Tag Archives: GAO

How the Coast Guard Presents its Shipbuilding Programs to Congress

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I would like to talk about an observation found here : “Coast Guard Cutter Procurement: Background and Issues for Congress”  (pdf) Congressional Research Service, Ronald O’Rourke, July 20, 2012

“Another oversight issue for Congress concerns the adequacy of information available to Congress to support review and oversight of Coast Guard procurement programs, including cutter procurement programs. The Coast Guard has entered a period where, like the Navy, it is requesting significant funding each year from Congress to execute multiple ship procurement and modernization programs. Congress, however, lacks ready access to basic information exhibits on Coast Guard shipbuilding programs that are equivalent to those that support congressional review and oversight of Navy ship procurement programs.” (from p.32)

Could this be at least part of the reason, why we have such a problem selling our shipbuilding programs?

Quoting from p.34,

• “Although the Coast Guard’s annual budget submission includes a budget justification book, the entries in that book for the Coast Guard’s ship procurement programs do not present information as detailed and structured as that presented in the P-40, P-5, and P-27 exhibits. (note–the reference provides samples of these, see Appendix A–Chuck)
• “Reports on Coast Guard programs equivalent to DOD’s SAR reports are not readily available to Congress. (SAR=”Selected Aquisition Reports”–no sample of this–Chuck)
• “The Coast Guard’s POR (Program of Record–Chuck) is a statement of desired procurement quantities for certain procurement programs, but not a concise statement of the Coast Guard’s overall ship force structure objective, which would take into account continued service of existing ships that are not in need of immediate replacement. (Navy sample provided as Appendix C–Chuck)
• “The Coast Guard’s five-year capital investment plan shows annual funding amounts for individual programs, but not annual procurement quantities, and annual procurement quantities are not always easy to discern from annual funding amounts. (Sample in Appendix D–Chuck)
• “The Coast Guard’s budget submission does not include an equivalent of the Navy’s 30-year shipbuilding plan.” (Sample in Appendix D–Chuck)

This report is addressed to Congress, but there is no reason we should not consider its findings.

Why don’t we have a statement of what our force structure objective is?

How can we have a Five Year Procurement Plan and not include procurement quantities?

And lastly why don’t we have a 30 year shipbuilding program if that is what Congress expects?

When I first heard that the Navy had a 30 year shipbuilding program, I thought it was a little ridiculous, because It is a long way out, but maybe it is a way of building consensus on where we are going. It will provide a warning when increases will be required. Patrol ships, Patrol boats, Polar Icebreakers, Buoy tenders, Icebreaking tugs, Inland construction tenders, and major renovations all have to fit into the same budget. A long term road map is needed because experience has shown that the budget is not elastic.

Among the advantages claimed for the Navy’s way of doing this (from p.33) are:

  • “identifying and evaluating cost growth and schedule delays in the execution of shipbuilding programs;
  • “understanding the relationship between annual procurement rates and unit procurement cost;
  • “evaluating whether programs are achieving satisfactory production learning curves over time;
  • “evaluating whether proposed sequences of annual procurement quantities for programs would be efficient to execute from an industrial standpoint;
  • “evaluating stability in Navy shipbuilding planning by tracking year-to-year changes in the five-year shipbuilding plan;
  • “identifying potential financial and industrial-base linkages between shipbuilding programs that are being funded in overlapping years;
  • “identifying and evaluating Navy assumptions concerning service lives and retirement dates for existing ships;
  • “evaluating whether ship procurement needs are being pushed into the future, potentially creating an expensive ship procurement “bow wave” in coming years; and
  • “understanding when the Navy will achieve its ship force level goals, and whether the Navy will experience ship inventory shortfalls relative to those goals that could affect the Navy’s ability to perform its missions in coming years.”

This all sounds like it should also apply to the Coast Guard.

The service is attempting to improve presentation of its programs, but even the planned improvements don’t address all these concerns. From a recent GAO report “COAST GUARD, Portfolio Management Approach Needed to Improve Major Acquisition Outcomes” (download the report, GAO-12-918 (.pdf)).

“Coast Guard acquisition officials told us that one way it is trying to address portfolio affordability is through an update to its Major Systems Acquisition Manual. According to draft language, the acquisition directorate’s Office of Resource Management will be required to maintain a chart to visually depict all competing acquisition program priorities within the capital investment plan at various points in time. Officials told us that each acquisition program will be required to include this chart in its required materials for future acquisition decision events. This update to the Coast Guard’s acquisition manual follows best practices outlined in GAO’s Cost Estimating and Assessment Guide with the exception that the guide notes the affordability assessment should, preferably, be conducted several years beyond the programming period. (emphasis applied) However, deferring costs could lead to what is commonly characterized as a bow-wave—or an impending spike in the requirement for additional funds—unless the Coast Guard proactively chooses to make some tradeoff decisions by re-examining requirements.

The Coast Guard has certainly encountered the “bow wave.” We need a way to address it now and avoid it in the future.

At the very least we need a “Force Structure Objective” and a 30 year shipbuilding (and disposal) Plan to identify how we intend to get there. ———————————————————————————————————-

While on the topic of selling a program the Naval Aviation has a fine example:

To view “Naval Aviation Vision, January 2012,” visit http://www.public.navy.mil/airfor/nae/Vision%20Book/Naval_Aviation_Vision.pdf.)

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

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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.”

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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.

Program Updates from a GAO Report

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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)).

I’m going to look at other aspects of the report later, but there were a number of items addressed in the report that readers may not be aware of. This is not an exhaustive list, the report contains even more, but I thought these most interesting. We may have touched on some of  these changes already, but here goes.

General:

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

Maritime Domain Awareness/C4ISR:

Nationwide Automatic Identification System–Indefinitely deferring plan for continuous nationwide coverage. (p14)

Common Operating picture:

“The Coast Guard planned to buy an integrated C4ISR system for each asset to enable greater awareness. As we reported in July 2011, the Coast Guard has spent over $600 million purchasing a C4ISR system that is difficult to maintain and does not yet achieve the system-of systems capability and the Coast Guard’s helicopters are no longer going to be a part of this system” (p.26)

–Neither the OPC or the FRC are expected to be able to exchange near real time “battle data” (tactical data link?) with DOD assets. (p.25)

–Why don’t we use LINK 16 Multifunctional Information Distribution System-Low Volume Terminals on all these platforms?

Fast Response Cutter:

“…the Coast Guard has attributed the more than $1 billion rise in the Fast Response Cutter’s cost to a reflection of actual contract cost from the September 2008 contract award and costs for shore facilities and initial spare parts not included in the original baseline.”

Aviation:

Coast Guard’s Aviation Logistics Center told us they recently identified that the end of service life for the HH-60s and HH-65s could be reached as early as the 2022 time frame—not the 2027 time frame as originally planned. Officials added that this will require the Coast Guard to either buy new HH-60s and HH-65s or conduct a service life extension—previous service life extensions have been funded with acquisition dollars.(p16)

H-65 program: dropping both a helicopter handling, traversing, and securing system and a surface search radar. (p.13)

H-60 Program: deferring indefinitely upgrades to include a surface search radar and C4ISR due to budget constraints. (p.13)

A revise baseline program for C-130s has been forwarded DHS that recommends 11 H models and 11 J models (p.40) (I think this is an increase in the expected number of “J” models.)

Sanity Prevails:

The Coast Guard has dropped its plans to deliver boarding parties on potentially hostile ships by helicopter (p.27)

A Small Bit of Surprisingly Good News:

The National Security Cutter can do 32 knots (“speed is based on the results of an operational assessment” p. 32), making it almost certainly the fastest major cutter ever.

GAO Responds to Fleet Mix Studies, Part 1, The Report

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In my post, Irresponsibly Rebuilding the Fleet-a Look at the Future, I talked about why it was essential that the Coast Guard build at least two Offshore Patrol Cutters (OPC) a year, when it finally starts building them in 2016. My concern is that there is still no wide spread support for funding the Coast Guard’s “Program of Record” which includes 25 OPCs in addition to eight National Security Cutters and 58 Fast Response Cutters.

Conceptual Rendering of the OPC

The Coast Guard has recently gone public with similar concerns.

Studies are playing an important part in the effort to build consensus on what the Coast Guard’s fleet of Cutters should look like in the future and how to get there. May 28 of this year, we looked at the Executive Summary of the Offshore and Aviation Fleet Mix Study completed in 2009, but only recently made public. The Coast Guard completed a second phase of its Fleet Mix Study which looked at the effects of two funding levels on the procurement process in May 2011 and the Department of Homeland Security completed a “Cutter Study” in August 2011.

May 31, 2012 GAO released a report to Congressional Committees titled “Observations on the Coast Guard’s and the Department of Homeland Security’s Fleet Studies” [PDF] along with briefing slides provided on April 20, 2012. I’m going to quote GAO’s report and slides extensively.

GAO saw there objectives as to:

  • “(1) What are the key results of the Coast Guard’s Fleet Mix Studies and DHS’s Cutter Study with respect to recapitalization and operations?
  • “(2) How useful are these studies to DHS, the Office of Management and Budget (OMB), and the Coast Guard for informing recapitalization decisions?” Continue reading →