Historically, MARAD has  disposed of its obsolete ships primarily by selling them to overseas  scrapping companies. As of  September 2004, MARAD had submitted two reports to Congress. In the absence of a comprehensive  management approach that includes all of these key elements, MARAD’s  ship disposal program lacks the vision needed to sustain a long-term effort. As table 2 shows, we estimate  that MARAD will likely have more than 100 obsolete ships in its inventory  in September 2006. While  MARAD has stated this general goal, it has not developed specific  performance measures with targets to track its progress toward  achieving this goal. These challenges include domestic disposal  capacity limitations; environmental, legal, and regulatory restrictions on  export; and similar restrictions on other disposal options. In addition, MARAD has not been able to provide  Congress and other stakeholders with a reasonable timetable and the  associated annual funding requirements needed to meet the 2006 deadline,  nor has it clearly articulated the areas that congressional assistance may be  needed to expedite the disposal of these deteriorating ships that continue  to pose potentially costly environmental threats to the waterways near the  sites where these ships are stored. MARAD Has Made Limited Use of Alternative Disposal Methods because of Several Barriers

Although Congress directed MARAD in fiscal year 2001 to consider  alternative methods in designing its ship scrapping program, the program  has made only limited use of these methods—artificial reefing, deep-sea  sinking, and donations—because of a number of environmental, financial,  and legislative barriers. Despite these  positive steps, MARAD may still be years away from increasing the number  of disposals using these alternative methods. MARAD Has Not Developed an Overall Plan to Increase Usage of Alternative Disposal Methods

Despite the steps it has taken recently, MARAD faces some additional  challenges to using alternative disposal methods. MARAD’s Use of PRDAs to Scrap Ships Is Inappropriate

Since fiscal year 2002, MARAD has inappropriately used a procurement  method—PRDA—to acquire most of its ship disposal services rather than  other procurement methods that are appropriate for acquiring such  services. Our analysis of MARAD’s  PRDAs and contracts awarded under PRDAs through February 2004  showed that MARAD was not using PRDAs to acquire research or  development but to procure conventional ship scrapping services. In  addition to being inconsistent with CICA and the FAR, MARAD’s use of  PRDAs to acquire ship scrapping services has led to a lack of transparency  and raised questions about the fairness of MARAD’s contract award  process. Since fiscal year 2002, MARAD has used PRDAs as its primary procurement  method. We also found that MARAD did not award contracts that required  innovation or research or development. Consequently, firms are often  unable to determine why their proposal was not selected over another  proposal. Overseas Competition Just One Factor Contributing to Lower Prices

While we could not isolate the specific impact of foreign competition and  other factors on reducing the cost of ship disposal, MARAD attributes the  overall decrease in ship disposal costs almost exclusively to overseas  competition. However, other factors, such as larger annual program  funding allowing for more ships per contract and increases in the scrap  value of steel, may have also played a role. Conclusions

Although MARAD’s ship disposal program has made some strides in  reducing its inventory of obsolete and deteriorating merchant ships in the  National Defense Reserve Fleet, it has managed to dispose of only  12 percent of its original 2001 inventory, and it is unlikely to meet the  already extended deadline of September 30, 2006, to get rid of the entire  inventory. Develop a comprehensive approach to manage MARAD’s ship disposal   identify a strategy and an implementation plan to dispose of all  existing obsolete ships and future transfers in a timely manner,  maximizing the use of all available disposal methods;  determine the needed resources, the associated funding plan, and  specific milestones for this disposal;  establish a framework for decision making that would delineate roles  and responsibilities and establish guidance and procedures;  identify external factors that could impede program success and  develop plans to mitigate them; and  annually evaluate results and implement corrective actions. We reviewed MARAD’s responses and reviewed the criteria in the  Competition in Contracting Act of 1984 and the Federal Acquisition  Regulation. 1. 2. 3. 4. We believe that MARAD lacks an integrated strategy for disposing of all  of its ships using its available disposal methods.
Why GAO Did This Study

The Maritime Administration (MARAD) has more than 100 obsolete and deteriorating ships awaiting disposal that pose potentially costly environmental threats to the waterways near where they are stored. Congress, in 2000, mandated that MARAD dispose of them by September 30, 2006. While MARAD has various disposal options available, each option is complicated by legal, financial, and regulatory factors. In this report, GAO assesses (1) whether MARAD will meet the September 2006 disposal deadline for these ships and, if not, why not; (2) the extent that MARAD has used alternative disposal methods other than scrapping, and barriers to using other methods; (3) the appropriateness of MARAD's methods for procuring ship disposal services; and (4) the impact of foreign competition and other factors on reducing disposal costs.

What GAO Found

MARAD is unlikely to meet its statutory deadline of September 30, 2006. As of September 2004, MARAD had disposed of 18 ships from its inventory, with over 100 ships left to dispose of by the deadline. MARAD's current approach is not sufficient for disposing of these remaining ships within the next 2 years. MARAD's slow progress is due primarily to program leaders not developing a comprehensive management approach that could address the myriad of environmental, legal, and regulatory challenges that the program faces. MARAD's approach lacks an integrated strategy with goals, milestones, performance measures, and a mitigation plan for overcoming anticipated impediments. In the absence of this comprehensive approach, MARAD's ship disposal program lacks the vision needed to sustain a long-term effort. Consequently, MARAD has not been able to assure Congress that it can dispose of these ships in a timely manner to reduce the threat of a costly environmental event, nor has it clearly articulated what additional congressional assistance, such as funding, may be needed. While MARAD has considered alternative disposal methods to scrapping, it has made limited use of these methods because of a number of environmental, financial, and legislative barriers. Since fiscal year 2001, MARAD has disposed of 17 ships through scrapping, but only 1 through artificial reefing. MARAD has not disposed of ships using deep-water sinking and donations to historic organizations. MARAD has taken positive steps to reduce barriers limiting its use of these methods but still may be years away from increasing the number of disposals using these alternative methods because it has not developed an overall plan for expanding their use. Consequently, MARAD may be losing opportunities that could expedite the disposal of the obsolete ships in its inventory. Since fiscal year 2002, MARAD has relied almost entirely on an inappropriate procurement method--Program Research and Development Announcements (PRDA)--to acquire ship scrapping services. The Federal Acquisition Regulation and the Competition in Contracting Act of 1984 generally require that MARAD use other methods for acquiring these types of services. PRDAs may only be used to contract for research or development. According to MARAD, PRDAs provide greater flexibility and allow firms to propose innovative solutions to ship disposal. GAO found, however, that MARAD was not contracting for research or development but instead was acquiring ship scrapping services. MARAD's use of PRDAs has also resulted in a lack of transparency in the contract award process and has raised concerns among firms as to the fairness of MARAD's processes. While GAO was unable to isolate the specific impact of foreign competition and other factors on reducing ship disposal costs, MARAD attributes the decrease in ship disposal prices almost exclusively to foreign competition. However, other factors, such as larger annual program funding and increases in the scrap value of steel, may have also played a role.