Beyond Deepwater: What the Coast Guard learned.

After investing $27 billion, the Coast Guard has now declared the controversial Deepwater acquisition program officially ended, but opinions on lessons learned are still churning.

Coast Guard Chief Acquisition Officer Jake Korn believes the trial-by-fire asset procurement program started in 2002 has changed the agency for the better, despite -- or because of -- cost overruns, schedule slippage and the firing of the project's lead contractor.

“There is a great deal of good that has emerged from this endeavor,” Korn wrote on the agency’s website. “We have learned many hard lessons, fostered systems thinking, built our acquisition expertise and are collectively smarter as a service.”

But some critics are still skeptical because of the magnitude and slow resolution of the Deepwater problems. “There were errors in design, management and oversight. Why were some of these problems not prevented?” asked Scott Amey, counsel for the Project on Government Oversight watchdog group.

Korn recently acknowledged one of the major mistakes made by the Coast Guard—and presumably its largest lesson learned—which is that the Coast Guard gave too much control to the Deepwater contractor.

At its start, the Integrated Deepwater Systems contract was awarded to Integrated Coast Guard Systems, a joint venture owned by Lockheed Martin and Northrop Grumman. The $17 billion asset modernization program was designed to replace cutters, patrol boats and other vessels and aircraft in the agency’s deteriorating fleet.

“In the end, the general consensus is that we ceded too much responsibility to the contractor, including some functions that should have been reserved for government employees,” Korn wrote.

That admission could be significant if it leads to lasting changes in how the agency manages future projects, Amey said.

“I am pleased that the Coast Guard is taking responsibility for allowing too much to work to be performed by the contractors, even work that [is supposed to] be performed by the government,” Amey said. “I’m hoping this pays dividends.”

“The era of Deepwater was an era when the government was trying to hand off as much as they could to industry, and in some cases it went too far,” said Warren Suss, founder of federal consultancy Suss Consulting. “Program management needs to be a shared responsibility between government and industry. And if ownership swings too much either way, you’re going to run into problems.”

Deepwater began as a creative concept for managing the modernization of a deteriorating fleet of cutters, patrol boats, other vessels and aircraft. From a $17 billion initial cost, it ballooned to $24 billion following the 9/11 attacks and expansion of the Coast Guard’s homeland security mission. Schedules went off-track and costs rose further after the first group of patrol boats was rejected as structurally unsound. A whistleblower filed a False Claims Act lawsuit, and the agency sued the ship construction company earlier this year, alleging false statements were made.

While the Coast Guard initially utilized the Deepwater contractor as a lead systems integrator to help design and manage the procurement, that approach was viewed as problematic by the Government Accountability Office and lawmakers.

Relying on the contractor as lead systems integrator allegedly contributed to the agency’s hands-off stance, reduced agency oversight, offered the agency little detailed insight into whether the assets fully met requirements, and created difficulty in making changes to the project, according to the GAO. The Army had similar problems with its systems integrator approach for the Future Combat Systems program.

At the same time, some defended the systems integrator structure because of the Coast Guard’s alleged limited capacity to manage a major acquisition of the size and complexity of Deepwater.

Even a major critic of Deepwater, Michael DeKort, a whistleblower who has a pending False Claims Act lawsuit against the Deepwater contractors (partially settled in 2010) said that the lesson learned should not be that all systems integrators are bad. In theory, the concept of having a lead systems integrator could work well, because industry generally has more talent and experience than the government, he said. But it often falls flat because of ethical conflicts, he added, when contractors in the systems integrator roles are policing themselves and each other.

Furthermore, DeKort said the Coast Guard probably would not have sworn off systems integrators on its own. “They would still be using them if not for Congress,” he said.

Other lessons potentially learned by the Coast Guard from Deepwater include:

--Avoid risky technologies. The GAO noted in several reports that the Coast Guard’s decision to extend the hulls of existing patrol boats to 123 feet, and to use composite materials for the rebuilt hulls, was technically risky and had not been used before in other major marine procurements.

The hull extension design turned out to be a major miscalculation as the completed boats were judged to be structurally unsound and were rejected. The Coast Guard subsequently asked for a refund from Lockheed and Northrop and initiated a lawsuit against subcontractor Bollinger Shipyards.

--Asset modernization is not time-limited. According to Korn, one of the lessons of Deepwater is that Deepwater had outlived its usefulness as a procurement vehicle.

“Deepwater was not inclusive of all service acquisition needs and, more importantly, had an artificial end date associated with it,” Korn wrote. “This end date implied that the Coast Guard would be recapitalized, no further Acquisition Construction and Improvement funding would be needed, and all would be well.”

Going forward, the agency is continuing to recapitalize and modernize its assets with an ongoing acquisition program, Korn added.

-Beware of guarantees from a contractor.  According to DeKort, the contractor made a performance guarantee that might have enhanced the attractiveness of the contractor in the selection process that has now become a matter of dispute. “The guarantee is a huge issue,” DeKort said.

The Coast Guard lawsuit against Bollinger may provide insight into that question, as may the resolution, if and when it happens, of the agency’s pursuit of a refund from the contractors on the eight failed patrol boats.