The Coast Guard's multibillion dollar project to upgrade equipment used for offshore missions could gobble up funds earmarked for other agency initiatives, according to a new report from the General Accounting Office. Deepwater, the Coast Guard's long-term acquisition project, seeks to upgrade the agency's equipment for missions 50 miles or more offshore. According to GAO, the Coast Guard needs about $500 million each fiscal year for 20 years or more to sustain funding for the project. But GAO said that during the current era of budget constraints and competing budget priorities at the Transportation Department, the high cost of Deepwater could take away funds for other Coast Guard projects, including upgrades to equipment used for search and rescue operations. Last year, the Coast Guard proposed spending $475 million on non-Deepwater projects in 2005, but that number would drop to $196 million in 2005, according to projected estimates from the Office of Management and Budget. Although GAO acknowledged that some Coast Guard projects will have been completed by 2005 and others will be absorbed by Deepwater, it still expressed concern over the large chunk of money Deepwater needs to be sustained. "If estimates in the current plan hold true, fiscal year 2006 spending for non-Deepwater projects will be at its lowest level in decades and will call into question the validity of the agency's estimates to maintain its current non-Deepwater infrastructure," said the report, "Progress Being Made on Deepwater Project, but Risks Remain" (GAO-01-564). The Coast Guard refuted GAO's claim, saying the agency would be able to fund Deepwater without any adverse impact on other projects. The modernization project for the agency's national distress and response system and many other projects are fully funded under its current plan, agency officials said in response to GAO's report. GAO praised the Coast Guard for its "excellent" management of Deepwater during its planning phase, but said the acquisition phase of the project posed significant challenges. GAO recommended that the agency adopt a funding strategy that includes lower cost estimates around which contractors can develop their proposals. The Coast Guard plans to award an initial five-year contract for Deepwater to a single contractor in January 2002. The report criticized the agency's funding plan, calling it "unrealistically high in the face of budget projections that are substantially less." Although the administration's budget request in fiscal 2002 will be about 10 percent less than the project's planned first-year funding, the average shortfall for fiscal years 2003 to 2006 is closer to 20 percent, GAO said. The Coast Guard, using 1998 dollars, estimated it will need $350 million for Deepwater in fiscal 2002 and $525 million in subsequent years. Accounting for inflation, GAO bumped up those figures to $373 million in fiscal 2002 and $569 million in fiscal 2003-with a cumulative gap of $496 million by the end of 2006. Although the Coast Guard acknowledged that Deepwater was a risky endeavor, the agency said its project strategy was flexible enough to respond to any changes in its funding. The agency also expressed optimism that Congress will continue to appropriate enough money each year to sustain the project. Congress has already given the agency $116 million for the project through fiscal 2001. The Coast Guard also said it hopes to control costs by using commercial equipment and by encouraging competition among suppliers in subsequent five-year contracts. GAO noted that Congress will play a key role in nurturing Deepwater and in making sure the agency has enough funds to stay afloat. In addition to garnering enough funds for the project and controlling costs, GAO urged the Coast Guard to ensure it has a trained and knowledgeable staff to manage and oversee the project and to develop close relationships with contractors. The Deepwater project, begun in 1998, is likely to have a price tag somewhere between $8 billion and $12 billion over the next 20 years, GAO said.
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