March 30, 2007 – 7:19 p.m.
Setting up yet one more issue to be resolved in conference, the Iraq war supplemental bills passed by the House and Senate take differing approaches to substantially increase oversight of the Coast Guard’s troubled $24 billion, 25-year Deepwater modernization program.
The House bill would require the Coast Guard to openly compete all future procurements of Deepwater assets, rather than rely solely on its current Deepwater contractor. The Senate bill would require some, but not all, future Deepwater assets to be opened to competition.
Conferees will have to resolve which contracts should be opened to competition, bearing in mind lawmakers will not want to further delay the program.
Members of Congress and government inspectors have recently chastised the Coast Guard’s management of Deepwater for delays, design flaws and cost overruns.
The Senate passed its Iraq war supplemental bill on Thursday, and it will now go to conference with the House measure. President Bush has vowed to veto the legislation (
Integrated Coast Guard Systems (ICGS), a joint venture between Northrop Grumman and Lockheed Martin Corp., was awarded the original, or base term, Deepwater contract in 2002, and it expires June 2007. The Coast Guard is negotiating the next 43-month phase of the contract, or first award term, with ICGS.
The Senate supplemental bill would require “full and open competition” for some assets, rather than procurement through ICGS.
The Senate bill would not require the competition of Deepwater assets already in production because that would cause undue delays, a Senate Appropriations aide said.
Therefore, the Senate bill would not require re-competition of many major assets, namely the flagship National Security Cutter, communications systems, maritime patrol aircraft, and the HC–130J long-range search aircraft. Nor would it require competition of modifications being made to Deepwater assets by the Coast Guard.
But the 350-foot Offshore Patrol Cutter and unmanned aerial vehicles would have to be opened to competition under the Senate bill, the aide said.
The Senate bill would also require open competition for the Fast Response Cutter (FRC-B), the smallest of the three major classes of cutters in Deepwater.
Earlier this month, the Coast Guard announced it would be competing that contract rather than using ICGS.
Adm. Thad Allen, head of the Coast Guard, said the decision would affect only the acquisition of the FRC-B and not ongoing negotiations with ICGS for other Deepwater assets.
The Senate report on the bill (S Rept 110-37) says Deepwater provisions are consistent with recommendations of the Government Accountability Office, the Defense Acquisition University and others.
The House Iraq war supplemental bill would require all future Deepwater procurements be competed, either through ICGS or the Coast Guard, a House aide said.
The House bill would require Congress to approve a Coast Guard expenditure plan — which would be reviewed by the Government Accountability Office — before $1 billion in Deepwater appropriations in the fiscal 2007 Homeland Security appropriations law (PL 109-295) could be obligated.
The House bill says the plan could “not rely on a single industry entity or contract” — meaning ICGS.
Since the Coast Guard has announced it will compete the FRC-B contract, it appears it will have met that requirement.
The Coast Guard expenditure plan mandated by the House bill would also have to identify competition to be conducted in each procurement, as well as milestones, limited indefinite delivery orders, and more.
The House bill would require technical reviews of Deepwater designs and design changes, independent cost estimates of major changes, and measuring contractor performance. If engineering concerns are identified, they would have to be addressed before further funds are obligated.
Some of the requirements are similar to those the Coast Guard has already announced it will implement to increase its oversight of Deepwater.
Allen has made it clear he wants the best value and “proper checks and balances and proper oversight” for the Deepwater award term currently being negotiated, Coast Guard spokesman Brendan McPherson said in an interview.
The Coast Guard’s recently announced measures to increase Deepwater oversight include moving the program into the Coast Guard’s Acquisitions Directorate and giving the Coast Guard’s chief engineer greater authority and responsibility.
“We’ve already started to implement and will continue to use third-party technical reviews or assessments of the [design] plans,” McPherson said.
“We continue to negotiate in good faith with ICGS,” and the new Deepwater contract is “being negotiated to incorporate lessons learned,” McPherson added.
The Coast Guard can already go outside the ICGS contract to get Deepwater assets, as illustrated by the FRC-B re-competition.
The other Deepwater asset the Coast Guard has acquired outside of ICGS is the short-range prosecutor boat. The Coast Guard announced in June that it would take over from ICGS the acquisition of 83 short-range prosecutors. ICGS built the first eight.
Mary Elder, spokeswoman for the Coast Guard’s Deepwater program, said in an interview the agency has already fulfilled the minimum dollar obligation to ICGS required by the existing base term contract — $290 million.
Moreover, the Coast Guard would not have to meet any minimum number of orders to ICGS under future contracts, although it would be unlikely the agency would want to discontinue using ICGS for assets already under production, she said.
For the contracts under negotiation with ICGS, the Coast Guard will use ICGS’s services “where we are able to determine the price to be fair and reasonable,” she added.
“ICGS may receive all of the work, some of the work, or none of the work” in the award term, she said.
ICGS also subcontracts a portion of its Deepwater orders to companies outside ICGS and its affiliates. Lockheed Martin subcontracted $655 million, or 44 percent, of $1.5 billion in orders, as of the end of 2006, according to Elder. Northrop Grumman subcontracted $212.4, or 27 percent, of $773.5 million in orders.
Both the Coast Guard and ICGS say it is their policy to not comment on pending legislation, but they emphasize Deepwater’s successes.
On Wednesday, the Coast Guard issued a press release announcing that all air stations with HH-65 search and rescue helicopters are now flying upgraded engines installed as part of Deepwater. The helicopters have greater power, better maneuverability, higher safety standards and were delivered ahead of schedule, the release says.
And earlier this month the Coast Guard made its biggest-ever cocaine seizure near Panama that both it and ICGS attribute to new communications equipment.
The drug bust is a good example of how Deepwater can improve the Coast Guard’s ability to do its job, but it also shows the need to replace assets as soon as possible, McPherson says.
Two bills introduced last week would require the Coast Guard to openly compete some Deepwater assets.
One (
Sen.
ICGS spokeswoman Margaret Mitchell-Jones said she could not comment on pending legislation, but that “there is a great deal of work that has already progressed.”
Mark Gaspar, director of Coast Guard Systems at Lockheed Martin Washington Operations, said it took several years for the Coast Guard to award the Deepwater contract, and it generally takes years for large government acquisitions to be competitively awarded.
Several companies might be interested in bidding for additional Deepwater contracts.
Raytheon spokeswoman Anne Marie Squeo said in an interview, “Specific opportunities are evaluated on a case-by-case basis. When sufficient information on the potential competition is known we will decide if it makes sense to compete.”
Adm. James Loy, a former commandant of the Coast Guard, said in an e-mail to CQ Homeland Security that the agency will need to provide the integration “to any pieces broken out from the Deepwater umbrella.”
Loy helped develop the Deepwater program to replace the agency’s boats, aircraft and technology in a coordinated way rather than piecemeal. He is a member of Lockheed Martin’s Board of Directors and senior counselor at the Cohen Group.
The failures of Deepwater are due to “the 50-50 governance structure [between Lockheed Martin and Northrop Grumman] which was difficult to hold responsibility to a single contractor,” he said.
Eleanor Stables can be reached at estables@cq.com.