The Office of Inspector General (OIG) has recommended that the Department of Homeland Security improves guidance for the U.S. Coast Guard’s Offshore Patrol Cutter (OPC) extraordinary relief process, following concerns over contract cost and scheduling.
The OPC is intended to provide a capability bridge between the National Security Cutter, which patrols the open ocean, and the Fast Response Cutter, which serves closer to shore. OPCs will replace the Coast Guard’s 270-foot and 210-foot legacy Medium Endurance Cutters (MEC), which according to the Coast Guard, are becoming increasingly expensive to maintain and operate.
On September 15, 2016, Coast Guard awarded a fixed-price incentive contract with an initial obligation amount of $110.29 million to continue the design and construction of the first nine OPCs, with a potential value of $2.38 billion if Coast Guard exercised all contract options. In October 2018, a few days after Coast Guard exercised the option to begin construction of OPC 1, Hurricane Michael — a category 5 storm — made landfall in Panama City, Florida, and caused extensive damage to the contractor’s facilities.
Inevitably the damage had an impact on the OPC contract schedule, and the contractor notified Coast Guard it would need additional cost relief. The contractor also made several requests to multiple entities for additional funding before the Department authorized $659 million in Public Law 85-804 extraordinary relief funds on October 10, 2019. The Department also required Coast Guard to decrease the OPC contract delivery from nine to up to four OPCs.
In January 2020, OIG received a hotline complaint alleging the contractor underbid and mismanaged the contract and intended to recoup an $80 million loss from the P.L. 85-804 extraordinary relief funding. Due to a request made by Congress to the Government Accountability Office regarding the OPC program, OIG’s audit focused on the extent to which Coast Guard had controls in place to recommend the use of P.L. 85-804 extraordinary relief.
On June 30, 2022, Coast Guard awarded a new OPC contract to a different shipbuilder for up to 11 OPCs in the initial award amount of $208.26 million. The decision to award a new contract negated further monetary losses. The new contract has a potential value of $3.33 billion if Coast Guard exercises all contract options.
As of April 2023, Coast Guard issued 89 modifications and obligated nearly $1.55 billion for the OPC contract. Coast Guard awarded 8 of the 89 modifications for P.L. 85-804 relief, which include more than $414 million of the $659 million the Department granted. Coast Guard anticipates delivery of the first OPC in the third quarter of fiscal year 2023.
OIG’s audit found that Coast Guard took steps to perform due diligence related to the contractor’s performance. Specifically, Coast Guard chartered a P.L. 85-804 review team and a re-compete team to review the contractor’s submission and determine an alternate course of action if the Department did not grant relief. However, OIG also found that Coast Guard did not take notice of key indicators resulting from the independent reviews, namely, the contractor’s non-compliant Earned Value Management System and non-compliant accounting system.
On assessing the Department’s and Coast Guard’s guidance on extraordinary relief funding, OIG found they did not provide personnel with specific implementing procedures to ensure regulatory compliance when a contractor requests extraordinary relief under P.L. 85-804. OIG has therefore recommended that the Department of Homeland Security updates or creates departmental policy for components to follow when a contractor requests extraordinary relief under P.L. 85-804. The Department concurred and said its Office of the Chief Procurement Officer will conduct a review and incorporate any supplemental policy and procedures into the Homeland Security Acquisition Manual, which establishes uniform acquisition policy and procedures applicable across the Department. It estimates this activity will be complete by June 28, 2024.
To cover the operational gaps while the contractor built the OPCs, Coast Guard created a service program to extend the useful life of its 270-foot Medium Endurance Cutters. Maintenance to extend the life of the first 270-foot MEC will be completed in 2024 and all six will be serviced by 2028. Coast Guard has also planned for unforeseen delays by including an option in its plan to extend the service life of all 13 of its 270-foot MECs, if needed.
OIG found that the Department and Coast Guard considered alternatives to P.L. 85-804 relief. These included Coast Guard issuing an indefinite-delivery, indefinite-quantity contract vehicle with three task orders; shortening or eliminating industry studies; and altering the original OPC contract. Coast Guard determined however that these options were “band-aids” or had unacceptable cost and schedule risk.