U.S. Navy/Military Sealift Command: Weak Contract Administration Led to
Unsafe and Poorly Maintained Ships (Letter Report, 08/31/94,
GAO/OSI-94-27).

The Navy depends upon a privately run sealift tanker fleet to transport
jet fuel and other petroleum products to ports worldwide. A GAO review
found understaffed and unqualified crews--some with felony records;
deteriorating vessels plagued by everything from massive oil leaks to
inoperable life boats; and poor oversight by the Military Sealift
Command. The lack of maintenance, which harmed the ships' safety and
mission readiness, ended up costing the federal government an additional
$20 million. Weaknesses in the Command's contract administration
included the absence of (1) a program manager, (2) a written designation
of departmental responsibilities for the program, and (3) a Contracting
Officer's Technical Representative to monitor the performance of the
contractor operating the nine tankers from 1990 until 1993. GAO
summarized this report in testimony before Congress; see: Military
Sealift Command Contracts: Contract Abuses Resulted in Poorly Maintained
Ships, Unqualified Crews, and Increased Cost to Government, by Richard
C. Stiener, Director of the Office of Special Investigations, before the
Subcommittee on Oversight of Government Management, Senate Committee on
Governmental Affairs. GAO/T-OSI-95-3, Oct. 12, 1994 (eight pages).

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

 REPORTNUM:  OSI-94-27
     TITLE:  U.S. Navy/Military Sealift Command: Weak Contract 
             Administration Led to Unsafe and Poorly Maintained Ships
      DATE:  08/31/94
   SUBJECT:  Ships
             Marine transportation operations
             Navy procurement
             Equipment maintenance
             Contract administration
             Contract monitoring
             Oil spills
             Contractor performance
             Contract noncompliance
             Contractor personnel
IDENTIFIER:  Persian Gulf War
             Navy Shipboard Automated Maintenance Management System
             
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Cover
================================================================ COVER

Report to the Chairman, Subcommittee on Oversight of Government
Management, Committee on Governmental Affairs, U.S.  Senate

August 1994

U.S.  NAVY/MILITARY SEALIFT
COMMAND - WEAK CONTRACT
ADMINISTRATION LED TO UNSAFE AND
POORLY MAINTAINED SHIPS

GAO/OSI-94-27

Military Sealift Command's Contract Administration

(600239)

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

  COTR - Contracting Officer's Technical Representative
  GAO - General Accounting Office
  IMC - International Marine Carriers, Inc.
  MSC - Military Sealift Command
  OSI - Office of Special Investigations
  SAMM - Shipboard Automated Maintenance Management

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

B-257730

August 31, 1994

The Honorable Carl Levin
Chairman, Subcommittee on Oversight of
 Government Management
Committee on Governmental Affairs
United States Senate

Dear Mr.  Chairman:

This report responds to your request that we investigate allegations
concerning the operation of nine Sealift tankers leased by the
Department of Navy's Military Sealift Command (MSC) to transport jet
fuel and other petroleum products to ports worldwide in support of
U.S.  military efforts.  As agreed, we investigated whether (1) the
ships' equipment had deteriorated because of inadequate maintenance
and (2) the Sealift tankers were being operated unsafely due to
unqualified and inadequate numbers of crew.  Our investigation
focused on the time period that International Marine Carriers, Inc.
(IMC) has been operating the nine MSC Sealift tankers--April 1990 to
May 1994.

   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

We found numerous adverse conditions on all nine tankers in the
tanker-leasing program affecting the ships, the crews, the
environment, and the program.  First, MSC's lack of oversight of ship
maintenance requirements caused the ships' conditions to deteriorate.
The lack of maintenance, in turn, adversely affected the ships'
safety and mission readiness.  As of April 1994, this shortcoming had
resulted in an additional cost to MSC, and thus the government, of
approximately $20 million.  Second, the lack of qualified and fully
staffed crews contributed not only to oil spills with their adverse
effects on the environment but also to the lack of mission security
and efficiency.  MSC failed to enforce the contract's crewing
requirements and had no system to determine if the contractor was
complying with the requirements.

These conditions occurred because of weaknesses in MSC's contract
administration practices.  These weaknesses included the absence of
(1) a program manager, (2) a written designation of departmental
responsibilities for the program, and (3) a Contracting Officer's
Technical Representative (COTR) to monitor the contractor's
performance from the contract's inception in 1990 until 1993.  These
problems have been compounded because they follow years of poor
maintenance under the previous contract.

   BACKGROUND
------------------------------------------------------------ Letter :2

MSC is responsible for the ocean transportation of Department of
Defense supplies and equipment during both peace and war.  During the
Persian Gulf War, MSC's sealift capability was the bedrock of U.S.
military strategy because more than 95 percent of the materials
needed by U.S.  forces to sustain such an effort were transported by
ship.

MSC is responsible for the operation of 125 ships worldwide.\1 All
are operated by civilian crews--54 are crewed by private companies
pursuant to contracts with MSC; the rest, by federal civil service
employees.  Currently, MSC charters 16 tankers to fulfill U.S.
defense fuel needs worldwide, both ashore and at sea.  Nine, the
subject of our review, are Sealift class tankers that were
specifically built for, and chartered to, MSC for 20 years, 1975-95.
The nine ships are the Sealift Atlantic, Sealift Pacific, Sealift
Arabian Sea, Sealift China Sea, Sealift Indian Ocean, Sealift
Mediterranean, Sealift Caribbean, Sealift Arctic, and Sealift
Antarctic.  They provide point-to-point fuel deliveries to U.S.
defense bases around the world during peacetime and are equipped to
transfer fuel to other ships at sea.  At the end of the charter
period, MSC must return the ships to the owners in the same condition
as received, less "depreciation and normal wear and tear."

A contractor operates and maintains the ships.  MSC awarded a 5-year
fixed-price contract for about $170 million to IMC in April 1990.
However, the contract allowed modifications that increased MSC's
payments to IMC, as of April 1, 1994, to about $256
million--including reimbursables for fuel, upgrades, and other
costs--with another year to go on the contract.  During the 15 years
prior to this contract, another contractor, Marine Transport Lines,
Inc., operated the tankers under two consecutive contracts.  The
first was a 10-year cost-reimbursement contract; the second, a 5-year
fixed-price contract.  According to MSC officials, MSC decided to
change contracting methods from a cost-reimbursement to a fixed-price
approach to save funds.  From the program's inception in 1975 to
March 31, 1994, MSC had obligated $1.3 billion to charter and operate
the nine tankers.

The current contract with IMC stipulates that the contractor is
responsible for providing qualified, MSC-approved crews of 25
persons\2 for the safe, worldwide operation of each of the nine
tankers.  The contractor is also responsible for performing routine
and preventive maintenance to ensure the ships' continued effective
operation and preserve their condition.

--------------------
\1 The ships transport fuel oil, jet fuel, and other petroleum
products, as well as ammunition, equipment, and supplies.  Some ships
are dedicated to conducting oceanographic research, missile tracking,
or cable laying and repairing.

\2 In 1992, an additional crew member--a fuel wiper--was added to
each tanker's crew at MSC's expense.

   PRIOR GAO WORK
------------------------------------------------------------ Letter :3

In August 1973, we evaluated the Navy's decision to contract for the
nine tankers to be built and then chartered.\3 Our report noted that,
under the lease, the government would pay more than double the nine
ships' purchase price.  Navy officials then indicated that the Navy
would have preferred to purchase new ships but entered the leasing
agreement because it had been unsuccessful in obtaining congressional
approval of the purchase funds.  We also reported that the Navy had
not been required to, and did not, obtain congressional authorization
and approval to lease the ships for 20 years and commit the
government to expending hundreds of millions of dollars in Operations
and Maintenance funds.  However, we believed that the magnitude of
funds involved clearly warranted congressional input to the
decision-making process.

--------------------
\3 Build and Charter Program for Nine Tanker Ships, GAO (B-174839,
Aug.  15, 1973).

   EARLIER MSC RECOGNITION OF
   MAINTENANCE PROBLEMS
------------------------------------------------------------ Letter :4

While we did not review the previous contract period, we found
evidence that MSC was aware that the condition of the ships had both
begun to deteriorate under the fixed-price contract with the first
contractor as early as 1986 and continued to deteriorate throughout
that contract's 5-year term.

In this regard, an MSC "Point Paper" dated January 26, 1986, noted
that, approximately 6 months into the contract, the first contractor
was neglecting to fund ship maintenance and repair in an effort to
maximize profit or minimize losses.  The "Point Paper" related this
neglect to the fixed-price nature of the contract.  According to a
November 28, 1988, MSC memorandum on lessons learned from the first
fixed-price tanker contract, ".  .  .  [T]he maintenance, repair, and
physical condition of the Sealift Tankers have suffered greatly under
the [first contractor's] fixed price contract.  We estimate that it
will cost MSC $3-5 million per ship to reinstate the condition of the
ships at contract turnover." Internal MSC reports in November 1988
also stated, "In a fixed-price ship operating contract it is not in a
contractor's interest to perform up to MSC's standards and it is
nearly impossible to make him do so.  It is self-evident that the
follow-on contract should not be a fixed-price operation and
maintenance contract."

Further, in January 1989, an internal MSC report described the
Sealift Antarctic as a fire and safety hazard and lacking in
maintenance.  Sealift Caribbean reports stated, "Mission reliability
is questionable." "If a fire occurs it is doubtful it could survive,
there would be a loss of ship, cargo, and possibly human life." The
reports continued, "It was obvious the operating per diem being given
to the contractor is not spent on the maintenance and upkeep." An
internal MSC review of the Sealift Indian Ocean reported, "It is a
complete waste of money to install equipment and reimburse the
contractor for its maintenance if the equipment is deliberately
neglected."

However, the contractor did not respond to contract discrepancy
reports for any of the ships, and MSC did not enforce the contract
provisions.

   LACK OF MSC OVERSIGHT OF
   PREVENTIVE MAINTENANCE RESULTED
   IN DETERIORATING SHIP
   CONDITIONS
------------------------------------------------------------ Letter :5

IMC, the current contractor, has not fully complied with, and MSC has
not enforced, the preventive maintenance requirements of the
contract.  The poor condition of the ships has resulted in
operational deficiencies that adversely affected the safety of the
ships and their ability to perform assigned missions.  Further, the
ships' conditions have deteriorated to the extent that MSC has spent
approximately $20 million of the $256 million contract cost to (1)
upgrade the condition of the ships and (2) employ individuals on the
ships just to wipe up excess oil.

      CONTRACT MAINTENANCE
      REQUIREMENTS NOT ALWAYS
      FOLLOWED
---------------------------------------------------------- Letter :5.1

The contract for the operation and maintenance of the Sealift tankers
requires the contractor to ensure that all equipment and machinery on
the ship be maintained in the highest state of readiness.  More
specifically, the contractor is required to maintain the ships'
equipment and systems so as to provide continuing operation, prolong
the life and preclude the breakdown of all machinery, and prevent
undue equipment overhauls and the need for excessive corrective
maintenance.  However, MSC did not effectively ensure that the
current contractor was providing preventive maintenance.

         CONTRACTOR'S LACK OF
         PREVENTIVE MAINTENANCE
-------------------------------------------------------- Letter :5.1.1

At the inception of the IMC contract, MSC established the Shipboard
Automated Maintenance Management (SAMM) system to be used on board
each of the Sealift tankers.  The system was to direct the contractor
to periodically perform mandatory tests, inspections, and maintenance
actions on equipment and systems.  The contract requires that the
contractor both provide monthly reports of completed maintenance
actions and keep on board a written record of tests, inspections, and
maintenance conducted.

According to MSC records, the contractor repeatedly did not follow
the SAMM system and did not always submit monthly reports.  For
example, MSC contract discrepancy reports reflected numerous
instances in which SAMM reports were not submitted.  Moreover, other
records showed discrepancies between preventive maintenance reported
to MSC and that recorded on the ships:  monthly reports to MSC showed
that numerous actions had been taken, but the ships' preventive
maintenance records did not reflect these actions.  For example, one
captain told us that since he did not know how to use the SAMM
system, he did not implement the maintenance schedule.

At one point, contractor noncompliance caused MSC to memorialize its
complaints.  An MSC contracting official wrote to the contractor,
pointing out that the contractor had failed to complete required
monthly preventive maintenance.  Further, according to the message,
the lack of the contractor's performance in preventive maintenance
had been a continuing problem with all the ships, and the ships had
not received the preventive maintenance for which MSC had paid.

Many of the crew members we interviewed on three of the Sealift
tankers complained about the lack of preventive maintenance and the
poor condition of equipment on the ships.  According to one Captain,
the lack of necessary preventive maintenance was dangerous, and not
having good emergency equipment was a "crime." He also indicated that
the contractor had not provided adequate absorbent pads to help
contain oil spills.  According to a seaman on the same ship, there
was very little maintenance, rust all over the ship, and inadequate
amounts of cleaning supplies.  He related that 3 weeks prior to our
interview, cargo boom cables had snapped because they were so
brittle.  Another seaman from this ship related that the company was
spending "zero" on maintenance, which resulted in potential safety
problems.  He said that repairs were needed on brakes, winches,
frozen hoses, pump valves, and metal decking grates.  (See fig.  1.)
Moreover, a seaman from another ship told us that the amount of
maintenance on that ship "was just enough to keep the boat afloat."

   Figure 1:  Inoperative Winch on
   Sealift China Sea , March 15,
   1992

   (See figure in printed
   edition.)

      LACK OF ADEQUATE MAINTENANCE
      CAUSES PROBLEMS
---------------------------------------------------------- Letter :5.2

IMC's inadequate maintenance of the nine tankers has contributed to
operational problems, unsafe conditions, and expense to MSC.

         OPERATIONAL PROBLEMS
-------------------------------------------------------- Letter :5.2.1

According to the contract, IMC is required to maintain the ships'
readiness for all operational requirements.  One important
operational capability, especially during wartime and other
emergencies, involves the ability to refuel other naval ships at sea.
To ensure that the tankers maintain this capability, the contract
stipulates that IMC must maintain refueling-at-sea equipment on each
ship in good order and conduct quarterly refueling-at-sea training
sessions.  The contractor is also required to perform quarterly
testing of refueling rigs that are attached astern of the tankers.
However, MSC inspection reports indicate that the refueling-at-sea
equipment on many of the tankers was frequently inoperable.  Many of
these reports showed that components of this equipment were either
frozen in place by rust or corrosion or that critical parts were
missing.

These deficiencies adversely impacted the ships' capability to meet
their mission.  In this regard, during Operation Desert Storm, two of
the tankers (Sealift Mediterranean and Sealift Caribbean) could not
perform this important function when called upon because of
inoperable refueling-at-sea equipment.  Only within the past 1.5
years has MSC begun to fund needed repairs to these systems.

Further, failure to maintain the tankers led to additional costs,
which were not covered by the contract, called "material condition
upgrades." These upgrades included repairing machinery, replacing
certain navigation equipment, and refurbishing winches.  MSC records
indicate that at various times between August 1991 and February 1993,
each of the nine ships received unanticipated material condition
upgrades and were out of service while being upgraded.  During this
time, they were unavailable to meet their mission objectives.

         UNSAFE CONDITIONS
-------------------------------------------------------- Letter :5.2.2

MSC did not inspect each ship quarterly as required by its Standard
Operating Manual.  Nevertheless, MSC records disclose numerous
instances of unsafe operating conditions aboard the nine Sealift
tankers.

These unsafe conditions included leaking oil; leaking fuel lines and
fuel pumps; inoperable lifesaving equipment including life boats;
poorly maintained or inoperable fire stations; deteriorated, damaged,
or missing railings on the ships' weather decks; and improperly
stored chemicals and lubrication oil.  For example, we found life
boats that could not be lowered and one life boat that was missing
its drain plug.  Further, the fire extinguishers on one ship were not
operable; and safety and medical kits were missing.

Crew members of one tanker also complained to us that a lack of
gloves, boots, and respirators created health hazards for the crew
when cleaning the cargo tanks.  They frequently experienced nausea,
running eyes and noses, and dizziness.  Some crew members showed us
blisters and burns on their feet and hands resulting, they said, from
the lack of protective equipment.

However, one of the most serious recurring problems involved
excessive oil leaks from machinery aboard the ships.  (See figs.  2
and 3.) This created slippery conditions and fire hazards.  For
example, during an inspection of the Sealift Arabian Sea's engine
room, an MSC inspector reported that a film of oil covered the decks,
overhead areas, electrical boxes, and circuit boards.  In another
example, an MSC inspection of the Sealift Arctic revealed numerous
safety deficiencies, including 4 inches of fuel oil and water in the
pump room bilges.  (See fig.  4.)

   Figure 2:  Sheet Used to Catch
   Oil Forced Out of Main Engine
   on Sealift Antarctic, October
   15, 1993

   (See figure in printed
   edition.)

   Source:  Engineering & Marine
   Consultants Inc., Issaquah,
   Wash.

   (See figure in printed
   edition.)

   Figure 3:  Oil Leak, Main
   Engine on Sealift Arabian Sea ,
   December 11, 1993

   (See figure in printed
   edition.)

   Source:  Engineering & Marine
   Consultants Inc., Dec.  16,
   1993, inspection report to USL
   Capital Corporation, San
   Francisco, Cal., and Citibank,
   N.A., New York, N.Y.

   (See figure in printed
   edition.)

   Figure 4:  Oil in Bilge on
   Sealift Arabian Sea , December
   11, 1993

   (See figure in printed
   edition.)

   Source:  Engineering & Marine
   Consultants Inc., Dec.  16,
   1993, inspection report to USL
   Capital Corporation, San
   Francisco, Cal., and Citibank,
   N.A., New York, N.Y.

   (See figure in printed
   edition.)

Although the MSC Standard Operating Manual requires MSC to inspect
each ship at least four times a year, MSC failed to fulfill this
responsibility.  Between contract award in April 1990 and September
16, 1992, MSC conducted only 29 inspections.  The frequency of these
inspections differed from ship to ship.  While MSC inspected one ship
six times during this period, it inspected another ship only once.
Consequently, many of the previously mentioned unsafe conditions went
unnoted by MSC officials.

         LACK OF MSC FOLLOW-UP OF
         PROBLEMS NOTED
-------------------------------------------------------- Letter :5.2.3

The limited number of MSC inspection reports reflected serious
problems with the operation and maintenance of the ships.  However,
MSC took little or no action to enforce the provisions of the
contract and to require corrective action of problems found during
the inspections.  The following examples demonstrate the problems
cited in MSC's 1990-92 inspection reports and MSC's lack of
follow-up:

  -- An April 20, 1991, MSC inspection of the Sealift Indian Ocean
     found an engine-room fire "just waiting to happen." Conditions
     included numerous leaks of fuel and lubrication oil, deplorable
     conditions topside, and 30 gallons of oil in the bilges.  We
     found no record that MSC had requested corrective action.

  -- An October 6, 1991, inspection of the Sealift Arabian Sea
     discovered inoperative and missing equipment, no signs of
     maintenance, 5 inches of oil in the pump-room bilges, and
     engine-room personnel unfamiliar with operation and maintenance
     of equipment.  The MSC inspector deemed IMC's performance
     unacceptable and the ship unsafe.  While MSC requested that IMC
     take corrective action, we found no evidence of follow-up or
     that IMC had taken such action.  However, after the ship had
     undergone a material condition upgrade in 1992, oil leaks
     continued as noted in recent inspections of the ship performed
     by two marine survey firms hired by the ship owners.  (See figs.
     3 and 4.)

  -- A November 14, 1991, MSC inspection of the Sealift Mediterranean
     discovered numerous deficiencies, including 3 inches of oil in
     pump-room bilges, and numerous oil leaks, including main engines
     that leaked 20 gallons of lubrication oil per engine per day.
     In addition, the inspector found that boiler controls had been
     bypassed.  We found no record that MSC had requested corrective
     action.

  -- A January 9, 1992, inspection of the Sealift Atlantic found
     overall unsatisfactory conditions including leaks in the main
     engines, pumps, and other machinery creating "extreme" fire
     hazards.  In addition, the inspector concluded that IMC had not
     been supporting the ships with parts and supplies.  We found no
     evidence that MSC had requested corrective action.

Our review of U.S.  Coast Guard inspections also disclosed numerous
instances of reported deficiencies--not all of which were corrected
in a timely fashion.  Further, although between August 1991 and
February 1993 all nine tankers received material condition upgrades
at MSC's expense, owner inspections between October 1993 and March
1994 disclosed that serious problems remained.

         LACK OF MAINTENANCE
         ENFORCEMENT COSTLY FOR
         MSC/EFFORTS NOT FULLY
         EFFECTIVE
-------------------------------------------------------- Letter :5.2.4

As a result of not enforcing the contract's maintenance requirements,
MSC had to take two costly steps totaling about $20 million.  At
MSC's direction, the contractor hired additional crew, called
"wipers," to wipe up excess oil in the engine rooms and on other
parts of the ships.  MSC obligated $2 million in advance--for 1992
through 1995--for the wipers.  Also, beginning in August 1991, each
ship underwent material condition upgrades.  As of April 1, 1994,
these upgrades had cost MSC about $18 million over the original $170
million 1990 contract cost.  For example, MSC obligated $1.2 million
to steam-clean the engine rooms on all nine ships.

Between October 1993 and March 1994, after MSC had performed a
material condition upgrade on each of the ships, an independent
marine surveyor surveyed the Sealift Antarctic, Sealift Arabian Sea,
Sealift China Sea, and Sealift Pacific for the ships' owners.  Those
surveys disclosed numerous serious maintenance problems.  For
example, the surveyor found that all four ships had been so poorly
maintained that they had major oil leaks in their engines and
machinery.  The surveyor recommended that both main engines and both
service diesel generators on all four ships receive overhauls.
Further, the November 1993 survey of the Sealift China Sea disclosed
that the "ship had been kept in a very poorly maintained state[;] the
only work accomplished was that which was absolutely necessary for
the ship to be able to perform its function of moving cargo."

The possible extent of the oil leakage can be demonstrated by an
October 1993 ship survey of the Sealift Antarctic, paid for by the
ship's owners.  The survey revealed an excessive consumption rate of
lubricating oil, based on the ship's engine-room log.  According to
the surveyor's report, lubricating-oil consumption exceeded 150
gallons per day for each of the ship's two main engines and 25
gallons per day for each of the ship's two service diesel
generators--over 350 gallons per day.  This exceeds the
75-gallons-per-day rate shown in the IMC/MSC operating and
maintenance contract by more than 450 percent.  Further, according to
ship-submitted MSC records, the Sealift China Sea consumed almost 3
times its maximum allowable rate of lubricating oil for the 1-year
period that we reviewed.  Since lubricating-oil expenses are
reimbursable under the contract, this consumption rate added directly
to the government's contract costs.  We also noted that oil leaks
continued on a number of the other tankers.  (See figs.  2-4.)

      MSC OVERSIGHT
---------------------------------------------------------- Letter :5.3

Prior to spring 1992, MSC had no oversight of what deficiencies MSC,
Coast Guard, or IMC employees identified or whether corrective
actions were taken.  MSC officials advised us that prior to that
time, MSC performed little or no oversight of the deficiencies found
during inspections because the inspection reports identified what one
MSC official considered as "insignificant" items.  After our
investigation began in spring 1992, MSC instituted a pass/fail
inspection system that is shorter, less detailed, and less stringent
than the previous inspection reports.  For example, the new
inspection forms consist of a check-off format.

   LACK OF ENFORCEMENT OF AND
   COMPLIANCE WITH CREWING
   REQUIREMENTS
------------------------------------------------------------ Letter :6

To ensure the safe, effective, and environmentally sound delivery of
oil products to U.S.  defense forces, the MSC contract with IMC
requires that the ships sail with (1) a complete crew that is (2)
qualified, including appropriate security clearances, and (3) of good
character.  However, MSC did not enforce these requirements; and the
contractor did not always comply, with negative effects on
efficiency, safety, and the environment.

      MSC DID NOT ENFORCE THE USE
      OF FULL CREWS
---------------------------------------------------------- Letter :6.1

IMC often allowed the tankers to sail with a shortage of crew, an act
that potentially benefitted the contractor financially.  However, MSC
had no system to identify whether full crews had been employed.  In
some instances, these shortages caused oil spills, among other
problems.

According to MSC officials, they sometimes received information on
crew shortages from fuel quality assurance representatives from the
Defense Fuel Supply Center or MSC officials visiting or inspecting
the ships.  However, these individuals are not required to report
such information, and MSC has no mechanism to access and follow up on
crew-shortage reports.

MSC officials also told us that they rely primarily on the contractor
to report crew shortages.  However, relying on the contractor to
report shortages is questionable because crew shortages could be
beneficial to the contractor.  They reduce the contractor's payroll
costs and thus could increase the contractor's net revenue since the
contract is fixed-price.

Our interviews with crew members on three of the nine tankers
indicated that the ships often were short on crew members.  One Chief
Engineer indicated that his vessel had been operating with a crew
that was both undermanned and inexperienced.  Further, one Captain
told us that wages paid to the crews were 10 percent less than market
rate.  According to some crew members, including a Chief Mate, the
low wages resulted in high turnover.  Another crewman told us that
his vessel could not attract and keep good people because of the low
pay and that high turnover contributed to safety problems.

Our visits to three of the ships appeared to support the cited high
turnover rate.  Over a 2-year period on the 3 ships, 658 individuals
had been hired to fill the 75 crew positions--an average of over 8
individuals for every position.

      MSC DID NOT ENSURE
      QUALIFICATIONS OF CREW
---------------------------------------------------------- Letter :6.2

Contrary to the current contract, MSC, through its lack of contract
enforcement, did not always approve "key" crew members--including a
ship's Master, or Captain--and allowed unqualified, inexperienced
crew members to work on the ships.  Personnel affiliated with various
ports, Navy investigators, and ship officers have cited unqualified
and inexperienced key and other crew members as contributing to a
number of Sealift oil spills.

         UNAPPROVED KEY CREW
         MEMBERS
-------------------------------------------------------- Letter :6.2.1

The contract requires that MSC approve certain key crew members--such
as the Captain, Chief Mate, Chief Engineer, First Assistant Engineer,
and Radio Officer.  After the first 90 days of contractor operations,
IMC was required to report substitutions of a key crew member to MSC
in advance where possible, providing an explanation of the
circumstances necessitating the substitution and a complete rsum
that included the substitute's training, qualifications, and medical
records.

In June 1990, shortly after the contract was initiated, the MSC
contracting officer approved IMC's use of 67 key crew
members--including only 3 Captains--for the 9 ships.  However, at
that time, MSC had received rsums for only 43 of them.  While the
contractor provided MSC with brief descriptions of the remaining 24
key crew members and promised to provide the rsums of these
individuals, they were never provided.  Further, naval investigators
cited at least one key crew member whose rsum MSC had not received
and whom MSC had not approved--the Captain of the Sealift
Caribbean--as responsible for a fuel spill at sea in March 1992.  MSC
did not follow up concerning the rsums that IMC had promised until
after we initiated our investigation in early 1992.

On June 24, 1992, the MSC contracting officer, noting that IMC had
provided little information on key crew members since the contract
began over 2 years previously, asked the contractor to provide
information on all key crew members employed on the Sealift tankers.
In response, IMC submitted 36 rsums, indicating many personnel
changes.  IMC did not submit rsums for an additional 22 key crew
members who were aboard the vessels.

         UNQUALIFIED,
         INEXPERIENCED CREW
         MEMBERS
-------------------------------------------------------- Letter :6.2.2

The contract requires IMC to crew each ship with the "trained,
qualified, and fit" personnel necessary for worldwide operation.
However, our 1992 interviews with crew members on three of the nine
ships indicated that these ships lacked qualified crew members.  One
Captain told us that the crew was generally young and inexperienced.
Others also told us that the low wages attracted inexperienced crew
members.

Indeed, several seamen told us that the ships were being used as
training vessels for inexperienced crew.  One said that the vessel he
was working on was ".  .  .  attracting a lot of workers who have
never been on a tanker before.  .  .  ." Further, two crew members
advised us that this was their first ship assignment.  Another, a
Chief Engineer, indicated that his vessel had been operating with a
crew that was sometimes both undermanned and inexperienced and that
often the contractor allowed crew members to change positions and
work in jobs for which they were not qualified.  One seaman on the
same ship told us that the inexperienced workers caused safety
problems.

         ENVIRONMENTAL
         CONSEQUENCES
-------------------------------------------------------- Letter :6.2.3

Some crew members' lack of qualifications and experience and MSC's
lack of enforcement of those qualifications have contributed to
serious environmental consequences.  Port authorities and naval
investigators cited crew shortages, inexperience, and negligence as
contributing factors in numerous Sealift tanker oil spills.

For example, on July 1, 1990, a tank aboard the Sealift Arabian Sea
overflowed while the ship was loading in Gaeta, Italy.  The reason
for the overflow, cited in the Chief Officer's log book, was that a
crew member had failed to stand his watch.  IMC is being held
responsible for a $36,000 cost for spill clean-up by Gaeta port
personnel.

Further, on February 4, 1991, a Sealift Caribbean oil spill occurred
in the Houston, Texas, port.  This was the ship's fourth reported
spill in water since IMC's operational takeover in April 1990.  It
had also had seven reported spills on deck during this 10-month
period.  Crew shortages and poorly qualified seamen were cited as the
probable causes for the spills.  According to notes from a February
8, 1991, Houston port meeting, the U.S.  Coast Guard was to press
charges and revoke licenses if the spills continued.

In March 1992, the Sealift Caribbean discharged over 47,000 gallons
of gasoline at sea.  Naval investigators cited the Captain's
"extremely poor judgement and complete ignorance of actions expected
and required of him" as the reason for the discharge.  We determined
that MSC had not approved this Captain to operate the ship and had
not received a rsum depicting his experience and qualifications.
However, at about the time that the Captain was relieved of his
command of this tanker and IMC no longer employed him, IMC sent MSC a
copy of his rsum.

In addition, fuel depot personnel and the Captain of the Sealift
Antarctic expressed concern to MSC about the competency of some of
the ship's crew after that ship experienced two oil spills during a
loading operation.  The second spill occurred when a crew member
opened instead of closed a centerline tank-fill valve.

In 1993, we requested that the Environmental Protection Agency's
Criminal Enforcement Counsel Division investigate allegations of
possible environmental crimes by IMC concerning a 1992 oil spill.
The Miami, Florida, District Office of the U.S.  Coast Guard was also
investigating a possible criminal case against IMC for this same
incident and had taken action to suspend the license of the Captain
of one of the offending IMC vessels.  However, in January 1994, over
the Coast Guard's objection, the Department of Transportation, Office
of General Counsel, determined that these ships were "public vessels"
and therefore exempt from liability under the Oil Pollution Act of
1990, Pub.  L.  No.  101-380, 104 stat.  484.  Because of this
decision, no criminal liability may be lodged against IMC, although,
according to the Department of Transportation determination, MSC has
a responsibility to monitor the ships and prevent oil spills.

      MSC DID NOT ENFORCE SECURITY
      AND CHARACTER REQUIREMENTS
---------------------------------------------------------- Letter :6.3

Because the tankers' mission is sensitive (delivering fuel to U.S.
military forces worldwide) and secure communications are needed, the
contract requires that each Captain, Chief Mate, and Radio Officer
undergo a background investigation and receive a secret-level
security clearance.  Further, U.S.  Coast Guard rules and regulations
prohibit the contractor from hiring any crew member who has a drug
conviction within 3 years prior to the date of filing an application
to work on U.S.  ships.  However, MSC had no procedures to determine
whether the contractor was fulfilling these responsibilities.

Our review of the contract files showed no record of any background
investigations or security clearances for the above-cited key crew
members on all nine ships.  MSC officials told us that they assumed,
but had not verified, that the contractor had obtained the
appropriate clearances.  After our review began, MSC twice asked the
contractor to provide information on security clearances of key crew
members.  In April 1993, IMC provided MSC a list of key crew members.
However, a large number of the crew members had security clearances
pending.  For example, of the 16 Radio Officers on the list, only 1
had a finalized security clearance.

To ascertain any felony convictions, including drugs, we performed a
criminal records check of the names of crew members who had been
employed over a 2-year period on the three ships we visited.  About
178 of the 658 individuals employed had been previously convicted of
felonies including assault and rape; about one-third of these
convictions involved various drug violations.  Two individuals were
fugitives.  Of additional concern, we noted that some of the seamen
had used false social security numbers and that some were not U.S.
citizens.

   MSC FAILED TO ADEQUATELY
   IDENTIFY SHIP INVENTORIES AT
   CONTRACT TURNOVER
------------------------------------------------------------ Letter :7

MSC did not adequately inventory the government-furnished equipment
and supplies left on the ships when they were turned over to IMC as
the new contractor in 1990.  This is counter to MSC's contractual
requirements to ensure the ships' continued effective operation and
to preserve the ships' conditions.  As a result, IMC took over the
operation of the nine tankers "under protest"; and MSC is vulnerable
to contractor claims.  Indeed, IMC has filed claims to recoup funds
spent to purchase needed items and repair certain equipment.

      INVENTORIES
---------------------------------------------------------- Letter :7.1

The contract with IMC required that MSC inventory
government-furnished property on the Sealift tankers prior to the
turnover from the previous contractor.  The contract further required
that such inventories meet a 90-percent validity test.

At the time of contract turnover in 1990, MSC hired a third
contractor to inventory each ship.  According to MSC officials, the
inventory contractor did not do a thorough job.  IMC agreed to take
over the tankers but only with the understanding that it did not
agree with the inventory results.  Citing the need for a more
thorough inventory, in June 1990, IMC recommended that new
inventories be conducted for all nine ships; but MSC never conducted
the inventories.

A year later in July 1991, IMC recommended two options to resolve the
inventory problem:  (1) IMC would conduct a new inventory and (2) IMC
would delete items on the current inventory that it claimed were not
on board, were consumable or scrap material, or it had purchased.  In
December 1991, about 1.5 years after the turnover, MSC agreed to the
inventory for the Sealift Arabian Sea using the second option.  As of
March 1994, the parties had not agreed on the inventories of the
other eight tankers.

However, as of the end of our review, MSC did not have even the
original inventory for eight of the nine ships, although MSC
officials have stated that baseline inventories are needed for all
the ships to protect the government's interest.  MSC asked the
ownership group to provide copies of the original inventories that
the first contractor had provided.  Without agreed-to inventories,
MSC has no baseline from which IMC can be held accountable and little
or no basis to judge whether contractor claims for purchases are
valid.

      MSC VULNERABLE TO CONTRACTOR
      CLAIMS
---------------------------------------------------------- Letter :7.2

Until MSC and IMC agree to inventories for the remaining ships, MSC
will have no baseline to evaluate possible future IMC claims.  For
example, in June 1992, IMC submitted a claim to the government for
$262,409 for missing but necessary material and equipment for the
Sealift Indian Ocean.  The reportedly missing items included a
refrigerator, pumps, mooring lines, medical equipment, compressors,
filters, engine parts, and tank-cleaning equipment.  An MSC official
stated that creating a listing of items that should be on board a
ship is very subjective and open to dispute.  The official further
stated that without an inventory at the time of delivery, MSC has no
way to determine which items were on board at the turnover or the
condition of those items that were on board.  (See fig.  5.)

   Figure 5:  Pump-Room Spare
   Parts on Sealift Arabian Sea ,
   June 27, 1993

   (See figure in printed
   edition.)

   Source:  Engineering & Marine
   Consultants Inc., Issaquah,
   Wash.

   (See figure in printed
   edition.)

In an August 1993 claim, IMC is seeking to recover almost $2 million
it contends it spent on the Sealift Indian Ocean to repair and
replace deficient equipment.  The contractor claims that these
improvements were necessary to place the ship in the condition it
should have been at contract turnover.  In an additional claim, IMC
seeks to recover $1.2 million it claims to have spent correcting
engine alignment and replacing a crankshaft on the Sealift Pacific.

These claims follow MSC's September 1990 settlement with the previous
contractor concerning ship-condition deficiencies and inventory
levels at contract turnover.  According to the settlement, the
previous contractor's liability for ship deficiencies was not to
exceed $290,000.  This settlement excluded repair of the Sealift
Atlantic's damaged propeller.  Thus, MSC would be responsible for any
other deficiencies of the nine ships totaling more than the $290,000.

According to IMC legal counsel, the company plans to file additional
claims to recoup funds spent to improve the ships.

   WEAK MSC CONTRACT
   ADMINISTRATION PRACTICES
------------------------------------------------------------ Letter :8

Although other MSC ship programs have program managers, MSC did not
assign one to oversee the performance of the Sealift tanker contract.
According to MSC officials, the absence of a program manager to
coordinate the efforts of the cognizant MSC directorates and
divisions is a major problem in effectively managing this contract.
MSC also failed to appoint a Contracting Officer's Technical
Representative (COTR) for contractor performance monitoring, as the
contract with IMC required, until 1993.

For the previous tanker contract, MSC did (1) establish a group with
overall responsibility for the contract and (2) assign areas of
responsibility and lines of authority, in writing, among various
directorates involved in overseeing the contract.  According to MSC
officials, MSC has not implemented either of these actions for the
current contract because of an ongoing disagreement among various
directorates as to who has responsibility for administering the
contract.  They told us that the contract is "administered by [a]
committee," consisting of personnel from MSC's Operations,
Engineering, and Contracting directorates.  Further, while numerous
draft instructions detailing responsibilities have been developed,
none have been agreed on by all parties.

In addition, contrary to its own contractual requirements, MSC did
not successfully appoint a COTR--a key official responsible for
monitoring the contractor's performance and adherence to the
contract's requirements--until April 1993.  According to an MSC
official, if MSC had a COTR, that person would have required
training; however, "[W]e are concerned with ship operations not
contract administration." Earlier, MSC had designated an individual
in the MSC Operations Directorate as the COTR for this contract.
However, he refused to assume the COTR responsibilities because he
believed that he did not have the proper authorities or training to
carry out this function.

   CONCLUSIONS
------------------------------------------------------------ Letter :9

In a fixed-price contract, any funds not spent for personnel's salary
or maintenance remain with the contractor.  This may provide an
incentive for a contractor to spend as little as possible on
preventive maintenance and on securing and retaining the required
number of competent crew members, potentially creating the unsafe
conditions we noted on all nine tankers.  Because of the fixed-price
nature of the last two contracts, it is especially important for MSC
to closely monitor the contractor's performance in both preventive
maintenance and crewing requirements so as to protect the
government's and taxpayers' interests.  However, MSC has failed to do
so--at the government's and taxpayers' actual and potential expense.

Further, the absence of a single program manager; written
instructions detailing these and other associated responsibilities;
and a COTR, until April 1993, to monitor contractor performance have
resulted in MSC's failure to enforce numerous important contractual
requirements.  These requirements include both qualified, experienced
crew members and inventories.  MSC's failure to devote the resources
necessary to enforce its contractual responsibilities can have
effects far beyond excessive government expense.  Indeed, the
combination of deteriorated or missing equipment and instances of
unqualified crew members has created both potential and actual
hazards not only to the tankers' civilian crews but also to U.S.
service men and women around the globe and to the environment.

---------------------------------------------------------- Letter :9.1

As arranged with your office, unless you publicly release this report
earlier, we plan no further distribution until 30 days after the date
of this letter.  At that time, we will send copies of this report to
other interested congressional committees; the Secretary of Defense;
the Secretary of the Navy; and the Commander, MSC.  We will also
provide copies to others upon request.  If you have questions
concerning this report, please call me or Assistant Director Barbara
Cart of my staff at (202) 512-6722.  Major contributors to this
report are listed in appendix II.

Sincerely yours,

Richard C.  Stiener
Director

OBJECTIVES, SCOPE, AND METHODOLOGY
=========================================================== Appendix I

Our review addressed MSC's management of its contract with IMC to
operate and maintain the nine Sealift tankers.  Primary objectives of
the review were to assess MSC with respect to the contract and
determine if the ships were being operated in the best interests of
the government.  Specifically, we looked at the maintenance and
inspection of the ships, the crewing of the ships, and the control of
government-furnished property aboard the ships.

To accomplish our objectives, we interviewed officials at MSC
headquarters and crew members aboard three Sealift tankers.  We also
met with U.S.  Coast Guard headquarters officials in the Washington,
D.C., area.  We reviewed files in MSC's Contracting, Engineering,
Logistics, Operations, and Payments directorates; inspection reports
and records prepared by MSC personnel, the U.S.  Coast Guard, and the
American Bureau of Shipping; and MSC files pertaining to ship
personnel, contractor security clearances, and off-hire reports
resulting from crew shortages.  We also investigated the backgrounds
of some ship personnel.

An interdisciplinary team of GAO investigators and evaluators
performed the review and interviewed tanker crew members between
March 1992 and May 1993.  Following this, the team reviewed updated
MSC contracting inspection reports and 1993-94 owner-contracted ship
inspection reports.  The team also conducted additional interviews.

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

OFFICE OF SPECIAL INVESTIGATIONS,
WASHINGTON, D.C.

Barbara J.  Cart, Assistant Director for Defense and National
 Security Crimes
Leigh A.  Jackson, Senior Investigator
M.  Jane Hunt, Special Assistant for Investigative Plans and Reports

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

Joseph P.  Walsh, Senior Evaluator
Martin E.  Scire, Evaluator

ACCOUNTING AND INFORMATION
MANAGEMENT DIVISION, WASHINGTON,
D.C.

James W.  Pittrizzi, Jr., Senior Evaluator

OFFICE OF THE GENERAL COUNSEL,
WASHINGTON, D.C.

Glenn G.  Wolcott, Assistant General Counsel
Barbara C.  Coles, Senior Attorney
Leslie J.  Krasner, Attorney Adviser

*** End of document. ***