United States General Accounting Office

GAO Report to the Ranking Minority Member,

Committee on Governmental Affairs,

U.S. Senate

October 1998 FEDERAL SURPLUS

SHIPS

Government Efforts to

Address the Growing

Backlog of Ships

Awaiting Disposal

GAO/NSIAD-99-18

GAO United States

General Accounting Office

Washington, D.C. 20548

National Security and

International Affairs Division

B-278781 

October 22, 1998

The Honorable John Glenn

Ranking Minority Member

Committee on Governmental Affairs

United States Senate

Dear Senator Glenn:

Federal agencies currently have a backlog of about 200 surplus ships

waiting to be scrapped. The backlog of ships to be scrapped has grown by

about 65 percent since 1994 and little progress has been made in reducing

the backlog. Many of the ships to be scrapped are more than 50 years old

and millions of dollars are required annually to maintain them.

In response to your request, we identified the status of federal ship

scrapping programs. This report provides information on (1) the factors

contributing to the backlog and (2) federal agencies’ efforts to address the

backlog. As requested, we focused our review on the Department of the

Navy and the Maritime Administration (MARAD) because they own most of

the surplus ships.

Background Once a U.S. agency determines that a ship is obsolete and no longer useful

for the purposes intended, that agency must find a way to properly dispose

of it. Ships that are no longer needed are screened for other uses,

including transfer to another country under proper legal authority, use by

another federal agency, and donation to a state or private recipient for

appropriate public use.1

 Ships may also be sunk as part of naval training

exercises. Ships not used for any of these purposes are considered

available for scrapping.

According to a July 1997 MARAD study,2

 ship scrapping is a labor-intensive

industry with extremely high risks with respect to environmental and

worker safety issues. Ships typically contain environmentally hazardous

1

Screening for other uses takes place under the Federal Property and Administrative Services Act of

1949 (40 U.S.C. 471 et seq). Vessels over 1,500 gross tons and five specific types of Navy warships are

exempt from the screening requirement.

2

Environmental Assessment of the Sale of National Defense Reserve Fleet Vessels for Scrapping,

Maritime Administration, U.S. Department of Transportation, July 1997.

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B-278781 

materials such as asbestos, polychlorinated biphenyls (PCB),3 lead,

mercury, and cadmium. A ship is normally dismantled from the top down

and from one end to the other with torches that cut away large parts of the

ship. Pieces of the ship are lifted by crane to the ground where they are

cut into the shapes and sizes required by the foundry or smelter to which

the scrap is to be shipped. Remediation of hazardous materials takes place

prior to, as well as during, the dismantling process. If done improperly,

ship scrapping can pollute the land and water surrounding the scrapping

site and jeopardize the health and safety of the people involved in the

scrapping process.

Ship scrapping is subject to federal, state, and local government rules and

regulations on the protection of the environment and worker safety. These

rules and regulations implement pertinent laws in these areas. In the

environmental area, these laws include the Toxic Substances Control Act,

the Resource Conservation and Recovery Act, the Clean Air Act, and the

Federal Water Pollution Control Act. In the worker safety area, the

primary law is the Occupational Safety and Health Act. Various federal and

state regulatory agencies work to enforce these laws. (See app. I for more

information about these laws.)

Historically, government-owned surplus ships have been scrapped both

domestically and overseas.4

 As shown in table 1, MARAD has relied

primarily on overseas scrapping, while the Navy has relied primarily on

the domestic industry to scrap its ships. From 1983 through 1994, MARAD

sold almost all of its ships for overseas scrapping. Since 1982, the Navy has

not directly sold any ships for overseas scrapping.

Table 1: Reported Navy and MARAD

Ships Scrapped Overseas Number of ships

scrapped

Percent of ships

scrapped overseas

Time frame Navy MARAD Navy MARAD

1970-82 533 781 10 38

1983-89 3 132 0 100

1990-94 10 81 0 99

1995-97 23 1 0 0

Source: Navy and MARAD ship scrapping program data.

3

PCBs are a class of organic chemical compounds that are nonflammable and can conduct heat

without conducting electricity. On ships, liquid PCBs are found in transformers and large capacitors.

Solid PCBs are found in a wide range of ship components, including electric cables, felt gaskets,

rubber mounts, adhesives, and paints.

4

Ships scrapped overseas are subject to the host country’s environmental and worker safety laws.

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Federal agencies report that there are about 200 ships awaiting disposal or

scrapping and that they are stored at various locations throughout the

United States. As shown in table 2, the Navy and MARAD have the majority

of ships to be scrapped, but the Coast Guard and the National Oceanic and

Atmospheric Administration also have some. The Navy reports that, as of

August 1, 1998, it had 127 surplus ships available to be sold for scrap.

Seventy-two of these ships are expected to be sold though the Defense

Logistics Agency’s Defense Reutilization and Marketing Service (DRMS).

The remaining 55 ships are expected to be transferred to MARAD for sale.

MARAD, which is the U.S. government’s disposal agent for surplus

merchant-type ships of 1,500 tons or more, reports that it had 63 ships

available for scrapping. By law, MARAD is required to dispose of all obsolete

ships by September 30, 2001.5

 The combined tonnage of Navy and MARAD

surplus ships amounts to about 1 million tons—about 600,000 tons for the

Navy and 400,000 tons for MARAD.

Table 2: Reported Backlog of Federal

Surplus Ships Awaiting Disposal

Agency

Number of

surplus ships

Navy 127

MARAD 63

Coast Guard 15

National Oceanic and Atmospheric Administration 1

Total 206

Source: Agency ship disposal program managers.

Navy and MARAD officials have estimated that it will cost them at least

$58 million (in fiscal year 1997 dollars) for storage, maintenance, and

security of surplus ships between fiscal year 1999 and 2003 if they are not

scrapped. Some ships are in such poor condition that they may need

dry-docking for repairs to keep them afloat until they can be scrapped.

MARAD estimates that its dry-docking and repair costs could be as high as

$800,000 per ship.

Results in Brief Key factors contributing to the current backlog of surplus ships awaiting

scrapping are the Navy’s downsizing following the collapse of the former

Soviet Union, the unavailability of overseas scrapping, and a shortage of

5

The National Maritime Heritage Act of 1994 directed MARAD to dispose of all of its surplus ships by

September 30, 1999, in a manner that maximizes the return to the United States. That date was

changed to September 30, 2001, by section 1026 of the National Defense Authorization Act of 1998,

Public Law 105-85.

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B-278781 

qualified domestic scrappers. As a result, the backlog of Navy ships to be

scrapped, for example, has increased since 1991 from 25 to 127. Overseas

scrapping has been suspended because of legal constraints on the export

of PCBs for disposal. A 1997 agreement to resume overseas scrapping has

been temporarily suspended largely because of concerns about

environmental and worker safety problems in foreign countries and the

impact of foreign scrapping on the domestic industry. Lastly, progress in

reducing the backlog using domestic scrappers has been limited. One

reason has been domestic contractor performance difficulties. For

example, between 1991 and 1996, the Navy repossessed 20 of 62 ships it

had sold to domestic firms for scrapping due to environmental pollution

and worker safety compliance problems and other performance issues. A

second reason has been a shortage of qualified domestic bidders. Between

the beginning of 1996 and the end of 1997, the Navy and MARAD requested

scrapping bids on 19 ships, but only 4 were actually sold—all to the same

domestic bidder—because of the limited number of qualified bidders.

Since then, MARAD has sold an additional 11 ships for scrapping.

Federal agencies have identified and begun implementing a number of

initiatives to address some of the specific performance issues associated

with domestic scrapping. Since a key performance issue was contractor

noncompliance with environmental and worker safety requirements,

several of the initiatives provide for increased screening of contractors

prior to award and increased oversight of the performing contractor after

award. Other initiatives are intended to help attract more qualified

domestic bidders. It is too early to assess the impact of these initiatives

because few ships have been scrapped since their implementation.

Additional recommendations for addressing both domestic and overseas

scrapping issues were made in April 1998 by an interagency panel. The

panel’s recommendations expand on the actions to address contracting

and oversight problems. However, they only generally address key issues

relating to government actions to expand the domestic industry and the

scrapping of federal ships in foreign countries. Further, the process for

deciding whether to accept and ultimately implement the panel’s

recommendations is informal. For example, the agencies have not

established specific time frames for completing their review of the

recommendations. Also, no procedures have been established for

implementing the recommendations that are accepted.

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B-278781 

Factors Contributing

to the Backlog of

Ships

A number of factors have caused the current backlog of federal surplus

ships awaiting scrapping. They include (1) reductions in the Navy’s force

structure following the collapse of the former Soviet Union and the

Warsaw Pact; (2) unavailability of overseas scrapping; (3) difficulties

experienced by some domestic scrappers in complying with

environmental, worker safety, and other contract performance provisions;

and (4) a shortage of qualified domestic bidders.

Navy Force Structure

Reductions

Navy force structure reductions following the collapse of the former

Soviet Union and the Warsaw Pact have resulted in an increased number

of ships to be scrapped. Since 1990, the Navy has reduced its active fleet

from 570 ships to 333 ships. The Navy’s inactive fleet has increased by

82 percent since 1990 and the number of ships to be scrapped increased

from about 25 in 1991 to 127 as of August 1, 1998.

Unavailability of Overseas

Scrapping

Overseas scrapping by MARAD was suspended in 1994 in response to an

April 1993 Environmental Protection Agency (EPA) letter advising the

agency that the export for disposal of PCB materials with concentrations of

50 parts per million or greater was prohibited. In accordance with the

Toxic Substances Control Act, EPA regulates all aspects of the

manufacture, processing, distribution in commerce, use, and disposal of

PCBs. In 1980, EPA banned the export of PCBs for disposal. In 1989, the Navy

became aware of the presence of PCBs in solid materials on board some of

its older ships and sought EPA’s advice on how to properly handle and

dispose of these materials. Subsequently, EPA confirmed that surplus ships

could not be exported for scrapping if they contained solid materials with

concentrations of PCBs at 50 parts per million or greater.

In 1997, the Navy and MARAD, each negotiated an agreement with EPA6

 to

allow for the export of ships for scrapping provided (1) all liquid PCBs are

removed prior to export, (2) items containing solid PCBs that are readily

removable and do not affect the structural integrity of the ship are also

removed, and (3) countries to which the ships may be exported for

scrapping are notified so that they have the opportunity to refuse to accept

the ships if they so choose.7

 The Navy and MARAD sought these agreements

6

The agreements represent an exercise of EPA’s enforcement discretion and were made in anticipation

of upcoming comprehensive rulemaking on PCBs.

7

On June 29, 1998, EPA issued a comprehensive revision of its rules on PCBs. However, the revision

expressly deferred matters pertaining to the export of PCBs for a future rulemaking.

Page 5 GAO/NSIAD-99-18 Federal Surplus Ships
B-278781 

principally because they recognized a need to reduce their backlogs of

surplus ships and the limitations of domestic scrapping efforts.

Despite the agreement with EPA, Navy officials decided in December 1997

to temporarily suspend any export of ships for scrapping due to

(1) continuing concerns regarding environmental pollution and worker

safety in foreign ship scrapping countries and (2) potential impacts on the

domestic ship scrapping industry. In January 1998, MARAD also suspended

the export of ships. As of August 1998, the voluntary suspension on

exports was still in effect.

Specific environmental concerns revolve around the export of PCBs and

other hazardous materials that could be dumped along the shorelines of

developing nations and about the health and safety of foreign workers. For

example, domestic industry representatives have stated that foreign ship

scrapping operations would not be in compliance with the strict U.S.

safety and environmental regulations. U.S. government officials have also

stated that many of the major overseas ship scrapping countries have less

stringent laws and regulations regarding environmental and worker safety

issues than exist in the United States.

Domestic industry concerns are related to the history of foreign scrappers

bidding significantly higher prices to scrap ships overseas. This is due, in

part, to a greater demand and higher selling price for scrap metal in

foreign countries and lower costs of overseas operations because of the

less restrictive environmental and worker safety regulations and lower

labor rates.

Domestic Industry

Performance Difficulties

Between 1991 and 1996, the Navy repossessed8 20 of the 62 ships it had

sold to domestic firms for scrapping due to environmental pollution and

safety compliance problems and other contractor performance issues. For

example, the former aircraft carrier, U.S.S. Oriskany, and five other ships

located at a contractor’s facility in the former Mare Island Naval Shipyard

at Vallejo, California, were repossessed by the Navy due to the

contractor’s not obtaining the necessary environmental permits and the

dissolution of the contractor’s partnership. Some of these repossessions

were costly. For example, according to a Navy official, it had to spend

about $2 million to tow 14 ships back to federal storage facilities in

Philadelphia from North Carolina and Rhode Island when a ship scrapping

8

Repossessions can occur because the Navy retains legal title to its vessels while they are being

scrapped.

Page 6 GAO/NSIAD-99-18 Federal Surplus Ships
B-278781 

contract was terminated due to contractor noncompliance with

environmental and safety regulations. Also, the Navy and DRMS incurred

additional costs for maintaining, storing, and reselling these ships.

Shortage of Qualified

Bidders

The domestic ship scrapping industry has historically been small. During

the 1970s, when hundreds of ships were scrapped domestically, the

industry was comprised of about 30 firms. However, given the small

number of ships available for domestic scrapping since then, many of the

firms exited the industry. Currently, there are four private ship scrappers

in the United States actively scrapping federal surplus ships. In addition,

for national security reasons, one naval shipyard is scrapping nuclear

submarines. The typical U.S. private sector ship scrapping site is located in

an urban industrial area coincident with other industrial and maritime

related facilities. The facilities area is generally small, fewer than 10 acres,

and most of the firms, until recently, worked on only one ship at a time.

According to a July 1997 MARAD study, ship scrapping companies tend to be

thinly capitalized. The study concluded that the industry is a risky, highly

speculative business.

Following the Navy’s experience with high rates of ship repossessions

between 1991 and 1996, both the Navy and MARAD considered fewer firms

to be technically and financially acceptable.9

 For example, in response to

MARAD’s 1996 solicitation for scrapping eight ships, the agency received

only five positive bids, and only one of these was considered technically

acceptable by the agency.10 MARAD awarded the bidder only two ships, in

part, because of the bidder’s limited scrapping capacity. Similarly,

Navy/DRMS solicitations in 1996 and 1997, for a total of 11 ships, resulted in

only two technically acceptable proposals for each solicitation and the

award of only two ships. Both the MARAD and Navy awards were made to

the same firm.11

Recent testimony to Congress and statements made by domestic industry

officials raise doubts about the willingness of new firms to enter the

industry and current firms to substantially expand their operations under

9

To be financially acceptable, bids have to be positive—have a purchase price greater than $0.

10There was also a “negative bid”— a bid that would have required the government to pay for the

scrapping.

11In December 1997, MARAD advertised 13 additional ships for scrapping. In May 1998, the agency

awarded 11 ships to be scrapped, 8 of which went to the same firm that received the earlier MARAD

and Navy awards. Three other ships were awarded to another firm. MARAD did not receive any

domestic bids for two ships located on the west coast.

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B-278781 

current conditions. Some domestic industry representatives stated that the

profits from ship scrapping have not been commensurate with the

financial risks and environmental liabilities associated with it, and one

representative stated that his firm was no longer willing to assume such

risks. However, other industry representatives believed that they could

make a profit scrapping ships, as long as they could get enough ships to

justify large scale and continuous production. As discussed later, the

agencies have (1) taken action to sell ships in lots and (2) recognized that

steps are needed to minimize environmental and worker safety risks

associated with ship scrapping to make ship scrapping more financially

attractive.

Agencies’ Efforts to

Address the Backlog

In 1996, the Navy and MARAD identified and began implementing a number

of initiatives to address domestic ship scrapping performance problems.

Also, in 1998, an interagency panel endorsed the 1996 initiatives but

recommended that a number of steps be taken to further improve the ship

scrapping process, both domestically and internationally. It is too early to

assess the impact of the 1996 initiatives, and the agencies are still

reviewing the extent to which they will implement the panel’s

recommendations. However, no specific time frames for completing the

review have been established. Also, no procedures have been established

for implementing the recommendations that are accepted.

1996 Actions Taken to

Address Domestic Ship

Scrapping Practices

In 1996, the Navy and DRMS realized that the then-existing ship scrapping

practices had contributed to the domestic contractor performance

problems previously discussed. For example, prior to January 1996, DRMS

(1) accepted all technical proposals with the invitation for bid, (2) relied

on the high bid without seeking an independent review of the company’s

business or financial background, and (3) performed only minimal

contract oversight and on-site progress reviews. In an effort to correct

these problems, the Navy and DRMS began taking several actions to

improve their scrapping practices, as well as to make other improvements

in the ship scrapping program. While sufficient experience with the

actions taken is not yet available because only two Navy ships have been

scrapped since 1996, the actions appear to be reasonable approaches to

help address past contractor performance problems. Approaches adopted

since 1996 to improve the ship scrapping practices include the following:

• Developing a two-step bid process requiring contractors to submit a

technical proposal for approval before they can be considered viable

Page 8 GAO/NSIAD-99-18 Federal Surplus Ships
B-278781 

candidates to place a financial bid for the surplus ships. The technical

proposals are to consist of an environmental compliance plan, an

operations plan, a business plan, and a safety and health plan. A technical

evaluation team is to evaluate each plan, and those contractors found to

have acceptable technical proposals will be asked to submit a financial

bid.

• Implementing quarterly progress reviews at each scrapping site to assess

the contractor’s progress and compliance with contract provisions,

including environmental and safety requirements.

• Awarding contracts designed to (1) provide daily on-site surveillance of

ship scrappers, (2) conduct environmental/safety site assessments, and

(3) evaluate ship scrapping operations.

• Developing a contractor rating system for use in deciding on how closely

to provide contract surveillance.

Actions taken to improve the general management of the ship scrapping

program and to address contractor concerns about the profitability of ship

scrapping included

• advertising and selling ships by lot and allowing contractors to remove the

ships from government storage as they are ready to be scrapped,

• holding periodic industry workshops to inform contractors of what is

expected of them in the scrapping of federal surplus ships and obtain

feedback from the contractors on their concerns and desires,

• evaluating the potential for removing more of the hazardous materials

before the ships are advertised for sale, and

• notifying state and local regulators where the ship scrapping will be

performed after contracts are awarded.

The Navy and DRMS have also adopted, and are considering, other options

for disposing of ships. For example, they obtained legislative authority to

negotiate contracts for ship scrapping to obtain the most advantageous

contract for the government rather than awarding the contract based

solely on the highest bid.

MARAD also developed and adopted a number of new approaches similar to

those of the Navy/DRMS. For example, MARAD has begun using contracting

procedures that include the requirement for a technical proposal from

bidders on how they would scrap ships. MARAD, like DRMS, is now

considering only those bidders with acceptable technical proposals as

suitable for contract award.

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B-278781 

1998 Interagency Panel’s

Report

The Department of Defense, in December 1997, took the lead in

establishing an Interagency Panel on Ship Scrapping.12 This panel was

tasked to review Navy and MARAD programs to scrap ships and to

recommend ways to ensure that federal ships are scrapped in the most

effective and efficient manner while protecting the environment and

worker safety. While the 1996 initiatives and 1998 interagency panel

recommendations, if implemented, offer the potential to address

previously experienced problems, some domestic and foreign scrapping

issues remain unresolved. They relate to whether the government should

promote the expansion of the domestic industry and whether ships should

be scrapped overseas. The actions most often discussed for addressing

these issues have much different potential results. For example, federal

agencies could generate higher revenues by scrapping ships overseas, but

such scrapping may involve greater environmental and worker safety risks

as well as adversely affect the domestic scrapping industry. Similarly,

relying solely on the domestic industry for ship scrapping would avoid

overseas scrapping concerns but would require a more prolonged

approach to reducing the backlog or greater financial incentives to achieve

domestic industry expansion.

Panel Recommendations The panel made numerous recommendations to the various agencies

participating in the panel on issues related to both domestic and overseas

ship scrapping. While we did not do a detailed assessment of the panel’s

recommendations, they do appear to address some of the previously

experienced problems. However, the panel’s report does not resolve issues

on the government’s role in promoting domestic industry expansion and

the use of foreign ship scrapping. The agencies to whom the

recommendations are made are responsible for deciding what actions, if

any, to take. As of August 6, 1998, the agencies were still reviewing the

extent to which they will implement the panel’s recommendations.

Further, the process for deciding whether to accept and ultimately

implement the recommendations is informal. For example, the agencies

have not established specific time frames for completing their review of

the recommendations. Also, once the recommendation review process is

complete, lead responsibilities, tracking systems, and milestones for

implementing the individual recommendations will be needed.

12The panel was chaired by the Office of the Deputy Under Secretary of Defense for Environmental

Security, and its members included representatives from the Departments of State, Navy, Justice,

Labor, and Transportation; Defense Logistics Agency; and EPA. In addition, the panel consulted with a

number of other agencies, including the Department of Commerce, the National Oceanic and

Atmospheric Administration, and the U.S. Trade Representative. The panel was disbanded after its

April 20, 1998, report was issued.

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The panel’s April 20, 1998, report concluded that the Navy and MARAD had

recognized the problems identified with past contracting and monitoring

practices and taken steps to address many of them. The report also stated

that more could be done to (1) improve the ship scrapping contracting

process, (2) encourage the development of a viable domestic industry to

handle a significant portion of the backlog, and (3) make the use of foreign

scrapping to augment the domestic industry a more acceptable option.

More specifically, the panel recommended that the Navy/DRMS and MARAD

establish consistent ship scrapping contracting procedures. For example,

the Navy/DRMS and MARAD should develop standardized performance bonds

to make them equally attractive to bidders.

To encourage development of the domestic industry, the panel concluded

that the industry needed to improve its knowledge and understanding of

the ship scrapping contracting process. To accomplish this, the panel

recommended that EPA and the Occupational Safety and Health

Administration, in coordination with the Navy/DRMS and MARAD, continue to

educate the industry through seminars and workshops and should develop

an environmental and worker safety compliance manual for industry use.

The panel asserted that the industry needed additional knowledge on the

techniques for scrapping large ships and the range, types, and locations of

hazardous materials to ensure that ships are scrapped in an

environmental, safe, and economical manner. To accomplish this, the

panel endorsed the Navy’s plan to establish a pilot project that would

quantify the scope and major costs associated with ship scrapping.

The panel indicated that the U.S. government could do more to promote

better environmental and worker safety controls in foreign ship scrapping

countries. To that end, the panel recommended, among other things, that

(1) the Navy, MARAD, and EPA expand the notification to foreign countries

of the materials commonly found on specific types of ships so that the

countries could object to the import of a ship with unacceptable

environmental risks and (2) the Navy, MARAD, EPA, the Departments of

State and Labor, and the Agency for International Development evaluate

how meaningful technical assistance could be provided to interested

importing countries, including whether current statutory authorities and

funding are adequate for this purpose. Another recommendation was for

DRMS and MARAD to examine the use of enforceable contract terms that

promote environmental protection and worker safety measures overseas,

including requirements that foreign bidders submit technical plans to

demonstrate how they intend to comply with applicable local rules and

regulations, obtain information from the State Department on the

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qualifications and past performance of foreign scrappers, and require a

performance bond as an incentive for foreign scrappers to comply with

contractual requirements. The panel recognized, however, that

environmental and worker safety issues would have to be balanced against

the economic realities of the countries doing the scrapping.

The panel also recommended to the Under Secretary of Defense for

Acquisition and Technology that it or a similar panel be reconvened 1 year

after the report’s issuance to evaluate the results of implementing the

recommendations and to consider whether any additional modifications

should be made.

Conclusions The interagency panel’s specific recommendations generally represent

steps directed toward correcting previously experienced problems. The

effectiveness of these initiatives, if adopted, will not be known until some

implementation experience has been gained. Two key issues relating to

whether the government should involve itself in promoting the expansion

of a domestic industry and whether to utilize the foreign ship scrapping

industry are only generally addressed. Further, the process for deciding

whether to accept and ultimately implement the panel’s recommendations

is informal. For example, the agencies have not established specific time

frames for completing their review of the recommendations. Also, no

procedures have been established for implementing the recommendations

that are accepted.

Recommendations We recommend that the Secretaries of Defense and Transportation take

the lead and work with other agencies involved in ship scrapping such as

the EPA and the Departments of State and Commerce to establish a specific

time frame for completing the review of the interagency panel’s

recommendations. Further, we recommend that, once the review is

complete, each agency establish milestones for implementing those

recommendations that are adopted and that the Secretaries of Defense and

Transportation designate lead responsibilities within their respective

organizations for addressing individual panel recommendations.

Agency Comments The Department of Defense provided comments on a draft of this report,

which are presented in appendix III. The Department concurred with both

of our recommendations. It also provided some technical comments,

which we have incorporated as appropriate. We also requested comments

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from the Department of Transportation and EPA. Neither agency had

provided comments prior to report issuance.

We conducted our review between November 1997 and September 1998 in

accordance with generally accepted government auditing standards. The

scope and methodology for our review are discussed in appendix II.

We are sending copies of this report to the Chairman of the Senate

Committee on Governmental Affairs, the Chairmen and Ranking Minority

Members of the House and Senate Committees on Appropriations, the

Senate Committee on Armed Services, and the House Committee on

National Security. We are also sending copies of this report to the

Secretaries of Defense and the Navy; the Secretaries of Commerce,

Transportation, Labor, and State; the Administrators of MARAD, EPA, the

National Oceanic and Atmospheric Administration, and the Occupational

Safety and Health Administration; and the Directors of the Defense

Logistics Agency and the Office of Management and Budget. We will make

copies available to others upon request.

If you have any questions about this report, you may contact me on

(202) 512-8412. Major contributors to this report are listed in 

appendix IV.

Sincerely yours,

David R. Warren, Director

Defense Management Issues

Page 13 GAO/NSIAD-99-18 Federal Surplus Ships
Contents

Letter 1

Appendix I 

Federal

Environmental and

Safety Legislation

16

Toxic Substances Control Act 16

Resource Conservation and Recovery Act 16

Federal Clean Air Act 16

Federal Water Pollution Control Act 16

Occupational Safety and Health Act 16

Appendix II 

Scope and

Methodology

17

Appendix III 

Comments From the

Department of

Defense

19

Appendix IV 

Major Contributors to

This Report

20

Tables Table 1: Reported Navy and MARAD Ships Scrapped Overseas 2

Table 2: Reported Backlog of Federal Surplus Ships Awaiting

Disposal

3

Abbreviations

DRMS Defense Reutilization and Marketing Service

EPA Environmental Protection Agency

MARAD Maritime Administration

PCB polychlorinated biphenyl

Page 14 GAO/NSIAD-99-18 Federal Surplus Ships
Page 15 GAO/NSIAD-99-18 Federal Surplus Ships
Appendix I 

Federal Environmental and Safety

Legislation

Toxic Substances

Control Act

The Toxic Substances Control Act provides the Environmental Protection

Agency (EPA) with the authority to regulate substances that pose a risk to

human health or the environment. Asbestos and polychlorinated biphenyls

(PCB) are among the more common substances regulated. Ship scrapping

contractors are required to comply with the applicable regulations

promulgated by EPA under this legislation, including regulations for the

proper removal, storage, transportation, and the disposal of materials

containing asbestos and PCBs at concentrations of 50 parts per million or

greater.

Resource

Conservation and

Recovery Act

The Resource Conservation and Recovery Act of 1976, as amended, is a

comprehensive authority for all aspects of managing hazardous wastes.

The act and the Hazardous and Solid Waste Amendments of 1984 protect

human health and the environment from the potential hazards of waste

disposal, promote energy and natural resource conservation, reduce the

amount and toxicity of waste generated, and ensure that wastes are

managed in an environmentally sound manner. It places “cradle to grave”

responsibility for hazardous waste on those personnel or units handling

the waste. Waste oil, paints, and solvents are among the types of

substances regulated under the act. The act is generally administered by

the states under delegation of authority from EPA.

Federal Clean Air Act The Federal Clean Air Act forms the basis for the national air pollution

control effort. Basic elements of the act include establishing national

ambient air quality standards for air pollutants and regulating hazardous

air pollutants such as lead. EPA and the states administer the act.

Federal Water

Pollution Control Act

The Federal Water Pollution Control Act of 1972 bans facilities from

discharging pollutants such as metals and acids into lakes, rivers, streams,

and coastal waters. Regulation is accomplished by means of discharge

permits issued by the states and EPA.

Occupational Safety

and Health Act

The Occupational Safety and Health Act of 1970 was enacted to ensure

safe and healthful working conditions for workers. Federal standards

developed under the act cover shipyard work and the ship scrapping

industry. The Occupational Safety and Health Administration’s regions,

along with state and local regulatory agencies, are responsible for

enforcing these worker safety standards.

Page 16 GAO/NSIAD-99-18 Federal Surplus Ships
Appendix II 

Scope and Methodology

To identify the factors contributing to the backlog of federal ships

available for scrapping, we performed relevant work at the principal

agencies identified to possess and dispose of federal surplus ships for

scrapping—the Departments of Defense, Navy, and Army; the Defense

Logistics Agency and its Defense Reutilization and Marketing Service

(DRMS); the Department of Transportation, including the Maritime

Administration (MARAD) and the Coast Guard; the Department of

Commerce’s National Oceanic and Atmospheric Administration; and the

General Services Administration. This work included discussing and

obtaining information on the size and scope of the domestic ship

scrapping industry, the historical data and current backlog of ships to be

scrapped and factors contributing to the backlog, studies analyzing the

domestic industry and its capabilities, visits to selected surplus ship

storage locations, and identification of recent performance problems. We

also made visits and inquiries to selected current and former ship

scrapping contractors to obtain their comments and views on issues such

as the state of the domestic ship scrapping industry and its capacity to

handle the federal backlog of surplus ships.

To review the federal agencies’ efforts to address the backlog, we

examined the federal ship marketing and sales functions at each agency

selling federal surplus ships and discussed with program personnel, the

various options for disposing of the ships. At each agency, we identified

their legislative authorities to dispose of and sell ships for scrapping;

reviewed their policies, procedures, and practices for selling surplus ships;

evaluated the most recent contracts used in the sale of these ships; and

identified the actions taken to address ship scrapping problems and

improve the agencies’ respective programs. We also visited and requested

information from selected ship scrapping contractors concerning the

agencies’ efforts to address the past performance problems. Further, we

attended meetings of the federal joint ship disposal conference and other

workshops held by Navy and DRMS personnel. In addition, we visited the

regulatory agencies, EPA and the Occupational Safety and Health

Administration, and met with agency program and legal representatives to

discuss and obtain information on the standards used to regulate

environmental and worker safety matters and the enforcement of their

respective regulations within the ship scrapping industry. Furthermore, we

reviewed the Department of Defense led interagency panel’s April 20, 1998,

report on ship scrapping, focusing primarily on its conclusions and

recommendations.

Page 17 GAO/NSIAD-99-18 Federal Surplus Ships
Appendix II 

Scope and Methodology

We also reviewed the agreements between EPA and the Navy and MARAD for

the export of ships for scrapping and various studies that include

information on the overseas ship scrapping industry. We also held

discussions with the agencies’ program managers responsible for ship

sales to identify the scope of the foreign market, the potential for reducing

the backlog of surplus ships and the associated maintenance and storage

costs, and the advantages and disadvantages of overseas scrapping.

Furthermore, we asked for feedback from members of the domestic

industry on the potential impact of the foreign scrapping on the domestic

industry. We visited the State Department to discuss and obtain

information on its involvement in the export of ships for overseas

scrapping. At EPA, we also discussed and obtained information on the

agency’s proposed rulemaking on PCBs and the agreements the agency had

made with other agencies for the export of ships for scrapping.

Page 18 GAO/NSIAD-99-18 Federal Surplus Ships
Appendix III 

Comments From the Department of Defense

Page 19 GAO/NSIAD-99-18 Federal Surplus Ships
Appendix IV 

Major Contributors to This Report

National Security and

International Affairs

Division, Washington,

D.C.

James F. Wiggins, Associate Director

George A. Jahnigen, Assistant Director

Nancy T. Lively, Senior Evaluator

Norfolk Field Office Joseph F. Murray, Core Group Leader

J. Larry Peacock, Evaluator-in-Charge

Willie J. Cheely, Jr., Evaluator

Office of the General

Counsel, Washington,

D.C.

Margaret L. Armen, Senior Attorney

(709312) Page 20 GAO/NSIAD-99-18 Federal Surplus Ships
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