Coast Guard Failed to Properly Oversee Contracts, Officials Say

By Spencer S. Hsu
Washington Post Staff Writer
Thursday, February 8, 2007

Even as contractors built patrol boats with buckling hulls and a large new cutter with structural flaws, a U.S. Coast Guard review gave their performance high marks last year, extended their deal for nearly four years and paid them a multimillion-dollar bonus, government investigators said.

Coast Guard analysts evaluated only boats, aircraft and equipment systems that had been delivered under its troubled $24 billion, 25-year fleet-replacement program, known as Deepwater, disregarding defective ships under development by companies led by Northrop Grumman and Lockheed Martin, Homeland Security Department Inspector General Richard L. Skinner said at a congressional hearing Tuesday.

Investigators called the awards the latest example of breakdowns in the federal government's handling of a complex contracting experiment for the Deepwater project. The Coast Guard turned over to a private "systems integrator" the main responsibility for planning, designing and producing a fleet to meet its needs after concluding that it lacked such expertise in-house.

As a result, investigators said, Coast Guard officials at times failed to protect taxpayers' interests.

"We are relying on contractors in more areas, and we are giving them more discretion. And where there's more discretion, there's more risk," said David M. Walker, head of the Government Accountability Office, Congress's investigative arm. In testimony to the House, he and Skinner called for more aggressive oversight. The hearing Tuesday was conducted by the House Appropriations subcommittee on homeland security.

Despite Deepwater's problems, the Northrop-Lockheed partnership received a rating of "good" from a Coast Guard evaluator last May and had its term extended by 43 out of a possible 60 months.

A separate evaluation gave the partnership, Integrated Coast Guard Systems, $3.1 million in incentive and award fees, Walker said in an interview.

"I mean, that doesn't pass the straight-face test," he told the panel.

The disclosures come as Congress and government experts have stepped up scrutiny of the Pentagon's and DHS's use of the private sector to design and deploy next-generation technology such as the Army's Future Combat Systems initiative, and DHS's "virtual fence" at the border, called SBInet.

"The Deepwater and SBI contracts are extreme examples of giving government functions to the private contractors," said Rep. Henry A. Waxman (D-Calif.), chairman of the House Oversight and Government Reform Committee, which is holding a hearing into Deepwater and SBInet today ."In each case, the government appears to be abdicating oversight and giving private companies a virtual blank check."

Mary Elder, a Coast Guard spokeswoman, said retired Rear Adm. Patrick M. Stillman, who was then Deepwater manager, was aware of "facts relating to the production" of the cutter and other vehicles when he extended the deal last May. But he and a Coast Guard review panel were bound by criteria set in the initial five-year contract, signed June 2002 , that cited "operational effectiveness, total ownership cost and customer satisfaction."

New rules put in place for the second 43-month phase, which starts June 25, "are considered more objective," Elder said.

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