Rough Seas

The Coast Guard's revolutionary acquisition strategy hits choppy waters.


hen federal executives talk about management reforms, few are as passionate as Coast Guard Rear Adm. Patrick Stillman. But then, few managers have bet the future of their agency on a radically new procurement approach.

Compact and wiry, with intense eyes and a wide smile, Stillman rhapsodizes about how cutting-edge acquisition techniques will transform the Coast Guard. "Hey, I'm here to tell you that with the right metrics, with a well conceived, balanced score card, and with a partnership that truly is designed to provide accountability and assess performance, you can get where you need to go, partner," he says.

Stillman doesn't just talk management theory. He lives it. As program executive officer for the Coast Guard's Deepwater acquisition program, it's his job to replace the service's aging, beat-up offshore fleet with a force of renovated and new ships, aircraft and sensors linked by the latest electronics. Stillman's partner in this project is Integrated Coast Guard Systems, a Lockheed Martin and Northrop Grumman joint venture that brings together a battalion of subcontractors from 17 states. In a novel arrangement, the Coast Guard gave ICGS wide latitude to design, build and maintain the new Deepwater fleet.

Stillman doesn't run Deepwater as much as monitor the joint venture, using performance assessments, contract incentives and appeals to a sense of common purpose to keep his contractors on schedule.

Necessity is the mother of the Coast Guard's inventiveness. Unlike the Navy, which has a thousands-strong procurement staff at its Naval Sea Systems Command, the Coast Guard lacks the manpower to oversee an army of subcontractors. "We have to rely on our systems integrator to be the systems integrator," says Gregory Giddens, who is Stillman's deputy.

But the Coast Guard- ICGS partnership faces a raft of unforeseen challenges. Almost two years after signing a $1 billion contract with ICGS, the acquisition is being tested by spiraling maintenance needs, mounting homeland security missions and cultural adjustments:

  • The contract won't be complete for 22 years, but the Coast Guard already is tapping Deepwater funds to replace the engines in 95 short-range helicopters, which have suffered 70 in-flight power failures since October. Repairs could drain more than $200 million over several years from the Deepwater budget. Almost a fifth of the Bush administration's proposed Deepwater budget for fiscal 2005-$113.5 million of $678 million-would be used to sustain existing assets instead of buying new equipment.
  • Because of the Coast Guard's homeland security role, a chorus of outside analysts, led by RAND Corp., now believes the service needs far more assets than it is scheduled to buy through Deepwater.
  • Both ICGS and the Coast Guard have struggled to adjust to their unusual government/industry partnership. Personnel shortages, a lack of training and poor communication have hindered the work of Deepwater's integrated product teams, the contractor-led groups that head design and construction work, according to a March report by the General Accounting Office (GAO-04-380).

Many of these issues surfaced during the Deepwater overhaul of the Matagorda, a 110-foot patrol boat based in Key West, Fla. All 49 Coast Guard patrol boats await renovation by Bollinger Shipyards in Lockport, La., where workers will pack them full of state-of-the-art sensors and add 13 feet to each boat to provide more workspace.


In February, 2003, the Matagorda limped into Bollinger, a subcontractor for ICGS. Almost immediately, metal workers received a surprise: Nearly a third of the ship's hull plating was corroded, the result of the relentless pace of patrols in the Caribbean. Many pipes were coated with rust. "If you leaned on them, they'd break right off," recalls Bobby Arnold, a Coast Guard representative at Bollinger. Because of the scale of repairs, the Matagorda redesign wasn't finished until March 2004, five months behind schedule.

Refurbishing the Matagorda was the first test of how the Coast Guard-ICGS partnership would work in the field, where some employees still puzzle over the division of labor between both parties. "When you figure it out, let me know," says a Coast Guard maintenance chief. "A lot of people are still confused by ICGS," says a mid-level Lockheed Martin official who has been working on Deepwater for ten months. "They think it's a civilian contractor, and it's not. It's a joint venture that Coast Guard people have entered into with the two companies." Not so, says the Coast Guard's Giddens. "ICGS is a commercial entity, a joint venture between Northrop Grumman and Lockheed Martin. We have an oversight responsibility for what they're doing, but we're not managing their effort."

Part of the confusion stems from an unusual "partnering agreement" with ICGS. The agreement states that Coast Guard personnel will work alongside ICGS and subcontractor employees on teams to add a dose of reality to the contractors' ideas. "Whether it's 'hey, we tried that with our ships six years ago,' or 'in the field, we do it this way,' they provide core Coast Guard expertise," says Giddens. ICGS is supposed to use the teams to run the acquisition day to day.

But when the Matagorda arrived at Bollinger, ICGS had no permanent representative at the shipyard. The integrator seemed reluctant to interfere with Bollinger, an experienced company used to working as a prime contractor. "I don't think people understood the level of coordination it would take," says Lt. Ben Fleming, a Deepwater representative who was sent to Bollinger in August.

Fleming's job isn't to provide shipyard oversight. "It's more of a facilitation role," says Giddens. ICGS, as the integrator, is responsible for overseeing Bollinger's work. But in practice, Fleming and his staff picked up more oversight duties as additional 110-foot cutters arrived at the shipyard. For example, ICGS puts the ships through a battery of tests when they come to Bollinger, to document their arrival condition. Fleming usually tags along with his own video camera in hand. "I trust them," he says of ICGS, "but I don't trust them trust them."

Fleming and his five-man staff also negotiated with ICGS over the fine points of the Matagorda contract, a 35-page document outlining the key elements of the upgrade: new sensors, a new bridge, more crew space, and a new cigar-shaped small boat used to board other vessels. The contract is written in general, performance-based language-for instance, it states that the vessel must be able to conduct migrant operations at night-leaving ICGS room to determine which equipment to employ, thereby influencing how the Coast Guard accomplishes its duties. Many routine repairs were deemed outside the contract's scope, so the Coast Guard had to pay extra to get them fixed.

The partnership extends beyond the shipyard: ICGS maintains the new equipment on the Matagorda, while the Coast Guard handles other systems, such as the engines, which were not upgraded. The Matagorda is a floating sign of what the Coast Guard will become through Deepwater: a better equipped service that is highly dependent on ICGS.

Fleming's staff say delays on the Matagorda were due to the technical complexity of the work. "There was no doubt in my mind [the deadline] was going to slip from the very beginning, because this [sensor] package is just so, so complex," says the Coast Guard's Arnold. Others say shipyard officials were left to fend for themselves with little direction from Washington. "What it boils down to is, the roles and responsibilities of all the parties concerned, although it may be written down somewhere, weren't clearly defined to everyone," says the maintenance chief.

Whatever turmoil accompanied the overhaul of the Matagorda, Lt. Kevin Driscoll, the ship's new commanding officer, was pleased with the overhauled vessel. ICGS automated the ship's navigation system, meaning his crew could toss their navigation charts, and installed sensors such as forward-looking infrared radar, which detects body heat, making it easier to spot migrants in makeshift boats.

On an overcast, breezy morning in early March, Driscoll was joined by senior leaders from the Coast Guard and ICGS on the waterfront at Bollinger for a ceremony to unveil the ship. "It's a new Coast Guard on the bridge, partner," said Stillman, pointing to the roomy deckhouse, which offers 365-degree visibility and can fit almost the ship's entire 18-person crew. "It's a phenomenal step up at a phenomenal price," he said, adding, "now, whether you [upgrade] all 49 is a good question."


Coast Guard leaders envisioned Deepwater as a long-term acquisition, lasting up to 30 years to keep a lid on its hefty price tag. Through careful planning, the service believed it could extend the life of certain assets, like the patrol boats, while immediately replacing equipment in the most dire shape, such as the service's plodding 378-foot cutters-all while spending just $500 million to $1 billion a year.

But Sept. 11 threw a wrench in the works. The Coast Guard is taxing all its equipment to keep up with homeland security requirements. Patrol boats, designed to log 1,800 hours of operational time a year, now put in 2,200 hours at sea annually, causing hulls to corrode faster. The Coast Guard has resisted using Deepwater funds to bankroll immediate repairs. But when its helicopters lose engines in mid-flight, they must be repaired-even if that means tapping Deepwater's budget.

"When the existing systems fail, you've got to steal from the modernization fund to keep them going," says Coast Guard Commandant Thomas Collins. "The more you do that, the longer it takes to get your new systems." Stillman is blunter. "I call it a death spiral," he says of raiding Deepwater.

Maintenance problems imperil the acquisition strategy. ICGS depends on consistent funding; Deepwater's $668 million budget for fiscal 2004 will finance work on eight assets this year, all managed to specific schedules and performance targets. If funding is diverted, the schedule slips or work isn't done.

Privately, many Coast Guard leaders believe the only solution is to accelerate Deepwater. The service's allies on Capitol Hill agree. In early March, the House Transportation and Infrastructure Subcommittee authorized $1.1 billion for Deepwater, enough to complete it in 15 years if funding holds. In the Senate, Susan Collins, R-Maine, and Joseph Lieberman, D-Conn., have urged appropriators to add more money. "Accelerating Deepwater will save money in the long term, possibly as much as $4 billion," says Collins. "Each year the project is extended, repair costs will increase exponentially as legacy assets further deteriorate."

The Coast Guard is trying to speed development of certain Deepwater assets to ease maintenance woes. Because of widespread hull corrosion on the 110-foot patrol boats, the Coast Guard will speed up design of their replacement, the fast response cutter, which wasn't scheduled to begin production until 2017. Stillman estimates the first cutter could hit the water in late 2007. But to pay for the vessel, Stillman may have to raid the $66 million reserved for patching up 110-footers. Observers expect the Coast Guard to stop the patrol boat overhauls, perhaps next year, when Bollinger finishes the nine ships called for in its original contract.


Stillman says his acquisition strategy can adapt to shifting requirements, but Deepwater must pass muster with the service's overseers at the Homeland Security Department and the Coast Guard's operations directorate. Neither was satisfied by ICGS' proposed medium-range patrol aircraft, the CASA 235-300M, manufactured by a Spanish branch of the European Aeronautic Defence and Space Company.

"The CASA is not the right aircraft," says a senior Homeland Security official. "The operators in the Coast Guard know it's not the right aircraft." While the final purchase decision rests with the Coast Guard, Stillman loses leverage with ICGS if he dictates which assets it should buy. "How can I hold Lockheed Martin and Northrop Grumman accountable for performance when Congress or the Coast Guard is changing the solution all the time? The answer is, I can't," he says

The rift spotlights a risk at the heart of the acquisition: By giving ICGS so much freedom to design its new fleet, the Coast Guard is hard-pressed to say no if the contractor offers substandard solutions. And officials in the service's operations directorate believe the CASA is an inferior aircraft. "You've picked up on the sort of difference of opinion between the Deepwater program people and the operators," says the homeland security official.

Rear Adm. David Belz, who heads the operations directorate, denies any tension between his office and the Deepwater program shop, and says the two offices talk daily about how changing operational needs factor into Deepwater.

Belz led the Coast Guard's in-house study of its post Sept. 11 asset needs, known as the performance gap analysis. While the results of this study have not been made public, Coast Guard officials hint that it calls for expanding the scope of Deepwater. "My expectation is it's going to say you probably need more [assets]," says Collins. In a draft study financed by the Coast Guard, RAND concluded the service would have to double the size of its surface fleet to keep pace with expanded missions. For instance, it found the Coast Guard needs to buy 36 more national security cutters, in addition to the eight now planned under Deepwater.

The Deepwater package seems small today because it is based on 1998 estimates of the Coast Guard's future needs. To equip the fleet against post Sept. 11-threats, Belz's office already has proposed some design changes. For example, it said the national security cutter should be built to withstand attack by chemical and biological weapons, a design feature that ICGS has added to the ship.

For the Coast Guard, which thrives on juggling multiple missions, Deepwater is becoming a tricky balancing act. Service leaders must keep their fleet afloat while waiting for new equipment. And the contracting strategy is so complex that it still confuses some workers in the Deepwater program. But Stillman believes the Coast Guard-ICGS partnership is up to the challenge. He says both partners are adjusting to the arrangement.

Stillman also admits that the Coast Guard's future is partly in ICGS's hands: "I haven't thrown the keys to the transom to Lockheed Martin and Northrop Grumman, but God knows they have as much responsibility for the performance and the efficiency of this system as I do."

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