Maritime Security Fleet

The Transportation Department's Maritime Administration (MARAD) recently arranged for 10 shipping companies to participate in a program that gives the Defense Department access to U.S.-registered commercial ships and their crews in a national emergency. This report evaluates whether program costs could be reduced, permitting owners to compete, rather than apply for, available slots. In integrating a competitive selection process into the maritime security fleet program, MARAD should consider (1) the number of vessels that would qualify, (2) the effect of a competitive process on costs, and (3) potential legal risks. Neither the Transportation Department nor the Defense Department favor changing the current process because they doubt whether competitive selection would lower program costs. In addition, they are concerned that ship owners might withdraw from the program to operate under less costly foreign registry.

GAO noted that: (1) three factors warrant consideration before determining whether to incorporate a competitive selection process into the Maritime Security Fleet program: (a) the number of vessels that could qualify; (b) the effect of such a process on program costs; and (c) potential legal risks; (2) opening up the selection process to competition would not increase the pool of qualified applicants or the number of eligible vessels without a change in the eligibility and selection criteria; (3) it is uncertain whether competitive selection would result in bids lower than the current $2.1 million annual Maritime Security Fleet payment and thereby lower program costs because: (a) annual crew costs alone for a commercial ship operating under U.S. registry exceed those for the foreign registry operation with the next highest crew cost by about $2.4 million; (b) average annual payments under the expiring Operating Differential Subsidy program exceeded the $2.1 million level in every year since 1982; and (c) bids under competitive selection may take inflation and operating cost increases into consideration, whereas the current program fixes the maximum annual per ship payment at $2.1 million through fiscal year 2005; (4) finally, unilateral changes to the program could lead to legal challenges by vessel owners with whom the government has contractual agreements; (5) these challenges could result in substantial costs to the government and the transfer of vessels to foreign registry; (6) on the basis of their analysis of the number of fully qualified vessels eligible to participate in the program and the possibility that competitive selection would lower program costs, neither Transportation nor DOD favor changes to the current selection process; (7) officials of both agencies believe that a competitive selection process would not result in lower program costs and could actually result in vessel owners withdrawing from the program to operate their vessels under a less costly foreign registry; and (8) such actions could result in a loss of assets needed in a time of national emergency.