“Coast Guard Cutter Procurement: Background and Issues for Congress Updated November 27, 2019” –CRS

The Congressional Research Service (CRS) has again updated their report on Cutter Procurement. You can see it here. Actually it was updated twice in rapid succession, on 25 Nov. to reflect the Coast Guard’s action, and on 27 Nov. to reflect the action of the House Transportation and Infrastructure Committee and the Chair and Ranking Member of that committee’s Coast Guard and Maritime Transportation subcommittee in the form of what could only be described as a scathing letter to the Acting Secretary, Department of Homeland Security.

First, I will address the changes included in the 25 Nov. update. (Page numbers are where these changes appear in the 27 Nov. update, linked above.)

Second, I will discuss the 27 Nov. update including verbatim the quoted portions of the letter that were included in the CRS report.

There are a number of alternatives to the current plan to continue construction of the first four ships at Eastern and recompete the contract for ships of essentially the same design, but that is a subject for a separate post.

—–

The 25 Nov. Update.

The Coast Guard’s November 22 update and the draft Statement of Work, which we discussed earlier, are covered on pages 14-16.

Growth in the OPC’s estimated displacement, which was also revealed in the Statement of Work, is noted at the bottom of page 4, continuing to page 5, as part of the OPC Program Overview.

OPCs … are to be less expensive and in some respects less capable than NSCs. OPCs are to have a length of 360 feet, which will make them about 86% as long as NSCs, which have a length of 418 feet. OPCs were earlier estimated to have a full load displacement of 3,500 tons to 3,730 tons, which would have made them about 80% as large in terms of full load displacement as NSCs, which have a full load displacement of about 4,500 tons. As the OPC design has matured, however, its estimated displacement has grown to about 4,500 tons, making it essentially as large as the NSC in terms of full load displacement

The decision to recompete has raised a number of “Issues For Congress” beginning on page 19 and continuing through page 23, including consideration of a 12th National Security Cutter in view of the delays in the delivery of Offshore Patrol Cutters.

—–

The 27 Nov. Update

This update reflected the HTIC’s November 25 letter to DHS regarding the program. The November 25 letter is covered on pages 16 (as part of the background information), page 23 (as part of the issues for Congress), and 27-29 (as part of the legislative activity).

November 25, 2019, Letter from House Transportation and Infrastructure Committee to DHS Regarding OPC Program

A November 25, 2019, letter to the Acting Secretary of DHS from the Chair and Ranking Member of the House Transportation and Infrastructure Committee and the Chair and Ranking Member of that committee’s Coast Guard and Maritime Transportation subcommittee regarding the OPC program states in part:

The Committee on Transportation and Infrastructure has reviewed your proposal to provide extraordinary relief under Public Law 85-804 as requested by Eastern Shipbuilding Group (ESG) for the construction of the Offshore Patrol Cutter (OPC). We are skeptical that such truly extraordinary relief is justified given that this “crisis” was foreseeable and mostly avoidable. Further, we are concerned that this relief sets a damaging precedent that any current or future contract with the United States Coast Guard (Coast Guard or Service) could be renegotiated outside the Federal Acquisition Regulations.

As you know, the Coast Guard is in the middle of a rnulti-decade, multi-billion-dollar recapitalization of its cutter fleets. Last fall, the Service entered into a fixed price contract with ESG for the largest single acquisition in its history for the OPC. Shortly after entering into that contract, on October 10, 2018, Hurricane Michael hit the ESG shipyard and devastated the surrounding Panama City, Florida area where much of the shipyard workforce lived. The shipyard claims the impacts of the disaster rendered its facilities and workforce incapable of meeting the terms of the contract. The Department of Homeland Security (DHS) and the Service now propose to expand the timeframes for the delivery of each of the first four OPCs, spend up to an additional $659 million to complete those cutters, and then re-compete the contract earlier than previously planned. The decision to proceed with the current contractor raises a number of concerns for the Committee. Foremost among those concerns being the delay in delivering the cutters as well as the use of the Public Law No. 85-804 authority, which ultimately eliminates the Coast Guard’s claim of getting the best value through a firm, fixed-price contract. If that were a priority for the Service, it would make more sense to pivot to a contractor who had competed for the original contract and is positioned to execute on it rather than create continued uncertainty around the OPC.

For more than a decade, the Committee has tracked the widening capability gap between the existing legacy fleet of Medium Endurance Cutters (MECs)—several built during the Vietnam War—and the commissioning of new OPCs. During that time, the Committee has repeatedly urged the Coast Guard to undertake a ship life extension program (SLEP) for the MECs and advocated for the Service to look at alternative methods to acquire new mission capabilities. Due to limited funding provided for the Coast Guard’s Procurement, Construction and Improvements account, the Service made the decision to defer initiating an MEC SLEP to partially offset the loss of MEC capability as those cutters aged out. Rather than heeding the Committee’s caution, the Service decided to prioritize construction of the OPCs at the earliest possible time to allow the Coast Guard to continue to effectively carry out its law enforcement, drug and migrant interdiction, and search and rescue missions.

The Service then compounded the risks of this “all-or-nothing” strategy by entering into a contract with ESG; a company that has never built a ship for the Federal government and whose bid came in at a per-vessel price far below that of other qualified bidders. This action led many observers to question whether the Coast Guard was taking too great a risk, but the Service believed, nonetheless, that the risk was acceptable.

Regrettably, ESG began lobbying lawmakers for “relief” from the contract barely six months after agreeing to its terms. Within nine months, ESG formally notified the Coast Guard that they could no longer meet the contractual schedule or deliver the OPC at the contract price.

In all, it appears the Coast Guard’s initial failure to adequately examine the risks of using a shipyard with no government shipbuilding experience could be perpetuated by DHS granting this extraordinary relief under Public Law No, 85-804. The Committee is concerned that the Coast Guard, along with DHS, embarked on exploring options to resuscitate ESG and prevent it from defaulting on the OPC contract without first completing a transparent and objective alternatives analysis. Additionally, the veil of secrecy regarding its analysis and the absence of any meaningful consultation by the Coast Guard and DHS with the Committee, provides us scant confidence that any revised OPC contract will not encounter a similar fate as the original contract.

Accordingly, the Committee would like to know: 

  • Why did the Coast Guard fail to stop construction on hull #1 as soon as they learned the contractor was informing lawmakers that it would be unable to meet the terms of the contract? 
  • What interim measures are available to mitigate the lost mission capabilities while the OPC contract is being delayed and recompeted? 
  • Is the Coast Guard considering the use of leased barges to support helicopter operations, the acquisition of additional National Security Cutters or Fast Response Cutters, or other available options? 
  • What national security missions will be carried out by each of the four OPCs for which relief is sought? 
  • What is the status of the ship life extension program for the 270B MECs?

Regarding a revised OPC contract, the Committee would like to know? 

  • Has the Department requested authority from Congress to expedite the re-compete of the OPC contract? 
  • How will the Coast Guard ensure that no additional extraordinary relief will be needed beyond the potential upward limit of $659 million and the proposed schedule extensions? 
  • Are the federal/non-federal share lines for each of the first four OPCs set in the DHS decision granting limited Public Law No. 85-804 extraordinary relief, and if not, what are these share lines and what is their justification request? 
  • In which fiscal years will it be necessary to request funds above the amounts projected for the OPCs in the Coast Guard’s latest Capital Improvement Plan? In what amounts? 
  • On what ship design will the re-compete be based? 
  • Can you confirm that the Coast Guard owns the OPC design? 
  • How many additional construction hours above the amount on which the initial bid was based are now anticipated for each of hulls #1-4? 
  • What controls will be instituted to ensure that there is no excessive overage in production hours? 
  • What conditions do the Coast Guard intend to include in a revised contract to ensure transparency in all financial transactions; accountability with all performance metrics and timetables for deliverables; certification and notification standards and protocols before the Coast Guard or DHS exercises an option on hulls #2-4? 
  • Given the fact that the contractor is unable to perform under the terms of the original contract, will any effort be made to receive the performance bond associated with the contract?

The Committee will continue to investigate these issues and closely monitor this situation. We are concerned about the impacts any further delays of this contract will have on the Service’s ability to carry out its critical mission responsibilities and the overall impact the escalated cost of producing these assets will have on the Coast Guard’s Procurement, Construction and Improvements account for the foreseeable future. As we begin negotiations with the Senate on the Coast Guard Authorization Act of 2019, we will examine if further legislation is necessary to protect U.S. taxpayers from profligate, unwise spending, notwithstanding the urgent need to provide the Coast Guard with the modern assets it needs to remain the world’s preeminent Coast Guard.

17 thoughts on ““Coast Guard Cutter Procurement: Background and Issues for Congress Updated November 27, 2019” –CRS

  1. I’ll confess I’m having trouble making sense of the drama the OPC has become.

    Is Eastern still getting the first four ships but with a longer timeline and more money to deliver?

    Are the rest going to be recompete and perhaps be built by different yards?

    Will the design as was going to be built by Eastern still the design of choice or is the recompete going back to square one and allowing for completely different designs?

    Was detail design work for the OPC ever completed? If so, by who?

    The situation speaks poorly of all the parties involved.

    • While the apparent intention is
      1. Eastern still getting the first four ships but with a longer timeline and more money to deliver (up to $659M more)
      2. A recompete reopened to all comers for follow on ships #5-15
      3. To build essentially the Eastern design
      4. Apparently Eastern never completed the Detail design though much of it has been done, but the Coast Guard does not own it at this point.

      On the other hand, not sure Congress is going to let them do this. Congress has 60 days to approve the Contract relief, and it is by no means certain that they will. If they do not then Eastern will be in default. How much of the previous effort can be salvaged and recycled if this happens is uncertain.

      • Thanks Chuck for giving some background.

        Based on what’s happened this far, it is hard to have confidence the parties involved have it all back on track.

        It was a mistake by the CG to mot own the design. Given Eastern’s lack of track record building CG cutters it would have been a reasonable hedge.

  2. A few points. First, it’s apparent Congress wants consideration of a 12th NSC as a possible alternative to a SLEP of MECs. Second, while they may grant ESG the relief they need, the creep in displacement of the OPC towards NSC displacement is concerning as it also effects cost. How will costs of OPCs from 5 onwards compare with costs of a NSC? $660 million for 4 vessels is $165 million apiece, raising the total costs to almost $600 million per hull. That’s nearly NSC territory.

    I’m not sure if the Coast Guard ever revealed details of the other finalists on the OPC competition so that we could compare size and displacement.

    I’m not sure why the Coast Guard doesn’t own the design as yet, and how they intend to recompete a design they don’t own. That bears watching.

    Getting back to the NSC, the award of another contract to HII may impact the final FFG(X) award, as they are finalists in that competition too.

    • You raise excellent points. I’d expect the cost for additional NSCs to drop as is typically the case in serial production. As the cost per NSC moves downward and the size and cost of OPC increases, the program makes less sense.

      Perhaps the program does need a rethink.

  3. @Chuck: Nice editorial choice of photo for this article! 😉

    Reading the Committee’s letter, my take is:
    • Eastern is out, to be replaced by an “experienced” (with gov’t work/contracts) prior competitor for this contract.
    • Exact design is up in the air, since questions have been posed on who owns the ESG design and how fully detailed the design work has been finished.
    • 12th NSC will be funded.
    • The Committee is extremely displeased with DHS/CG offices involved in the chain for the OPC program (so, look for reassignments, retirements, etc.).
    • Combining points 2 and 4, the Committee even wants a fresh look at how to accomplish the mission with a different asset mix. (Which we know the CG will say is not possible…)

    • With the OPC creeping up in cost and size to NSC or almost NSC levels, it really might be appropriate to consider a different asset mix.

      As a starting point for discussion, perhaps a greater number of NSCs and FRCs. Maybe produce a small number of an upgunned FRC for use in those locales and missions where that would be prudent.

      Explore Chuck’s “Cutter X” concept for the mid tier. A ship with greater endurance and aviation capabilities than the FRC but kitted out to about the same level.
      A ship simple and small enough that the smaller yards could compete and successfully build it. Look at spreading the build across several of the smaller yards.

      • All reasonable ideas, and I would add another: step back to a 75-90m ship and really focus on peacetime missions with some modular space provided.

        However, the CG has said the OPC is the backbone of the fleet and the most important program of the fleet recapitalization effort, so Command is not going to retreat and seriously look at other options.

  4. Instead of 25 OPCs, maybe the Coast Guard should consider joining the Navy in terms of a Medium Unmanned Surface vessel for OPC duties. Build 12 manned OPCs and augment them with twice the number (24l) of Medium Unmanned Surface Vessels. That could be a total of 36 vessels instead of 25. Control them from the manned OPCs and/or shore stations if not in fully autonomous mode. Design them so they can be optionally manned if needed, and equip them with provisions and accommodations for rescued personnel. We should be able to build 3 for the cost of 1 manned OPC, and still save 20% of the original budget while increasing the number of hulls by almost 50%. Also solves the manning problem.

      • I agree with you. I like to think of the Coast Guard as better, more practical and less wasteful than big Navy. This program hurts that perception though. In the private sector, heads would roll.

    • I think there is a place for unmanned platforms for the search function and they could be surface as well as air, but cutters generally need to be able to launch boats with boarding parties and support those boarding parties with overwhelming firepower so that “resistance is futile.”

  5. Of course Admiral Papp is a lobbyist and paid employee of Eastern Shipbuilding… I’d recognize that smug bastards’ handiwork anytime.

  6. I get that CG leadership will be reluctant to change course or even to admit a different course might be possible. They have ego and career investment in the current program.

    Something I learned long ago in the private sector: “never expect those that created a problem to be able to fix it”.

    Harsh but true. Good organizations demand accountability and that starts at the top.

    • It was pretty obvious to everyone, or at least it raised *my* eyebrows, that as all of the new-generation replacement vessels grew in size (110 -–> 156; 210 & 270 —> 360; 378 —> 410), there was suddenly a large gap between the FRC and OPC (>200’ in fact). I wondered what the new OPC could not do, which the old 378’ WHEC could do, because it seemed to me the OPC was more of a WHEC replacement based on size and most capabilities (speed being one glaring difference).

      And here we (Congress) are, one hurricane later, looking at it as if we didn’t have these questions in the back of our minds to begin with, let alone questions of cost and contractor competence.

      • As I have noted several times, the OPC is in most respects equal to or better than the 378s, at least for our peacetime missions. The 378s have a higher top speed, but that was seldom used. To go as fast as the OPCs, the 378s had to go up on one of the gas turbines and fuel consumption went through the roof. Hangar is better on OPC, higher cruise speeds possible, better range, smaller crew. Equal or better boat facilities.

        Its a shame that we did not start on the OPC before the NSC. If we had gotten this ship first, we probably would not have needed NSCs at all.

  7. Chuck, I guess that is one of my points. With the size and cost gap between OPC and NSC closing, having two cutters with similar characteristics is questionable.

    The point of the OPC was a still capable, cheap enough to be built in numbers and more geared toward peacetime missions cutter. Good idea but if it is indeed slipping on the cost side it’s giving up a very big reason for being.

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