Lessons from Deepwater

Last week the US Coast Guard announced that it would takeover management of the $24 billion dollar Deepwater program designed to refit the Coast Guard’s fleet after it was discovered that Integrated Coast Guard Systems (ICGS), the Lockheed Martin and Northrop Grumman partnership, had seriously fumbled the contract.

This week the Deepwater program faces a new problem – namely, the Coast Guard’s ability to effectively manage it. According to a UPI article:

Rand recommended switching control of Deepwater to the Coast Guard. But the think tank did not count on the problems of converting the Coast Guard's 110-foot cutters into 123-footers. The extensions were made to accommodate new equipment and mixed crews, but the eight stretched-out vessels were declared potentially unsafe in high seas and recommended for scrap.

Deepwater had been designed to give Integrated Coast Guard Systems, a joint venture of Lockheed-Northrop Grumman, a high degree of autonomy in running the program. But the Coast Guard is not the U.S. Navy; it is a small service involved in a major overhaul of ships, planes and complex electronics and communications. The Coast Guard does not have the Pentagon's vast pool of contracting officers, accountants and engineers to check the work turned in by ICGS.

The result, witnesses told Congress, was a lack of supervision in which problems were not caught by the Coast Guard.

For starters, the decision to hand over such inherently governmental functions like contract oversight and management should have raised red flags long before now. Yet, as the above quote points out, the Coast Guard lacked the necessary means to accomplish this government function, and thus sought to cut costs by relying on the contractor. It's true that the Coast Guard doesn't have the same resources as the US Navy, but the Pentagon has certainly had its own share of massive screw-ups, most notably with reconstruction contracts in Iraq.

In the Coast Guard's case, the results have been disastrous. Correcting the botched ships that have already been converted will alone cost tens of millions of dollars, not to mention the costs of adding new staff now that the Coast Guard is in charge of the operation.

On a larger level, this debacle raises questions about to what extent the government as a whole has privatized core functions. Federal contracting has increased dramatically under the Bush Administration, roughly doubling during the past five years. Furthermore, many of the top officials in government agencies have worked for many of these contractors and vice versa. WaPo reported last month on Deepwater's revolving door:

Washington's revolving-door laws have long allowed officials from industry giants such as Lockheed, the nation's largest defense contractor, to spend parts of their careers working for U.S. security agencies that make huge purchases from those companies, though there are limits.

But Deepwater dramatizes a new concern, current and former U.S. officials said: how dwindling competition in the private sector, mushrooming federal defense spending and the government's diminished contract management skills raise the stakes for potential conflicts of interest.

Deepwater also illustrates how federal ethics rules carve out loopholes for senior policymakers to oversee decisions that may benefit former or prospective employers. These include outsourcing strategies under which taxpayers bear most of the risks for failure, analysts said.

It should be noted that none of the individuals mentioned in the article have been charged with any wrongdoing in connection to Deepwater. Nevertheless, the Deepwater debacle highlights issues that demand consideration. What are the limits of federal contracting? Have agencies and contractors grown too enmeshed for proper oversight to occur? What are the consequences of corporate consolidation on contract competition?

In what can only be described as twisted irony, Lockheed has since announced an increased sales forecast for the year and Northrop Grumman continues with business-as-usual.

-- John Pruett

Comments

[Michael DeKort]

Open call for assistance in Deepwater case:

Within the next few months we will be fighting the motions to dismiss from Lockheed, Northrop and ICGS. If we lose this round the case is over. That means there will be no refund and the contractors will not be held accountable for the Deepwater problem.

(In addition to that Northrop has signaled that the companies actually intend to seek damages from the Coast Guard for stopping the program. Text from Northrop motion to dismiss the Bollinger suit states the following:

"Presumably, Lockheed Martin could seek compensation from the Coast Guard under the CDA for C4ISR equipment and information delivery delays, if any, caused by the government. As the prime contractor, ICGS, not NGSS or Bollinger, could best determine whether Lockheed Martin or NGSS could assert a CDA claim against the government for delays experienced in delivering equipment or information to Bollinger. ICGS could also sponsor such a claim against the Coast Guard on behalf of Lockheed Martin.")

Additionally one of the tactics Northrop is using is to blame the Coast Guard for the 123 problems. They state that the Coast Guard abused these boats, did not operate nor not maintain them properly. From the motion:

"The Coast Guard decision to decommission vessels does not lead to the inescapable conclusion that the defendants committed fraud. To the contrary, there is strong evidence suggesting that the 123 structural issues were attributable to the Coast Guard's operation of the vessels beyond their performance parameters and failure to maintain the structural integrity of the vessels, not any nonconformance with contract requirements."

This is an open call for assistance. We are asking for the Coast Guard and even contractor personnel who read these blogs to get involved. We feel there should actually be very little trouble winning this motion but given the importance and finality of the event we believe it is prudent to not take anything for granted. If there was ever a time to act to ensure the refund is paid and the contractors are held responsible this may be the last opportunity. Finally I am calling on the Commandant himself to make a public and service wide call for the men and women who serve in the Coast Guard to assist in our efforts.

- Michael DeKort
[email protected]

[Ken Larson]

I am a 2 tour Vietnam Veteran who recently retired after 36 years of working in the Defense Industrial Complex on many of the weapons systems being used by our forces as we speak.

Politicians make no difference.

We have bought into the Military Industrial Complex (MIC). If you would like to read how this happens please see:

http://www.vanityfair.com/politics/features/2007/03/spyagency200703

Through a combination of public apathy and threats by the MIC we have let the SYSTEM get too large. It is now a SYSTEMIC problem and the SYSTEM is out of control. Government and industry are merging and that is very dangerous.

There is no conspiracy. The SYSTEM has gotten so big that those who make it up and run it day to day in industry and government simply are perpetuating their existance.

The politicians rely on them for details and recommendations because they cannot possibly grasp the nuances of the environment and the BIG SYSTEM.

So, the system has to go bust and then be re-scaled, fixed and re-designed to run efficiently and prudently, just like any other big machine that runs poorly or becomes obsolete or dangerous.

This situation will right itself through trauma. I see a government ENRON on the horizon, with an associated house cleaning.

The next president will come and go along with his appointees and politicos. The event to watch is the collapse of the MIC.

For more details see:

http://rosecoveredglasses.blogspot.com/2006/11/inside-pentagon-procurement-from.html