Deep Trouble for Deepwater
The Coast Guard's massive rebuilding project is just one of its many problems
At the time, it looked like a triumphant moment for the U.S. Coast Guard. Last Veterans Day, about 1,000 people joined Coast Guard Commandant Thad Allen and Michael Chertoff, the homeland security chief, at a shipyard owned by defense giant Northrop Grumman in Pascagoula, Miss., to christen the first major cutter—or large enforcement ship—the agency had acquired in 35 years. As a peppy military band played, Allen predicted the cutter would "be the most capable" the agency had ever had.
It was a heady time. The Coast Guard was still riding a wave of goodwill inspired by the service's response to Hurricane Katrina, when its helicopter rescuers hoisted more than 33,000 people to safety while the rest of the federal effort floundered. President George W. Bush had sworn in Allen—a popular admiral who took over the federal government's response to Katrina from Federal Emergency Management chief Michael Brown—as head of the Coast Guard in May 2006.
Lemons. But now that November gathering is starting to look like a party on the deck of the Titanic. Audits have revealed that the cutter's cost has grown by millions of dollars since it was commissioned and that it has potentially fatal design flaws. And that's only part of the bad news. The 38,000-person military service has been accused of buying what one member of Congress called "a series of lemons" with a $24 billion megacontract to replace nearly all its ships and planes. Meanwhile, the Coast Guard is also dealing with the shocking deaths of two rescue swimmers and allegations of assault at its academy. The Coast Guard's motto is semper paratus—or "always ready"—but its supporters wonder if even Allen can fix all this.
The Coast Guard had traditionally been known for doing more with less. Back in the 1990s, slim budgets left the service with a badly aging fleet that was "a huge embarrassment," says former Rear Adm. George Naccara. By 2002, of the 39 similar cutter fleets around the world, only two were older than the Coast Guard's. Yet the agency's mission was rapidly expanding; after 9/11, it joined the Department of Homeland Security, took over some new port and chemical-plant security roles, and saw its budget grow by 50 percent.
Those new responsibilities added urgency to the massive Deepwater program, an unprecedented effort kicked off in 2002 to upgrade virtually all of the service's fleet. Two large defense contractors—Lockheed Martin and Northrop Grumman—led the team that won a contract to provide a catalog of 91 ships, 49 aviation drones, 124 small boats, and 195 new or upgraded helicopters, all connected by a new communications system. The contracting team advises the Coast Guard on what to buy, chooses the parts providers, and serves as prime builder. Because of staff shortages, the Coast Guard restricted itself initially to a mostly advisory role. "We thought this was a way to eliminate redundancy and save a whole pile of money," says Tom Schatz, president of Citizens Against Government Waste.
Today, that sentiment seems more than a bit ironic. Originally a $17 billion contract, Deepwater was repegged at $24 billion in 2005. A recent DHS inspector general report said that the cost of the first two of the largest cutters—originally estimated at $517 million together—has risen to $775 million and is headed higher still. Allen says much of the swell was caused by his agency's "evolving needs" in an age of terrorism. That 418-foot national security cutter christened in November, for instance, now must be able to sail even if a nuclear bomb is dropped nearby.
Fissures. But Deepwater has other problems as well—like the need to rework designs for ships that have already been partially built. The national security cutter is getting an upgrade because of fatigue concerns; auditors say it won't survive its 30-year life span, a notion Northrop officials strongly deny. Congress, however, has reason to be skeptical: The Coast Guard used about $90 million to overhaul eight patrol boats, only to withdraw them from service in November when fissures in the hulls and engine troubles made them unseaworthy.
The contractors have defended their work. Leo McKay, Lockheed Martin's lead executive on the project, has said Deepwater has "already resulted in measurable progress with the Coast Guard's rescue, enforcement, and interdiction missions on the high seas." And experts point to the non-drone aircraft—including newly engined helicopters that can carry twice the weight of their predecessors—as bona fide Deepwater successes. But the program's bottom line still seems troubling: The Coast Guard has spent about $4 billion on the contract so far but today has fewer operational cutters than it had before 9/11. "This didn't need to happen," Capt. Kevin Jarvis, a retired Coast Guard engineer, said recently. He described government employees futilely writing memos about already-visible safety problems even before ships were built. Rep. Henry Waxman, chairman of a House oversight committee, calls Deepwater "one of the worst contract organizations that I've ever seen."
All that comes on top of other difficulties. Last summer, for the first time in its history, the service court-martialed an academy cadet for sexual assault. Then in August, two of the service's storied corps of rescue swimmers died during a routine training dive in the Arctic Ocean, the first such drownings since 1974. Sen. Maria Cantwell, the top Democrat overseeing the Coast Guard, has promised to investigate. The service's own probe revealed that some members of the divers' support team had been drinking and misinterpreted distress calls. The number of dive teams more than tripled after 9/11, causing oversight challenges: Some of their equipment was years overdue for inspection.
Allen, who's garnered kudos for a no-nonsense style, is attacking the problems vigorously. "We will not accept," he wrote to the entire Coast Guard in January, "preventable [life] loss or injury." In the days after the drownings, he halted all diving until every piece of underwater equipment in use was reinspected. To clean up troubles at the Coast Guard Academy in New London, Conn., he created a task force in September to study the climate there after reports of drinking and promiscuity. A related investigation has already resulted in the reprimand of a senior Coast Guard official.
Deepwater, however, is arguably more daunting. "We'll never have the organizational structure you'll find in the [U.S.] Navy," Allen says of the service's ability to coordinate massive purchases, "but ... I'm trying to create as much of that capability in the Coast Guard as I can." He recently gave the service's chief engineer the authority to veto designs. He's also incorporating regular third-party evaluations of contracting work, calling for robust training of oversight personnel, and reorganizing the entire Coast Guard to limit layers of bureaucracy that may have contributed to Deepwater's problems. And more is coming: Between now and June, Allen can rewrite portions of the contract. Last week, the Coast Guard revealed it would reach outside the contract for one of the ships, which was to be provided by the Lockheed-Northrop team. The reason: Coast Guard officials think they can get similar boats for $100,000 less apiece than the price quoted by the contracting team.
Still, some wonder if it'll be enough. "At this point," Cantwell says, "I think we need legal advice" on recouping contract costs. Rep. Bob Filner, formerly the ranking House Democrat overseeing the service, has urged dropping the contract arrangement altogether. "The first thing you do when you've dug yourself into a hole," Filner says, "is stop digging."
This story appears in the March 12, 2007 print edition of U.S. News & World Report.