Contract Management:

Coast Guard's Deepwater Program Needs Increased Attention to Management and Contractor Oversight

GAO-04-380: Published: Mar 9, 2004. Publicly Released: Mar 9, 2004.

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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.

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.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To address Deepwater program management, the Secretary of Homeland Security should direct the Commandant of the Coast Guard, in collaboration with the system integrator, to take the necessary steps to make integrated product teams (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.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: The Coast Guard has reoriented its acquisition organization to execute system integration and program management responsibilities formerly carried out by industry, and it has begun to assert control over Deepwater integrated product teams (IPT). IPTs were previously led and managed by the contractor, while government team members acted as "customer" representatives. IPTs have now been chartered and restructured with Coast Guard officials serving as the sole lead on the IPTs. Based on recent audit work, as discussed in GAO-08-745, this recommendation has been fully implemented.

    Recommendation: To address Deepwater program management, the Secretary of Homeland Security should direct the Commandant of the Coast Guard to 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.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: In February 2005, the Deepwater program issued a revised human capital plan that emphasized workforce planning. The Coast Guard has also added new contracting officers and specialists and is working with the Defense Acquisition University to train personnel.

    Recommendation: To address Deepwater program management, the Secretary of Homeland Security should direct the Commandant of the Coast Guard to, 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.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: The Coast Guard has taken over maintenance and logistics responsibilities for Deepwater assets and plans to use contractor support on an as needed basis. Based on recent audit work discussed in GAO-08-270R, and a Commandant instruction that formalizes Coast Guard's decision, this recommendation is closed as implemented.

    Recommendation: To improve contractor accountability, the Secretary should direct the Commandant to develop and adhere to measurable award fee criteria consistent with the Office of Federal Procurement Policy's guidance.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: Recommendation has been implemented with revised award fee criteria.

    Recommendation: To improve contractor accountability, the Secretary should direct the Commandant to, in all future award fee assessments, ensure that the input of contracting officer's technical representatives is considered and set forth in a more rigorous manner.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: The Coast Guard has continued to revise its award fee criteria; domain performance monitor subjective comments are now fully considered by the award fee board and entered into award fee calculations. The Coast Guard has provided additional guidance and training to performance monitors.

    Recommendation: To improve contractor accountability, the Secretary should direct the Commandant to hold the system integrator accountable in future award fee determinations for improving the effectiveness of IPTs.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: The Coast Guard changed its award fee measures to place additional emphasis on the system integrator's responsibility for making IPTs effective. Award fee criteria now incorporate the administration, management commitment, collaboration, training, and empowerment of these teams.

    Recommendation: To improve contractor accountability, the Secretary should direct the Commandant to, 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.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Not Implemented

    Comments: The Coast Guard has developed modeling capabilities, namely through the DMOES model, to simulate the effect of new assets' capabilities. Officials acknowledged, however, that tracking operational effectiveness was difficult because the data on mission results and accomplishments did not differentiate between Deepwater assets and non-Deepwater assets. Too few Deepwater assets were online to effectively measure the system integrator's actual performance in improving operational effectiveness as discussed in GAO-06-546. As of January 2008, the Coast Guard is no longer using operational effectiveness to measure contractor performance, but is instead relying on past performance indicators. Coast Guard officials no longer plan to update the model.

    Recommendation: To improve contractor accountability, the Secretary should direct the Commandant to establish a total ownership cost (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.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Not Implemented

    Comments: The Coast Guard does not intend to track total ownership costs under a traditional procurement approach, as spelled out in the program management plan.

    Recommendation: To improve contractor accountability, the Secretary should direct the Commandant to establish criteria to determine when the TOC baseline should be adjusted and ensure that the reasons for any changes are documented.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: The Coast Guard has changed procedures so that the Agency Acquisition Executive approves changes to the total ownership cost baseline. The Coast Guard has begun using criteria from its Major Systems Acquisition Manual as the basis for adjusting the baseline. The Coast Guard is also required to submit baseline information to the Department of Homeland Security on a quarterly basis. Under DHS policy, a baseline breach of 8 percent or more requires the Coast Guard to provide information on the causal factors and propose corrective actions to rectify the breach. In May 2007 DHS approved the Coast Guard's Acquisition Program Baseline for Deepwater, which includes criteria for TOC baseline adjustments and guidelines for documenting such changes in accordance with DHS policy.

    Recommendation: To facilitate controlling future costs through competition, the Secretary should direct the Commandant to 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.

    Agency Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: The Coast Guard's transition away from the system of systems contract to an asset-by-asset acquisition is enabling increased government visibility and control over its acquisitions and increasing competition. For example, the Coast Guard recently held its own competition for the Fast Response Cutter-B, in lieu of obtaining the asset through the system integrator after determining that it could better control costs by doing so. The Coast Guard plans to hold other competitions outside the ICGS contract for additional assets in the future. Based on recent audit work discussed in GAO-08-745, this recommendation is closed as implemented.

    Recommendation: To facilitate controlling future costs through competition, the Secretary should direct the Commandant, for subcontracts over $5 million awarded by ICGS to Lockheed Martin and Northrop Grumman, to 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 Affected: Department of Homeland Security: United States Coast Guard

    Status: Closed - Implemented

    Comments: Coast Guard has asked for notification at a $10 million threshold and the contractor has agreed.

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