Interview transcript:

 

Terry Gerton GAO has put out a new report looking at the Coast Guard’s Offshore Patrol Cutters program. In fact, they got an additional $4 billion for this program in the One Big Beautiful Bill Act from last summer. Let me ask you to start by telling us what is this program, what are these ships, and why is it such a high priority for the Coast Guard right now?

Shelby Oakley These ships are a very high priority for the Coast Guard because they’re a workhorse. They’re intended to provide and do a variety of missions like search and rescue, and migrant interdiction, drug missions as well. And so you might imagine that makes up a significant chunk of the Coast Guard’s mission areas. And they’re intended to replace a class of ships called the medium-endurance cutters. And those medium-endurance cutters are really old, and they’re having a lot of challenges. They had a design life of 30 years and they are all well past that 30-year design life. So the gap between those medium-endurance cutters and the Offshore Patrol Cutters is getting bigger.

Terry Gerton So what prompted you to look at the program now? Is it just the size of it or the duration?

Shelby Oakley Given that it is one of the Coast Guard’s highest-priority programs, between it and the Polar Security Cutter, makes up a significant chunk of the Coast Guard’s acquisition budget. And so we really try and focus our reviews on the highest-priority acquisitions within the Coast Guard. And this certainly qualifies for it. But this isn’t the first time we’ve looked at this program. This is our third review of the Offshore Patrol Cutter over the past 10 years, and we also assess it every year in our DHS assessment of major programs. So we’ve had our finger on the pulse of this program for a while and have consistently been watching progress and challenges that it has experienced. This was a good time to take another look at the program because of where they are at in terms of construction and progress in that regard.

Terry Gerton So was third time the charm? Are they making progress or did you find some still serious systemic problems?

Shelby Oakley The program is divided into various stages, and that occurred because the original program was awarded to Eastern Shipbuilding Group. They experienced a devastating hurricane in 2018 that basically trashed all their facilities and really affected their ability to make progress on this program. At that point, the Coast Guard divided the program into stages. So, Eastern Shipbuilding Group kept the first four ships; that’s Stage 1. Austal was then awarded the next 10 ships; that’s Stage 2. And then there’s Stage 3, which is yet to be awarded. That gets you to the 25 ships. So Eastern Shipbuilding Group has remained extremely challenged in constructing the first four ships. And in the spring, the Coast Guard decided that they were going to basically cut bait on ships three and four from Eastern Shipbuilding Group. They terminated those for default. More recently, and basically the week we were issuing our report, Eastern Shipbuilding Group announced that it would no longer work on ships one and two. And so those first four ships are now sitting there at Eastern Shipbuilding Group in various stages of completion, anywhere from 6% to 75%, with big question marks around what’s going to happen with them going forward.

Terry Gerton I’m speaking with Shelby Oakley. She’s a director in GAO’s Contracting and National Security Acquisitions team. Shelby, that seems like a big sunk cost to just walk away from. What did your findings tell you about how Coast Guard has managed the design of these ships and the cost of these ships?

Shelby Oakley We have we have pointed out for years, and reiterated again in this report, about a number of decisions that the Coast Guard made that led to some of these outcomes. One of the biggest things that we have pointed to is that Eastern Shipbuilding and now Austal have been authorized to begin construction on these ships before the design of them is even complete. So imagine that, for your listeners: Let’s just say you’re building a house, and you’re designing this house and you’re trying to lay out where everything in the house is going to go. The plumbing and the bathrooms and the kitchen and everything. And the builder comes to you and says, you know what, we don’t need to know any of that stuff. We’re just going to start building. It always comes back to bite you. And that’s what happened with Eastern Shipbuilding Group. It led to a lot of rework where progress was made, construction was done, but then the design changed or matured, and you realize, oh shoot we need to route those pipes somewhere different. That amount of rework that happened really ends up adding a lot of time and money to the effort. And that’s exactly what we saw. We saw an increase overall for this program, a 57% cost increase in this program from initial baselines. OPC-1’s delivery, that’s the first ship built by Eastern Shipbuilding Group, was delayed by five years. So certainly those are some of the challenges that we’ve raised. And we’ve raised concerns about the Coast Guard’s oversight of this program as well too, both from the perspective of those decisions allowing design to progress, but also from a cost perspective. There’s a lot of questions about the fidelity of the cost estimates and the schedule estimates in this program that I think have come to bear, in terms of them being outdated before or right after they’re initially re-baselined. And so we’ve made some recommendations to the Coast Guard to improve things like their schedule estimates to bring more fidelity and oversight to the cost estimates for the program. For example, by estimating cost per ship versus for the overall program. A number of things over the years we’ve recommended for them to do and they’ve taken some action, but not in every case.

Terry Gerton Is this a problem that’s unique to the Coast Guard? I mean, the Navy buys and builds ships all the time. Does the Coast Guard or the Department of Homeland Security not have that same sort of institutional knowledge here?

Shelby Oakley So there’s a couple of things, I think, that I would call your attention to. The Navy has its own challenges and certainly, for your listeners, with the announcement a couple weeks ago about the cancelation of the frigate program for the Navy, where they’ve spent $4 billion trying to design a ship and construct a ship. And now they’re going to walk away from it. It’s kind of indicative of the overall status of shipbuilding in this country, that it’s extremely challenged. And part of the reason why shipbuilding is challenged in this country is because of workforce and facilities. We had years of declining shipbuilding in this county that led to declining workforces. The people to be able to do the welding, and the design efforts on these ships, are no longer around. Both the Navy and the Coast Guard are working to rebuild that. I would say, secondly, the Coast Guard doesn’t always get the tier one shipyards that the Navy does to build its ships. For example, with ESG, this award for OPC was its first government contract. Imagine trying to figure out how to work within government bureaucracy to build your ship when you’re used to your commercial business where it’s a lot different. That was definitely a challenge for Eastern as it made its transition to this program. I think that led to a lot of issues on the program.

Terry Gerton Well, looking ahead as the Coast Guard moves to hopefully Stage 2 and then Stage 3, what is the most important of your recommendations that you hope they get a handle on quickly?

Shelby Oakley The bottom line recommendation that we’ve been reiterating for a number of years is: Get that design stable before you start constructing any more ships. You don’t have the time or the resources to waste reconstructing things because the designs change. One of our recommendations on Stage 2 was don’t authorize Austal to build any more ships until they’ve completed their design. And so that’s a big one. But then I think another really important recommendation that we made is this Stage 3 award is looming. They have to award the remaining 10 ships. And our contention is, maybe you should operationally test the ships that you’ve built and make sure they do the things that you want them to do before you authorize a whole other set of 10 to be constructed. We really focused on trying to push the Coast Guard to get that type of knowledge before they issue that RFP for that third stage. We also hope at that time that they can incorporate more of our leading practices that we see commercial companies do, like adhering pretty strictly to the existing design and not making changes, and really ensuring that everything’s modeled in this 3D model that allows for real-time work between the Coast Guard and the builder to understand the effects of any design changes on it. And a number of other things in terms of those leading practices. But those two things I think would really help the Coast Guard ensure that they put this program back on better footing.

Terry Gerton And have the Coast Guard and Department of Homeland Security been positive in their response?

Shelby Oakley They were positive in the response about the Stage 3 recommendation in terms of incorporating knowledge before. We’ll see if they actually adhere to that. They did not concur with the stabilizing the design for Stage 2 before authorizing additional ships. I think they feel confident enough in the design to feel like they’re good to go. But we’ve seen this story play out before both within the Coast Guard and the Navy where that confidence can be overstated sometimes, and so we’re hoping that they really take that one to heart.

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