A recent report by the General Accounting Office may indicate rough
seas ahead for the Coast Guard’s Integrated Deepwater recapitalization
project.
The May report, titled, “Progress Being Made on Deepwater
Project, But Risks Remain,” raises serious questions about
the affordability and the acquisition strategy of Deepwater, the
Coast Guard’s project aimed at modernizing its aging fleet.
Deepwater would replace or upgrade more than 90 cutters and 200
aircraft used in “deepwater” missions, which are operations
that take place more than 50 miles from shore.
With Deepwater, the Coast Guard wants to create an integrated suite
of systems that work together, rather than acquire hulls and airframes
on one-for-one replacement basis.
The GAO’s criticisms come at a crucial juncture in the life
of the project. The report noted: “The Congress and the Coast
Guard are at a major crossroads with the Deepwater Project, in that
planning for the project is essentially complete, and the Congress
will soon be asked to commit to a multibillion-dollar project that
will define the way the Coast Guard performs many of its missions
for decades to come.”
Hence the first, and most significant, criticism: affordability.
Deepwater will cost about $10 billion over the next 20 years or
so, at an average annual expenditure of about $500 million, far
more than the Coast Guard currently receives for acquisition. GAO
repeatedly points out that there simply will not be that kind of
money available to the Coast Guard in the next few years.
At first glance, the report seems to be a “silver bullet”
to anyone looking to kill the program. But it also gives the Coast
Guard high marks on the work that it has accomplished so far on
the project and even notes that management of the project has been
“generally excellent.”
Even so, the GAO pointed out that the Coast Guard and the Transportation
Department are relying heavily—too heavily, in GAO’s
opinion—on sustained high levels of funding during years of
anticipated diminished federal spending. Furthermore, the report
states, Deepwater is not “easily adaptable to lower levels
of funding without stretching the schedule and increasing costs.
However, there are signs that funding levels may be lower than the
planned amount.”
In other words, if the Coast Guard cannot secure the $500 million
or so it will need each year for the next two decades, its Deepwater
program may be reduced to yet another piecemeal, stop-and-shop program.
That possibility has Coast Guard advocates—both in the service
and on Capitol Hill—worried, with justification. Hill supporters
worry that the cost of the program will stifle any ardent support
from legislators, in effect making the GAO report a self-fulfilling
prophecy.
The GAO report recommended that the Transportation Department incorporate
a “realistic level of funding, based on OMB (Office of Management
and Budget) budget targets, the Coast Guard’s capital planning
process and congressional guidance,” to determine a price
tag for Deepwater. The department, however, disagreed with that
recommendation. A Transportation official said that “OMB budget
targets will change in the future to better match project requirements
of $500 million annually.”
The Coast Guard worries that, should Deepwater be pared back to
a more traditional program, it will find itself back at square one—buying
only what it can afford, not what it truly needs. That process is
partially the reason for the state of the Coast Guard’s current
inventory.
GAO acknowledged the need for better Coast Guard equipment. “We
do not now take issue with the Coast Guard’s position that
it needs to modernize [its deepwater] assets, especially due to
the additional studies completed since our 1998 report,” the
report said, referring to another study in which the GAO disagreed
with the Coast Guard as to how much longer its current assets will
last.
Procurement Perils
GAO’s second point of contention is the Coast Guard’s
procurement strategy. To accomplish the complex Deepwater project,
the Coast Guard in 1998 contracted three industry teams to conceive
and design a system. The competition of the teams will come to a
close later this year, when the Coast Guard anticipates a contract
award to one of the teams to build the entire system for the next
20 years.
This approach, even by GAO’s own admission, is innovative,
but the GAO also pointed out the potential that reliance on one
contractor for 20 or more years could create inflated prices, schedule
delays or both.
But the Coast Guard recognizes this and has a solution. The service
intends to enter into an initial five-year contract with the “systems
integrator,” as the contract winner will be called. If the
contractor’s performance is satisfactory, the Coast Guard
plans to renew the contract, again for five years, after renegotiating
prices. The contract may be renewed up to five times, giving the
service a good way to hold the systems integrator accountable.
The GAO report all but throws down the gauntlet between the Coast
Guard and Congress, urging the Coast Guard to develop an alternative
procurement strategy and plans that will lower costs without sacrificing
capability.
The Coast Guard is considering this advice. The service must be
able to adapt if it is to keep the program afloat.
However, Congress has a responsibility as well. The legislative
branch has had at least two years to cut off funding for Deepwater,
in which it has already invested $119 million for the soon-to-be
completed design phase, but has not done so. The Clinton administration
approved a larger Coast Guard budget last year, and President Bush
recently included $338 million in the Coast Guard’s fiscal
year 2002 budget for Deepwater. And regardless of the GAO’s
dire budget forecasts, Congress and the president have the power
to continue this funding.
The Coast Guard is the world’s seventh largest navy, ranked
39th in age among the world’s 41 maritime fleets. Most of
its cutters were built 30 years ago, and many of its aircraft were
built in the 1970s and 1980s. Its annual budget of $5 billion is
less than a 10th of the total budget of the Transportation Department
and is only slightly more than the value of all the drugs seized
by the Coast Guard last year, when drug seizures equaled about $4
billion. Money shortages forced the Coast Guard to cut back its
operations last year and again this year.
Phillip Thompson is a senior fellow with the Lexington Institute,
a public-policy think tank in Arlington, Va. He can be reached at
pthompson@lexingtoninstitute.org.