Coast Guard Faces  Challenges in  Effectively Managing  its Acquisition  Portfolio Short-term Prioritization  through the Annual Budget  Process and the 5-Year  Capital Investment Plan  Limit Effective Planning We found in September 2012, and in our July 2018 review, that the Coast  Guard’s approach of relying on the annual budget process and the 5-year  CIP to manage portfolio affordability does not provide the best basis for  making decisions to develop a more balanced and affordable portfolio in  the long term. Further, in June 2014, we found that there is no evidence  that short-term budget decisions will result in a good long-term strategy,  and the Coast Guard’s annual budget-driven trade-off approach creates  constant churn as program baselines must continually re-align with  budget realities instead of budgets being formulated to support program  baselines. This situation results in trade-off decisions between capability  and cost being pushed into the future. For example, since 2010, the  Coast Guard has a stated requirement for three medium polar  icebreakers, but it has only one operational medium icebreaker, the  Healy, which has an expected end of service life—the total period for  which an asset is designed to operate—in 2029. Despite the requirement  for three medium polar icebreakers, Coast Guard officials said they are  not currently assessing acquisition of the medium polar icebreakers  because they are focusing on the heavy icebreaker acquisition and plan  to assess the costs and benefits of acquiring medium polar icebreakers at  a later time. As required by statute, the Coast Guard has, since 2012, prepared a 5- year CIP that it is required to update and submit annually with the  administration’s budget request. The 5-year CIP is the Coast Guard’s  key acquisition portfolio planning tool. However, in our July 2018 review,  we found that shortcomings of that plan that limit its effectiveness.  Specifically, we found that the Coast Guard’s 5-year CIPs continue to  demonstrate a pattern of certain ineffective planning practices, such as  not identifying priorities or trade-offs between acquisition programs and  not providing information about the effect of current decisions on the  overall affordability of the acquisition portfolio. These shortcomings limit the Coast Guard’s ability to manage the  affordability of its acquisition portfolio. Coast Guard officials said the CIP  reflects the highest priorities of the department within the given top  funding level and that prioritization and trade-off decisions are made as  part of the annual budget cycle. However, the reasoning behind these  decisions, and the resulting impacts on affected programs, are not  articulated in the CIPs. While the Coast Guard is not required under  statute to identify the effects of trade-off decisions in the CIP, failing to  show which acquisitions would take on more risk—such as delays to  certain recapitalization efforts—so other acquisitions can be prioritized  and adequately funded within budget parameters also makes it difficult for  Congress and other stakeholders, such as Department of Homeland  Security (DHS) and the Office of Management and Budget (OMB), to  understand any other options the Coast Guard considered. GAO’s Cost  Estimating and Assessment Guide states that comparative analyses  showing facts and supporting details among competing alternatives, such  as budget priorities, should consider trade-offs needed to identify  solutions and manage risk. In the report we issued today, we  recommended that the Coast Guard work with Congress to include a  discussion of the acquisition programs it prioritized and describe how  trade-off decisions made could affect other acquisition programs in the  Coast Guard’s annual 5-year CIP. DHS agreed with our recommendation  and plans to include additional information in future CIP reports to  address how trade-off decisions could affect other major acquisition  programs. The Coast Guard plans to implement this recommendation by  March 2020. In June 2014, we found that the Coast Guard needed to take a more  strategic approach in managing its acquisition portfolio. We  recommended that the Coast Guard develop a 20-year fleet  modernization plan that would identify all acquisitions necessary for  maintaining at least its current level of service and the fiscal resources  necessary to build these assets. DHS concurred with this  recommendation and the Coast Guard is in the process of developing a  20-year Long-Term Major Acquisitions Plan to guide and manage the  affordability of its acquisition portfolio, but DHS has not yet approved the  plan. Such an analysis would facilitate a fuller understanding of the  affordability challenges facing the Coast Guard while it builds the  Offshore Patrol Cutter, among other major acquisitions. The lack of a long-term plan and continuing to determine priorities and  make trade-off decisions based on the annual budget have rendered the  Coast Guard’s acquisition planning reactive. We found that reactive  planning and the Coast Guard’s constrained budget environment have  created a bow wave of near-term unfunded acquisitions, negatively  affecting future acquisition efforts and potentially affecting future  operations. This bow wave consists of new acquisition programs and  recapitalization efforts, as well as high-cost maintenance projects that use  the same acquisition construction and improvements account, which  continue to put pressure on available resources. These projects include  some that are not currently identified in the 5-year CIP. For instance, the  Coast Guard’s 87-foot patrol boats are forecast to require recapitalization  beginning in 2023. Additionally, the ocean-going 175-foot coastal buoy  tenders are past the point in their service lives when a midlife  maintenance availability would normally have been conducted. In July  2018, we found that that the Coast Guard has historically operated  vessels well past their expected end of service life, and it will likely need  to do so with these assets given limited available acquisition funding. Executive Oversight  Council Has Not  Conducted Annual  Reviews of All Acquisitions  Collectively The Coast Guard has a management body—the Executive Oversight  Council—in place to conduct oversight of its major acquisition programs;  however, this management body has not conducted oversight across the  entire acquisition portfolio using a comprehensive, collective approach.  Among the Coast Guard’s three cross-directorate groups that have roles  in the acquisition process, we found in July 2018 that the Executive  Oversight Council is best positioned to oversee the portfolio collectively  and has the potential to implement key portfolio-wide management  practices, including conducting formal reviews and issuing reports. This  council has cross-directorate senior-level management representation,  access to information on acquisition programs, and support from the other  two cross-directorate groups (the Systems Integration Team and the  Resource Councils). However, this council has not carried out these  portfolio-wide practices. In 2014, the Coast Guard updated the Executive Oversight Council’s  charter, in response to our September 2012 recommendation, adding the  responsibility for portfolio-wide oversight to include conducting an annual  review to assess and oversee acquisitions collectively. However, in our  July 2018 review, we found that the Coast Guard revised the council’s  charter in June 2017, removing this responsibility. According to  Executive Oversight Council officials, this responsibility was removed  from the 2017 charter because the council did not conduct these annual  reviews. Instead, Executive Oversight Council officials indicated that the  council facilitates a balanced and affordable portfolio of acquisition  programs through the individual program-level reviews. Best practices  states that successful organizations assess product investments in  aggregate, rather than as independent projects products or programs.  For example, by considering the requirements, acquisition, and budget  processes collectively, it helps organizations prioritize their product  investments. Further, we found that the Executive Oversight Council has not engaged  in overseeing or reporting on the acquisition portfolio collectively and  annually. OMB’s 2017 Capital Programming Guide outlines a capital  programming process, including how agencies should effectively and  collectively manage a portfolio of capital assets. This OMB guidance  states that a senior-level executive review committee should be  responsible for reviewing the agency’s entire capital asset portfolio on a  periodic basis and for making decisions or priorities on the proper  composition of agency assets needed to achieve strategic goals and  objectives within the budget limits. In the case of the Coast Guard, only  the Executive Oversight Council has members at the senior-level  executive level and has the responsibility for oversight of its major  acquisition programs. Without conducting comprehensive, collective  portfolio reviews at the senior management level, the Coast Guard does  not have sufficient cross-directorate information to determine needed  trade-offs in the major acquisitions realm, considering budget realities. It  is also limiting its ability to make strategic decisions on future  requirements and capability gaps in a timely manner within the acquisition  portfolio. In our July 2018 report on Coast Guard recapitalization efforts,  we recommended that the Commandant of the Coast Guard should  require the Executive Oversight Council, in its role to facilitate a balanced  and affordable acquisition portfolio, to annually review the acquisition  portfolio collectively, specifically for long-term affordability. DHS  disagreed with our recommendation stating that other bodies within the  Coast Guard, such as the Investment Board, Deputies Council, and  Investment Review Board—are responsible for making decisions  regarding out-year funding, while the Executive Oversight Council works  outside of the annual budget process. DHS also stated that, to meet the  spirit of our recommendation, the Coast Guard will update the Executive  Oversight Council’s charter to require a review of the collective acquisition  portfolio, specifically evaluating long-term planning. We believe that  updating the Executive Oversight Council’s charter to include long-term- planning is a positive step. However, we continue to believe that in  addition to long-term planning, the Executive Oversight Council should  include the major acquisition portfolio’s budget realities faced by the  Coast Guard in its reviews, or long-term affordability. If the planning  accounts for long-term funding considerations to achieve the Coast  Guard’s acquisition goals and objectives, we believe the intent of our  recommendation would be met. Coast Guard’s Heavy  Polar Icebreaker  Program’s Optimistic  Schedule Is Driven by  Capability Gap Rather  Than Knowledge-Based  Analysis The Coast Guard’s short-term planning focus has, in part, driven the  acquisition of its heavy polar icebreaker program to its current situation— trying to meet a highly optimistic schedule. The heavy polar icebreaker  program is intended to field three new icebreakers to replace the Coast  Guard’s sole operational heavy polar icebreaker, the Polar Star. The  Polar Star is expected to reach the end of its service life between 2020  and 2023 while the first heavy polar icebreaker is expected to be  delivered in fiscal year 2023, with the second and third icebreakers  expected to be delivered in 2025 and 2026, respectively. Figure 1 shows  the potential icebreaking capability gap. We are currently conducting a review of the heavy polar icebreaker  acquisition, and, preliminarily, we have found that the Coast Guard set an  optimistic schedule baseline for the delivery dates for new polar  icebreakers based on the ice-breaking capability gap rather than an  analysis of what is realistic and feasible. Rather than building a schedule  based on knowledge—such as determining realistic schedule targets and  analyzing how much time to include in the schedule to buffer against  potential delays, and comprehensively assessing schedule risks—the  Coast Guard used the estimated end date of the Polar Star’s service life  as the primary driver to set the lead icebreaker’s objective (or target)  delivery date of September 2023 and threshold (latest acceptable)  delivery date of March 2024. Design study information provided by  several shipbuilders estimated that it could take up to 3.5 years to build  the lead icebreaker, but the Coast Guard is planning for a more optimistic  estimate of 2.5 years for the delivery date. Our best practices for  developing project schedules state that estimating how long an activity  takes should be based on the effort required to complete the activity and  the resources available and not driven by a specific completion date. In addition, preliminary findings indicate the Coast Guard did not conduct  analysis to identify a reasonable amount of margin or time to include in  the program schedule baseline to account for any delays in the program.  The current heavy polar icebreaker’s schedule includes only 6 months of  margin between the Coast Guard’s target and latest acceptable delivery  dates. However, our analysis of recent shipbuilding acquisitions shows  that longer schedule delays, whether they are in the program’s control or  not, should be expected. For example, among the 12 selected  shipbuilding acquisition programs active in the last 10 years that we  analyzed, the Navy and the Coast Guard have delayed delivery of all but  one lead ship from their original planned delivery dates, with delays  ranging from 9 to 75 months. We have found in our past shipbuilding work  that delays have resulted from a number of issues, including redesign  work to address discoveries during pre-delivery testing, and key system  integration problems, and design quality issues among others. However,  Coast Guard officials told us such risks are not accounted for in the  Heavy Polar Icebreaker schedule. We plan to issue a report on the Coast  Guard’s heavy polar icebreaker acquisition this summer. In addition, we  will continue to review this program in our annual assessment of major  acquisition programs. Coast Guard Faces  Sustainment  Challenges for the  Polar Star and 270- foot Medium  Endurance Cutters We found in July 2018 that the Coast Guard’s heavy polar icebreaker  Polar Star and the Medium Endurance Cutters are currently either  approaching or operating beyond the end of their design service lives.  These cutters are in need of major maintenance overhauls—or Service  Life Extension Projects (SLEP)—in order to continue providing  capabilities to operators. According to Coast Guard officials, SLEPs are  necessary because the Coast Guard does not have the funds available to  initiate a new major acquisition program to recapitalize these assets in the  short term, or because a significant amount of maintenance work is  required to keep these assets operational until replacements are fielded.  These planned SLEPs involve several risks including scheduling and  funding. Heavy Icebreaker Polar  Star has Required More  Maintenance than Planned  to Remain Operational After being placed in a nonoperational status in 2006 due to equipment  problems, the Coast Guard conducted reactivation work on the Polar Star  from 2010 to 2013, and the icebreaker resumed its primary mission for  the annual deployment to the National Science Foundation’s McMurdo  Research Facility in Antarctica in 2014. Further, our July 2018 review  indicated that the Coast Guard is planning a SLEP on the Polar Star to  keep it operational until the first and second new heavy polar icebreakers  are delivered in order to bridge a potential operational gap. This  approach, according to Coast Guard officials, would allow the Coast  Guard to operate a minimum of two heavy icebreakers once the first polar  icebreaker is delivered and provide the Coast Guard with a self-rescue  capability—the ability for one icebreaker to rescue the other if it became  incapacitated while performing icebreaking operations. However, we found that the Coast Guard’s plans to conduct this SLEP  during its annual depot-level maintenance periods—that is, maintenance  that is beyond the capability of the crew of a cutter or other asset—may  not be feasible given the amount of maintenance already required on the  cutter. Specifically, the Polar Star’s mission capable rating (an asset’s  availability to conduct operations) has been decreasing in recent years  and reached a low point of 29 percent—well below the target of 41  percent—from October 2016 to September 2017. Based on mission  capable data, we found this was mostly due to additional time spent in  depot-level maintenance, which has increased in recent years from about  6 months in 2015 to more than 8 months in 2017. Additionally, the Polar  Star has required extensions of about 3 months for its annual dry dock  periods—the period of time when a cutter is removed from the water so  that maintenance can be conducted—in 2016 and 2017 to complete  required maintenance activities. These dry docks were originally planned  to last between 2 1/2 months and 4 months. We found in July 2018 that  these delays and extensions are likely to continue as the cutter ages.  According to Coast Guard officials, the Polar Star’s SLEP work will be  conducted during the annual dry dock periods by adding an additional 1  or 2 months to the annual dry docks. However, if the work is unable to be  completed during this timeframe, it could force the Coast Guard to miss  its commitment to conduct its annual Antarctica mission. Coast Guard  maintenance officials stated that until the Polar Star completes the SLEP,  its repairs will likely continue to get more expensive and time consuming. As we found in July 2017, the Polar Star SLEP effort has a rough-order  cost estimate of $75 million, which is based on the reactivation work  completed in 2013. However, we found this estimate may be unrealistic  based on assumptions the Coast Guard used, such as that it would  continue to use parts from the Coast Guard’s other heavy polar  icebreaker, the Polar Sea, which has been inactive since 2010. The  Coast Guard’s recent assessment of the Polar Star’s material condition— the physical condition of the cutter, which includes the hull structure,  habitability, major equipment systems, and spare parts availability—was  completed in January 2018. The material assessment stated that many  of the available parts from the Polar Sea have already been removed and installed on the Polar Star. As a result of the finite parts available from the  Polar Sea, the Coast Guard may have to acquire new parts for the Polar  Star that could increase the $75 million SLEP estimate. The Polar Star’s  recent material assessment will form the basis to determine which  systems will be overhauled during the SLEP and for a more detailed cost  estimate. The Coast Guard expects the Polar Star SLEP to begin by June  2020, at which time the Polar Star could reach the end of its current  useful service life (currently projected to be between 2020 to 2023). This  timeline contains risk that the Polar Star could be rendered inoperable  before the cutter is able to undergo a SLEP. We will continue to monitor  the Polar Star’s SLEP through our annual review of DHS programs. Coast Guard Is  Developing Plans to  Extend Medium  Endurance Cutters’  Service Lives The Coast Guard operates two fleets of Medium Endurance Cutters (270- foot and 210-foot cutters) and both are either approaching or have  exceeded their design service lives. According to Coast Guard officials,  there are no plans to extend the service lives of the 210-foot Medium  Endurance Cutters due to the age of the vessels (some of the cutters will  be over 60 years old when they are expected to be removed from  service). However, we found in July 2018 that, according to Coast Guard  maintenance officials, the primary problem facing the 270-foot Medium  Endurance Cutters is obsolescence of parts. The cutters have several  systems that are no longer manufactured, and in many cases the original  manufacturer no longer makes parts for the systems, such as the  generators, fire pumps, and main diesel engines. To sustain the 270-foot  Medium Endurance Cutters until the replacement cutters—the Offshore  Patrol Cutters—are delivered, the Coast Guard is planning to conduct a  SLEP. Coast Guard officials stated they are evaluating how many of the  13 270-foot cutters will undergo the SLEP. According to Coast Guard officials, the Offshore Patrol Cutter acquisition  program is on track to meet its cost and schedule goals. The Coast Guard  is in the process of completing the design of the cutter before starting  construction, which is in-line with GAO-identified shipbuilding best  practices. In addition, Coast Guard officials stated that the program is  using state-of-the-market technology that has been proved on other ships  as opposed to state-of-the-art technology, which lowers the risk of the  program. The Coast Guard expects to start construction of the first  Offshore Patrol Cutter in fiscal year 2019 and procure a total of 25 ships,  with plans to initially fund one cutter per year and eventually two cutters  per year until all 25 cutters are delivered. Further, Coast Guard officials  have stated that if the Offshore Patrol Cutter program experiences any  delays, it will likely decrease the Coast Guard’s operational capacity  because the legacy Medium Endurance Cutters will likely require  increased downtime for maintenance and other issues, reducing their  availability. As we indicated earlier, short-term planning limits the Coast  Guard’s ability to identify and consider tradeoffs with its acquisition  portfolio. The Coast Guard is evaluating how long the 270-foot Medium Endurance  Cutters should remain in service. According to Coast Guard officials, this  decision is at least partially dependent on the delivery of the Offshore  Patrol Cutters—specifically the shipbuilder’s ability to deliver 2 cutters per  year, which is expected to start in fiscal year 2024 with the 4th and 5th  cutters. Officials stated that the Coast Guard does not plan to operate any  Medium Endurance Cutters once all 25 Offshore Patrol Cutters are  operational, yet the fiscal year 2018 through 2022 CIP report indicates  that 7 of the 270-foot Medium Endurance Cutters will still be in service  when all 25 Offshore Patrol Cutters are delivered and operational.  Officials said this is a contingency plan in case not all Offshore Patrol  Cutters are delivered on time. Figure 2 shows the planned delivery dates  for the Offshore Patrol Cutters and the proposed decommissioning dates  for the legacy Medium Endurance Cutters. The fiscal year 2018 through 2022 CIP shows that there is little, if any,  gap between when the 210-foot and 270-foot Medium Endurance Cutters  will be removed from service and when the Offshore Patrol Cutters will be  operational. However, both Medium Endurance Cutter classes will be well  past their end of service lives by the time they are decommissioned. For  instance, in our July 2012 report, we found that the 210-foot Medium  Endurance Cutter Dependable reached its end of service life in 2006.  Nevertheless, based on the fiscal year 2018 through 2022 CIP, we found  that the Coast Guard plans for the cutter to operate for an additional 23  years (until 2029) without any major sustainment work to extend its  service life. While it is not unusual for the Coast Guard to operate cutters  for longer than originally planned, the lack of a more comprehensive,  collective portfolio management approach, in part, will result in some of  the Medium Endurance Cutters operating over 60 years, which is 30  years beyond their original design service lives. In addition, the Coast Guard’s own assessments indicate likely  challenges. For instance, the Coast Guard’s February 2017 Sustainability  Assessment of the 210-foot Medium Endurance Cutters, it rated 5 of the  14 cutters as a high risk for sustainability, which reflects either a poor  material condition or high maintenance costs. Moreover, the most  recent material condition assessments for the Medium Endurance  Cutters, completed in 2015, found that 210-foot Medium Endurance Cutters cannot be expected to meet  operational requirements using the normal depot-level maintenance  funding levels due to the time required to complete maintenance and  the increased maintenance costs in recent years; and mission effectiveness of the 270-foot Medium Endurance Cutters will  continue to degrade without a near-continuous recapitalization of  older sub-systems. In July 2012, we found that as assets age beyond their design service  lives, they can negatively affect the Coast Guard’s operational capacity to  meet mission requirements as the cutters require more maintenance. We will continue to monitor the Medium Endurance Cutters’ SLEP and  the Offshore Patrol Cutter acquisition in our annual review of major  acquisition programs. In conclusion, as the Coast Guard continues modernizing its fleet and  sustaining existing assets for longer than planned, it is important that it  develops a more strategic and comprehensive approach for managing its  portfolio so that future requirements and capability gaps can be  addressed in a timely manner. The Coast Guard has a history of using its  annual budgets to plan its acquisition portfolio, which leads to ever  changing priorities and creates deferred acquisitions and a bow wave of  future funding requirements. This bow wave has begun and the Coast  Guard will continue to add to it until it begins to have a longer-term focus,  such as with the creation of the 20-year Long Term Major Acquisition  Plan that we recommended in 2014. The Coast Guard has an opportunity  with this plan to lay the foundation for the success of the future acquisition  portfolio by showing what assets are needed and how much it is expected  to cost, and it will position itself to provide decision makers with critical  knowledge needed to prioritize its constrained acquisition funding. In the  meantime, the Coast Guard would benefit from describing in the 5-year  CIP how the annual trade-off decisions that are made could affect other  acquisition programs. This would help decision makers understand the  needs of the Coast Guard so that they can know how to better allocate  taxpayer dollars as they invest in new more capable Coast Guard assets. Chairman Hunter, Ranking Member Garamendi, and Members of the  Subcommittee, this concludes my prepared statement. I would be  pleased to respond to any questions. GAO Contact and  Staff  Acknowledgments If you or your staff have any questions about this statement, please  contact Marie A. Mak, (202) 512-4841 or makm@gao.gov. In addition,  contact points for our Offices of Congressional Relations and Public  Affairs may be found on the last page of this statement. Individuals who  made key contributions to this testimony include Rick Cederholm,  Assistant Director; Peter W. Anderson; John Crawford; Claire Li; Roxanna  Sun; and David Wishard. This is a work of the U.S. government and is not subject to copyright protection in the  United States. The published product may be reproduced and distributed in its entirety  without further permission from GAO. However, because this work may contain  copyrighted images or other material, permission from the copyright holder may be  necessary if you wish to reproduce this material separately.
The Coast Guard, a component within DHS, is spending billions of dollars to acquire assets, such as cutters and aircraft. This portfolio of major acquisition programs is intended to help the Coast Guard accomplish its missions—including interdicting illegal drugs and search and rescue missions. GAO's extensive prior work on Coast Guard acquisitions has found that the Coast Guard's reliance on its annual budget process to manage its portfolio is a major management challenge. In the report issued today, GAO discusses particular challenges with the Coast Guard's approach in managing its acquisition portfolio, such as not performing a collective assessment of the portfolio to ensure affordability. This statement addresses the challenges the Coast Guard faces in (1) managing its overall acquisition portfolio, and (2) sustaining aging assets. This statement is based on GAO's extensive body of published and ongoing work examining the Coast Guard's acquisition efforts over several years. The Coast Guard's approach of relying on the annual budget process and the 5-year Capital Investment Plan (CIP) to manage its acquisition portfolio does not provide the best basis for making decisions to develop a more balanced and affordable portfolio in the long term. Specifically, the Coast Guard's annual budget-driven trade-off approach creates constant churn as program baselines must continually re-align with budget realities instead of budgets being formulated to support program baselines. Further, Coast Guard officials have told GAO the CIP reflects trade-off decisions made as part of the annual budget process, but it does not describe the effects of those trade-offs because including such information is not statutorily required. This short-term approach has also left the Coast Guard with a bow wave of near-term unfunded acquisition programs, putting future missions at risk. Until these trade-offs are transparent to all stakeholders and decision makers, the effectiveness of Coast Guard's long-term acquisition portfolio planning is limited. Until new assets being acquired become available, the Coast Guard plans to rely on aging assets, many of which are already past their intended service lives—the time an asset is expected to operate. For example, the Coast Guard plans to replace the Medium Endurance Cutters (see figure) with the Offshore Patrol Cutters beginning in 2023, but the Medium Endurance Cutters exhausted their intended service lives in 2014. The Coast Guard plans to extend service lives for some of the Medium Endurance Cutters to keep them operating longer; however, maintenance for these vessels is becoming more expensive, and some systems are obsolete. GAO will continue to monitor the maintenance effort for the Medium Endurance Cutter and the Offshore Patrol Cutter acquisition in an annual review of Department of Homeland Security (DHS) major acquisition programs.