Deepwater costs hit $29B and rising, GAO says

Total costs for the Coast Guard’s Deepwater boat and ship replacement program could rise by another $5 billion and even higher, according to a new report from the Government Accountability Office.

The Coast Guard took over as lead systems integrator for the troubled contracting program in 2007 and established a $24.2 billion program baseline. The Coast Guard recently indicated that total acquisition costs could be as much as $29.3 billion, according to the report from the GAO released July 28.

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But even that larger estimate likely falls short of the true total costs because the Coast Guard has not revised baselines for all assets, including the Offshore Patrol Cutter, one of the costliest assets in the program, the auditors said.

Also, the agency has further revised its schedule, which has not been fully reflected in the most recent cost estimate, the GAO report states. Furthermore, the reliability of cost estimates for some assets is questionable because the Coast Guard did not follow best practices.

“The Deepwater Program as a whole continues to exceed the cost and schedule baselines approved by DHS in May 2007, but several factors preclude a solid understanding of the true cost and schedule of the program,” the GAO report states, adding that “additional cost growth is looming.”

“The Coast Guard and Homeland Security Department officials agreed that the annual funding needed to support all approved Deepwater acquisition program baselines exceeds current and expected funding levels, particularly in this constrained fiscal climate,” the GAO said.

Coast Guard acquisition officials expect that up to $1.9 billion a year would be needed to support the stated baseline, while anticipating a maximum of $1.2 billion a year. As such, the Deepwater program goals are “unachievable.”

GAO auditors said the situation of managing a portfolio expected to exceed the appropriated budget is likely to lead to “unhealthy competition for funding” among programs within the portfolio.

“Over the past four years, the Coast Guard has strengthened its acquisition management capabilities in its role as lead systems integrator and decision maker for Deepwater acquisitions,” the GAO report states. “Now, the Coast Guard needs to take broader actions to address the cost growth, schedule delays, and expected changes to planned capabilities that have made the Deepwater program, as presented to Congress, unachievable.”

The GAO made nine recommendations, including that the Coast Guard consider identifying tradeoffs to the planned Deepwater fleet and take other actions to increase confidence that assets would meet mission needs. DHS officials agreed with the recommendations.