[Federal Register Volume 72, Number 24 (Tuesday, February 6, 2007)]
[Rules and Regulations]
[Pages 5342-5345]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-1880]



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DEPARTMENT OF TRANSPORTATION

Maritime Administration

46 CFR Part 296

[Docket No. MARAD-2006-23804]
RIN 2133-AB68


Maintenance and Repair Reimbursement Pilot Program

AGENCY: Maritime Administration, Department of Transportation.

ACTION: Final rule.

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SUMMARY: This final rule amends the Maritime Administration's (MARAD's) 
regulations governing its pilot program for the reimbursement of costs 
of qualified maintenance and repair (M&R) of Maritime Security Program 
(MSP) vessels performed in United States shipyards. Under Public Law 
109-163, the Secretary of Transportation, acting through the Maritime 
Administrator, is directed to implement regulations that, among other 
things, replace MARAD's voluntary M&R reimbursement program with a 
mandatory program.

DATES: This rule is effective March 8, 2007.

FOR FURTHER INFORMATION CONTACT: Jean E. McKeever, Associate 
Administrator for Marine Asset Development, Maritime Administration, 
400 Seventh Street, SW., Washington, DC 20590; phone: (202) 366-5737; 
fax: (202) 366-3511; or e-mail [email protected].

SUPPLEMENTARY INFORMATION:

Background

    The Maritime Security Program (MSP) was established to maintain a 
modern U.S.-flag fleet of commercially viable, militarily useful, 
privately-owned vessels for national defense needs and to maintain a 
strong U.S. presence in international maritime trade. Under the MSP, 
the U.S. Government contracts with certain operators of U.S.-flag 
commercial vessels to be on call for service when needed in times of 
national emergency or war. In return, the U.S. Government provides a 
yearly operating payment, subject to availability of appropriations.
    The original MSP was established by the Maritime Security Act of 
1996 (Pub. L. 104-239, Oct. 8, 1996) for fiscal years 1996 through 
2005. On November 24, 2003, President Bush signed the Maritime Security 
Act of 2003 (MSA 2003) (part of the National Defense Authorization Act 
for Fiscal Year 2004) which reauthorized the MSP for fiscal years 2006 
through 2015. Sixty MSP operating agreements authorized under MSA 2003 
were awarded on January 12, 2005. The operating agreements, one for 
each vessel, require the vessel owner or operator to operate the vessel 
in commercial service in foreign trade under U.S. registry and to make 
that vessel available to the United States when needed. The operating 
agreements under MSA 2003, became effective October 1, 2005, and, 
subject to available appropriations, are renewable for each subsequent 
fiscal year through the end of fiscal year 2015.
    In addition to reauthorizing the MSP, section 3517 of the MSA 2003 
established a voluntary pilot program under which the Secretary of 
Transportation could enter into agreements to reimburse MSP vessel 
operators for the costs of qualified M&R performed in U.S. shipyards. 
Reimbursement levels under the voluntary program were established at 
80% of the difference between the fair and reasonable cost of obtaining 
qualified M&R work in U.S. shipyards and the cost of qualified M&R work 
in foreign shipyards. MARAD promulgated implementing regulations for 
this program at 46 CFR section 296.60 (70 FR 55581, Sept. 22, 2005).
    Under Public Law 109-163, enacted on January 6, 2006, the Secretary 
of Transportation was directed to implement regulations to replace the 
voluntary M&R reimbursement program with a mandatory program. Under the 
mandatory program, MARAD must enter into an agreement with one or more 
MSP Contractors, subject to appropriations, for the M&R of one or more 
vessels that are subject to an MSP operating agreement to be performed 
in a U.S. shipyard, ``as a condition of awarding an operating agreement 
to the person.'' Under Public Law 109-163, reimbursement levels are 
established at 100% of the difference between the fair and reasonable 
cost of obtaining qualified M&R work in U.S. shipyards and the cost of 
qualified M&R work in foreign shipyards.
    MARAD published a notice of proposed rulemaking (NPRM) on February 
8, 2006 (71 FR 6438), inviting public comments. The NPRM proposed, 
among other things, to make performance of qualified M&R in the United 
States mandatory as a condition of participation in MSP. The NPRM also 
invited suggestions regarding what documentation Contractors could 
provide to assist MARAD in determining the fair and reasonable cost of 
obtaining qualified M&R work in U.S. shipyards as well as in the 
foreign shipyards where Contractors would otherwise undertake such 
work.
    Several of the MSP contractors objected to the mandatory nature of 
the proposed M&R regulation. They argued that the terms of the statute 
could only be read as applying to subsequent awards of MSP operating 
agreements and not to MSP operating agreements that had previously been 
awarded. They also argued, moreover, that even Congress is barred from 
unilaterally amending the terms of a binding government contract. Other 
MSP contractors requested that M&R reimbursements cover certain 
indirect costs of performing M&R in U.S. shipyards.
    In order to have a full airing of MARAD's authority to require 
existing MSP contractors to participate in the M&R Pilot Program, MARAD 
opened a reply comment period that closed September 22, 2006. 71 FR 
46399 (Aug. 23, 2006). The Shipbuilders Council of America submitted 
comments arguing that MARAD does have the authority to change existing 
MSP agreements. They maintain that: (1) The terms of the MSP operating 
agreement allow for changes to the agreements by mutual consent; (2) 
the MSP operating agreements must be renewed annually, and upon renewal 
MARAD could make such renewal conditional on acceptance of an M&R Pilot 
Program agreement; and (3) the M&R Pilot Program agreement would not 
cause any hardship among MSP operators.
    After review of the comments on both sides of the authority issue, 
the relevant statutory text and the available legislative history, 
MARAD finds that Congress intended that the M&R provisions be a 
condition only on future awards of MSP operating agreements. The plain 
language of section 3517 requires MARAD to require at least one 
contractor to enter into an M&R agreement as a condition of award of an 
MSP agreement. However, all 60 existing MSP agreements had been awarded 
prior to enactment of the mandatory provisions in section 3517. 
Further, there is no indication that Congress intended for MARAD to 
abrogate existing MSP operating agreements. On the other hand, there is 
strong evidence that Congress considered the M&R obligation to be 
voluntary on existing MSP contractors because Congress provided an 
incentive for existing MSP operators to take on the M&R obligation. See 
section 3502(c) of the John Warner National Defense Authorization Act 
for Fiscal Year 2007, Pub. L. 109-364, which grants a priority, during 
times of insufficient appropriations, in allocation of MSP payments to 
MSP contractors that have entered into M&R agreements. There would be 
no reason for Congress to provide an incentive for doing that

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which is mandatory. Therefore, we must conclude that Congress viewed 
the M&R obligations to not be mandatory, but to be voluntary, for 
existing MSP contractors.
    Accordingly, existing MSP contractors may enter into an M&R 
agreement, but entering into an M&R agreement will not be a condition 
of retaining an MSP operating agreement. However, entering into an M&R 
agreement will be a condition of future awards of MSP operating 
agreements, such as awards for replacements or transfers of existing 
MSP agreements, or award of new agreements in the event that MARAD is 
authorized to award more than 60 agreements.
    As to other issues raised concerning administration of the M&R 
Pilot Program, we have reviewed the comments submitted and make the 
following determinations. The M&R reimbursement payment will be 
structured to cover all direct and reasonable indirect costs of 
repairing vessels in the United States. We do this to help ensure that 
the M&R Pilot Program, if funded by Congress, will truly equalize the 
cost of domestic and foreign repairs. It is our intention to make the 
program work in a way that benefits both the U.S. shipyards and the MSP 
operators. However, all costs will have to be estimated with relative 
certainty prior to MARAD's commitment to pay costs. MARAD will 
undertake to cover the cost of additional required repairs, which were 
not reasonably identifiable prior to entry into a shipyard--but not 
more than 20 percent of the originally estimated cost of repairs. The 
burden of computing the foreign cost of repairs primarily will be upon 
the vessel operator. However, the vessel operator must submit 
sufficient documentation to allow us to verify the cost of foreign 
repairs. Each participant in the M&R Pilot Program will be required to 
keep MARAD informed of its scheduled maintenance and repair work. 
Pursuant to a statutory requirement, the M&R participant must notify 
MARAD of its intent to obtain the M&R not later than 90 days before the 
date of the performance of the M&R. MARAD will determine which M&R 
projects MARAD finds suitable for accomplishment in United States 
shipyards. MARAD will base such determinations on the amount of funds 
available, the number of vessels operated by the vessel operator and 
the proximity of the vessels' itineraries to suitable U.S. shipyard 
locations. The M&R Pilot Program participants may suggest an 
alternative M&R project, but MARAD will not excuse the M&R obligations 
absent a compelling reason. Disregard of the M&R obligations will 
constitute a default of the MSP operating agreement. MARAD will prepare 
a standard addendum to the MSP operating agreement for those MSP 
contractors who decide to enter into an M&R Pilot Program agreement.

Rulemaking Analyses and Notices

Executive Order 12866 (Regulatory Planning and Review), and Department 
of Transportation (DOT) Regulatory Policies; Pub. L. 104-121

    This final rule is not considered a significant regulatory action 
under section 3(f) of Executive Order 12866 and, therefore, was not 
reviewed by the Office of Management and Budget. This final rule is not 
likely to result in an annual effect on the economy of $100 million or 
more. This final rule is also not significant under the Regulatory 
Policies and Procedures of the Department of Transportation (44 FR 
11034, February 26, 1979). The costs and economic impact associated 
with this rulemaking are considered to be sufficiently small that no 
further analysis is necessary.

Executive Order 13132

    We have analyzed this rulemaking in accordance with the principles 
and criteria contained in Executive Order 13132 (``Federalism'') and 
have determined that it does not have sufficient Federalism 
implications to warrant the preparation of a Federalism summary impact 
statement. The regulations have no substantial effects on the States, 
the current Federal-State relationship, or on the current distribution 
of power and responsibilities among local officials. Therefore, 
consultation with State and local officials was not necessary.

Executive Order 13175

    MARAD does not believe that this final rule will significantly or 
uniquely affect the communities of Indian tribal governments when 
analyzed under the principles and criteria contained in Executive Order 
13175 (Consultation and Coordination with Indian Tribal Governments). 
Therefore, the funding and consultation requirements of this Executive 
Order do not apply.

Regulatory Flexibility

    The Maritime Administrator certifies that this final rule will not 
have a significant economic impact on a substantial number of small 
entities. We anticipate that no small entities will participate in this 
program.

Unfunded Mandates Reform Act of 1995

    This final rule will not impose an unfunded mandate under the 
Unfunded Mandates Reform Act of 1995. It will not result in costs of 
$100 million or more, in the aggregate, to any of the following: State, 
local, or Native American tribal governments, or the private sector. 
This final rule is the least burdensome alternative that achieves this 
objective of U.S. policy.

Environmental Assessment

    We have analyzed this final rule for purposes of compliance with 
the National Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321 et 
seq.) and have concluded that, under the categorical exclusions 
provision in section 4.05 of Maritime Administrative Order (MAO) 600-1, 
``Procedures for Considering Environmental Impacts,'' 50 FR 11606 
(March 22, 1985), neither the preparation of an Environmental 
Assessment, an Environmental Impact Statement, nor a Finding of No 
Significant Impact for this rulemaking is required. This final rule 
does not change the environmental effects of the current M&R Pilot 
Program and thus no further analysis under NEPA is required.

Paperwork Reduction

    In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507 et seq.), this rulemaking contains no new information collection 
and record keeping requirements that require OMB approval.

Privacy Act

    Anyone is able to search the electronic form of all comments 
received into any of our dockets by the name of the individual 
submitting the comment (or signing the comment, if submitted on behalf 
of an association, business, labor union, etc.). You may review DOT's 
complete Privacy Act Statement in the Federal Register published on 
April 11, 2000 (Volume 65, Number 70; Pages 19477-78) or you may visit 
http://dms.dot.gov.

List of Subjects in 46 CFR Part 296

    Assistance payments, Maritime carriers, Reporting and recordkeeping 
requirements.


0
Accordingly, 46 CFR Chapter II, Subchapter C, Part 296 is amended as 
follows:

PART 296--MARITIME SECURITY PROGRAM (MSP)

0
1. The authority citation for part 296 is revised to read as follows:

    Authority: Pub. L. 108-136, Pub. L. 109-163; 49 U.S.C. 322(a), 
49 CFR 1.66.


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0
2. Revise Sec.  296.60 to read as follows:


Sec.  296.60  Applications.

    (a) Introduction. This section sets forth MARAD's regulations 
governing its Maintenance and Repair (M&R) Reimbursement Pilot Program. 
The M&R program is presently a 5-year program, authorized at $19.5 
million per year for FY 2006-2011.
    (b) M&R participants. Every existing Contractor in MSP may enter 
into an agreement under 46 U.S.C. 3517, to perform qualified M&R of one 
or more MSP vessels in United States shipyards, subject to the terms of 
this section. Every MSP Contractor entering into an MSP operating 
agreement, including those agreements transferred from an existing MSP 
Contractor, or newly issued or reissued from MARAD, after March 8, 
2007, must agree to enter into an agreement under 46 U.S.C. 3517, to 
perform qualified M&R of one or more MSP vessels in United States 
shipyards, subject to the terms of this section. Each vessel that is 
subject to an M&R agreement will receive a priority in the allocation 
of MSP payments if the amount available for a fiscal year for making 
payments under MSP operating agreements is not sufficient to pay the 
full amount authorized under each agreement for such fiscal year.
    (c) Terms of Agreement. An agreement under this section:
    (1) Will require that except as provided in paragraph (d) of this 
section, all qualified M&R on the vessel will be performed in the 
United States;
    (2) Will require the Administrator to reimburse the Contractor in 
accordance with paragraph (j) of this section for the costs of 
qualified M&R performed in the United States; and
    (3) Will apply to qualified M&R performed during the 5-year period 
beginning on the date the vessel begins operating under the operating 
agreement under chapter 531 of title 46, United States Code.
    (d) Exception to Requirement to Perform Work in the United States. 
A Contractor will not be required to have qualified M&R work performed 
in the United States under this section if:
    (1) The Administrator determines that there is no facility capable 
of meeting all technical requirements of the qualified M&R in the 
United States located in the geographic area in which the vessel 
normally operates available to perform the work in the time required by 
the Contractor to maintain its regularly scheduled service;
    (2) The Administrator determines that there are insufficient funds 
to pay reimbursement under paragraph (j) of this section with respect 
to the work; or
    (3) The Administrator fails to make the certification described in 
paragraph (h)(2) of this section.
    (e) Qualified M&R. In this section the term ``qualified M&R'' 
means:
    (1) Except as provided in paragraph (e)(2) of this section:
    (i) Any inspection of a vessel that is--
    (A) Required under chapter 33 of title 46, United States Code; and
    (B) Performed in the period in which the vessel is subject to an 
agreement under this section;
    (ii) Any M&R of a vessel that is determined, in the course of an 
inspection referred to in paragraph (e)(1)(i) of this section, to be 
necessary; and
    (iii) Any additional M&R the Contractor intends to undertake at the 
same time as the work described in paragraph (e)(1)(ii) of this 
section; but (2) does not include:
    (i) M&R not agreed to by the Contractor to be undertaken at the 
same time as the work described in paragraph (e)(1) of this section;
    (ii) Work carried out as part of continuous machinery surveys and 
other similar requirements not associated with a drydocking of the 
vessel; or
    (iii) Any emergency work that is necessary to enable a vessel to 
return to a port in the United States.
    (f) Qualification of Shipyard. MARAD will assess the following 
factors in determining whether a proposed shipyard is capable of 
undertaking the proposed M&R:
    (1) The dimension of the facility relative to the size of the 
vessel;
    (2) The capacity and the reach of the lifting cranes necessary for 
performing the specified work; and
    (3) The skills and experience of sufficient numbers of workers to 
complete the job in time to maintain the vessel's schedule.
    (g) Required information. Under each M&R agreement, the participant 
must provide within 30 days of enrollment a schedule for regular and 
special surveys for each vessel in the agreement. At the same time, and 
on an annual basis by January 1 of each calendar year, each M&R 
participant must submit a schedule of anticipated M&R for each vessel 
under an M&R agreement for the coming year. In addition, the M&R 
participant must provide for each such vessel the anticipated itinerary 
for the coming year.
    (h) Notification Requirements.--
    (1) NOTIFICATION BY CONTRACTOR.--The Administrator is not required 
to pay reimbursement to a Contractor under this section for qualified 
M&R, unless the Contractor--
    (i) Notifies the Administrator of the intent of the Contractor to 
obtain the qualified M&R, by not later than 90 days before the date of 
the performance of the qualified M&R and
    (ii) Includes in such notification:
    (A) A description of all qualified M&R that the Contractor should 
reasonably expect may be performed;
    (B) A description of the vessel's normal route and port calls in 
the United States;
    (C) An estimate of the cost, with supporting documentation, of 
obtaining the qualified M&R described under paragraph (h)(1)(ii)(A) of 
this section in the United States; and
    (D) An estimate of the cost, with supporting documentation, of 
obtaining the qualified M&R described under paragraph (h)(1)(ii)(A) of 
this section outside the United States, in the country in which the 
Contractor otherwise would undertake the qualified M&R.
    (2) CERTIFICATION BY ADMINISTRATOR.--
    (i) Not later than 30 days after the date of receipt of 
notification under paragraph (h)(1) of this section, the Administrator 
will certify to the Contractor--
    (A) Whether the cost estimates provided by the Contractor are fair 
and reasonable;
    (B) If the Administrator determines that such cost estimates are 
not fair and reasonable, the Administrator's estimate of fair and 
reasonable costs for such work;
    (C) Whether there are available to the Administrator sufficient 
funds to pay reimbursement under paragraph (j) of this section with 
respect to such work; and
    (D) That the Administrator commits such funds to the Contractor for 
such reimbursement, if such funds are available for that purpose.
    (ii) If the Contractor notification described in paragraph (h)(1) 
of this section does not include an estimate of the cost of obtaining 
qualified M&R in the United States, then not later than 30 days after 
the date of receipt of such notification, the Administrator will:
    (A) Certify to the Contractor whether there is a facility capable 
of meeting all technical requirements of the qualified M&R in the 
United States located in the geographic area in which the vessel 
normally operates available to perform the qualified M&R described in 
the notification by the Contractor under paragraph (h)(1) of this 
section in the time period required by the Contractor to maintain its 
regularly scheduled service; and
    (B) If there is such a facility, require the Contractor to resubmit 
such

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notification with the required cost estimate for such facility.
    (i) Allocation of available funds. If the funds available to MARAD 
are insufficient to accommodate every M&R project required to be 
performed in U.S. shipyards, MARAD will select those work projects 
suitable for accomplishment in United States shipyards, for which MARAD 
will reimburse the differential costs of the M&R. MARAD will base such 
determinations on the amount of funds available, the projected cost of 
each repair, the number of vessels operated by the vessel operator and 
the proximity of the vessels' itineraries to suitable U.S. shipyard 
locations.
    (j) Reimbursement.--
    (1) IN GENERAL.--The Administrator will, subject to the 
availability of appropriations, reimburse a Contractor for costs 
incurred by the Contractor for qualified M&R performed in the United 
States under this section.
    (2) AMOUNT.--The amount of reimbursement will be equal to the 
difference between--
    (i) The fair and reasonable cost of obtaining the qualified M&R in 
the United States; and
    (ii) The fair and reasonable cost of obtaining the qualified M&R 
outside the United States, in the country in which the Contractor would 
otherwise undertake the qualified M&R.
    (3) DETERMINATION OF FAIR AND REASONABLE COSTS.--
    (i) The Administrator will determine fair and reasonable costs for 
purposes of paragraph (j)(2) of this section after considering the 
supporting documentation submitted by the Contractor. If it is too 
difficult to accurately ascertain the foreign costs of anticipated M&R, 
the Maritime Administrator may decide to compute the foreign cost of 
M&R by reference to a percentage of the domestic cost of the M&R, based 
on available general information.
    (ii) MARAD will also pay for other costs borne by the M&R 
participant reasonably associated with the qualified M&R performed in a 
U.S. shipyard that would not be incurred if the vessel was repaired in 
a foreign shipyard. Such costs include:
    (A) Any additional vessel maintenance and repair preparation costs, 
including costs for additional engineering, design and contract bid 
proposal costs;
    (B) Costs (including capital and operating costs) for ``lost time'' 
for transit to a U.S. shipyard in excess of the transit period to a 
foreign shipyard on the same trade route to which the vessel is 
assigned and for the time spent in a U.S. shipyard which exceeds the 
estimated time required by a foreign shipyard for the same work.
    (C) Costs for additional labor, supervision, overhead and other 
work involving shore-side personnel.
    (iii) Upon approval of each specific M&R project, the Administrator 
will establish with the Contractor a set level of funding to be 
provided by MARAD. If, during the course of performing M&R in a U.S. 
shipyard, it is discovered that the repairs will entail additional 
unanticipated costs, the Administrator shall provide MARAD's share of 
funding corresponding to the percentage of the domestic M&R costs 
originally agreed to by MARAD, but not in excess of 20 percent of the 
original funding level agreed to by MARAD. Cost overruns will be the 
obligation of the M&R participant unless MARAD determines that it is 
fair to reimburse the M&R participant and sufficient funds are 
available to do so.
    (iv) Payment of MARAD's share of the shipyard contract price may be 
made as work progresses or upon completion of the M&R and finalization 
of costs, as MARAD may determine. Vouchers for payment may be submitted 
to the Associate Administer for Marine Asset Development. Payments 
shall be paid and processed under the terms and conditions of the 
Prompt Payment Act, 31 U.S.C. 3901. However, pursuant to 31 U.S.C. 
3902(f), interest on late payments will be paid only if appropriated 
funds for paying reimbursement under the M&R Pilot Program are 
available.

    Dated: February 1, 2007.

    By Order of the Maritime Administrator.
Daron T. Threet,
Secretary, Maritime Administration.
[FR Doc. E7-1880 Filed 2-5-07; 8:45 am]
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