United States General Accounting Office

GAO 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

GAO United States

General Accounting Office

Washington, D.C. 20548

Office of Special Investigations

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 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.

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Background 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 persons2

 for the safe,

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.

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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.

Prior GAO Work 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.

Earlier MSC

Recognition of

Maintenance

Problems

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.”

3

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

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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

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

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

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

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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.”

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Figure 1: Inoperative Winch on Sealift

China Sea, March 15, 1992

Lack of Adequate

Maintenance Causes

Problems

IMC’s inadequate maintenance of the nine tankers has contributed to

operational problems, unsafe conditions, and expense to MSC.

Operational Problems 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

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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 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.

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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

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

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Figure 3: Oil Leak, Main Engine on

Sealift Arabian Sea, December 11, 1993

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.

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Figure 4: Oil in Bilge on Sealift Arabian

Sea, December 11, 1993

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.

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

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:

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• 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

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,

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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 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.

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Lack of Enforcement

of and Compliance

With Crewing

Requirements

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

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.

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MSC Did Not Ensure

Qualifications of Crew

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

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 résumé 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

résumés 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 résumés of these individuals, they were never provided.

Further, naval investigators cited at least one key crew member whose

résumé 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 résumés 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 résumés, indicating many personnel changes. IMC did not submit

résumés for an additional 22 key crew members who were aboard the

vessels.

Unqualified, Inexperienced

Crew Members

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.

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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 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 résumé

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 résumé.

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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

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.

Page 16 GAO/OSI-94-27 Military Sealift Command’s Contract Administration
B-257730 

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

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 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.

Page 17 GAO/OSI-94-27 Military Sealift Command’s Contract Administration
B-257730 

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

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

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

Page 18 GAO/OSI-94-27 Military Sealift Command’s Contract Administration
B-257730 

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

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.

Page 19 GAO/OSI-94-27 Military Sealift Command’s Contract Administration
B-257730 

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 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.

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

Page 20 GAO/OSI-94-27 Military Sealift Command’s Contract Administration
B-257730 

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

Page 21 GAO/OSI-94-27 Military Sealift Command’s Contract Administration
Contents

Letter 1

Appendix I 

Objectives, Scope,

and Methodology

24

Appendix II 

Major Contributors to

This Report

25

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

1992

6

Figure 2: Sheet Used to Catch Oil Forced Out of Main Engine on

Sealift Antarctic, October 15, 1993

8

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

December 11, 1993

9

Figure 4: Oil in Bilge on Sealift Arabian Sea, December 11, 1993 10

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

June 27, 1993

18

Abbreviations

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

Page 22 GAO/OSI-94-27 Military Sealift Command’s Contract Administration
Page 23 GAO/OSI-94-27 Military Sealift Command’s Contract Administration
Appendix I 

Objectives, Scope, and Methodology

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.

Page 24 GAO/OSI-94-27 Military Sealift Command’s Contract Administration
Appendix II 

Major Contributors to This Report

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

(600239) Page 25 GAO/OSI-94-27 Military Sealift Command’s Contract Administration
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