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The Coast Guard's massive fleet-modernization 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 Homeland Security Department's top investigator told lawmakers Thursday.

The Coast Guard is improving its management of the troubled Deepwater program, but costs still could rise for new national security cutters and unmanned aerial vehicles, department Inspector General Richard Skinner said in written testimony to two House Homeland Security subcommittees.

The $24 billion, 25-year Deepwater program aims to upgrade aging vessels, aircraft and communications systems. Government investigators repeatedly have identified problems with it.

In April, the Coast Guard commandant, Adm. Thad Allen, announced that his agency was taking over as lead systems integrator for all assets and acquisitions under the program. The announcement was a blow to defense firms Lockheed Martin and Northrop Grumman, which were awarded the contract to manage Deepwater in 2002 through a joint venture called Integrated Coast Guard Systems.

Company officials also disclosed last month that the Justice Department is investigating the Deepwater program.

Skinner said the cost for the first two national security cutters "is expected to increase well beyond the current $775 million estimate." He said that figure does not include a $302 million adjustment proposed by the Lockheed-Northrop team.

The estimate also does not include "the cost of structural modifications to be made to mitigate known design deficiencies." The industry team also has indicated its intention to request additional adjustments, Skinner said.

Those problems and "future [adjustments] could add hundreds of millions of dollars" to the tab, Skinner said. "We remain concerned that these and other cost increases within the Deepwater program could result in the Coast Guard acquiring fewer and less capable [assets]."

Skinner also cited problems with production and deployment of a new, vertical unmanned aerial vehicle. He said the Coast Guard had to issue a second order May 8 stopping work on the project because it "is over budget and more than 12 months behind schedule," with the potential to spend $50 million more and take 18 months longer to deliver the first two systems.

Without them, Skinner added, the Coast Guard would lose 76 percent of surveillance capability promised under Deepwater.

The two top Coast Guard officials in charge of Deepwater, Rear Adm. Gary Blore and Capt. Steven Baynes, told lawmakers they are getting control of Deepwater and said the program already has produced benefits.

In March, for example, the Coast Guard used "Deepwater-enhanced command-and-control capabilities" to seize more than 42,000 tons of cocaine being smuggled off the coast of Panama, the largest bust in the agency's history, the officials said in written testimony.

The bust would not have been possible without the "upgraded tracking capabilities and the ability to communicate securely over great distances," Blore and Baynes said.

COMMENTS

• Having insight from within the agency, I believe planning was done for all appropriate costs and estimates for future cost-growth. However, the federal budget process was a contributing factor as it reduced all margins and with the delay in allocating the approved funds, the project started behind schedule and with insufficient funds. As a PM you would recognized that it is very difficult to recover but the CG should have re-baselined and for political/budgetary reasons did not. The main causal factor has been in the press as well as on the Hill - - decision-making was outsourced to a systems integrator made up of employees from the two prime contractors. AND CG not having contractual authority to intervene in a timely manner. It looks simple but it is very complex due to many factors interwoven in the contract and political arena. b Posted May 21, 2007 4:44 PM
• I could be wrong, but it seems to me that none of planners considered inflation, labor costs rising, or any other outside forces that would have an impact of the cost of this program. Personally, I think they not only underestimated costs to start with; when they outsourced it, they didn't allow for any "wiggle room" in order to get it outsourced. Michelle Posted May 18, 2007 10:28 AM