Navy Ships: Turning Over Auxiliary Ship Operations to the Military
Sealift Command Could Save Millions (Letter Report, 08/08/97,
GAO/NSIAD-97-185).

Pursuant to a congressional request, GAO reviewed the Navy's use of
alternative crewing arrangements for Navy auxiliary ships, focusing on:
(1) the Navy's plans for turning over the operation of military crewed
auxiliary ships to its Military Sealift Command (MSC) for civil service
or commercial crewing; (2) whether cost savings would be realized if the
Navy turned over the operation of the remaining military crewed
auxiliary ships to MSC; (3) the relative costs of operating a Navy
auxiliary ship with a civil service crew and the costs of operating the
same ship with a commercial crew; and (4) the increase in the merchant
mariner pool if the operation of the multiproduct ships were turned over
to MSC.

GAO noted that: (1) the Navy plans to turn over the operation of its
remaining three ammunition ships to MSC for crewing with civil service
mariners; (2) as of May 1997, the Navy had not decided on whether to
turn over the operation of the remaining seven auxiliary ships as well
as the single ship under construction to MSC; (3) all eight of these
ships are multiproduct ships; (4) based on Navy cost data and MSC cost
estimates, the Navy could save about $139.6 million annually by turning
over the operation of these eight multiproduct ships to MSC for crewing
with civil service mariners; (5) this savings is due primarily to a much
smaller crew size than has been traditional on military crewed auxiliary
ships; (6) these savings would be offset by a one-time conversion cost
of $30 million to $45 million per ship, or about $300 million for all
eight ships, to meet Coast Guard standards; (7) MSC might also need
fewer ships to provide underway replenishment since unlike the Navy, it
does not have the personnel and operating limitations on the number of
operating days per ship and on days at sea per crewmember; (8) three
other studies conducted since 1990 by the Center for Naval Analyses, the
Institute for Defense Analyses, and the Naval Audit Service have also
identified the potential for large cost savings if the Navy were to
transfer additional ships to MSC; (9) these studies' projected savings
were also primarily due to the smaller crew sizes on MSC ships; (10) the
Navy does not intend to divert from its current policy of not using
commercial mariners to crew auxiliary ships; (11) its position is that
these ships must be crewed by military or civil service personnel due to
their military mission; (12) however, if it were to change this policy,
GAO's analysis shows that it would cost the Navy about $321,000, or
about 5 percent more a year, to operate a commonly used MSC oiler ship
with commercial crews than with civil service crews; (13) the difference
in costs is primarily attributable to higher fringe benefit costs for
commercial crews; (14) with respect to the size of the mariner pool
under different crewing alternatives, GAO calculated that the pool of
U.S. civil service mariners would increase by about 1,700 merchant
mariners if the 8 remaining auxiliary ships were turned over to MSC and
were crewed by civil service mariners; and (15) the pool of commercial
merchant mariners would increase by about 2,700 to 3,400 mariners if
these same ships were crewed by commercial mariners.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  NSIAD-97-185
     TITLE:  Navy Ships: Turning Over Auxiliary Ship Operations to the 
             Military Sealift Command Could Save Millions
      DATE:  08/08/97
   SUBJECT:  Military vessels
             Naval personnel
             Civilian employees
             Merchant marine
             Military policies
             Military cost control
             Comparative analysis
             Cost effectiveness analysis
             Strategic planning

             
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Cover
================================================================ COVER


Report to Congressional Requesters

August 1997

NAVY SHIPS - TURNING OVER
AUXILIARY SHIP OPERATIONS TO THE
MILITARY SEALIFT COMMAND COULD
SAVE MILLIONS

GAO/NSIAD-97-185

Navy Ships

(703153)


Abbreviations
=============================================================== ABBREV

  DOD - Department of Defense
  MSC - Military Sealift Command
  SCA - Service Contract Act

Letter
=============================================================== LETTER


B-277338

August 8, 1997

The Honorable Ernest Hollings
Ranking Minority Member
Committee on Commerce,
 Science, and Transportation
United States Senate

The Honorable Trent Lott
United States Senate

As you requested, we evaluated the Navy's use of alternative crewing
arrangements for Navy auxiliary ships.  Our specific objectives were
to (1) identify the Navy's plans for turning over the operation of
military crewed auxiliary ships to its Military Sealift Command (MSC)
for civil service and/or commercial crewing, (2) estimate whether
cost savings would be realized if the Navy turned over the operation
of the remaining military crewed auxiliary ships to MSC, and (3)
analyze the relative costs of operating a Navy auxiliary ship with a
civil service crew and the costs of operating the same ship with a
commercial crew.  Also, as you requested, we calculated the increase
in the merchant mariner pool if the operation of the multiproduct
ships were turned over to MSC. 


   BACKGROUND
------------------------------------------------------------ Letter :1

Navy auxiliary ships provide underway replenishment\1 to Navy
combatant ships worldwide thereby allowing combatant ships to remain
at sea for extended periods.  These ships deliver cargo and provide
services such as towing and salvage operations.  Navy auxiliary ships
are crewed either by active duty military personnel or civil service
mariners.  Those ships crewed by civil service mariners also have a
small detachment of active duty Navy personnel aboard to provide
communications, ordnance handling, supply support, and technical
support. 

As of May 1997, the Navy's auxiliary fleet consisted of 42 ships--15
oilers, 6 stores ships, 7 ammunition ships, 7 tugs, and 7
multiproduct ships.  One additional multiproduct ship of a new class
is currently under construction.  The Navy has delegated operational
control of 27 of these ships to MSC, the military's single manager
for sealift, to better support Navy fleet operations.  MSC crews
these 27 ships with civil service mariners.  The Navy's remaining 15
auxiliary ships are crewed by military personnel.  Under current
policy, the Navy will not permit the use of commercial crews on any
auxiliary ships because it considers their mission purely military in
nature. 


--------------------
\1 A process whereby ships transfer petroleum, munitions, provisions,
freight, food, and other consumable items to combatant ships while
steaming along side from 80 to 300 feet apart. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :2

The Navy plans to turn over the operation of its remaining three
ammunition ships to MSC for crewing with civil service mariners.  By
1999, five military crewed oiler ships are to be decommissioned and
replaced with four MSC oilers that are now either in reduced
operating status or deactivated.  The four replacement oilers will be
crewed with civil service mariners.  With these changes, 34 of the
Navy's 42 auxiliary ships will be under MSC control.  As of May 1997,
the Navy had not decided if it would turn over the operation of the
remaining seven auxiliary ships as well as the single ship under
construction to MSC.  All eight of these ships are multiproduct
ships. 

Based on Navy cost data and MSC cost estimates, the Navy could save
about $139.6 million annually by turning over the operation of these
eight multiproduct ships to MSC for crewing with civil service
mariners.  These savings are due primarily to a much smaller crew
size than has been traditional on military crewed auxiliary ships. 
These savings would be offset by a one-time conversion cost of $30
million to $45 million per ship, or about $300 million for all eight
ships, to meet Coast Guard standards.  MSC might also need fewer
ships to provide underway replenishment since unlike the Navy, it
does not have the personnel and operating limitations on the number
of operating days per ship and on days at sea per crewmember.  Three
other studies conducted since 1990 by the Center for Naval Analyses,
the Institute for Defense Analyses, and the Naval Audit Service have
also identified the potential for large cost savings if the Navy were
to transfer additional ships to MSC.  These studies' projected
savings were also primarily due to the smaller crew sizes on MSC
ships. 

The Navy does not intend to divert from its current policy of not
using commercial mariners to crew auxiliary ships.  Its position is
that these ships must be crewed by military or civil service
personnel due to their military mission.  However, if it were to
change this policy, our analysis shows that it would cost the Navy
about $321,000, or about 5 percent more a year, to operate a commonly
used MSC oiler ship with commercial crews than with civil service
crews.  The difference in costs is primarily attributable to higher
fringe benefit costs for commercial crews. 

With respect to the size of the mariner pool under different crewing
alternatives, we calculated that the pool of U.S.  civil service
mariners would increase by about 1,700 merchant mariners if the 8
remaining auxiliary ships were turned over to MSC and were crewed by
civil service mariners.  The pool of commercial merchant mariners
would increase by about 2,700 to 3,400 mariners if these same ships
were crewed by commercial mariners. 


   NAVY'S CURRENT AND PLANNED
   EFFORTS TO TURN OVER THE
   OPERATION OF AUXILIARY SHIPS TO
   MSC FOR CIVIL SERVICE AND/OR
   COMMERCIAL CREWING
------------------------------------------------------------ Letter :3

As of May 1997, the Navy had MSC operating 27 of its 42 auxiliary
ships with civil service crews.  The type and number of auxiliary
ships operated by MSC with civil service crewing and the crew size
for each ship are shown in table 1.  This table also shows the size
of the military detachment on these ships. 



                                Table 1
                
                Type, Number, and Crew Size of Auxiliary
                         Ships Operated by MSC

                                                        MSC crew size
                                                           per ship
                                                        --------------
                                                                Milita
                                                Number              ry
                                                    of  Civili  detach
Type of ships                                    ships      an    ment
----------------------------------------------  ------  ------  ------
Ammunition                                           4     125      24
Stores                                               6     125      49
Oiler                                               10      82      23
Tug                                                  7      16       4
======================================================================
Total                                               27
----------------------------------------------------------------------
Source:  MSC. 

Under current policy, the Navy will not permit any auxiliary ships to
be crewed with commercial mariners.  In an April 1995 letter to the
American Maritime Officers union, the Under Secretary of the Navy
stated that the mission of its auxiliary ships was purely military in
nature and not considered commercial-type operations.  Therefore,
according to the Under Secretary, auxiliary ships would only be
crewed with government employees, even if the use of commercial
employees was cost-effective.  In an April 1996 letter to the same
union, the Assistant Secretary of the Navy for Research, Development,
and Acquisition reiterated this policy, stating that the Navy's
auxiliary ships would be crewed by civil service mariners due to the
special nature of the auxiliary ships' operation.  As of May 1997,
Navy officials confirmed that this policy was still in effect. 

As of May 1997, the Navy was continuing to crew 15 auxiliary ships
with military personnel.  The types of ships are shown in table 2. 



                                Table 2
                
                  Type of Auxiliary Ships Crewed With
                   Military Personnel as of May 1997

                                                                  Navy
                                                                  crew
                                                        Number    size
                                                            of     per
Type of ship                                             ships    ship
------------------------------------------------------  ------  ------
Multiproduct (AOE-1)                                         4     600
Multiproduct (AOE-6)                                         3     562
Oiler                                                        5     219
Ammunition                                                   3     407
======================================================================
Total                                                       15
----------------------------------------------------------------------
Source:  Navy and MSC. 

The Navy plans to (1) turn over the operation of the three ammunition
ships to MSC for crewing with civil service mariners and (2)
decommission the five oilers in fiscal year 1999, replacing them with
four oilers built to commercial standards that are currently in
reduced operating status or deactivated.  These latter ships would
also be crewed with civil service mariners. 

The Navy has not decided on whether to turn over the operation of the
seven multiproduct auxiliary ships to MSC.  Some Navy officials
believe that multiproduct ships should continue to be crewed with
military crews because they are the auxiliary ships that can maintain
battle group speeds and operate within the battle group formations. 
However, MSC officials stated that they have studied what it would
take to operate the multiproduct ships and are willing to accept the
transfer because they believe MSC civil service crews can operate
these ships. 


   POTENTIAL SAVINGS BY TURNING
   OVER THE OPERATION OF NAVY
   AUXILIARY SHIPS TO MSC
------------------------------------------------------------ Letter :4

Our work and prior studies have shown that the Navy could achieve
savings by using civil service crews on auxiliary ships.  According
to November 1996 data, the most current available, the Navy's annual
cost to operate a multiproduct ship (AOE-1 class), built in the
1960s, is $54 million compared to MSC's estimated cost of $37 million
to operate the ship using a civil service crew.  The savings of
nearly $18 million are primarily attributable to differences in crew
sizes.  MSC operates its ships with a smaller crew because it hires
skilled mariners, whereas Navy crews are often recruits that must be
trained to replace more skilled sailors.  The Navy operates this ship
with 600 crewmembers while MSC would use about 247 crewmembers. 
Similar differences apply to the multiproduct ship (AOE-6 class),
built in the 1990s, which is a smaller, modified version of the
earlier ship.  The Navy operates this ship for $48 million annually,
with 580 crewmembers.  MSC's estimated cost to operate this ship is
$31 million annually with 229 crewmembers.  The savings of over $17
million are also primarily attributable to differences in crew sizes. 
The differences in annual operating costs between the Navy and MSC to
operate the two classes of multiproduct ships are shown in table 3. 



                                Table 3
                
                Annual Operating Costs Between the Navy
                     and MSC for Multiproduct Ships

                         (Dollars in millions)

                                            Ship class
                            ------------------------------------------
                                   AOE-1                 AOE-6
                            --------------------  --------------------
                                          Differ                Differ
Cost categories              Navy    MSC    ence   Navy    MSC    ence
--------------------------  -----  -----  ------  -----  -----  ------
Crew related\a              $34.1  $20.6      $-  $32.0  $19.2      $-
                                            13.5                  12.8
Ship fuel                     6.9    6.9       0    2.9  2.9 0
Repair parts                  1.4    0.8    -0.6    1.3    0.8    -0.5
Maintenance                  11.6    8.3    -3.3   11.4    8.3    -3.1
Miscellaneous costs\b         0.4      0    -0.4    0.6      0    -0.6
======================================================================
Total                       $54.4  $36.6      $-  $48.2  $31.1      $-
                                            17.8                  17.1
----------------------------------------------------------------------
Note:  Numbers may not add due to rounding. 

\a Includes wages, fringe benefits, training, and other personnel
costs. 

\b Includes publications, engineering and technical services, and
ammunition handling. 

Source:  Our analysis based on actual data provided by the Navy and
cost estimates provided by MSC. 

Using the Navy's data of the cost to operate the two classes of
multiproduct ships, we estimated that if the Navy turned over the
operation of the seven multiproduct ships to MSC for civil service
crewing, it could save $122.5 million annually.  Table 4 shows these
potential savings. 



                                Table 4
                
                Potential Annual Savings by Turning Over
                     Navy Multiproduct Ships to MSC

                         (Dollars in millions)

                                                        Saving
                                                         s per
                                                          ship   Total
                                                Number   (from  annual
                                                    of   table  saving
Ship class                                       ships      3)       s
----------------------------------------------  ------  ------  ------
AOE-1                                                4   $17.8  $ 71.2
AOE-6                                                3   $17.1  $ 51.3
======================================================================
Total                                                7          $122.5
----------------------------------------------------------------------
Source:  Our analysis based on data provided by the Navy. 

A fourth AOE-6 class ship is under construction at the National Steel
and Shipbuilding Company in San Diego, California, and is scheduled
for delivery in early 1998.  If the Navy chooses to include this ship
with the rest of the multiproduct ships turned over to MSC, an
additional $17.1 million annually would be saved, for a total annual
savings of $139.6 million. 

According to MSC unofficial estimates, these savings would be offset
by a one-time cost of $45 million for an AOE-1 and $30 million for an
AOE-6 to convert these ships to Coast Guard standards, which differ
from Navy standards, that is, $180 million for all four AOE-1 ships
and $120 million for all four AOE-6 ships, or $300 million for all
eight ships.  However, such an investment would seem advantageous
considering the annual estimated savings of $139.6 million. 


      PRIOR STUDIES ALSO PROJECTED
      SAVINGS
---------------------------------------------------------- Letter :4.1

In a 1990 study of civilian manning of auxiliary ships, the Center
for Naval Analyses found that the Navy would save $265 million
annually if the Navy turned over 42 support ships and tenders to MSC. 
The study attributed the annual savings to much smaller crew sizes on
MSC ships.  It reported, for example, that civil service crews on a
Navy oiler would be half the crew size the Navy used on those ships. 

In 1993, the Institute for Defense Analyses found that the Navy could
save considerable cost and personnel positions by operating more of
its auxiliary ships with civil service mariners.  The Institute
reported that a civilian operation saves on cost by reducing the
total crew size by about half for a similar ship.  It concluded that
the Navy could save $4 million to $15 million a year per ship,
depending on the type, by reducing the number of sea-going personnel
positions on auxiliary ships and crewing them with civilians. 

A 1994 Naval Audit Service report also found that significant cost
benefits could be achieved if Navy auxiliary ships were crewed by
civil service mariners.  The report, which covered 45 ships, stated
that by turning over the ships to MSC, crewing could be reduced 52
percent, from 19,440 crewmembers to 9,264 crewmembers.  Depending on
the cost method applied, the Navy could save $3.7 billion or $4.3
billion over a 5-year period.  The Naval Audit Service recommended
that the Navy turn over the 45 auxiliary ships to MSC for civil
service crewing. 


      CREWING WITH CIVIL SERVICE
      PERSONNEL HAS OTHER
      ADVANTAGES
---------------------------------------------------------- Letter :4.2

Another advantage of turning over the Navy multiproduct ships to MSC
is, as Navy and MSC officials pointed out, that MSC ships do not have
the constraints on operating days per ship and on days at sea per
crewmember that Navy ships do.  It is Navy policy to assign a sailor
to a ship for 3 years and not to have the sailor spend more than 6
consecutive months each year at sea, whereas MSC policy is to have
MSC crews spend about 9 months out of every 12 months at sea. 
According to these officials, an MSC ship can operate more days per
year than a comparable Navy ship--resulting in fewer MSC ships being
needed to conduct underway replenishment.  Further, these officials
agree that additional savings could be realized because some ships
could be retired, decommissioned, or deactivated. 

The Navy is currently conducting a study to determine whether it is
more cost-effective to continue the operation of the multiproduct
auxiliary ships under Navy control or turn over the operation of
these ships to MSC.  The objectives of the study are to (1) determine
the Navy minimum crewing level, (2) compare the proposed reduced Navy
crewing level with comparable MSC crewing, and (3) recommend a course
of action based on a comparison of MSC and Navy crewing levels.  Navy
officials estimate that this study should be completed by the end of
1997. 


   ANALYSIS OF COSTS RELATED TO
   CIVIL SERVICE AND COMMERCIAL
   CREWS
------------------------------------------------------------ Letter :5

Although the Navy's current policy is not to use commercial crews, we
compared the cost of crewing auxiliary ships with commercial and
civil service crews.  Based on our analysis, we found that crewing
with commercial mariners costs more.  In addition, we calculated an
increase in the merchant mariner pool that could be available to crew
ready reserve fleet ships in time of conflict. 

Historically, the United States has relied on the private sector for
combat support elements in time of war or national emergency.  In
1972, a joint U.S.  Navy-Maritime Administration project used the SS
Erna Elizabeth to test the feasibility of using commercial mariners
to conduct underway replenishment.  The SS Erna Elizabeth steamed
about 13,000 miles and refueled 40 ships at sea.  In another 1972
test, the SS Lash Italia delivered food and other consumable items to
the Sixth Fleet in the Mediterranean.  During Operations Desert
Shield and Storm, a contract-operated tanker, the MV Lawrence H. 
Giannella operated by a commercial crew, provided fuel to Navy
combatant ships while at sea. 

To analyze the annual costs between civil service and commercial
crews, we obtained crewing levels\2 and wage rates from two
commercial mariner unions and MSC for the operation of a Kaiser class
oiler, the most commonly used ship in the MSC fleet.  We focused on
labor costs and excluded other costs from the comparison because we
assumed other operation costs, such as fuel, maintenance, and the
small detachment of active duty Navy personnel on board ship, would
continue to be incurred regardless of who operated the ship. 

We estimated that the annual labor cost to operate a Kaiser class
oiler with a civil service crew would be $6.562 million and the cost
with a commercial crew would be $6.883 million, a difference of about
$321,000, or about 5 percent.  The estimate with a civil service crew
was based on a crew size of 82 members, the authorized crewing level
of a Kaiser class oiler.  The commercial crew estimate was based on a
crew size of 79 members, a size with which the two commercial mariner
unions believed the mission could be accomplished.  The major cost
elements were wages and overtime, pension, medical, vacation, and
other fringe benefits and personnel support costs.  The differences
between the annual labor costs of civil service and commercial crews
to operate a Kaiser class oiler are shown in table 5. 



                                Table 5
                
                Annual Labor Costs of Civil Service and
                  Commercial Crews for a Kaiser Class
                                 Oiler

                         (Dollars in thousands)

                        Civil service crew of   Commercial
Cost element                      82            crew of 79  Difference
----------------------  ----------------------  ----------  ----------
Base wages and                  $4,702            $4,116\a        $586
 overtime
Pension                          841                   268         573
Medical                          250                   668        -418
Vacation                         568                   840        -272
Other fringe benefits           202\b                992\c        -790
 and personnel support
 costs
======================================================================
Total                           $6,562              $6,883       $-321
----------------------------------------------------------------------
Note:  Numbers may not add due to rounding. 

\a See scope and methodology for a discussion of how we arrived at
this estimate. 

\b Includes training, temporary duty, and miscellaneous and
administrative support provided by shore-based personnel. 

\c Includes training, employee benefit plan, drug testing, hiring
hall, public affairs, and payroll taxes. 

Source:  Our analysis based on data provided by MSC, Seafarers
International Union, and American Maritime Officers union. 

Our cost comparison showed that the annual base wages and overtime
for civil service crews were $586,000, or 14 percent, more than the
annual wages and overtime for commercial crews.  In addition,the
civil service pension costs were $573,000, or 214 percent, higher
than commercial pension costs. 

The higher civil service wage and pension costs were offset by higher
medical, vacation, and other fringe benefits and personnel support
costs for commercial mariners, which resulted in a higher overall
cost for commercial operations.  Commercial mariner medical costs
were $418,000 higher than civil service costs primarily because,
according to a union official, commercial mariners have 100 percent
of their medical insurance paid for (i.e., they make no contribution
directly out of their paychecks).  In contrast, civil service
mariners pay a part of their medical insurance costs. 

Commercial vacation costs were $272,000 higher than civil service
costs because, according to a union official, a commercial mariner
earns 1 day off for every 3 days at sea, which translates to 1 month
off after 3 months at sea.  By comparison, a civil service mariner
earns a maximum of 26 days a year off, which is supplemented by an
additional 2 days of shore leave for 30 consecutive calendar days at
sea. 

The commercial costs for fringe benefits and personnel support costs
were $790,000 higher than civil service costs.  The two major
components in the commercial costs were payroll taxes and training. 
The difference is partially attributable to the fact that the
government equivalent to payroll taxes is included in the civil
service pension costs.  In addition, based on the MSC cost formula,
MSC would allocate less money for training. 


--------------------
\2 We did not validate the crewing information provided by MSC and
the commercial mariner unions. 


      MERCHANT MARINER POOL WOULD
      INCREASE
---------------------------------------------------------- Letter :5.1

We calculated that the pool of U.S.  civil service mariners would
increase by about 1,700 merchant mariners if the operation of the
multiproduct ships were turned over to MSC (see table 6).  MSC
established the size of its civil service mariner workforce at a
ratio of 1.25 of the shipboard positions to be filled.  This crew
ratio allows operations to continue while some of the mariners take
vacation, undergo training, or are out sick. 



                                Table 6
                
                  Increase in Numbers of Civil Service
                                Mariners

                                                                Estima
                                                                   ted
                                                                increa
                                                                 se in
                                                 Total            size
                                          Crew    crew              of
                                Number    size    size          marine
                                    of     per     per    Crew      rs
Ship class                       ships    ship   class   ratio    pool
------------------------------  ------  ------  ------  ------  ------
AOE-1                                4     173     692    1.25     865
AOE-6                              4\a     165     660    1.25     825
======================================================================
Total                                8           1,352    1.25   1,690
----------------------------------------------------------------------
\a There are three AOE-6s in service and one to be delivered in early
1998. 

Source:  Our analysis of data provided by the Navy and MSC. 

We calculated that the commercial mariner pool to support shipboard
positions would increase by about 2,700 to 3,400 mariners if
commercial firms operated the multiproduct ships (see table 7).  Each
commercial mariner position is established at the ratio of from 2.0
to 2.5 of the shipboard positions.  This crew ratio allows operations
to continue while some of the mariners take vacation, undergo
training, or are out sick. 



                                Table 7
                
                   Increase in Numbers of Commercial
                                Mariners

                                                            Estimated
                                                             increase
                                    Total crew              in size of
            Number of   Crew size    size per                mariners
Ship class    ships      per ship     class     Crew ratio     pool
----------  ----------  ----------  ----------  ----------  ----------
AOE-1           4          173         692      2.0 to 2.5   1,384 to
                                                              1,730
AOE-6          4\a         165         660      2.0 to 2.5   1,320 to
                                                              1,650
======================================================================
Total           8                     1,352     2.0 to 2.5   2,704 to
                                                              3,380
----------------------------------------------------------------------
\a There are three AOE-6s in service and one to be delivered in early
1998. 

Source:  Our analysis of data provided by commercial unions. 

The off duty mariners could be used for the ready reserve fleet in
times of conflict. 


   RECOMMENDATION
------------------------------------------------------------ Letter :6

Given the potential savings that could result if the Navy turned over
the operation of the seven active multiproduct auxiliary ships and
the one ship due for delivery in early 1998 to MSC for crewing with
civil service mariners, we recommend that the Secretary of Defense
direct the Secretary of the Navy to devise a detailed plan for
turning over, in a timely manner, the operation of the multiproduct
auxiliary ships to MSC. 


   AGENCY COMMENTS AND OUR
   EVALUATION
------------------------------------------------------------ Letter :7

DOD partially concurred with our recommendation to the Secretary of
Defense that the Secretary of the Navy devise a plan for turning over
the operation of the remaining auxiliary ships to MSC.  However, DOD
noted that certain operational changes, ship retirements, and other
actions affecting the fleet were under consideration and that more
study should be done on this matter.  Accordingly, DOD suggested that
we modify our recommendation to the Secretary of Defense to direct
the Navy to continue a cost-benefit analysis based on the Fleet
Commanders' concept of operations, crewing alternatives, and
conversion costs, including indirect and additional costs.  DOD
stated that based on this analysis, the Navy would then either retain
or turn over the operation of the multiproduct ships to MSC. 

We have retained our original recommendation in view of the
substantial costs savings that are possible and the fact that our
analysis is supported by three other major studies of this issue
since 1990.  All of these studies have consistently concluded that
substantial savings can be achieved by turning over the operation of
these ships to MSC and crewing them with civil service mariners.  By
developing a plan for a timely transfer of these assets to MSC as our
recommendation suggests, the Navy can achieve substantial savings
that might then be applied to other defense priorities. 

DOD's comments are presented in their entirety in appendix I.  DOD
also provided technical comments, which we have incorporated where
appropriate. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8

To provide information on the Navy's current and planned efforts to
turn over the operation of military crewed auxiliary ships to MSC for
civil service and/or commercial crewing, we analyzed data from and
interviewed officials in the Office of the Chief of Naval Operations,
MSC, the Center for Naval Analyses, commercial ship operating
companies, and civilian maritime unions. 

To identify the potential cost savings that would be realized by
turning over the operation of the Navy's remaining military crewed
auxiliary ships to MSC, we compared actual annual operating costs
provided by the Navy to estimated annual operating costs provided by
MSC for both classes of multiproduct ships.  We then projected the
savings per ship over the number of ships in each class to arrive at
a total annual savings.  The offsetting costs to convert the ships to
Coast Guard standards were provided by MSC.  We did not validate the
accuracy of the cost data provided by the Navy or the cost estimates
provided by MSC.  However, we discussed our analysis of these costs
and potential savings with the Office of the Chief of Naval
Operations and MSC officials who generally agreed with the cost data
used. 

To analyze the costs to operate MSC's Kaiser class oiler with civil
service crews and with commercial crews, we reviewed data and
interviewed officials from the Maritime Administration, MSC, the
American Maritime Officers union, the National Maritime Union, the
Seafarers International Union, the National Marine Engineers'
Beneficial Association District #1, and the International
Organization of Masters, Mates, and Pilots.  We obtained crew sizes
based on the Navy's mission and manning requirements for Kaiser class
oilers.  We determined the annual labor cost of civil service crews
by obtaining actual crewing levels and current wage rates, including
overtime, from MSC.  We obtained the overtime rate for the crew (the
Master and the Chief Engineer do not receive overtime); vacation and
sick leave; compensatory time and training costs; and pension,
medical, and miscellaneous costs.  To determine the annual labor
costs for commercial mariners, we obtained proposed crewing levels
and wage rates from two unions that represented all positions on the
ship.  While discussing issues with us, officials from the other
commercial mariner unions declined to provide wage and crewing data. 

The Service Contract Act of 1965 (SCA), 41 U.S.C.   351 et seq.,
generally provides for payment of prevailing wages when operating in
U.S.  territorial waters as determined by the Department of Labor for
service employees under government contracts.  Union officials stated
that SCA was not applicable to commercial crews when operating
outside U.S.  territorial waters.  Between May 1996 and April 1997,
the Kaiser Class oilers operated in U.S.  territorial waters 37
percent of the time and, thus, would come under the provisions of SCA
during this period. 

Because the Kaiser Class oilers have been solely operated by civil
service crews, the Department of Labor has not made a wage
determination under SCA.  To estimate the impact of operating with
commercial crews, we used wage and overtime rates provided by two
commercial unions for civilian crews, which is the basis for the
$4,116,000 figure. 

If, on the other hand, commercial crews were paid the MSC rate while
operating in U.S.  territorial waters, total labor costs would be 5
percent higher than our estimate, assuming they operated as MSC
does--about 37 percent of the time in U.S.  territorial waters. 
However, union officials told us that they would probably operate
differently, spending less time in U.S.  territorial waters.  We did
not validate the cost data obtained from MSC or the unions. 

We conducted our work from April 1996 to July 1997 in accordance with
generally accepted government auditing standards. 


---------------------------------------------------------- Letter :8.1

We are sending copies of this report to the Secretaries of Defense
and the Navy; the Chairman of the Senate Committee on Commerce,
Science, and Transportation; and other interested congressional
committees.  Copies will also be made available to others upon
request. 

Please contact me at (202) 512-5140 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix II. 

Mark E.  Gebicke
Director, Military Operations
 and Capabilities Issues




(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
DEFENSE
============================================================== Letter 



(See figure in printed edition.)



(See figure in printed edition.)


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II

NATIONAL SECURITY AND
INTERNATIONAL AFFAIRS DIVISION,
WASHINGTON, D.C. 

Sharon Cekala
Elliott Smith
Frank Bowen
Jay Willer
Charles Perdue
Sharon Sweeney

LOS ANGELES FIELD OFFICE

Roderick Moore


*** End of document. ***