A new report by independent government auditors found the Coast Guard’s policy choices including design and construction concurrency, and the effects of a 2018 hurricane, have contributed to 40 percent cost growth and 18-month delays in the first four vessels in the service’s new offshore patrol cutter (OPC) program.
A Government Accountability Office (GAO) report published June 20 found that these costs and delays are outgrowths of the Coast Guard’s decisions to conduct technology development, design and construction phases concurrently, which is contrary to leading shipbuilding practices.
The report found the OPC’s total acquisition cost estimates increased from $12.5 billion to $17.5 billion between 2012 and 2022.
“The OPC program continues to move forward with construction despite an unstable design, among other issues. Specifically, the Coast Guard began construction of the first four OPC ships without ensuring the shipbuilder sufficiently matured the OPC’s critical technology—the davit—and stabilized its design. This has already resulted in rework during OPC construction, and the effect will likely compound as production progresses on all four ships,” the report said.
The davit is a crane that deploys and retrieves a cutter’s small boats and is a stage 1 OPC critical technology. GAO said without a technology maturation plan for the davit and demonstrating it in a realistic environment before delivery, the service is risking additional delays and costly rework.
Without such a plan, “the Coast Guard will have little assurance that the shipbuilder will deliver a davit meeting the required capabilities, making it difficult to plan and budget accordingly.’
The Coast Guard said the 40 percent cost growth is due to factors like restructuring the stage 1 contract, recompeting the stage 2 requirements in response to disruption from the October 2018 Hurricane Michael and increased infrastructure costs for home ports and facilities.
The hurricane directly led to 18-month delay in delivering the first four OPCs along with issues in manufacturing the propulsion systems.
The Coast Guard aims to replace the 28 210-foot and 270-foot Medium Endurance Cutters (MECs) with 25 OPCs. The MECs have already exceeded their original design service lives, reaching about 56 and 36 years old, respectively. Both versions were originally meant to serve for only 30 years.
The Coast Guard first selected Eastern Shipbuilding Group (ESG) to first build the OPCs in 2016. Following the disruption from Hurricane Michael, after providing extra extraordinary contractual relief to the company to build the first four vessels, the Department of Homeland Security moved to recompete the other 21 cutters.
In June 2022 the Coast Guard awarded a contract worth up to $3.3 billion to Austal USA to ultimately build up to 11 more OPCs, called stage 2. However, ESG filed a protest of the stage 2 contract bid with the U.S. Court of Federal Claims. Litigation was pending as of the time of the report, so GAO did not assess stage 2 of the OPC program.
GAO underscored the Coast Guard has still not aligned its shipbuilding acquisition policy with leading practices, like requiring the completion of basic and functional design and maturity of all technologies before construction.
“It also does not require completion of the design of distributive systems—systems that affect multiple zones of the ship—prior to construction of the lead ship. Significant rework can occur late in construction, resulting in subsequent cost growth and delays, if design of distributive systems are not completed prior to construction,” the report said.
In October 2020, GAO auditors found the Coast Guard started construction on OPCs with an incomplete design that increased the risk of construction rework for stage 1 ships. The GAO made several recommendations to update its acquisition policy that the Coast Guard agreed with, although the service has still not fully addressed the recommendation.
GAO argued that while the Coast Guard is in the early phases of OPC stage 2 design with Austal, “the Coast Guard has yet to fully align its actions with shipbuilding leading practices. Specifically, the Coast Guard’s policy and guidance do not require shipbuilding programs to (1) achieve a sufficiently stable design prior to the start of lead ship construction, and (2) successfully demonstrate all critical technologies identified by the program or shipbuilder in a realistic environment by contract award for lead ship design.”
GAO also evaluated Eastern Shipbuilding Group as underperforming, despite being authorized for up to $659 million in contractual relief following the hurricane.
It noted according to performance data, as of March 22 OPC-1 indicator that measured schedule performance was 0.74, meaning 74 cents of work was accomplished for every dollar planned.
“Generally, a program is considered to be struggling if it does not achieve at least 90 cents of work for every dollar planned, according to leading practices for managing program costs,” GAO said.
The report said the contractor seemingly must “significantly increase its efficiency” to meet the estimated cost at completion.
“For example, to meet its estimated cost for OPC 1 completion, ESG must produce $1.08 worth of work for every dollar spent. Given that ESG’s actual past performance on this ship is 76 cents worth of work for every dollar spent, the shipbuilder’s efficiency is unlikely to improve enough to meet its estimated labor hour or cost goals for OPC 1, meaning ESG is at risk to incur significant losses if they continue at this efficiency level.’
GAO made two recommendations for Congress and five to the Coast Guard, given the service did not complete previous recommendations on this program.
First, the report said Congress should consider requiring the Coast Guard to update its acquisition policy to establish all shipbuilding programs should mature critical technologies to a TRL 7 level before a program’s contract award for detail design and construction as well as require the service to update its acquisition policy to establish that all shipbuilding programs should achieve a 100 percent completion of basic and functional design before lead ship construction begins.
The Department of Homeland Security agreed with three of the GAO’s five recommendations to the Coast Guard itself. Those include that the Commandant of the Coast Guard should ensure OPC program officials develop a technology maturation plan for the davit before builder’s trials; that the commandant should ensure the OPC program officials test an integrated prototype of the davit in a realistic environment before stage 1 builder’s trials, and ensure the Coast Guard Component Acquisition Executive update its acquisition policy to establish all shipbuilding programs must complete the routing and design of major portions of all distributive systems before awarding contracts for new shipbuilding programs.
However, the department did not agree with recommendations that the Coast Guard Commandant ensure the OPC stage 2 program follows shipbuilding leading practices by demonstrating integrated prototypes of all critical technologies identified by the program or shipbuilding in a realistic environment before the preliminary design review and that the commandant ensure the OPC stage 2 program achieves a sufficiently stable design of 100 percent basic and functional design completion before the start of lead ship construction.
DHS argued the davit is the only critical technology in OPC stage 2 and the shipbuilder chose a davit with a “demonstrated pedigree in operational environments”
It also argued against the last recommendation because the program does not agree that the definition of a sufficiently stable design includes the completion of basic and function design, including the routing of major distributive systems and other components that affect multiple ship zones.
The Coast Guard program instead uses a definition as “achievement of high confidence in functional design, and enough production design to support construction.”