GAO-12-918, “COAST GUARD, Portfolio Management Approach Needed to Improve Major Acquisition Outcomes”

September 26, Fiercehomelandsecurity posted a story (“GAO: Not eliminating two National Security Cutters will cause ‘difficult choices'”) on a recent GAO report, “COAST GUARD, Portfolio Management Approach Needed to Improve Major Acquisition Outcomes” (download the report, GAO-12-918 (.pdf)). While the post focused on the apparent recommendation not to seek to build units seven and eight of the National Security Cutters, there was much more to the report.

Basically the GAO is saying that the Coast Guard is not using a systematic approach to its acquisitions, that much of the information that its budget is based on is out of date, and that the Coast Guard is allowing the Congressional Budget Process to determine its priorities.

I’m going to quote the report liberally:

What GAO Found

“The planned cost and schedule of the Coast Guard’s portfolio of major acquisitions is unknown because of outdated acquisition program baselines and uncertainty surrounding affordability. The Coast Guard’s approved baselines, which reflect cost and schedule estimates, indicate the estimated total acquisition cost of Coast Guard major acquisitions could be as much as $35.3 billion—an increase of approximately 41 percent over the original baselines. However, the approved baselines for 10 of 16 programs do not reflect current cost and schedule plans because programs have breached the cost or schedule estimates in those baselines, changed in scope, or do not expect to receive funding to execute baselines as planned. Furthermore, a continued mismatch between resources needed to support all approved baselines and expected funding levels has required the Coast Guard to make decisions about which programs to fund and which programs not to fund as part of its annual budget process. Both DHS and the Coast Guard have acknowledged this resource challenge, but efforts to address this challenge have not yet resulted in a clear strategy for moving forward.

“The Coast Guard has taken steps through its requirements process—a process that takes mission needs and converts them to specific capabilities—to address affordability, but additional efforts are required. For example, in an effort to consider affordability, the Coast Guard made some capability trade-offs when developing requirements for its largest acquisition, the Offshore Patrol Cutter. But whether the cutter ultimately will be affordable depends on some key assumptions in the cost estimate that are subject to change. At the fleet level, the Coast Guard completed two efforts to reassess what mix of assets it requires to meet mission needs, but neither effort used realistic fiscal constraints or considered reducing the number of assets being pursued. The mix of assets the Coast Guard is acquiring is based upon needs identified in 2005, but the Coast Guard may not be on a path to meet these needs and it has not re-examined the portfolio in light of affordability.

“The Coast Guard has established an acquisition governance framework that includes the following cross-directorate teams: the Executive Oversight Council, the Systems Integration Team, and Resource Councils. The Executive Oversight Council—composed of admirals and senior executives—is well-positioned to delegate tasks to the other teams or obtain information as needed to assist in managing acquisitions. This Council has been active in meeting to discuss individual acquisitions; however, it has not met to discuss the portfolio as a whole. Coast Guard officials told us it manages portfolio affordability through the budget process. GAO’s best practices work has found that successful commercial companies assess product investments collectively from an enterprise level, rather than as independent and unrelated initiatives. The Coast Guard’s current approach of relying on the annual budget process to manage portfolio affordability involves immediate trade-offs but does not provide the best environment to make decisions to develop a balanced long-term portfolio.

——————————————————————–

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

In other words, the Coast Guard hopes to buy a really nice dinner table, but can only afford three of the four legs. GAO is telling us we really should be looking a nice little Formica topped breakfast table.

I can see why they would say this, but on the other hand, I can see that the Coast Guard may view it differently. The GAO assumes that the Coast Guard’s AC&I budget will remain essentially the same with minor fluctuations. From the Coast Guard perspective that is a prescription for disaster. It really needs to increase to approximately $2B/year. There is also likely, a fear that if they ask procurement that would fit within the budget, that would be trimmed even more by the the Department and the Administration, and the service would be even worse off.

Costs are greatly dependent on order quantity and time of funding. Is the estimated price of a system to be based on the build rate we need, or the build rate we think we will see? If we choose wrong, the baseline will be wrong and will not reflect reality.

Congress and GAO do recognize inflation rates, but they don’t seem to have recognized that inflation is higher in the shipbuilding industry than in the economy as a whole, so as ship construction is pushed to the right, the projects will get more expensive, even on an inflation adjusted basis.

“DHS stated that future breaches in Coast Guard programs would almost be inevitable as funding resources diminish. (p.17)

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

While unmanned systems, and comprehensive maritime domain awareness may have allowed the CG to do with fewer ships, in the absence of these systems we need more ships and manned aircraft.

“Coast Guard program officials also added that the cost estimate for the Offshore Patrol Cutter is optimistic in that it assumes that the cutter will be built in accordance with the current acquisition strategy and planned schedule. They noted that any delays, design issues, or contract oversight problems—all of which were experienced during the purchase of the National Security Cutter—could increase the eventual price of the Offshore Patrol Cutter.”

——————————————————————–

While the (Coast Guard’s) Executive Oversight Council has had opportunities to discuss affordability of the entire portfolio and make informed trade-off decisions, Coast Guard officials told us that all of these decisions are handled through the annual budget process, which also takes into account budgeting for operating expenses. However, the Coast Guard’s current approach of relying on the budget process to manage the affordability of its portfolio has proven ineffective. The preparation of the annual budget request involves immediate trade-offs, but does not provide the best environment to make decisions to develop a balanced, long-term portfolio. As we have previously reported, given that the Coast Guard is managing more programs than its budget can support, and it does not review its portfolio outside of the annual budget process, the Coast Guard has relied on budget decisions each year to drive the acquisitions process. As a result, program managers react to the budget request each year as opposed to having a reliable funding profile consistent with their approved baselines by which to execute their programs. One of the responsibilities in the Executive Oversight Council’s charter is to synchronize projects with planning, programming, budgeting, and execution milestones to align them for successful completion of key milestones, but Coast Guard officials acknowledged that this alignment has not yet occurred.

“Opportunities Exist to Address Affordability through the Requirements Process”

Perhaps there are opportunities to look at alternatives to the platforms in the existing program of record.

The program of record replaces the existing fleet with more sophisticated more capable platforms, but these platforms are also relatively expensive, and cannot be procured in the numbers needed, within the existing budget. But should the budget be fixed at this level?

Essentially the size of Coast Guard’s cutter fleet actually shrank as we went from a 3 mile territorial sea, to a 12 mile territorial sea, to a 200 Exclusive Economic Zone; as we went from doing “courtesy” boardings where we did a little research and swapped dirty magazines with foreign F/V crews, to enforcing fisheries regulations and hunting for drugs of the West Coast of South America. The job has grown immensely but the fleet never did.

16 thoughts on “GAO-12-918, “COAST GUARD, Portfolio Management Approach Needed to Improve Major Acquisition Outcomes”

  1. A “systemic” approach is needed?

    Do they mean a systems of systems approach? Funny because SoS was the right way to go for Deepwater it just wasn’t done well. SoS can be the best approach – but it can also be the worst.

    Deepwater originally went the LSI route because the USCG was mature enough to know it needed a lot of help. Problem is the LSI’s failed them and still are. Go after the “unconditional” program wide performance guaranty to help fund the huge mission gap.

  2. Around and around we go, next stop, the same place we started. LSI was chosen because it was deemed as the only way the USCG could ever get enough clout to buy the assets. No LSI = No money. Unfortunately, the LSI is to hard to control. How is it that that we can build DDG’s to 62 with 75 planned at $1.85B a piece (plus the after market work that takes two years each and doesn’t get counted in the total) and not bat an eye? I’m just not really understanding why its such an issue. DoD doesn’t have to follow these rules during large acquisition programs, everyone just shrugs their shoulders and cuts the check when it runs over budget. The only way to fix this is to have DHS manage USCG operations oversight and DoD control the major acquisitions budget. As I have been told by many DoD personnel, “your budget is just a rounding error for us”. DoD includes USCG envisioned needs in their theater CONOPS. Just have DoD and DHS sign off on a requirements list and turn it over to the DoD oversight committees for funding. Other than that, just draw a line that says USCG AC&I funding cannot drop below a specific percentage of overall DoD acquisitions funding (to keep someone from cutting it off in favor of some pork project). Everything we’ve discussed about multi-year and multi-hull buys would immediately become the norm. In fact, this should be the same for CBP’s aviation acquisition program. DHS just simply stinks at acquisitions. Its got no consolidated culture, mission, or vision. It therefore has no concept of the big picture and the long term issues. We seem stuck in this revolving cycle and the only thing that moves are the hands on the clock.

    If DoD ran the acquisition budget then they likely would have exerted enough pressure on HISB and Bollinger to make Michael silent or they simply would not have cared and moved forward. Those C-27j’s would have been bought to start with instead of the HC-144’s. Regardless, at this point they definitely would be transitioning them to the USCG instead of parking them in the Arizona sun until WWIII. The FIRESCOUT would be operating on the back of the NSC. We’d likely be running full speed towards an Artic Cutter program and the Polar class would never have been sidelined to start with. Most importantly, our system of assets would be designed to directly compliment DoD’s total force structure and simultaneously meet Coast Guard’s domestic needs.

    A great example is the Pacific shift that is starting. DoD released its theater CONOPS and showed a decreased commitment to SOUTHCOM (Chuck posted this previously). In an integrated fleet mix, they would recognize that this means that as major combatants leave for the Pacific theater then the capabilities gap can only be filled by CGC’s. This would be a trigger point where DoD would look at CGC acquisition as a least cost option to close the gap.

    Example: there is a mix of Navy WPC’s and CG WPB’s deployed to SW Asia. They do the exact same jobs, the reason they don’t have one class of ship over there is that those were the available assets made available from two different fleets. This is because its not an integrated fleet mix. In a USN/USMC/USCG coordinated fleet study, the entire set of capabilities would be analyzed. In this example, maybe there would be 12 WPB’s in SW Asia and WPC’s patrolling the Florida Straits. Each theater requires a specific set of capabilities and a coordinated fleet mix would ensure that the lowest cost/best fit option would be assigned to each theater. This might mean more CGC’s deployed doing piracy OPS or partnership stations while more Navy Ships with LEDET’s conduct counter drug operations or patrol for migrants.

    I just feel like Senior DHS leadership doesn’t understand the CG’s major fleet, doesn’t understand its necessity, and thinks its redundant with DoD. I think DoD has a much better appreciation for the offshore fleet.

    Final thought, Bill made some statements recently about how the parent services never really came together. In that context, the Lifesaving Service is doing pretty good these days with a complete replacement of the ENTIRE station boat portfolio and modern command centers equipped with Rescue21. The lighthouse service has modern tenders, a well funded ATON system, and modern VTS. The Steamboat Inspection Service is kicking strong and well suited for its prevention mission. Its the Revenue Cutter Service that is facing the challenges and teetering on the edge of the cliff. Do you think Treasury will take us back? I sort of want to take all of my Statute authorities and go home.

    • Awesome points! The problem is the current crop of DHS political leadership has a big chip on their shoulder towards DOD and if they could have their way, the CG would have no participation in support to DOD. I.e., any CG ops – even international – would be solely under the DHS umbrella.

      Again though, great points. And there is precedent for it such as NAVSEA assisting with HEALY’s acquistion, tests and trials and the purchase of additional WPB-110s by the Navy during ADM Yost’s tenure.

      If the CG had competent political masters they would ensure the CG’s ship’s which are called for in existing DOD OPLANS/CONPLANS were taken into account under the Navy’s 30 year shipbuilding plan…and subsequently funded. Unfortunately we do not so it is what it is and the Commandant is left holding the bag.

      • I am with you up to the Commandant “holding” the bag. He and several Commandant’s before him made the bag through their own lack of political courage. The Commandant/Chief of Staff (who become Commandant’s) pipeline has been week going back to Loy in the Deepwater area.Yes the contractor LSIs are most responsible and started the problems but the CG leadership rolled over too much as well. (And they are still rolling)

    • One of my gripes is that if we have a “National fleet,” then it should also count Coast Guard Cutters. That would make cuts in CG assets more visible and it would help generate the political clout to get replacements.

      • Chuck – as long as the CG is in a “civilian” department, the current status quo isn’t going to change. DHS doesn’t care about the Coast Guard or the Coast Guard’s missions. That should have been painfully obvious when Secretary Napolitano didn’t support buying the final planned NSC’s.

        After 9/11, I remember hearing all the bravado about how the Coast Guard was going to prosper upon leaving DOT and moving into the new DHS. That optimism has faded with the realization that the only things the current Secretary and her staff care about are 1) keeping the fear factor elevated so that $$$ keeps flowing into DHS coffers, 2) the Southwest Border, and 3) airports.

      • Well said Anonymouse! When the Commdant has his own “service Secretary” (sic) cut him off at the legs while he is making an argument for more cutters, makes his job that much tougher.

        Those who wanted the Coast Guard to morph into some pseudo-SWAT team organization with a port-centric focus while avoiding sea duty might have championed the shift to DHS, but in reality it has done nothing to stem the bleeding of adequate funding that has been happening since the early 1990s.

        We are already seeing the money valve shut off for all these new “tactical” units anyway who ten years later have yet to capture a single terrorist.

      • I will leave it to others to decide if DHS has been great for the USCG. However – the Deepwater program, due to 9/11, was well supported and funded. The debacle did not occur because the USCG was not adequately supported. It happened because failed leadership all around squandered the support and massive $$$ increases it got. Was that support and $$$ enough”? Probably not. But had leadership done the right thing most of these threads would not be occurring right now or that at least would not be discussing a Coast Guard whose mission capabilities are far worse than before Deepwater began. Had Deepwater been funded and supported to the RAND recommended post 9/11 suggested levels the debacle would have only been larger.

  3. Well put. I have previously pondered consolidated U.S. Defense Marine Asset Acquisition and U.S. Defense Aviation Asset Acquisition departments under DOD. It seems to have a lot of upside…. paticularly for the Coast Guard and likely the taxpayer as well.

  4. Anonymouse correctly states an older premise, “, I remember hearing all the bravado about how the Coast Guard was going to prosper upon leaving DOT and moving into the new DHS.”

    The same thing was said about the move to the Department of Transportation. I would have to dig out the exact quote, but one congressman involved in the Treasury to Transportation move said he had hoped the Coast Guard would have been treated better under Transportation but it had not turned out that way. As with the “SWAT” supporters to DHS, the aviators were much a glee about moving into Transportation and the FAA. If all recall, perhaps many do not, the Coast Guard was in the midst of Vietnam when transferred and there was a huge shift in mission emphasis. By 1970, the Coast Guard was in full swing to take over NOAA and become the “premier marine science” organization. I suppose today it is the “premier maritime law enforcement” organization. Hmmm, as history turns.

      • Well NOAA does publish the Tide and Current Tables. 🙂

        In all seriousness, it would make sense to maybe combine the two from an organizational and fiscal outlook. If anything, it would give the CG an excuse to return to the traditional uniforms for officers since NOAA officers still wear blues, whites and khakis instead of masquerading as a bus driver or skycap.

      • I know Chuck. We didn’t call what is now the Helo Hanger on a WHEC the Ballon Hanger for no reason. 😉

    • You mean the self-appointed “premier law enforcement” organization that does not perform arrests and has yet to intercept a single terrorist (which the SWAT types claimed and insinuated our ports and waterways were crawling with), you mean Bill? LOL!

      Glad to see you are doing well Master Chief.

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