Deepwater or Troubled Water? Principal–Agent Theory and Performance-Based Contracting in the Coast Guard’s Deepwater Modernization Program

ABSTRACT

In the mid-1990s, the United States Coast Guard began planning a modernization effort known as the Deepwater program to replace an aging inventory of cutters, aircraft, and small boats. This effort involved a consortium of corporations to develop a “system of systems” to meet performance-based requirements and build the new equipment. This article examines the Deepwater program through the lens of multilayered principal–agent theory and evaluates the performance-based contracting (PBC) method used to alleviate strains linked to accountability from the principal–agent relationship. The findings help better understand the dilemmas prescribed from multilayered principal–agent theory and PBC by illustrating the accountability issues faced by smaller organizations when engaging in complex, large-scale procurement.

KEYWORDS:

• Performance-based contracting
• principal–agent theory
• accountability
• Deepwater program
• United States Coast Guard

Notes

^1. United States Coast Guard, Deepwater Mission Analysis Report, November 6, 1995. Available at www.uscg.mil/deepwater.

^2. Data for this article were collected from a variety of sources in the academic literature, journalistic sources, and government documents and reports. In addition, formal and informal discussions were held with several anonymous sources to triangulate the information found in the public record.

^3. The Coast Guard has 11 statutory missions, including port and maritime security, fisheries protection, search and rescue, aids to navigation, drug and migrant interdiction (law enforcement), protection of natural resources (including marine life), ice patrol, and national defense, among others.

^4. The plan also called for significant upgrades to the Coast Guard’s command, control, communications, computer, intelligence, surveillance, and reconnaissance (C4ISR) assets, which include a mix of software, hardware sensors, and other equipment. Although this capability was also a part of the Deepwater program, the nature of this component means that much of the information concerning these capabilities is not available to the public; therefore, this article does not address those assets directly. See Vojvodich (2010) for additional (limited) discussion of these assets.

^5. Vojvodich (2010, p. 55) outlines a series of “lessons learned” by the Coast Guard as a result of the Deepwater program; among them, Vojvodich notes that acquisitions management became much more streamlined when all of the acquisition program personnel were co-located.