GAO Report on Deepwater: A Self-Fulfilling Prophecy?

By Phillip Thompson

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

Topics: Budget, Coast Guard, Procurement

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