Obtaining Navy Ships by Long-Term Charters (Rent-a-Navy)

Gao ID: 122674 February 28, 1983

Testimony was given concerning prior GAO work on the Navy's program to lease rather than purchase nine tankers and a new GAO study on recent proposals to lease rather than purchase Government equipment. While the results of the new study have not been completed, the issues surrounding today's leases are similar to those reported on earlier. In 1973 GAO found that, by renting instead of purchasing nine tankers, the Navy applied operations and maintenance funds over a long period of time while avoiding the type of congressional scrutiny that large procurement outlays would involve. The 1972 build and charter program involved 9 ships valued at $160 million, while the present proposed program involves 13 ships valued at $2.39 billion. In addition, while the 1972 program received only the informal review of selected committee staff members, the current program has received written approval of the House and Senate Committees on Armed Services and Appropriations. Issues raised by the 1972 program that are equally important to the present procurement include: (1) the extent of congressional oversight of long-term leasing arrangements; (2) the cost elements to be used in computing the total cost to the Government; (3) the discount rate to be used in preparing the present value analysis of the arrangement; and (4) the procedures to be used in such comparisons. In the current fiscal year 1983 Defense funding authorization there is a notification requirement for these types of ship-leasing transactions. Because these leasing arrangements have set a precedent, it may be appropriate for the Department of Defense and the Office of Management and Budget to determine the guidelines that will be used to make long-term lease-versus-purchase analyses.

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