Coast Guard to take over management of fleet upgrade

In a major reversal, Coast Guard Commandant Adm. Thad Allen announced Tuesday that the service would take over as lead systems integrator for all assets acquired under the problem-plagued $24 billion modernization program known as Deepwater.

The move is a blow to Defense giants Lockheed Martin Corp. and Northrop Grumman Corp., which, in 2002, won the contract to manage the program through the joint venture Integrated Coast Guard Systems.

During a briefing for reporters at Coast Guard headquarters, Allen also said the agency would decommission eight new 123-foot patrol boats that had been converted under Deepwater and had become a symbol of how the program had veered off course. The boats, which were expanded and upgraded versions of existing 110-foot patrol boats, had structural problems so severe the Coast Guard pulled them from the fleet last November until it could figure out how to render them safe for missions.

Multiple engineering studies showed serious and varied problems with the ships' hulls. "Any strategy to permanently repair these cutters and return them to service would require an iterative, phased approach over a long period of time with uncertain costs and outcome," Allen said. Initial estimates put the cost at more than $50 million.

Given the uncertainty over what it would take to make the boats seaworthy, the Coast Guard will cut its losses and try to salvage whatever materials it can from the vessels. Allen estimates the loss to be from $30 million to $60 million, depending on how much equipment and materials can be reused.

The Coast Guard will try to recoup funds from the contractors wherever legally possible, Allen said. But the loss of money is only part of the problem. The Coast Guard now has fewer patrol boats to handle a mission that has expanded significantly in recent years.

To compensate, the service is borrowing three Navy 179-foot patrol craft and assigning multiple crews to the remaining fleet of aging 110-foot patrol boats until it can acquire a new fast-response cutter.

In addition to decommissioning the patrol boats, the Coast Guard will work closely with ICGS to resolve outstanding problems with the national security cutter; two of the cutters are in production and a third is under contract.

Allen's announcements regarding Deepwater came the day before the House Transportation and Infrastructure Committee was scheduled to resume hearings on the troubled program, and may reduce pressure on the Coast Guard to further revamp the program.

The Deepwater contract to upgrade and replace the Coast Guard's aging assets represented a dramatic shift in how the government pursued complex acquisitions. Under Deepwater, contractors were given unprecedented freedom to oversee subcontractors and pursue technical solutions to program requirements as they saw fit.

But the move to take back authority as the lead systems integrator may signal a shift in how the government manages large, complex acquisitions, particularly at the Pentagon and the Homeland Security Department, the Coast Guard's parent agency. In recent years, those agencies have pursued the purchase of increasingly complicated assets at the same time they have been losing expertise among contracting and technical staff. As a result, agencies have turned to contractors to do work formerly done by federal employees.

"We relied too much on contractors to do the work of government," Allen said, citing a propensity on the part of the Coast Guard to favor meeting schedule goals over cost and performance goals. Both ICGS and the Coast Guard failed to effectively oversee the program, and both failed to predict and control costs, he said.

Whether or not the Coast Guard will be able to do a better job managing Deepwater than ICGS has yet to be seen. The agency is in the process of reorganizing and reforming its acquisition workforce.

Rear Adm. Gary Blore, the Deepwater program executive officer, said the Coast Guard will not be asking for more money to manage Deepwater, although it may ask for spending flexibility. Thus far, $2.3 billion has been obligated for the program.