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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.

Adm. Thad W. Allen, Coast Guard commandant, met with Lockheed and Northrop executives Jan. 19 to negotiate terms for the contract renewal and has reorganized the service's contracting staff to beef up and unify their authority.

Allen is seeking to set new performance guidelines, toughen rules that an outside entity certify boats and planes produced under Deepwater, and take a bigger role in determining the work done by subcontractors, Skinner said.

"He recognizes we, the Coast Guard, need to get a grip over these contractors," Skinner said.

Skinner's office reported on Jan. 29 that the Coast Guard's new, 418-foot National Security Cutter -- the largest ship the service has ever commissioned and the cornerstone of its new fleet -- suffers from design flaws that even when corrected will curtail its operating days by as much as 20 percent. The errors also helped nearly double the cost of the first two of eight planned vessels, from $517 million to about $1 billion, depending on negotiations and repairs ultimately required. None of the cutters has yet entered Coast Guard service.

The ship's "design and performance deficiencies are fundamentally the result of the Coast Guard's failure to exercise technical oversight over the design and construction of its Deepwater assets," the report said.

In December, the Coast Guard also docked eight 123-foot cutters retrofitted under the program and based in Key West, Fla., after determining they were not seaworthy. That came after the Coast Guard had spent nearly $100 million.

Meanwhile, the Coast Guard's plan to fill the gap by accelerating development of the next-generation, 140-foot Fast Response Cutter has stalled because of technical glitches.

Skinner said the Integrated Coast Guard Systems extension was based mainly on other boats and aircraft it delivered, not on the Fast Response Cutter, National Security Cutter and the 123-foot patrol boats.

"We said, 'You've got to fix that, because if you'd included that, they probably would have gotten an F,' " Skinner said. Despite the troubles, the Coast Guard has paid the partnership incentive awards totaling $16 million since 2002, Elder said. She said the awards were for meeting targets on other systems.

Integrated Coast Guard Systems spokeswoman Margaret Mitchell-Jones declined to comment, referring questions to Elder.

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