Historically, government-owned surplus ships have been scrapped both domestically and overseas. Factors Contributing to the Backlog of Ships

A number of factors have caused the current backlog of federal surplus ships awaiting scrapping. They include (1) reductions in the Navy’s force structure following the collapse of the former Soviet Union and the Warsaw Pact; (2) unavailability of overseas scrapping; (3) difficulties experienced by some domestic scrappers in complying with environmental, worker safety, and other contract performance provisions; and (4) a shortage of qualified domestic bidders. Despite the agreement with EPA, Navy officials decided in December 1997 to temporarily suspend any export of ships for scrapping due to (1) continuing concerns regarding environmental pollution and worker safety in foreign ship scrapping countries and (2) potential impacts on the domestic ship scrapping industry. Some of these repossessions were costly. Shortage of Qualified Bidders

The domestic ship scrapping industry has historically been small. Both the MARAD and Navy awards were made to the same firm. Agencies’ Efforts to Address the Backlog

In 1996, the Navy and MARAD identified and began implementing a number of initiatives to address domestic ship scrapping performance problems. It is too early to assess the impact of the 1996 initiatives, and the agencies are still reviewing the extent to which they will implement the panel’s recommendations. Actions taken to improve the general management of the ship scrapping program and to address contractor concerns about the profitability of ship scrapping included advertising and selling ships by lot and allowing contractors to remove the ships from government storage as they are ready to be scrapped, holding periodic industry workshops to inform contractors of what is expected of them in the scrapping of federal surplus ships and obtain feedback from the contractors on their concerns and desires, evaluating the potential for removing more of the hazardous materials before the ships are advertised for sale, and notifying state and local regulators where the ship scrapping will be performed after contracts are awarded. Further, the process for deciding whether to accept and ultimately implement the panel’s recommendations is informal. Also, no procedures have been established for implementing the recommendations that are accepted. Scope and Methodology

To identify the factors contributing to the backlog of federal ships available for scrapping, we performed relevant work at the principal agencies identified to possess and dispose of federal surplus ships for scrapping—the Departments of Defense, Navy, and Army; the Defense Logistics Agency and its Defense Reutilization and Marketing Service (DRMS); the Department of Transportation, including the Maritime Administration (MARAD) and the Coast Guard; the Department of Commerce’s National Oceanic and Atmospheric Administration; and the General Services Administration. Furthermore, we asked for feedback from members of the domestic industry on the potential impact of the foreign scrapping on the domestic industry.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the status of federal ship scrapping programs, focusing on: (1) the factors contributing to the backlog of about 200 surplus ships waiting to be scrapped; and (2) federal agencies' efforts to address the backlog.

What GAO Found

GAO noted that: (1) key factors contributing to the current backlog of surplus ships awaiting scrapping are the Navy's downsizing following the collapse of the former Soviet Union, the unavailability of overseas scrapping, and a shortage of qualified domestic scrappers; (2) as a result, the backlog of Navy ships to be scrapped has increased since 1991 from 25 to 127; (3) overseas scrapping has been suspended because of legal constraints on the export of polychlorinated biphenyls for disposal; (4) a 1997 agreement to resume overseas scrapping has been temporarily suspended largely because of concerns about environmental and worker safety problems in foreign countries and the impact of foreign scrapping on the domestic industry; (5) progress in reducing the backlog using domestic scrappers has been limited; (6) one reason has been domestic contractor performance difficulties; (7) a second reason has been a shortage of qualified domestic bidders; (8) between the beginning of 1996 and the end of 1997, the Navy and the Maritime Administration (MARAD) requested scrapping bids on 19 ships, but only 4 were actually sold--all to the same domestic bidder--because of the limited number of qualified bidders; (9) since then, MARAD has sold an additional 11 ships for scrapping; (10) federal agencies have identified and begun implementing a number of initiatives to address some of the specific performance issues associated with domestic scrapping; (11) since a key performance issue was contractor noncompliance with environmental and worker safety requirements, several of the initiatives provide for increased screening of contractors prior to award and increased oversight of the performing contractor after award; (12) other initiatives are intended to help attract more qualified domestic bidders; (13) it is too early to assess the impact of these initiatives because few ships have been scrapped since their implementation; (14) additional recommendations for addressing both domestic and overseas scrapping issues were made in April 1998 by an interagency panel; (15) the panel's recommendations expand on the actions to address contracting and oversight problems; (16) however, they only generally address key issues relating to government actions to expand the domestic industry and the scrapping of federal ships in foreign countries; (17) the process for deciding whether to accept and ultimately implement the panel's recommendations is informal; and (18) also, no procedures have been established for implementing the recommendations that are accepted.