New York Times Report
December 9, 2006

FAILURE TO NAVIGATE
Billions Later, Plan to Remake the Coast Guard Fleet Stumbles

By ERIC LIPTON

WASHINGTON, Dec. 8 — Four years after the Coast Guard began an effort to replace nearly its entire fleet of ships, planes and helicopters, the modernization program heralded as a model of government innovation is foundering.

The initial venture — converting rusting 110-foot patrol boats, the workhorses of the Coast Guard, into more versatile 123-foot cutters — has been canceled after hull cracks and engine failures made the first eight boats unseaworthy.

Plans to build a new class of 147-foot ships with an innovative hull have been halted after the design was found to be flawed.
And the first completed new ship — a $564 million behemoth christened last month — has structural weaknesses that some Coast Guard engineers believe may threaten its safety and limit its life span, unless costly repairs are made.

The problems have helped swell the costs of the fleet-building program to a projected $24 billion, from $17 billion, and delayed the arrival of any new ships or aircraft.

That has compromised the Coast Guard’s ability to fulfill its mission, which greatly expanded after the 2001 attacks to include guarding the nation’s shores against terrorists. The service has been forced to cut back on patrols and, at times, ignore tips from other federal agencies about drug smugglers. The difficulties will only grow more acute in the next few years as old boats fail and replacements are not ready.

Adm. Thad W. Allen, who took over as Coast Guard commandant in May, acknowledged that the program had been troubled and said that he had begun to address the problems. “You will see changes shortly in the Coast Guard in our acquisition organization,” Admiral Allen said. “It will be significantly different than we have done in the past.”

The modernization effort was a bold experiment, called Deepwater, to build the equivalent of a modest navy — 91 new ships, 124 small boats, 195 new or rebuilt helicopters and planes and 49 unmanned aerial vehicles.

Instead of doing it piecemeal, the Coast Guard decided to package everything, in hopes that the fleet would be better integrated and its multibillion price would command attention from a Congress and White House traditionally more focused on other military branches. And instead of managing the project itself, the Coast Guard hired Lockheed Martin and Northrop Grumman, two of the nation’s largest military contractors, to plan, supervise and deliver the new vessels and helicopters.

Many retired Coast Guard officials, former company executives and government auditors fault that privatization model, saying it allowed the contractors at times to put their interests ahead of the Guard’s.
“This is the fleecing of America,” said Anthony D’Armiento, a systems engineer who has worked for Northrop and the Coast Guard on the project. “It is the worst contract arrangement I’ve seen in all my 20 plus years in naval engineering.”

Insufficient oversight by the Coast Guard resulted in the service buying some equipment it did not want and ignoring repeated warnings from its own engineers that the boats and ships were poorly designed and perhaps unsafe, the agency acknowledged. The Deepwater program’s few Congressional skeptics were outmatched by lawmakers who became enthusiastic supporters, mobilized by an aggressive lobbying campaign financed by Lockheed and Northrop.

And the contractors failed to fulfill their obligation to make sure the government got the best price, frequently steering work to their subsidiaries or business partners instead of competitors, according to government auditors and people affiliated with the program.
Even some of the smaller Deepwater projects raise questions about management. The radios placed in small, open boats were not waterproof and immediately shorted out, for example. Electronics equipment costing millions of dollars is still being installed in the new cutter, even though it will be ripped out because the Coast Guard does not want it. An order of eight small, inflatable boats cost an extra half-million dollars because the purchase passed through four layers of contractors.

For the Department of Homeland Security, which took over responsibility for the Coast Guard in 2003, Deepwater joins its already long list of troubled programs, including its airport checkpoint measures, its biodefense efforts and its widely condemned handling of the response to Hurricane Katrina.
The Homeland Security Department’s inspector general has warned that the department cannot repeat this experience as it begins a $7 billion plan to tighten the border. The department is taking a similar management approach with that plan, relying on the Boeing Corporation to develop, supervise and execute the strategy.
Spokesmen for Northrop and Lockheed, and the partnership they formed to run Deepwater, declined repeated requests for interviews, saying they would leave it to the Coast Guard to discuss the project. The companies also declined to respond to written questions.

Admiral Allen said the Coast Guard engineers and procurement staff team would now play a much larger role in overseeing the project in an effort to rein in its private sector partners, adding that the mistakes made were unacceptable.

“Our people are demoralized by it, they don’t deserve it, and it really impedes our ability to execute our mission,” he said.

Early Warnings
On a clear, calm morning in Key West, Fla., one day last month — perfect weather for running drugs and migrants — six of the eight converted Coast Guard patrol boats were broken down or out of service. Their crews had little to do but shine the ships’ already gleaming bells and clean its guns.

The Deepwater plan called for transforming the 110-foot boats into larger, more versatile cutters with rebuilt hulls, new communications and surveillance gear and a 13-foot extension to make room for a small boat launch ramp.

Even before the refurbishing began in 2003, though, Coast Guard engineers expressed doubts that the boats could bear the extra weight the changes would impose. “You could have buckling of the structure of the ship,” Chris Cleary, of the Engineering Logistics Center at the Coast Guard, said he recalls pointing out. But Bollinger Shipyards, a business partner of Northrop and Lockheed, insisted the conversion would succeed.

As the work got under way, the Coast Guard provided only limited oversight. It did not fill dozens of its seats on joint management teams set up for the project. And the Coast Guard assigned seven inspectors to monitor the work, compared with 20 on a similar-size job.

“In theory, we were going drive a 110-foot cutter up to the pier, drop it off and come back in 34 weeks to pick up a 123-foot cutter,” said Lt. Benjamin Fleming, the Coast Guard’s representative at the shipyard in Lockport, La. “We were putting a lot of trust and faith in our partners.”

Michael De Kort, a former Lockheed project manager, said the results quickly became apparent.

The VHF radio on the small launch would be exposed to the elements but was not waterproof, Mr. De Kort said. The classified communications equipment had not been properly shielded to protect messages from eavesdropping. Cameras intended to provide 360-degree surveillance had two large blind spots.
Mr. De Kort said he had repeatedly warned his Lockheed supervisors of the problems, but was rebuffed. “We have an approved design and we aren’t going to change it,” Mr. De Kort said he was told. He was later laid off from the company. Lockheed officials declined to comment.

In September 2004, more serious flaws in the boat conversion program became obvious after the first one, the Matagorda, was launched. As it traveled in relatively heavy seas from Key West to Miami, large cracks appeared in the hull and deck.

Giant steel straps that looked like Band-Aids were affixed to the side of the boats, and the vessels were barred from venturing out in rough water. But cracks and bulges continued to scar the Matagorda and other converted ships, followed by a series of mechanical problems.

Bollinger, it turned out, had overestimated how much stress the modified boats could handle, a miscalculation it cannot fully explain. “The computer broke for some reason,” said T. R. Hamlin, a senior Bollinger manager. “Whether it was a power surge or something, who knows?” The cursory oversight by the Coast Guard meant the mistake was not caught in time.

After spending about $100 million on the first eight boats, the Coast Guard suspended the conversion plan. Last week, Admiral Allen ordered the boats taken out of service, citing concerns about crew safety.

Facing a shortage of patrol boats, the contractors and the Coast Guard decided to speed development of a larger ship, the Fast Response Cutter. The hull was to be built from glass-reinforced plastic, known as a composite, something never tried on a large American military ship.

While acknowledging that it might cost much more to build the 58 planned cutters with composite hulls instead of steel, Northrop and Lockheed claimed the boats would last longer and require less maintenance, saving money over the long run.

Coast Guard engineers again were doubtful that Northrop’s design would work, citing concerns about weight, hull shape and fuel consumption. The Coast Guard also found inconsistencies in the cost data Northrop used to justify the new hull.

One former Northrop executive said the company was pushing the plan not because it was in the best interest of the Coast Guard, but because Northrop had just spent $64 million to turn its shipyard in Gulfport, Miss., into the country’s first large-scale composite hull manufacturing plant for military ships.

“It was a pure business decision,” said the former executive, who disagreed with the plan and would speak only anonymously for fear of retribution. “And it was the wrong one.”

That became clear when a scale model of the Fast Response Cutter was placed in a tank of water — and flunked the test. After three years and $38 million, Northrop Grumman’s plan was suspended.
Financial Aid

The Coast Guard recognized from the start that it might need help financing a project as big as Deepwater, and that was part of the reason it turned to Lockheed and Northrop.

“They have armies of lobbyists, they can help get dollars to get the job done,” explained Jim McEntire, a retired captain who had served as a senior Coast Guard budget official. “The White House and Congress listen to big industrial concerns.”

That assistance would prove valuable. Just months after the contract was awarded in June 2002 through a competitive bidding process, the Coast Guard began to study whether the $17 billion Deepwater budget would be inadequate, given additional costs for antiterrorism equipment. In 2005, the service informed Congress that the program would cost $24 billion over 20 years and that the annual allocation would need to double, to $1 billion.

By then, though, the patrol boat conversion had been halted. Deepwater’s costs were ballooning, but the Coast Guard was having a hard time explaining exactly how it would spend more money. Government auditors were starting to churn out reports warning of serious management weaknesses.

That record disturbed some members of Congress. In May 2005, the House Appropriations Committee slashed the program’s annual budget request nearly in half to register its frustration.

At a hearing two months later, Representative Harold Rogers, a Kentucky Republican who oversees the Homeland Security budget, instructed the Coast Guard to fix its problems and restrain costs. “You simply took the most expensive, all-inclusive Cadillac Seville and we’re going to have to, with our limited funds, fit you into something a bit more appropriate,” Mr. Rogers said. “I hope it’s more than a Chevrolet.”

To fight back, the Coast Guard and contractors relied on Congressional allies, led by Senator Olympia J. Snowe, Republican of Maine, Representative Frank A. LoBiondo, Republican of New Jersey, and Representative Gene Taylor, Democrat of Mississippi.
Mr. Taylor and Mr. LoBiondo had formed a group called the Congressional Coast Guard Caucus. It began in the late 1990s with 4 members and today has more than 75.

The enthusiasm of the three leaders for the Deepwater project was not simply about meeting the Coast Guard’s needs. Maine is home to Bath Iron Works, a major ship builder that Ms. Snowe said might benefit from increased Deepwater spending. While that was a factor, she said it was not her primary motivation.

Ms. Snowe and Mr. LoBiondo, the leaders of the Senate and House panels that oversee the Coast Guard, said they pushed for more spending only after the service’s leaders reassured them during hearings that they were addressing the program’s problems. They both also said they were convinced that the Coast Guard desperately needed Deepwater because its helicopter engines were routinely breaking down and the hulls of old ships were failing.

“We don’t want to waste money; we don’t want ineffective programs,” Ms. Snowe said in an interview. “At the same time, we can’t allow the Coast Guard to languish.”

Mr. Taylor’s district is home to Northrop Grumman’s shipyard in Pascagoula, Miss., which is building the Coast Guard’s largest ship, and Northrop and its employees are one of his biggest sources of campaign contributions. He worked along with two key Republicans in Mississippi — Senator Trent Lott, whose father was once a pipe fitter at the Pascagoula shipyard, and Senator Thad Cochran, the chairman of the Senate appropriations committee — to win more money.

Mr. LoBiondo’s district is home to the Coast Guard’s national training center, and Lockheed Martin built its Deepwater equipment testing center just outside his district. He is also one of the top Congressional recipients of Lockheed contributions.

The contractors ran advertisements aimed at lawmakers in Washington publications, delivering ominous messages about the need to stop terrorists before they reach American shores. The Navy League, a nonprofit group partly financed by Lockheed and Northrop, orchestrated telephone calls, letters and visits to lawmakers, reminding them that hundreds of contractors across the country were already working as suppliers on the project.
And the Coast Guard got an important boost when it was widely praised for its helicopter rescues after Hurricane Katrina.
The lobbying effort paid off. In September 2005, Congress agreed to increase the annual financing for Deepwater to nearly $1 billion.
Late Scramble

If there was a single ship that could prove to skeptics that the Coast Guard and its contractors could get the job done right, it would be the National Security Cutter, a ship unlike anything the Coast Guard had ever built. Bigger than any existing cutter, it was more like a warship, designed to patrol with Navy vessels.

It would carry sophisticated weapons systems, surveillance equipment, a helicopter and two unmanned aerial vehicles, all vital in its effort to intercept boats suspected of carrying terrorists, drug dealers or illegal immigrants. It was designed to monitor 56,000 square miles a day, an area four times as large as that covered by any other Coast Guard ship.

Because the ship was so expensive — each was expected to cost about $300 million — the Coast Guard decided to build only 8 to replace its fleet of 12 large cutters.

There was just one catch. Even before the cutter began taking form at the Pascagoula shipyard on the Gulf of Mexico, familiar problems cropped up.

The Coast Guard’s engineers believed the design proposed by Northrop and Lockheed had serious structural flaws that could result in the hull collapsing or premature cracking of the hull and deck, according to Mr. Cleary and his boss, Rubin Sheinberg, chief of the Coast Guard’s naval architecture branch.

When they alerted the contractors and Coast Guard officials, they were largely brushed off, the men said. In March 2004, their supervisor protested, saying the Coast Guard should delay construction.

“Significant problems persist with the structural design,” Rear Adm. Erroll M. Brown wrote to the Deepwater project director. “Several of these problems compromise the safety and the viability of the hull, possibly resulting in structural failure and unacceptable hull vibration.”

The Coast Guard decided to move ahead anyway, figuring it would be less disruptive to fix any problems later. As the shipbuilding progressed, other Coast Guard officials began to openly complain that some decisions by the contractors appeared to be motivated by a drive to increase profits, not to best serve the Coast Guard.
Lockheed, for example, ordered computerized consoles for the ship that it had developed for a Navy aircraft carrier. But they were too big for the cutter, said Jay A. Creech, a retired Coast Guard captain working as a contractor on Deepwater.

A consultant hired by the Coast Guard to review Northrop and Lockheed’s purchasing decisions found that of $210 million worth of contracts awarded in 2004, just 30 percent involved a formal competitive process. Northrop in particular was faulted for failing to aggressively seek bids to ensure the best price.

Northrop and Lockheed “lack the independence needed to make objective decisions in the best interests of the Coast Guard,” an August 2006 report by the Homeland Security inspector general said.

Others say that giving the contractors so much authority was a mistake from the start. “A contractor with a profit motive is never a trusted agent,” said Joe Ryan, a Coast Guard consultant who has helped with the Deepwater project. “They are the vendor, and they are selling you something.”

Problems began to accumulate elsewhere. In Texas, a prototype of the unmanned aerial vehicle that was to be placed on the ship’s deck crashed this year. After the crash, the project, by Bell Helicopter, also faced a money crunch and was put on hold, pushing delivery back to at least 2013, six years after the first national security cutter is scheduled for active duty. Without the two aerial vehicles, the cutter’s surveillance range is reduced by more than half.

By the time the ship was christened last month, its price had grown to $564 million, nearly twice its original cost. (The average price for the eight ships is expected to be $431 million.) And by then, Coast Guard officials had conceded that the ship had structural flaws. Navy experts had evaluated the ship and confirmed many of the earlier warnings.

Admiral Allen said he had been given assurances that the ship was not at risk of a catastrophic hull failure and would not pose a safety threat to its crew. But the Coast Guard has decided to make structural modifications to the vessel and require design changes for the third cutter. Work is too far along to change course on the second cutter.

Four years into the Deepwater project, the Coast Guard, according to its original plan, was supposed to have 26 new or rebuilt ships, 12 new planes and 8 unmanned vehicles, but none are available. Now, officials are scrambling to find an off-the-shelf design for a new cutter and make modest repairs to keep their aging patrol boats operable.

“We don’t have the ships we need, and we don’t have a way to get them anytime soon,” said Representative David R. Obey, Democrat of Wisconsin, who will take over the House Appropriations Committee next month. “It’s inexcusable.”

The Coast Guard, which would not disclose the management fees it has paid Northrop and Lockheed, is renegotiating the contract to ensure that the companies honor a commitment to open the work to competition and deliver what they promise.

And Admiral Allen and other Coast Guard officials say the Coast Guard’s engineers are being given more power to supervise the work. Admiral Allen is also creating a division to oversee the procurement and maintenance of its ships and airplanes. “That is the main gap that needs to be closed,” he said.

The Deepwater experiment, one contracting expert said, underscores the need for the Coast Guard to be a smart buyer, even if it has hired high-priced advice.

“The government still needs to be in there so they know what decisions are being made and if the decisions are in their best interest,” said Michele Mackin, an assistant director at the Government Accountability Office. “It is still their money. And they are going to be flying the planes and running the ships.”

WASHINGTON, Dec. 13 — The Coast Guard withheld from Congress warnings raised more than two years ago by its chief engineer about structural design flaws in its new National Security Cutter, a $564 million ship now near completion in Mississippi, Democrats and Republicans said in interviews this week.

The lack of full disclosure about that and other problems in the Coast Guard’s $24 billion modernization effort, known as Deepwater, has created a credibility gap that some members of Congress say now jeopardizes the endeavor.

“The Coast Guard clearly does not understand that transparency and accountability are essential to a program of this magnitude,” said Senator Olympia J. Snowe, Republican of Maine, the chairwoman of the Senate panel that oversees the service’s operations.

Ms. Snowe and other Congressional leaders said they were unaware until this past week that the Coast Guard’s chief engineer, Rear Adm. Erroll Brown, had written in March 2004 to the Coast Guard official in charge of the Deepwater program, Rear Adm. Patrick M. Stillman, to warn him that the design for the National Security Cutter had “significant flaws” and that construction should not begin until they were addressed.

“Importantly, several of these problems compromise the safety and viability of the hull, possibly resulting in structural failure,” said the letter, a copy of which was posted on The New York Times Web site last Saturday as part of reporting on the Deepwater project.

Admiral Stillman, who has since resigned, declined to comment.

Representative Harold Rogers, Republican of Kentucky, who heads the House panel that oversees the Coast Guard budget, said the lack of full disclosure was distressing.

“Withholding information leads to poor decisions for the nation, as we are witnessing now with this cutter modernization initiative,” Mr. Rogers said. Coast Guard officials said Wednesday that they have tried to keep Congress fully informed about progress on the Deepwater project, which is replacing or rebuilding almost all of the service’s ships, planes and helicopters. “The Coast Guard takes very seriously its obligation to keep its authorizers and appropriators informed,” a spokesman, Cmdr. Jeffrey Carter, said.

Representative Bob Filner, Democrat of California, said the shortcomings in the Deepwater program are so severe that the contract should be terminated. Two military contractors, Lockheed Martin and Northrop Grumman, were hired in 2002 to design the ships, build them and oversee most of the other project details.

“This has now threatened our national security,” said Mr. Filner, the ranking Democrat on the House panel that oversees the Coast Guard. “After four years and billions of dollars, we have nothing to show for it.”

A spokeswoman for Lockheed and Northrop declined to comment.

The uproar over the National Security Cutter follows the suspension of two earlier projects under the Deepwater modernization: a plan to renovate 49 of the Coast Guard’s 110-foot patrol boats, and construction of a new class of ship called the Fast Response Cutter.

Details about the problems with the two earlier programs had been provided to Congress, but the leaders of the subcommittees that oversee the Coast Guard budget and operations said they should have also been informed, more than a year ago, that the design questions extended to the National Security Cutter.

Construction of the first new National Security Cutter, a 425-foot vessel slated to be the flagship of the Coast Guard fleet, started in September 2004, before most of the issues identified by Admiral Brown were addressed, Coast Guard engineers said in interviews this month. The admiral has since retired.

Unless structural modifications are made, the ship will be susceptible to buckling of its superstructure, premature cracks in its hull and decks, and, in an extreme case, the possible failure of the hull girder, which is a ship’s backbone, said Chris Cleary, a senior naval architect at the Coast Guard.

An independent analysis by Navy engineers early this year has confirmed that the ship, as designed, may be susceptible to premature fatigue cracking, although top Coast Guard officials said they had been assured that the problems would not present a safety hazard for the ship, which is to start sailing next year.

Coast Guard officials in the last year did tell some Congressional committees that the service was addressing contractual issues with Northrop that might require additional work to the first ship, staff members on the House and Senate committees said.

During a June 2006 hearing on the Deepwater program, the Coast Guard commandant, Adm. Thad Allen, briefly mentioned the difficulties, telling a House panel that “there are some technical issues associated with the construction that we will address in subsequent hulls.”

The Coast Guard intends to reinforce the first two versions of the National Security Cutter and to change the design of the remaining six versions, a plan it notified Congress of last week. The service has not disclosed how much the repairs to the first two ships will cost or who will be responsible for the bill.

Coast Guard leaders said in interviews that any new class of ship has design challenges that must be resolved. Given that the start of the National Security Cutter construction had already been planned in 2004 — and that any delays would add to the ship’s cost — they decided to allow the first ship to be built, while continuing to investigate their engineers’ reports of design flaws.

http://www.nytimes.com/2006/12/14/washington/14cutter.html