
data.
We performed our work from May 2003 through February 2004 in accordance
with generally accepted government auditing standards.
We are sending copies of this report to other interested congressional
committees, the Secretary of Homeland Security, and the Commandant of
the Coast Guard. We will make copies available to others upon request.
In addition, the report will be available at no charge on the GAO Web
site at http://www.gao.gov.
If you or your staff have any questions regarding this report, please
contact me at (202) 512-4841 or Michele Mackin, Assistant Director, at
(202) 512-4309. Other major contributors to this report were Penny
Berrier, Ramona L. Burton, Christopher Galvin, Lucia DeMaio, Gary
Middleton, and Ralph O. White Jr.
Sincerely yours,
Signed by:
William T. Woods:
Director, Acquisition and Sourcing Management:
[End of section]
Appendix I: Comments from the Coast Guard:
U.S. Department of Homeland Security:
United States Coast Guard:
Commandant:
United States Coast Guard:
2100 Second Street, S.W.
Washington, DC 20593-0001
Staff Symbol: G-D-1
Phone: (202) 267-1540
Fax: (202) 267-4020:
7501:
FEB 13 2004:
Mr. William T. Woods:
U.S. General Accounting Office
441 G Street, NW
Washington, DC 20548:
Dear Mr. Woods,
Over the course of the last nine months we have engaged with your staff
to foster an informed understanding of the complexities of the
Deepwater Program and to respond to their in-depth analysis and
inquiries. I have been actively engaged with the effort throughout the
entire period and am impressed with the scale of your undertaking.
I appreciate the opportunity to respond to the draft report. It is in
the best interest of the public to work together to provide the best
possible product, with accurate, relevant information. As you know, the
Deepwater Program is the largest, and, arguably, the most complex
performance-based contract in the federal government. Given the
challenges of a dynamic environment, new responsibilities within the
Department of Homeland Security, and the flexibilities intentionally
inherent in this program, we welcome your observations and
recommendations as an independent review of the program's management
practices. My staff has already provided your staff with several
detailed observations, and I wish to review several additional key
points in the draft report at this time.
The performance of the program's Integrated Product Teams (IPT's) has
been recognized as an area of challenge by program management and our
industry team. The IPT structure is new to the Coast Guard, and there
are many adjustments we need to make to improve their effectiveness. We
are endeavoring to improve the processes needed for them to attain full
competency. The first 20 months of the program have provided many
lessons learned, and we are diligently working to incorporate these as
well as other best practices identified in other studies and GAO
reports into our operating procedures. While there has been high
personnel turnover on the IPT's, each IPT is chartered, each member
completes a required training syllabus, and each IPT clearly specifies
performance measures, roles, and responsibilities. I would like to
clarify the draft report's contention that IPT's do not provide
oversight of the contractor. The contractor, with a few exceptions,
leads them. Some IPT Members, namely our domain leads, the KO, and USCG
lead representative on the IPT's - which is usually the COTR - are in
place to provide support to the IPT and also serve in an oversight
role. Considering the scope, magnitude, and innovation involved with
the Deepwater program's acquisition strategy, it is a credit to the
diligence, perseverance, and dedication to all involved that the IPT
structure has matured as much as it has.
The Deepwater program is faced with a large turnover of senior
personnel this year, due primarily to unplanned retirements of several
key members. I remain committed to managing the acquisition with the
right number and mix of qualified personnel. Our Human Capital Plan
(HCP) serves to guide the management of our personnel system. Although
the personnel
funding account did not allow for additional hires in fiscal year 2004,
efforts have been made to fill some of the turnover gaps by assigning
civilian personnel to some military billets and bringing on board
military personnel out of cycle from other assignments in the Coast
Guard. The process to establish new positions operates on the same
cycle as the budget process, two years in advance. Due to the
relatively short advance notice of the retirements, there was
insufficient time to incorporate these billet needs required by the HCP
into the budget process prior to fiscal year 2006. The HCP will be
updated and the necessary training billets budgeted as part of the FY-
06 budget cycle. I think it safe to say that Mr. Walker is correct...
the crisis of human capital management is a fundamental challenge. We
do not underestimate that.
One portion of your analysis that warrants additional clarification is
the evaluation of the program's ability to assess the contractor's
performance. This is an area where I have focused considerable
attention and effort. I firmly believe that we are addressing this
aspect of program management with assiduous rigor, and am concerned
that the draft report may not completely reflect the rigor that has
been applied. Five specific areas of performance were evaluated during
the first award term. The factors were weighted and scored to provide a
numerical score that formed the basis for the award fee. Both
adjectival ratings and the numerical score were included in the
Performance Evaluation Board input. No input from any of the monitors
was left out of the evaluation process. Strict adherence to Federal
Acquisition Regulations (FAR) is an overriding principal in all
accounts.
In particular, I am concerned that the draft report mischaracterizes
the Award Fee scoring process that has been utilized. The report notes
that the contractor was awarded an Award Fee score that is defined as
"very good," and that the Award Fee totaled $4.02 million or 87 percent
of the maximum available despite documented problems with cost,
schedule, and performance. This is true, however it must be taken in
context. I believe that this score is much lower than industry
averages. I am confident that the Award Fee level was fair and
represented an accurate assessment of contractor performance. The
reaction by the industry team to ensure the right people are in place
focusing on the right issues would appear to validate the nature and
implications of the score. We have taken the insights of your
assessment to heart.-objective factors are being assimilated into
future evaluations.
Particular emphasis has been placed on the ability to measure
performance within the scope of the program. The Performance
Measurement Plan, and in particular the Deepwater Balanced Scorecard
(BSC) Strategy Map, clearly articulate how the perspectives and
objectives of the program's BSC identify input, process, and output
measures that provide leading indicators of Operational Effectiveness,
Total Ownership Cost, and customer satisfaction. This effort has been
underway since contract award and continues to evolve as the program
identifies measures and data sources and as the system components
mature from design to production, fielding, and disposal. The Deepwater
Program, by adopting the BSC framework, has taken a proactive approach
to contractor assessment in order to ensure that course corrections and
adjustments can be made before the Award Term assessment in year four,
prior to the end of the first term.
I firmly agree with the report's conclusion that competition is
critical to controlling costs. We strive to maintain alignment with the
President's Management Agenda, the Department of Homeland Security's
acquisition principles, and the Coast Guard's business plan. The
Department's Joint Requirements Council has been briefed on the
program, and we anticipate close interactions in the future. The Open
Business Model, initially a Lockheed Martin
philosophy, is now official ICGS policy. It has been approved by the
ICGS Board of Directors and is applicable to all Deepwater
transactions. To enforce these regulations, ICGS has appointed a
Competition Advocate and Ombudsman tasked to draft implementation
procedures for regular reporting to ICGS. Also, we are planning visits
by the ICGS Competition Advocate to our industry partners to examine
Make/Buy decisions and competition practices. The report should reflect
that the Open Business Model has ensured competition as a cost control
tool. ICGS selected the CASA airframe over its Lockheed Martin
competition as the solution for the Maritime Patrol Aircraft, and the
Bell VUAV over its Northrop Grumman competitor. Since contract award,
ICGS has held three Industry Days-resulting in 479 interviews with
potential contractors and 90 follow-ups.
In the near future, the program will put additional processes in place
to ensure competitive practices are being used to manage costs more
aggressively. An annual independent third-party review of ICGS
transactions will be conducted. The Vice Commandant of the Coast Guard
(the Agency Acquisition Executive) will review any major subcontract
awarded to Lockheed Martin or Northrop Grumman. Additionally, a review
of competition will be included in the Award Term Evaluation. These
efforts will result in added vigilance, greater visibility, and
increased accountability. Together, these measures will improve our
ability to control costs in the future.
The Integrated Deepwater System program entails not only organizational
change and a new approach to acquisition, but technological change that
forces both public and private sectors to be more adept at executing a
program of incredible scope, duration, and complexity. The Coast Guard
has never worked with a systems integrator on this scale before. We
have not employed IPT's across multiple acquisition domains, nor have
we employed a performance-based strategy for such a long-term
undertaking. But we are learning and evolving as the program matures.
We have incorporated recommendations made by previous reviews of the
program by both GAO and the Department of Transportation's Inspector
General. We appreciate the opportunity to share our lessons learned,
successes, and growing pains in an open environment as we continue to
embrace the tenets of a successful learning organization.
Thank you for your detailed analysis and observations. I look forward
to continued positive dialog with you and your staff as we work to
improve the management of the Deepwater program during the coming
years. You have our commitment to engage in continuous improvement.
Sincerely,
Signed by:
P. M. STILLMAN:
Rear Admiral, U. S. Coast Guard:
[End of section]
Appendix II: Status of Selected Deepwater Contract Management and
Oversight Plans:
Plan: Award fee plan;
Purpose: Establishes criteria and procedures used to evaluate
Integrated Coast Guard Systems' (ICGS) management performance, and to
determine the amount of award fee earned;
Planned completion date: Contract award, June 2002;
Approved: June 2002;
Scheduled life of plan: Updated annually[A].
Plan: Program management plan;
Purpose: Provides the management framework, organizational structure,
schedule, activities/events, tasking, and process guidelines required
to implement phase 2 of the program;
includes additional plans as noted below;
Planned completion date: December 2002;
Approved: December 2003;
Scheduled life of plan: Dynamic document, periodically updated.
Plan: Contract management support plan;
Purpose: Details responsibilities and processes to implement the
contract;
Planned completion date: December 2002;
Approved: December 2003;
Scheduled life of plan: [Empty].
Plan: Financial management plan;
Purpose: Describes activities and processes to ensure funding is
available to execute the program;
Planned completion date: December 2002;
Approved: December 2003;
Scheduled life of plan: [Empty].
Plan: Risk management plan;
Purpose: Establishes structure and method for identifying and managing
risks, and developing and selecting options to mitigate risks;
Planned completion date: "Soon after contract award";
Approved: December 2003;
Scheduled life of plan: [Empty].
Plan: Performance measurement plan;
Purpose: Links the program budget to performance and provides strategic
focus linking performance measures to program mission, vision, and
guiding principles;
Planned completion date: December 2002;
Approved: December 2003;
Scheduled life of plan: Updated on a semiannual basis.
Plan: Quality assurance plan;
Purpose: Outlines the processes and procedures used to implement the
program's quality assurance process;
Planned completion date: 90 days after contract award (September 2002);
Approved: September 2002;
Scheduled life of plan: [Empty].
Plan: Performance incentives plan;
Purpose: Establishes a team to evaluate ICGS's efforts to exceed
performance standards set by the contract and performance measurement
plan;
Planned completion date: Not applicable;
Approved: March 2003;
Scheduled life of plan: Remains in effect until terminated, changed, or
amended.
Plan: Award term plan;
Purpose: Establishes criteria for contract term incentives, and
evaluation process and periods;
Planned completion date: June 2002;
Approved: December 2003;
Scheduled life of plan: Duration of contract, with procedures for
changes.
Source: GAO analysis of Deepwater documents.
[A] An updated award fee plan was not available as of December 31,
2003.
[End of table]
[End of section]
FOOTNOTES
[1] The Deepwater assets are expected to be delivered within 20 years,
and the contractor is to be retained an additional 10 years to continue
implementing the program.
[2] Coast Guard: Progress Being Made on Deepwater Project, but Risks
Remain, GAO-01-564 (Washington, D.C.: May 2, 2001).
[3] Total ownership cost is the sum of all costs associated with the
research, development, procurement, personnel, training, operation,
logistical support, and disposal of the entire Deepwater system.
[4] Homeland Security Act of 2002, Pub. L. No. 107-296, sec.888(i), 116
Stat. 2135, 2250 (2002).
[5] The Investment Review Board was established to provide visibility,
oversight, and accountability for significant, high-cost investments.
It conducts systematic reviews of investment proposals and approves key
decisions.
[6] The DHS Joint Requirements Council will conduct program reviews
annually and prior to key decision points to oversee the requirements
generation process, validate mission needs statements, review cross-
functional needs and requirements, and make programmatic
recommendations to the Board.
[7] Best Practices: DOD Teaming Practices Not Achieving Potential
Results, GAO-01-510 (Washington, D.C.: Apr. 10, 2001). The Department
of Defense has used IPTs on major programs such as the Advanced
Amphibious Assault Vehicle program, a high-speed amphibious armored
personnel carrier.
[8] Delivery task orders are orders for supplies or services placed
against an existing contract. In the context of the Deepwater contract,
these would be orders placed by the Coast Guard with ICGS for the
delivery of specific assets or for other work.
[9] These were for Deepwater's integrated logistics system and C4ISR.
[10] Integrated product and process development is a management
technique that integrates all essential acquisition activities through
the use of multidisciplinary teams to optimize the design,
manufacturing, and supportability processes. One of the key integrated
product and process development tenets is that IPTs facilitate meeting
cost and performance objectives.
[11] Due to concerns about low response rates, an analysis was done
only on those IPTs with response rates greater than 30 percent. Only 14
of the 27 teams contacted as part of the latest survey, conducted in
September 2003, had a response rate that allowed their results to be
analyzed.
[12] GAO-01-564.
[13] The short range prosecutor is a new rigid-hull inflatable small-
boat being introduced for the Deepwater cutters. This boat is 7.7
meters long, may carry up to 10 personnel and 150 pounds of cargo, and
may travel at speeds up to 33 knots. Each modernized 123-foot cutter
and the fast response cutter will carry one short range prosecutor. The
national security cutter and the offshore patrol cutter will also be
able to carry the short range prosecutor.
[14] The Federal Acquisition Regulation (FAR) states that a contract is
to be definitized within 180 days after the date of the letter contract
or before completion of 40 percent of the work to be performed,
whichever occurs first. FAR 16.603-2(c).
[15] A Guide to Best Practices for Performance-Based Service
Contracting, Office of Federal Procurement Policy, Office of Management
and Budget, Executive Office of the President, Final Edition, October
1998, and Internal Control: Standards for Internal Control in the
Federal Government (GAO/AIMD-00-21.3.1), U.S. General Accounting
Office, November 1999.
[16] An award fee is an amount a contractor may earn, either in whole
or in part, based on the contracting agency's judgmental evaluation of
the contractor's performance against established criteria (FAR 16.404,
16.405-2).
[17] In a document provided to a congressional committee entitled "DHS
Procurement Policy Impacts on Deepwater," the Coast Guard stated that
"the annual award fee is based on the accomplishments of the small
business subcontracting plan." However, Coast Guard officials
subsequently confirmed that small business subcontracting is not an
award fee evaluation factor.
[18] Coast Guard contract number DTCG23-02-C-2DW001, section J,
attachment J-14, Award fee plan, awarded June 25, 2002, amended
November 8, 2002. The plan indicates that changes to the award fee plan
will be made through a bilateral contract modification.
[19] An adjectival rating of "very good" ranged from a score of 81 to
90.
[20] GAO-01-564.
[21] The Deepwater award term plan establishes the criteria for
awarding contract options and the evaluation process and periods.
[22] ICGS's limited liability company agreement articulates each
member's work scope. Lockheed Martin "shall be responsible for program
management; systems design; C4ISR assets and capabilities; aviation
assets; and logistics assets and capabilities…" Northrop Grumman
(Ingalls) shall be responsible for program management and logistics for
surface assets…"
[23] Teaming agreements are defined in FAR 9.601 as an arrangement
between two or more companies to form a partnership or joint venture to
act as a potential prime contractor or a potential prime contractor
agrees with one or more companies to have them act as its
subcontractor. Under guaranteed work shares, a subcontractor is
guaranteed a certain percentage of the work.
[24] 10 U.S.C. sec. 2302(3)(D); 41 U.S.C. sec. 403(b).
[25] Ingalls Shipbuilding, Inc. was subsequently acquired by Northrop
Grumman.
[26] A stern tube is a tube through which the tail shaft passes to the
propeller.
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