Top contractors sink deeper into trouble with Coast Guard

Two of the government's largest contractors were dealt blows Thursday, as the Coast Guard rejected vessels they have built and a top federal inspector accused them of obstructing his investigations.

The Coast Guard announced it was revoking its decision to accept 123-foot patrol boats built by an industry team comprised of Lockheed Martin Corp. and Northrop Grumman Corp.

The team, under the name Integrated Coast Guard Systems, was awarded a contract in 2002 to be the "lead systems integrator" for the Coast Guard's $24 billion, 25-year Deepwater fleet modernization program, which aims to upgrade aging vessels, aircraft and communications systems.

Government investigators last year found structural problems with the boats. Last month, Adm. Thad Allen, the Coast Guard commandant, decided to dock the boats indefinitely and announced his agency was taking over as lead systems integrator for all assets and acquisitions under Deepwater.

"The Coast Guard sent a letter of revocation to Integrated Coast Guard Systems today, revoking our acceptance of the delivery of the 123-foot cutters," an agency spokesman said.

The industry team issued a short statement in response. "ICGS has only just received the Coast Guard's letter," the team said. "ICGS will evaluate the letter and provide an appropriate and timely response to the Coast Guard."

In another blow, the Homeland Security Department's inspector general told lawmakers Thursday that the industry team has withheld documents related to the Deepwater program and not made employees available for private interviews.

"That's just totally unacceptable by our standards," Inspector General Richard Skinner said during a joint hearing of the House Homeland Security Border and Management subcommittees. "That is the first time I've experienced something like this in 39 years in this business."

Skinner said his office was able to get information from the Coast Guard to complete its most recent audits. But he added that his office would consider issuing subpoenas in the future if problems persist.

The industry team, in a separate statement, disputed Skinner's characterization of events.

The team recounted that Skinner's office requested an interview with two employees. The team said it asked Skinner's office many times for the scope and purpose of its inquiry, the topics to be raised and whether the industry team or its member companies were being investigated.

The team said it did not hear back from Skinner's office.

"Private audit interviews with no advance notice of the areas of inquiry are outside the normal and accepted practices and experience of each company involved," the team said. "At no time did ICGS restrict any of its employees from engaging with the [inspector general] if desired by the individual employee."

Skinner told reporters after the hearing he was not aware of the industry team's request for information, not that he would have complied with it.

"When our office chooses to speak to an employee we expect to be able to do that in a confidential manner," Skinner said. "When we ask for documents we don't expect them to be vetted through a third party . . . I'm not going to share with management what questions I'm going to ask the employee. That's my prerogative to be able to have the freedom to ask those questions."

He said employees might not be forthcoming if a management supervisor is present during an interview.

In written testimony, Skinner warned that the Deepwater program could experience more cost overruns totaling hundreds of millions of dollars, meaning the agency might have to buy fewer and less capable assets.

The Coast Guard is improving its management of the troubled program, but costs could still increase for new national security cutters and unmanned aerial vehicles, he said.

Skinner said the costs for the first two national security cutters "is expected to increase well beyond the current $775 million estimate."

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