a

GAO

United States Government Accountability Office

Report to the Ranking Minority Member, 

Subcommittee on Readiness, Committee 

on Armed Services, House of 

Representatives

March 2005 MARITIME 

ADMINISTRATION

Improved Program 

Management Needed 

to Address Timely 

Disposal of Obsolete 

Ships

GAO-05-264
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

www.gao.gov/cgi-bin/getrpt?GAO-05-264.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact William M. Solis 

at (202) 512-8365 or solisw@gao.gov. 

Highlights of GAO-05-264, a report to the 

Ranking Minority Member, Subcommittee 

on Readiness, Committee on Armed 

Services, House of Representatives 

March 2005

MARITIME ADMINISTRATION 

Improved Program Management Needed 

to Address Timely Disposal of Obsolete 

Ships 

MARAD is unlikely to meet its statutory deadline of September 30, 2006. 

As of September 2004, MARAD had disposed of 18 ships from its inventory, 

with over 100 ships left to dispose of by the deadline. MARAD’s current 

approach is not sufficient for disposing of these remaining ships within the 

next 2 years. MARAD’s slow progress is due primarily to program leaders not

developing a comprehensive management approach that could address the 

myriad of environmental, legal, and regulatory challenges that the program 

faces. MARAD’s approach lacks an integrated strategy with goals, 

milestones, performance measures, and a mitigation plan for overcoming 

anticipated impediments. In the absence of this comprehensive approach, 

MARAD’s ship disposal program lacks the vision needed to sustain a longterm effort. Consequently, MARAD has not been able to assure Congress that

it can dispose of these ships in a timely manner to reduce the threat of a 

costly environmental event, nor has it clearly articulated what additional 

congressional assistance, such as funding, may be needed. 

While MARAD has considered alternative disposal methods to scrapping, it 

has made limited use of these methods because of a number of 

environmental, financial, and legislative barriers. Since fiscal year 2001, 

MARAD has disposed of 17 ships through scrapping, but only 1 through 

artificial reefing. MARAD has not disposed of ships using deep-water sinking 

and donations to historic organizations. MARAD has taken positive steps to 

reduce barriers limiting its use of these methods but still may be years away 

from increasing the number of disposals using these alternative methods 

because it has not developed an overall plan for expanding their use. 

Consequently, MARAD may be losing opportunities that could expedite the 

disposal of the obsolete ships in its inventory. 

Since fiscal year 2002, MARAD has relied almost entirely on an inappropriate 

procurement method—Program Research and Development Announcements 

(PRDA)—to acquire ship scrapping services. The Federal Acquisition 

Regulation and the Competition in Contracting Act of 1984 generally require 

that MARAD use other methods for acquiring these types of services. PRDAs 

may only be used to contract for research or development. According to 

MARAD, PRDAs provide greater flexibility and allow firms to propose 

innovative solutions to ship disposal. GAO found, however, that MARAD 

was not contracting for research or development but instead was acquiring 

ship scrapping services. MARAD’s use of PRDAs has also resulted in a lack 

of transparency in the contract award process and has raised concerns 

among firms as to the fairness of MARAD’s processes. 

While GAO was unable to isolate the specific impact of foreign competition 

and other factors on reducing ship disposal costs, MARAD attributes the 

decrease in ship disposal prices almost exclusively to foreign competition. 

However, other factors, such as larger annual program funding and increases 

in the scrap value of steel, may have also played a role. 

The Maritime Administration 

(MARAD) has more than 

100 obsolete and deteriorating 

ships awaiting disposal that pose 

potentially costly environmental 

threats to the waterways near 

where they are stored. Congress, 

in 2000, mandated that MARAD 

dispose of them by September 30, 

2006. While MARAD has various 

disposal options available, each 

option is complicated by legal, 

financial, and regulatory factors. 

In this report, GAO assesses 

(1) whether MARAD will meet the 

September 2006 disposal deadline 

for these ships and, if not, why not; 

(2) the extent that MARAD has 

used alternative disposal methods 

other than scrapping, and barriers 

to using other methods; (3) the 

appropriateness of MARAD’s 

methods for procuring ship 

disposal services; and (4) the 

impact of foreign competition and 

other factors on reducing disposal 

costs. 

What GAO Recommends

GAO is making recommendations 

that would strengthen the 

management of MARAD’s ship 

disposal program, including 

developing a comprehensive, 

integrated approach and changing 

the contracting method for 

disposal services. 

The Department of Transportation 

stated that MARAD is taking 

some actions that may address 

GAO recommendations. 
Page i GAO-05-264 Maritime Administration

Contents

Letter 1

Results in Brief 4

Background 7

MARAD Is Unlikely to Meet 2006 Deadline 13

MARAD Has Made Limited Use of Alternative Disposal Methods 

because of Several Barriers 26

MARAD’s Use of PRDAs to Scrap Ships Is Inappropriate 32

Overseas Competition Just One Factor Contributing to

Lower Prices 40

Conclusions 43

Recommendations for Executive Action 44

Agency Comments and Our Evaluation 45

Appendixes

Appendix I: Scope and Methodology 47

Appendix II: Comments from the Department of Transportation 50

Tables Table 1: Number of Obsolete Vessels in MARAD’s Inventory, 

Fiscal Years 2001-04 15

Table 2: Projected Number of Obsolete Vessels in MARAD’s 

Inventory, Fiscal Years 2005-06 17

Table 3: Differences between MARAD’s Budget Requests for Ship 

Disposal and Appropriations, Fiscal Years 2001-05 21

Table 4: MARAD’s Performance Targets for Removing Obsolete 

Ships from Fleet for Subsequent Disposal, 

Fiscal Years 2001-06 23

Table 5: Completed Disposals by Disposal Method for 

Fiscal Years 2001-04 27

Table 6: Current Status of Congressionally Designated Ship 

Donations 30

Table 7: Comparison of Industry Participation in PRDAs Versus 

Other Solicitation Methods 38

Table 8: Price Trends for Contracts by Fiscal Year Awarded 41
Contents

Page ii GAO-05-264 Maritime Administration

Figures Figure 1: Ship during Early Stages of the Scrapping Process 11

Figure 2: Partially Scrapped Ship in a Firm’s Scrapping Facility 12

Figure 3: Ship Near End of the Scrapping Process 13

Figure 4: A High-Priority Ship Awaiting Disposal in the 

James River Fleet 16

Figure 5: Annual Average International Scrap Steel Prices, 

1994-04 42

Abbreviations

CICA Competition in Contracting Act

DOT Department of Transportation

EPA Environmental Protection Agency

FAR Federal Acquisition Regulation

GAO Government Accountability Office

GPRA Government Performance and Results Act

IDIQ indefinite delivery, indefinite quantity

MARAD Maritime Administration

PCB polychlorinated biphenyl

PRDA Program Research and Development Announcement

SINKEX Sinking Exercise

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Page 1 GAO-05-264 Maritime Administration

United States Government Accountability Office

Washington, D.C. 20548

A

March 7, 2005 Letr

The Honorable Solomon P. Ortiz

Ranking Minority Member

Subcommittee on Readiness

Committee on Armed Services

House of Representatives

Dear Mr. Ortiz:

More than 100 deteriorating and obsolete ships that are part of the National 

Defense Reserve Fleet1

 are anchored along the East, West, and Gulf coasts, 

awaiting disposal because they are no longer needed for national defense. 

Many of them contain hazardous materials such as asbestos, lead, 

polychlorinated biphenyls (PCB), and residual oils and fuels that are 

typically found on older ships. Some of these ships have been associated 

with oil spills, with the largest in 1998 costing about $1.4 million to clean 

up. Members of Congress, the states, and environmental groups have 

expressed concerns about the environmental hazards posed by these ships. 

The Maritime Administration (MARAD), which is part of the Department of 

Transportation (DOT), is responsible for the disposal of these obsolete 

ships. 

Ship disposal is complicated by a number of factors. MARAD must comply 

with numerous federal statutes that affect ship scrapping, including those 

related to the treatment of hazardous materials. 2

 To dispose of these ships, 

MARAD must also coordinate its efforts with various federal agencies, 

individual states, and foreign governments. For example, MARAD has to 

work with the states and the Environmental Protection Agency (EPA) to 

ensure that hazardous materials are removed from ships in compliance 

with federal and state environmental and worker safety laws. MARAD has a 

number of methods that it can choose from to dispose of these ships, 

including selling them to, or contracting with, domestic or foreign 

scrapping companies to dismantle them; sinking them to create artificial 

1

 Established in 1946, the National Defense Reserve Fleet serves as a reserve that could be 

activated to meet shipping requirements during national emergencies. The fleet, which 

consists of more than 250 merchant vessels, contains some older vessels that have been 

designated for disposal (referred to as nonretention ships). In this report, we refer to 

nonretention ships as obsolete ships. 

2

 Scrapping refers to dismantling the ship and recycling its components.
Page 2 GAO-05-264 Maritime Administration

reefs; donating them to private or public entities for various authorized 

uses; or transferring them to the Navy for use in its deep-sinking training 

exercises. However, each of these disposal methods has associated 

challenges. For example, the number of domestic firms that have been 

interested in scrapping has been limited. In addition, environmental, 

regulatory, and legal barriers have limited opportunities to export ships for 

scrapping, and have led to lower demand for donations and reefing.

MARAD’s ship disposal program has long been recognized as a concern. 

In the late 1990s, DOT’s Inspector General and GAO both reported that 

MARAD was making little progress in selling its obsolete ships to be 

scrapped—at that time its predominate method for disposal. The reports 

cited several constraints, including a 1994 government limitation on 

overseas ship sales, a 1998 ban on overseas scrapping for environmental 

reasons, and a decline in the domestic industry’s interest in buying ships. 

In 2000, DOT’s Inspector General added MARAD’s ship disposal program to 

the department’s list of high-priority management challenges and made 

several recommendations to improve the ship disposal program, including 

the need for MARAD to develop a disposal plan. In response to the 

difficulties that MARAD was facing in selling its ships, Congress 

specifically authorized3

 MARAD in October 2000 to begin paying for 

scrapping services but also directed MARAD to consider other disposal 

methods in developing its disposal program. At that time, Congress 

extended MARAD’s deadline to complete the disposal of its obsolete ship 

inventory from September 30, 2001, to September 30, 2006.4

 To accomplish 

this, Congress has appropriated almost $80 million to MARAD’s ship 

disposal program from fiscal years 2001 to 2005. In addition, within 

6 months after the enactment of the Defense Authorization Act of 2001, 

Congress directed MARAD to report on its ship disposal program and 

provide progress reports every 6 months thereafter.5

 As of December 2004, 

3

 Pub. L. No. 106-398, § 3502 (2000).

4

 Congress originally required MARAD to dispose of obsolete ships in the National Defense 

Reserve Fleet by September 30, 1999, in The National Maritime Heritage Act of 1994, 

Pub. L. No. 103-451, § 6(c)(1)(A). Congress subsequently amended the deadline to 

September 30, 2001, in the National Defense Authorization Act for Fiscal Year 1998, 

Pub. L. No. 105-85, § 1026(c)(3) (1998). Congress set the deadline of September 30, 2006, 

in the Floyd D. Spence National Defense Authorization Act for Fiscal Year 2001, 

Pub. L. No. 106-398, § 3502(a) (2000).

5

 Pub. L. No. 106-398, § 3502 (2000). 
Page 3 GAO-05-264 Maritime Administration

MARAD had submitted to Congress its initial report and two of the 

progress reports.

Leading organizations embrace key principles to effectively implement and 

manage programs. The Government Performance and Results Act of 1993, 

for example, embodies key principles that provide an effective 

management framework to improve the likelihood of successfully 

implementing programs and assessing results. The framework consists of a 

number of critical elements considered essential in developing an effective 

strategy, guiding resource allocations, and monitoring results. Combined 

with effective leadership, these elements provide decision makers with a 

framework to guide program efforts and the means to determine if these 

efforts are achieving the desired results.

We were asked to review MARAD’s ship disposal program and related 

contracting and procurement processes. Specifically, our objectives were 

to (1) determine whether MARAD will meet the statutory deadline of 

September 2006 to dispose of its obsolete ships and, if not, what factors 

may prevent it from doing so; and (2) assess the extent to which MARAD 

has used alternative methods, other than ship scrapping, to dispose of its 

obsolete ships and the barriers to using such alternatives. In addition, we 

were asked to examine the appropriateness of MARAD’s primary 

procurement method (Program Research and Development 

Announcements) for obtaining ship disposal services and the impact of 

foreign competition and other factors on reducing ship disposal costs.

To determine whether MARAD will meet its September 2006 deadline and 

identify factors affecting this goal and to assess whether MARAD has 

considered alternative approaches to scrapping, we reviewed the agency’s 

performance plans and program status reports and applicable laws and 

regulations. We also interviewed MARAD, Navy, and industry 

representatives to discuss barriers to program success. To assess the 

appropriateness of MARAD’s acquisition methods for procuring ship 

disposal services, we interviewed MARAD program, administrative, and 

legal officials to identify what acquisition methods they used and what their 

rationale was for their use. We also reviewed contract documents, the 

Federal Acquisition Regulation, and case law. To assess the impact of 

foreign competition and other factors on disposal prices, we reviewed 

industry proposals and contracts to identify price trends and interviewed 

industry representatives to get their perspectives on factors affecting these 

trends. We determined that the data used in the report were sufficiently 

reliable for meeting our purposes. We conducted our review between 
Page 4 GAO-05-264 Maritime Administration

December 2003 and November 2004 in accordance with generally accepted 

government auditing standards. A detailed description of our scope and 

methodology is provided in appendix I.

Results in Brief MARAD is unlikely to meet the statutory deadline of September 30, 2006, to 

complete the disposal of its obsolete ships, thereby increasing the risk of 

costly environmental contamination. From the time that the deadline was 

established in October 2000 until September 2004, MARAD had completed 

the disposal of 18 ships,6

 or about 12 percent of its total of 157 obsolete 

ships. It had also awarded contracts for 29 other ships. At this pace, 

MARAD is unlikely to complete the disposal of the remaining 110 ships and 

the additional 30 ships it expects to receive within the next 2 years. 

MARAD’s current approach, which has resulted in disposing of an average 

of about 5 ships per year, is not sufficient for disposing of the remaining 

ships over the next 2 years. MARAD’s slow progress is due primarily to 

program leaders not developing a comprehensive management approach to 

better focus the program’s efforts on meeting the myriad of challenges that 

the program faces in eliminating its inventory in a timely and efficient 

manner. While MARAD has adhered to some management principles that 

are compatible with the Government Performance and Results Act and 

those used by leading organizations, such as including the ship disposal 

program in MARAD’s overall strategic and performance planning process, 

better progress has not been made because several key management 

elements that leading organizations usually embrace are missing or are 

inadequate. These include (1) no integrated strategy with goals, 

approaches, and milestones for meeting the 2006 deadline; (2) no 

identification of long-term funding resources to achieve program goals; 

(3) inadequate performance measures to track progress toward achieving 

the goals; (4) inadequate identification of the external factors, particularly 

those that are legal, regulatory, and environmental, which could impact the 

program’s progress, and inadequate plans to mitigate these factors; 

(5) inadequate formal decision-making framework; and (6) no formal 

program evaluations. In the absence of a comprehensive management 

approach that includes all of these key elements, MARAD’s ship disposal 

program lacks the vision needed to sustain a long-term effort. Moreover, 

while MARAD was required to provide Congress with an initial plan and 

subsequent progress reports thereafter, it has submitted only two out of a 

6

 From October 2004 through January 2005, MARAD stated that 4 additional ships had been 

completely disposed of, for a total of 22 ships from the 2001 inventory.
Page 5 GAO-05-264 Maritime Administration

possible seven of these required progress reports. As a result of 

weaknesses in MARAD’s management approach, managers are not in a 

position to make sound decisions concerning the ship disposal program. In 

addition, MARAD has not been able to provide Congress and other 

interested parties with a reasonable timetable and the associated annual 

funding requirements needed to meet the 2006 deadline, nor has it clearly 

articulated the areas that congressional assistance may be needed to 

expedite the disposal of these deteriorating ships, which continue to pose 

potentially costly environmental threats to the waterways near the sites 

where these ships are stored.

Since Congress directed MARAD in 2000 to consider alternative ship 

disposal methods to scrapping when developing its program, MARAD has 

made limited use of these methods—artificial reefing, deep-water sinking, 

and donation—because of a number of environmental, financial, and 

legislative barriers. From October 2000 through September 2004, MARAD 

had disposed of 17 ships through scrapping services or sales contracts and 

only 1 ship through an alternative method—artificial reefing. It had not 

disposed of any ships through the Navy’s deep-water sinking program7

 or 

the ship donation program. With congressional support, MARAD recently 

took a number of actions to reduce the impediments that have limited its 

use of alternative methods. For example, MARAD and EPA drafted national 

guidelines for remediating ships for the artificial reefing program; MARAD 

and the Navy signed a memorandum of agreement to include MARAD’s 

obsolete ships in the Navy’s deep-water sinking program; and MARAD 

received new authority8

 to donate ships without special legislation. Despite 

these positive steps, MARAD may be years away from increasing the 

number of disposals using these alternative methods. MARAD lacks an 

overall plan that could expand the use of these alternative disposal 

methods. For example, MARAD has not developed policies that could help 

guide its allocation of funds among all of its available ship disposal 

methods. As a result, MARAD may be losing opportunities to dispose of 

more of its obsolete ships using these alternative methods in the most 

cost-efficient and timely manner.

7

 The Navy’s Sinking Exercise program uses obsolete ships for target practice during deepwater training exercises.

8

 Pub. L. No. 108-136, § 3512 (2003).
Page 6 GAO-05-264 Maritime Administration

Since fiscal year 2002, MARAD has relied primarily on one procurement 

method—Program Research and Development Announcements (PRDA)— 

to acquire ship scrapping services, but this method is not appropriate for 

this purpose. Since October 2002, MARAD has awarded contracts for 

34 ships through PRDA solicitations and only 4 through another 

procurement method.9

 According to MARAD, PRDAs are a variant of broad 

agency announcements, an authorized procurement process under the 

Federal Acquisition Regulation (FAR) and the Competition in Contracting 

Act of 1984. PRDAs are designed to enable federal agencies to acquire basic 

and applied research and that part of development not related to the 

development of a specific system or hardware procurement. MARAD 

officials told us that the PRDA method provides greater flexibility and 

allows firms to propose new or innovative solutions to ship disposal. In 

addition, they said they chose PRDAs to attract a larger number of 

responses from qualified firms and, thereby, increase competition and 

reduce costs. However, our analysis of MARAD’s PRDAs and the contracts 

awarded under PRDAs through February 2004 showed that MARAD was 

not contracting for research or development but instead was acquiring 

conventional ship scrapping services. Moreover, we found that while the 

PRDA method attracted a larger number of firms, other factors, such as 

MARAD’s access to increased appropriations and higher scrap metal 

prices, could have accounted for greater competition and reduced costs. 

MARAD’s use of PRDAs has led to a lack of transparency in the contract 

award process and has raised concerns of fairness among industry 

participants.

While we could not isolate the specific impact of foreign competition and 

other factors on reducing the cost of ship disposal, MARAD attributes the 

overall decrease in ship disposal costs almost exclusively to overseas 

competition. However, several other factors are likely to have played a role. 

Since MARAD received specific authority to procure scrapping services in 

fiscal year 2001, there has been a steady decline in the price per ton to 

scrap ships. In 2001, MARAD paid contractors an average of about $250 per 

ton to scrap ships; in 2004, this cost fell to about $109 per ton—a decrease 

of about 56 percent. While the addition of overseas competition has likely 

been a factor, other factors, such as larger annual program funding and 

increases in the scrap value of steel, have probably also played a role.

9

 MARAD used the sealed bidding contracting method that employs competitive bids, public 

opening of bids, and awards primarily on the basis of price and other price-related factors. 

FAR Part 14. 
Page 7 GAO-05-264 Maritime Administration

We are making recommendations that would strengthen the management 

of MARAD’s ship disposal program, including developing a comprehensive, 

integrated approach and changing the method it uses to contract for ship 

disposal services. In commenting on a draft of this report, DOT did not 

directly comment on whether it agreed with our recommendations, but it 

stated that MARAD is taking some actions that may address them. 

Specifically, DOT stated that MARAD agrees that the time is right to ensure 

that its planning efforts are up to date and are appropriately comprehensive 

and MARAD will provide an updated vision of its comprehensive integrated 

approach to program management in subsequent reports to Congress. DOT 

also commented that MARAD has revised its contracting approach that has 

resulted in the termination of its use of PRDAs. 

Background As part of DOT, MARAD serves as the federal government’s disposal agent 

for government-owned merchant vessels weighing 1,500 gross tons or 

more.10 MARAD’s ship disposal program, in the Office of Ship Operations, 

is responsible for disposing of these vessels. Historically, MARAD has 

disposed of its obsolete ships primarily by selling them to overseas 

scrapping companies. From 1983 to 1994, MARAD scrapped over 

200 vessels through overseas sales, which represented close to 100 percent 

of all of MARAD’s scrapping activity. Ships were sold “as is/where is” to the 

highest bidder. The sale of vessels for overseas scrapping was curtailed in 

1994 because of concerns raised by EPA about the presence of PCBs in 

various shipboard components. The Toxic Substances Control Act and 

EPA’s implementing regulations govern the use of PCBs.11 According to 

MARAD, the act and EPA regulations limit MARAD’s ability to export 

vessels for disposal without first removing regulated PCBs. Ship scrapping 

is also subject to other federal, state, and local government laws that are 

meant to protect the environment and ensure worker safety. In addition, 

overseas disposal can be more complicated and time consuming because it 

requires the involvement of foreign governmental agencies and is subject to 

additional laws related to exporting hazardous materials. Similarly, 

disposing of ships through artificial reefing also requires coordination with 

several federal agencies.

10 40 U.S.C. § 548. 

11 15 U.S.C. 2601 et seq. and 40 Code of Federal Regulations (C.F.R.), Part 761.
Page 8 GAO-05-264 Maritime Administration

After overseas sales were curtailed in 1994 and halted in 1998, MARAD 

had little success in selling its obsolete ships domestically, leading to a 

backlog of ships awaiting disposal. At the same time, the fleet had several 

well-publicized leaks, which raised concerns about the risk of continued 

storage.

In the 2001 Defense Authorization Act, Congress extended MARAD’s 

deadline for disposing of all the vessels in the National Defense Reserve 

Fleet that are not assigned to the Ready Reserve Force component of that 

fleet or otherwise designated for a specific purpose as required by section 

6(c)(1) of the National Maritime Heritage Act of 1994.12 The 2001 

Authorization Act moved the deadline from September 30, 2001, to 

September 30, 2006,13 and specified that MARAD dispose of vessels:

. . . in the manner that provides the best value to the Government, except in any case in 

which obtaining the best value would require towing a vessel and such towing poses a 

serious threat to the environment; and 

. . .through qualified scrapping facilities, using the most expeditious scrapping methodology 

and location practicable. Scrapping facilities shall be selected...on a best value basis 

consistent with the Federal Acquisition Regulation, as in effect on the date of the enactment 

of this Act, without any predisposition toward foreign or domestic facilities taking into 

consideration, among other things, the ability of facilities to scrap vessels—

(1) at least cost to the Government;

(2) in a timely manner;

(3) giving consideration to worker safety and the environment; and

(4) in a manner that minimizes the geographic distance that a vessel must be towed when 

towing a vessel poses a serious threat to the environment.

The 2001 Authorization Act also required MARAD, within 6 months of its 

enactment, to provide Congress with a report on its program for disposing 

of ships and subsequent progress reports every 6 months thereafter. As of 

September 2004, MARAD had submitted two reports to Congress.14

12 Pub. L. No. 103-451, § 6(c)(1).

13 Pub. L. No. 106-398, § 3502(a)(1) (2000).

14 A third report had been in draft but had not been approved. According to MARAD, the 

report was submitted to Congress in October 2004.
Page 9 GAO-05-264 Maritime Administration

In its first report15 to Congress, issued in April 2001, MARAD stated that its 

primary goal for the ship scrapping program was to meet the statutory 

deadline. The report also provided a plan to dispose of all ships that 

MARAD expected would be in its inventory through the deadline. 

Highlights from the report included that MARAD would use fiscal years 

2001 and 2002 to refine cost estimates specific to merchant type ships, and 

from fiscal years 2003 through 2006, would dispose of 35 ships per year 

mostly through domestic scrapping. MARAD, at that time, estimated that it 

would be able to scrap 140 ships at an average cost of $2.5 million per ship 

and donate or reef 15 ships by the 2006 deadline. Also, in accordance with 

the statute,16 MARAD developed milestone dates for disposal of each ship 

and developed an approach that focused disposal efforts on its highest 

priority ships (ships in the worst condition) considering the condition of 

the vessel hulls; the amount, type, and location of potential pollutants on 

board; and the vessel spill history. MARAD stated it recognized that the 

immediate threat that these high-priority ships posed at the sites, in all 

likelihood, would result in using the domestic scrapping industry in the 

near term, and stated it would continue to seek innovative solutions to the 

challenging issue of ship disposal. MARAD also stated that, while there was 

much scrapping capacity overseas, exporting ships was banned by the 

Toxic Substances Control Act because PCBs can be found in shipboard 

systems.

The second report17 to Congress, issued in June 2002, indicated that 

MARAD no longer expected that it could meet the statutory deadline of 

September 30, 2006, if it used domestic scrapping as the predominate 

disposal method because no funds had been appropriated for the program 

in fiscal year 2002 and that the prospects for future funding were 

considered uncertain. The report also discussed an additional planned 

procurement method to contracting by negotiation, which was the use 

of PRDAs.

15 Department of Transportation, Maritime Administration, A Report to Congress on the 

Program for Scrapping Obsolete National Defense Reserve Fleet Vessels (Washington, D.C., 

April 2001).

16 Pub. L. No. 106-398, § 3502(d)(2) (2000). 

17 Department of Transportation, Maritime Administration, Report to Congress: Progress of 

the Vessel Scrapping Program (Washington, D.C., June 2002).
Page 10 GAO-05-264 Maritime Administration

At the time the 2006 deadline was set, the reserve fleet consisted of 

115 vessels designated as obsolete and available for disposal. Of these, 

40 were considered high priority for disposal because of their deteriorated 

condition. MARAD projected that another 40 ships would enter the fleet, 

for a total of 155 ships that it expected would need disposal. These ships 

are located at MARAD’s three anchorages: with the James River Reserve 

Fleet (near Fort Eustis, Virginia) having the most ships and most of the 

highest priority ships; the Beaumont Reserve Fleet (Beaumont, Texas); and 

the Suisun Bay Reserve Fleet (near Benicia, California).

In disposing of its nonretention vessels, MARAD has usually had its excess 

ships dismantled, or scrapped—a labor intensive approach that poses 

certain environmental and worker safety risks. Ships are normally 

dismantled from the top down and from one end to the other, using torches 

and/or shears to cut away large parts of the vessel. Cranes are often used to 

move larger metal pieces to the ground where they can be cut into the 

shapes and sizes required by the foundry or smelter where the scrap will be 

sent. The scrapping process produces some products, such as steel and 

other metals, that can be sold to recyclers. Remediation of hazardous 

materials, such as asbestos, PCBs, lead, mercury, and cadmium, takes place 

before, as well as during, the dismantling process. If it is not done properly, 

ship scrapping can pollute the ground and water around the scrapping site 

and jeopardize the health and safety of the workers involved in the 

scrapping process. The following figures illustrate various stages of the 

scrapping process.
Page 11 GAO-05-264 Maritime Administration

Figure 1: Ship during Early Stages of the Scrapping Process

Source: MARAD.
Page 12 GAO-05-264 Maritime Administration

Figure 2: Partially Scrapped Ship in a Firm’s Scrapping Facility

Source: MARAD.
Page 13 GAO-05-264 Maritime Administration

Figure 3: Ship Near End of the Scrapping Process

MARAD Is Unlikely to 

Meet 2006 Deadline 

MARAD is unlikely to meet the statutory deadline of September 30, 2006, 

to dispose of its inventory of obsolete ships. Since October 2000, when 

Congress established the deadline, MARAD has disposed of only 18 ships, 

or about 12 percent of its inventory. There still remain more than 100 ships 

still needing disposal. MARAD’s current approach, which has resulted in an 

average of about 5 ships disposed of per year, has not been sufficient to 

meet the deadline. The ship disposal program’s slow progress stems 

primarily from program leaders not establishing a comprehensive 

management approach that better focuses the program’s efforts on meeting 

the myriad of challenges that the program faces in eliminating its inventory 

in a timely and efficient manner. Key elements necessary for effective 

program management that are missing or inadequate include (1) no 

integrated strategy or milestones for meeting the 2006 deadline; (2) no 

identification of funding resources needed to meet the 2006 deadline; 

(3) inadequate performance measures; (4) inadequate identification of the 

Source: MARAD.
Page 14 GAO-05-264 Maritime Administration

legal, regulatory, and environmental external impediments that could 

impact progress; (5) inadequate formal decision-making framework; and 

(6) no formal program evaluations. In the absence of a comprehensive 

management approach that includes all of these key elements, MARAD’s 

ship disposal program lacks the vision needed to sustain a long-term effort. 

MARAD has also not provided Congress with all of the required reports on 

the program’s progress. As a result, MARAD has not been able to ensure 

Congress that it can dispose of its obsolete ships in a timely way.

MARAD Has Made Slow 

Progress toward 2006 

Deadline

Since October 2000, when Congress specifically authorized MARAD to pay 

for ship disposal services and set a September 30, 2006, deadline to dispose 

of all vessels, the agency has made slow progress toward achieving this 

goal. In 2000, MARAD reported that it had 115 ships in its inventory.18

Between October 2000 and September 2004, MARAD received 42 additional 

ships through transfers,19 bringing the total number of ships that needed to 

be disposed of to 157 (the beginning inventory of 115 plus 42 transfers). Of 

these 157 ships, 18 ships, or about 12 percent of the inventory (as of 

September 2004), had been disposed of, leaving 139 still in the inventory 

(see table 1).20

18 Three of the original 115 ships in MARAD’s inventory had existing sales contracts when 

the authorization to procure scrapping services was provided, and were subsequently 

scrapped. 

19 The additional ships represent those that have been reclassified from MARAD’s retention 

fleet or those transferred from the Navy.

20 MARAD lists a ship in its inventory until it receives a destruction certificate from the ship 

scrapping company attesting to the fact that the disposal action has been completed. 
Page 15 GAO-05-264 Maritime Administration

Table 1: Number of Obsolete Vessels in MARAD’s Inventory, Fiscal Years 2001-04

Legend: NA = Not available.

Source: GAO analysis of MARAD Fleet Reserve Inventory Reports, Fiscal Years 2001-2004.

a

This number includes three ships that had existing sales contracts prior to fiscal year 2001 but were 

included in the 2001 inventory.

Of the remaining 139 ships, as of September 2004, MARAD had awarded 

contracts for the disposal of another 29, leaving 110 ships that were still 

awaiting disposal actions. The status of the 29 ships under contract is as 

follows:

• Twenty ships are waiting to be moved to a scrapping company. Of these, 

9 are awaiting a court ruling on whether MARAD will be able to export 

them to the United Kingdom.

• Four ships have been towed but have not begun scrapping. These ships 

were towed in October 2003 to the United Kingdom where they are 

waiting for a U.K. company to obtain the proper permits to scrap them.

• Five ships are either at scrapping facilities in the process of being 

dismantled or are en route to scrapping facilities.

Of the ships that have been part of MARAD’s inventory since October 2000, 

more than 40 ships have been designated as high priority for disposal 

because of their severely deteriorating conditions. Ships in this category 

have had known holes in their underwater hulls that may or may not have 

been patched, and the potential for additional holes is considered to be 

moderate or high. Consequently, these ships are considered to pose the 

most immediate threat to the environment. Figure 4 shows (center) one of 

the high-priority ships in the James River Fleet awaiting disposal; MARAD 

awarded a contract to dispose of this ship in September 2004, but the ship 

had not yet been removed from the fleet.

Fiscal year

Obsolete vessels in inventory 2001 2002 2003 2004 Total 

On hand, start of year 115a 134 133 132 NA

Transfers into fleet 20 7 2 13 42

Completed disposals 1 8 3 6 18

On hand, end of year 134 133 132 139 NA
Page 16 GAO-05-264 Maritime Administration

Figure 4: A High-Priority Ship Awaiting Disposal in the James River Fleet

Based on the average rate of ship disposal of about 5 per year, it is unlikely 

that MARAD will be able to get rid of the 110 obsolete ships that were in its 

September 2004 inventory by the 2006 deadline (assuming that all of the 

ships already under contract are disposed of by then). MARAD requested 

and received $21.6 million to dispose of 15 ships in the fiscal year 2005 

budget cycle and a yet-unspecified amount in its fiscal year 2006 budget. At 

the same time, MARAD expects to receive up to 30 more obsolete ships 

through transfers during the next 2 years. As table 2 shows, we estimate 

that MARAD will likely have more than 100 obsolete ships in its inventory 

in September 2006.

Source: MARAD.
Page 17 GAO-05-264 Maritime Administration

Table 2: Projected Number of Obsolete Vessels in MARAD’s Inventory, 

Fiscal Years 2005-06

Source: GAO analysis of MARAD data.

a

The number for fiscal year 2005 was the actual number of ships on hand and included one ship that 

had been sold but had not been completely disposed of. The on hand number for fiscal year 2006 is a 

projection. As of December 2004, 151 ships were on hand.

b

Assumes all ships under contract, including ships delayed by litigation, can be completely disposed of 

by end of fiscal year 2006, although some disposals may occur in fiscal year 2005.

c

Assumes that MARAD can meet its contract award projections in fiscal years 2005 and 2006 and that 

disposals can be completed by the end of fiscal year 2006, although some disposals may occur 

in 2005.

MARAD’s Slow Progress 

Is due to Lack of 

Comprehensive 

Management Approach

Sound management principles, such as those embodied in the Government 

Performance and Results Act and used by leading organizations, include 

the need for developing approaches to meet program goals, measuring 

performance, identifying resource requirements, and reporting on the 

degree to which goals have been met. Combined with effective leadership, 

these elements provide decision makers with a framework to guide 

program efforts and the means to determine if these efforts are achieving 

the desired results. While MARAD has adhered to some of these principles, 

for example, by including the ship disposal program in its strategic and 

performance planning process, program leaders have not developed a 

comprehensive approach to better focus its efforts on overcoming the 

challenges related to eliminating its obsolete ship inventory in a timely 

manner. Key elements necessary for effective program management that 

are missing or inadequate include (1) an integrated strategy and milestones 

for meeting the 2006 deadline; (2) an identification of total resources 

needed to achieve the program’s goals; (3) measures of progress toward 

achieving the goals; (4) identification of external factors, particularly those 

related to legal, regulatory, and environmental issues, which could impact 

the program’s progress, and strategies to mitigate these factors;

Fiscal year

Obsolete ships in inventory 2005 2006

On hand, start of yeara 139 154

Projected transfers in 15 15

Projected disposals of ships under contract 29b

Projected disposals under future contracts 30c

Projected on hand, end of year 154 110
Page 18 GAO-05-264 Maritime Administration

(5) a decision-making framework; and (6) an evaluation and corrective 

action plan. Although the 2001 Defense Authorization Act21 required 

MARAD to submit a progress report on the program to Congress within 

1 year of its enactment and every 6 months thereafter, the agency had 

submitted only three reports through December 2004. The following 

discussion focuses on the key elements that are missing or inadequate in 

MARAD’s management approach.

• Integrated strategy to meet stated goals and milestones for 

completing ship disposal. Leading organizations have an integrated 

strategy that identifies program goals and specifies an approach and a 

timetable for completing the goals. While the program has a requirement 

to dispose of its entire inventory by September 2006 and MARAD has 

stated this requirement as one of its program goals, the program does 

not have a current strategy to achieve this requirement using the 

available disposal methods (e.g., domestic and overseas scrapping, 

sales, artificial reefing, deep-water sinking, or donations). In its 2001 

report to Congress, MARAD proposed a general strategy for meeting the 

deadline by identifying 140 ships that could be scrapped through service 

contracts and 15 ships that could be disposed of by donations or 

artificial reefing. However, MARAD abandoned this approach in fiscal 

year 2002 when the program did not receive any funding, and since that 

time, it has not developed a new integrated strategy for disposing of all 

ships. Instead, MARAD officials told us that their current strategy 

consists of a market-based approach that is responsive to the current 

proposals made by interested parties. Based on these proposals, specific 

ships are matched to the various available disposal methods. These 

officials also stated that, in the rare instances where competing 

proposals exist for the same ship, MARAD makes a decision based on 

best value/best interest to the government. However, because this 

situation occurs infrequently and because the factors that need to be 

considered, such as cost and timing, vary greatly, MARAD does not 

document this decision-making process.

21 Pub. L. No. 106-398, § 3502(e) (2000).
Page 19 GAO-05-264 Maritime Administration

Moreover, while MARAD has identified the expeditious disposal of 

high-priority ships (because of their poor condition) as another 

program goal, it has not always matched its planned disposal methods 

to this goal. For example, while past MARAD reports and briefings 

identified domestic disposal as the most expeditious method and 

indicated that this method would likely be used for some of its highpriority ships to minimize towing distance, MARAD awarded a ship 

disposal contract in 2003 to an overseas firm that included many highpriority ships, even though export was considered more complicated 

and time consuming. To determine the feasibility and advisability of 

exporting ships overseas for scrapping, in 2002, Congress directed 

MARAD to conduct at least one overseas pilot program for up to four 

ships.22 As part of this effort, MARAD worked with EPA to determine 

the circumstances under which the export of certain ships would be 

allowed. Subsequently, in 2003, MARAD awarded a scrapping services 

contract covering 13 ships,23 which was 9 more than authorized by the 

pilot program, and included 10 that were considered to be high priority 

for disposal, to a company in the United Kingdom. Prior to selecting the 

ships to be included in the overseas contract, MARAD did not 

determine the high-priority ships’ suitability for being towed across the 

ocean. According to program documents, one of the high-priority ships 

initially proposed for contract inclusion sprung a leak just before the 

contract was signed and was replaced by another ship. Subsequently, a 

citizen’s group lawsuit led to a U.S. court limiting the number of ships 

that MARAD could initially export to 4 (consistent with the number that 

would comprise the pilot program). MARAD selected 4 ships for export 

that were among the ships in the best condition included in the 

contract, in part, because they could be prepared for towing the 

quickest, according to a program official. As a result, 7 of the highest 

priority ships included in the overseas contract remained at the fleet. In 

the following year, from June through September 2004, MARAD 

included these 7 high-priority ships (originally part of the contract to 

the overseas firm) in contract awards to domestic companies, to hasten 

their departure from the fleet since the court had not yet determined if 

these ships could be exported overseas.

22 16 U.S.C. § 5405 note. 

23 The contract also included selling two unfinished ships. 
Page 20 GAO-05-264 Maritime Administration

In addition, MARAD does not have specific milestones to dispose of its 

entire inventory of obsolete ships. MARAD’s 2001 progress report to 

Congress outlined an approach to meet the 2006 deadline, however, in 

its 2002 report to Congress, MARAD expressed concerns that it could 

not meet the deadline but did not provide a timetable for what it could 

achieve. In a 2004 progress report to Congress, MARAD proposed an 

alternative plan to meeting the statutory 2006 deadline. Instead of 

eliminating the entire obsolete ship inventory, MARAD suggested that 

it would dispose of the remaining ships in its inventory at a rate that 

would exceed the number of new vessels entering the fleet. MARAD 

would work toward an “end-state” with a target goal of eliminating the 

backlog of vessels that accumulated in the 1990s by September 30, 

2006. MARAD’s proposal would include removing all “high” and 

“moderate” priority ships (about 65) at a rate of 20 to 24 ships per year 

and keeping only “low” priority ships at the fleet sites. However, for 

fiscal year 2005, MARAD is planning to dispose of only 15 ships with the 

$21.6 million that was appropriated.

• Identification of resources needed to achieve goals. Good 

management principles call for the identification of resources, including 

funding, which are needed to accomplish the expected level of 

performance. In its 2001 report to Congress, MARAD provided a general 

estimate of costs to dispose of its inventory of 155 ships by the 2006 

deadline, and it stated that it planned to further refine cost estimates as 

additional data relating to merchant-type vessels were collected during 

fiscal years 2001 and 2002. However, these costs were not converted 

into a long-term funding plan linked to disposing of all obsolete ships by 

2006. In addition, MARAD did not revise its cost estimates based on 

actual contracting experiences. For example, the 2001 report estimated 

that it would cost about $350 million to scrap 140 of the 155 vessels—an 

average of about $2.5 million per ship—using ship scrapping services 

contracts. However, MARAD’s budget requests for ship disposal for 

fiscal years 2002 through 2005 have totaled only $54.1 million, about 

one-sixth of the $350 million estimate. Congress has appropriated a total 

of $78.8 million over the same period. Table 3 shows MARAD’s annual 

budget requests, associated appropriations, and the difference between 

the two.
Page 21 GAO-05-264 Maritime Administration

Table 3: Differences between MARAD’s Budget Requests for Ship Disposal and 

Appropriations, Fiscal Years 2001-05

Legend: NA = Not applicable.

Source: GAO analysis of MARAD funding data.

a

MARAD did not request any fiscal year 2001 appropriations because it did not receive authorization to 

pay for scrapping services until late in the budget cycle.

MARAD officials said they did not incorporate the estimated costs to 

achieve the 2006 deadline into a funding plan because MARAD did not 

believe that Congress would fund the levels identified in its 2001 report 

and because they believed that environmentally sound, qualified 

foreign facilities that could scrap ships for less than the $350 million 

estimate existed. Instead, MARAD officials said that their budget 

requests reflected a consistent funding level that they believed 

Congress would support; recognized the limited capacity of the most 

expeditious method (scrapping at domestic facilities); allowed MARAD 

to eliminate high-priority ships prior to the 2006 deadline; and provided 

a sufficient disposal rate while MARAD investigated and pursued 

potentially more cost-effective overseas alternatives.

• Appropriate performance measures. Although DOT’s and MARAD’s 

performance plans have tracked the ship disposal program’s progress 

since 2001, the department-level performance measures that are being 

used are not linked to the program’s goal of disposing of all obsolete 

ships by September 30, 2006. For example, MARAD’s 2004 performance 

plan links the ship disposal program to DOT’s facility cleanup 

performance goal, which aims to ensure that DOT operations “leave no 

significant environmental damage behind.” To measure progress toward 

the facility cleanup goal, MARAD’s performance measure uses the 

number of vessels that have been physically removed from the fleet for 

subsequent disposal rather than the number of ships that have been 

Current dollars (in millions)

Fiscal year

2001a 2002 2003 2004 2005 Total 

Budget request NA 10.0 11.1 11.4 21.6 54.1 

Direct appropriation NA 0 11.1 16.1 21.6 48.8 

Appropriations provided through 

the Navy 10.0 0 20.0 0 0 30.0 

Total appropriated funds 10.0 0 31.1 16.1 21.6 78.8 

Difference from budget request NA (10.0) 20.0 4.7 0 24.7
Page 22 GAO-05-264 Maritime Administration

completely disposed of as called for by statute. MARAD officials stated 

that the reason the chosen performance measure is not more directly 

linked to the statutory requirement is because of MARAD’s recognition, 

in 2002, that the deadline was unachievable due to the program’s 

inconsistent funding and disposal impediments. A MARAD official 

stated that tracking the number of removed ships as a performance 

measure is appropriate because removing ships contributes to the 

facility cleanup goal. However, using removal rather than disposal as a 

performance measure may obscure MARAD’s actual progress toward 

achieving the disposal deadline cited in the statute. For example, 

MARAD counted toward meeting its fiscal year 2004 removal target the 

four ships that were towed to the United Kingdom in October 2003, but, 

as of November 2004, these ships were still fully intact and awaiting 

permit approvals before scrapping could begin. In another example, 

MARAD program officials reported to senior managers in March 2004 

that the program had exceeded its fiscal year 2004 ship performance 

target for removals by 10 ships. However, 6 months later, only 3 of these 

ships had been completely disposed of. MARAD officials stated that they 

also use other measures not tracked in its performance plan. For 

example, the number of contracts awarded and ships disposed of are 

recorded continuously and frequently communicated to program 

officials. While we found that MARAD does collect the data, this 

information is not reported against established targets in its 

performance reports, reports to Congress, or budget requests making 

assessing program progress difficult.

Finally, MARAD’s performance targets are set too low to complete the 

disposal of the 155 obsolete ships in MARAD’s 2001 inventory by the 

2006 deadline. As table 4 shows, MARAD’s projected performance 

targets for the ship disposal program were to remove a total of 

29 ships—less than 20 percent of the inventory—from the fleet for 

subsequent disposal from fiscal year 2001 to 2005.
Page 23 GAO-05-264 Maritime Administration

Table 4: MARAD’s Performance Targets for Removing Obsolete Ships from Fleet for 

Subsequent Disposal, Fiscal Years 2001-06

Legend: NA = Not available.

Source: MARAD’s fiscal year 2005 performance plan.

a

MARAD’s 2006 target will be submitted with the fiscal year 2006 budget request.

MARAD officials acknowledged that while the targets were too low to 

meet the statutory deadline, they were more realistic and achievable 

given the program’s constraints such as unpredictable funding. These 

officials stated that a more meaningful goal related to the statutory 

requirement would be to dispose of as many ships that represented the 

greatest risk to the environment, as possible, given the available 

resources. MARAD stated that it has reported this goal to focus on 

high-priority ships in its budget request and reports to Congress. While 

MARAD has stated this general goal, it has not developed specific 

performance measures with targets to track its progress toward 

achieving this goal.

• External factors and mitigation plans. Good management practices 

include identifying external factors that may be impediments to 

program success and actions needed to mitigate these impediments. 

MARAD has cited a number of external factors that provide challenges 

to the ship disposal program in briefings and in some of its strategic 

planning documents. These challenges include domestic disposal 

capacity limitations; environmental, legal, and regulatory restrictions on 

export; and similar restrictions on other disposal options. Specifically, 

MARAD has stated that the existing domestic ship recycling capacity is 

very limited and must serve both MARAD’s and the Navy’s needs. 

Additionally, foreign disposal remains a challenge because of the Toxic 

Substances Control Act prohibition on the export of PCBs, the extensive 

regulatory requirements to obtain an exemption from the act, and legal 

challenges. As a result, MARAD has concluded that export is not 

commercially viable for ships containing PCBs. MARAD has stated that 

other options, such as artificial reefing, donations, and deep sinking of 

vessels, are also limited, in part, by the cost of preparing ships to meet 

environmental requirements. However, MARAD’s plans do not clearly 

Fiscal year

2001 2002 2003 2004 2005 2006 Total 

Target for 

removal 3 3 4 4 15 NAa 29
Page 24 GAO-05-264 Maritime Administration

describe the linkage between these factors and the program goals they 

impede or specify how their impact can be reduced. For example, while 

MARAD’s strategic plan cites the lack of domestic disposal 

opportunities as an impediment to the program, the plan is not clear on 

how this impediment would keep MARAD from meeting its stated goal 

of completing the disposal of all of its high-priority ships or its target of 

removing 4 to 15 ships per year. Also, the plan does not specify the 

actions that MARAD might take that could increase domestic capacity 

or foster existing capacity. In addition, MARAD has taken a number of 

actions to address impediments related to overseas scrapping, artificial 

reefing, donations, and deep-water sinking, which may lead to some 

progress in the future. However, these actions do not appear to have 

been done in a systematic manner nor linked to specific program goals. 

Such an effort would allow MARAD to systematically identify and assess 

the factors that pose risk to the program, and would allow MARAD to 

prioritize its actions in order to increase the likelihood that its actions 

could successfully influence the factors that impede the program from 

meeting its goals. Until MARAD develops a process that focuses its 

actions on long-term program goals and appropriate performance 

measures, it will be difficult for MARAD to assess how external factors 

may impede program goals and the actions needed to reduce them.

• Formal decision-making framework. Successful organizations 

establish a decision-making framework that encourages the appropriate 

level of management review and approval, supported by the proper 

technical and risk analyses. A well-thought-out review and approval 

framework can mean program decisions are made more efficiently and 

are supported by better information. Some leading organizations have 

review processes in place that determine the level of analysis and 

review that will be conducted based on the size, complexity, and cost of 

the project. Projects that are crucial to the program’s strategy usually 

require more analysis, support, and review than projects that have less 

organizationwide impact.

We found that MARAD’s decision-making framework lacks many of 

these elements. For example, MARAD does not have a formal 

decision-making process that specifies how program oversight is to be 

provided and what decisions need to be reviewed by senior leadership, 

and it has no formal program documents that describe how the various 

offices will interact. MARAD has some policies that generally describe 

roles and responsibilities for key offices involved with ship disposal. 

According to these policies, the MARAD Administrator is to provide 
Page 25 GAO-05-264 Maritime Administration

general direction and supervision to the Associate Administrator for 

National Security, whose responsibilities include the executive 

direction of the Office of Ship Operations. Within this office is the Ship 

Disposal Program Office that, in coordination with other offices, 

develops and administers the ship disposal program. MARAD officials 

stated that while the process is not well documented, they believed that 

program participants understood their roles and responsibilities and 

that senior management is aware of issues affecting the program. 

MARAD does not follow a formal process that uses written guidance 

and does not have an approved program plan that addresses all 

elements of the program. In addition, MARAD program officials could 

not provide us with analytical results to support key program decisions. 

For example, MARAD did not have an analysis to support its position 

that domestic ship scrapping capacity is limited, which led it to 

consider foreign scrapping capacity to be of greater importance to the 

program. MARAD officials stated that the capacity and capabilities of 

the domestic industry were obvious through the data associated with 

the industry responses to disposal solicitations. These officials stated 

that ship disposal is not a growth industry in the United States and a 

formal capacity analysis would not have benefited the program because 

the results would have been largely theoretical. Instead, these officials 

told us that the domestic industry’s cost-effective capacity is evident 

through the proposals received during disposal solicitations. We 

disagree that there would be no benefit to conducting a capacity 

analysis. Such an analysis could provide the basis to determine 

throughput levels for planning purposes in developing funding plans for 

the program. While MARAD stated that ship disposal is not a growth 

industry, in 2004, MARAD awarded contracts to two firms that had not 

participated in past solicitations.

• Program evaluation and corrective action plans. Program 

evaluations are defined as objective and formal assessments of the 

results, impact, or effects of a program or policy. Such information can 

be used to assess the extent to which performance goals are met and 

identify appropriate corrective actions for achieving unmet goals. While 

MARAD had not performed an evaluation since it received its new 

authority in fiscal year 2001, officials stated that the agency initiated the 

program’s first evaluation in June 2004 and expects to complete it as 

early as January 2005. This evaluation could identify any corrective 

actions that may be needed for the program to improve its performance.
Page 26 GAO-05-264 Maritime Administration

• Periodic progress reports to Congress. The 2001 Defense 

Authorization Act required MARAD, within 6 months of its enactment, 

to provide Congress with an initial report on the disposal program and 

to submit progress reports every 6 months thereafter. Since 2000, 

MARAD had submitted only three out of a possible eight reports that 

were required to communicate the program’s status through December 

2004. In April 2001, MARAD provided its initial report to Congress 

addressing aspects of its plan. In June 2002, it submitted a second report 

updating the program’s status since the 2001 report. A third report, 

which had been in draft format for over a year, was submitted to 

Congress in October 2004.24 Failure to provide these reports has left 

Congress without information that could be useful in its decisionmaking process.

As a result of weaknesses in MARAD’s management approach, the program 

lacks a clear vision to guide program decision making concerning the ship 

disposal program. Missing management elements such as the lack of an 

integrated strategy, resource identification, and inadequate performance 

measures reflect this lack of a vision and undermine MARAD’s efforts to 

sustain a long-term effort. In addition, MARAD has not been able to provide 

Congress and other stakeholders with a reasonable timetable and the 

associated annual funding requirements needed to meet the 2006 deadline, 

nor has it clearly articulated the areas that congressional assistance may be 

needed to expedite the disposal of these deteriorating ships that continue 

to pose potentially costly environmental threats to the waterways near the 

sites where these ships are stored.

MARAD Has Made 

Limited Use of 

Alternative Disposal 

Methods because 

of Several Barriers

Although Congress directed MARAD in fiscal year 2001 to consider 

alternative methods in designing its ship scrapping program, the program 

has made only limited use of these methods—artificial reefing, deep-sea 

sinking, and donations—because of a number of environmental, financial, 

and legislative barriers. With the support of Congress, MARAD has recently 

taken a number of actions to address these impediments. Despite these 

positive steps, MARAD may still be years away from increasing the number 

of disposals using these alternative methods. MARAD has not developed an 

overall plan that could increase the use of alternative disposal methods.

24 Department of Transportation, Maritime Administration, Report to Congress: Progress of 

the Vessel Disposal Program (Washington, D.C., June 2004). 
Page 27 GAO-05-264 Maritime Administration

In fiscal year 2001,25 Congress directed MARAD to consider alternative 

methods in designing its ship scrapping program. However, MARAD has 

used an alternative method for ship disposal—artificial reefing—only once 

since that time, and work on this disposal action started prior to 2001 (see 

table 5). At the same time, MARAD has not yet disposed of any ships 

through deep-water sinking or ship donations. Instead, MARAD has 

focused on ship scrapping—either by awarding contracts or selling the 

ships to scrapping firms to dismantle them—to dispose of 17 of the 18 ships 

for which it has completed disposal actions. MARAD officials told us they 

are currently reviewing applications to dispose of 5 ships through artificial 

reefing and are holding 4 ships for donations, although few of these actions 

are likely to be completed by the statutory deadline.

Table 5: Completed Disposals by Disposal Method for Fiscal Years 2001-04

Source: GAO analysis of MARAD provided data.

MARAD Has Taken Recent 

Steps to Address Barriers to 

Use of Artificial Reefing, 

Deep-Water Sinking, and 

Donations

Recently, in response to congressional direction, MARAD has taken a 

number of steps to address several barriers that have limited its use of 

alternative disposal methods. These barriers have included environmental 

factors related to the removal of hazardous materials (remediation) from 

obsolete ships, the financial costs to remediate these ships, and the 

legislative barriers to donating ships to historical organizations. MARAD’s 

actions to facilitate the use of alternative methods are discussed below.

Artificial Reefing Program MARAD officials have identified artificial reefing as having the greatest 

potential for use among the alternative methods and are currently 

25 Pub. L. No. 106-398, § 3502(d)(3).

Fiscal year

Method of disposal 2001 2002 2003 2004 Total

Scrapping services (contracts) 1 4 3 5 13

Scrapping (sales) 0 3 0 1 4

Artificial reefing 0 1 0 0 1

Deep-water sinking 0 0 0 0 0

Donation 0 0 0 0 0

Total 1 8 3 6 18
Page 28 GAO-05-264 Maritime Administration

evaluating reefing applications from four states that cover five ships. 

MARAD officials are optimistic that one of the five ships being evaluated 

for reefing may be sunk as early as 2005. Under the artificial reef program, 

MARAD transfers obsolete ships to states or other jurisdictions to be 

submerged as part of a state-managed program to build artificial reefs that 

benefit marine life, commercial and sport fishing, and recreational diving. 

From 1973 to 1992, MARAD transferred 46 ships to coastal states to be used 

as artificial reefs but, since 2001, it has disposed of only one ship through 

reefing, partly because of unresolved environmental issues.

MARAD has identified several obstacles that have hindered its ability to use 

reefing, and the agency has recently taken some actions toward facilitating 

the use of this method. Four of the obstacles and MARAD’s actions include:

• Lack of national environmental standards to prepare ships for 

artificial reefing. According to MARAD officials, concerns about 

environmental contamination, especially PCBs, have stifled the artificial 

reefing program in recent years, and plans for preparing vessels for 

reefing have been complicated by the lack of consistent standards for 

environmental remediation. Congress, in 2002, directed MARAD and 

EPA to jointly develop best management practices (national guidelines) 

for preparing ships for the artificial reef program.26 In June 2004, EPA 

published draft national guidelines.27 The guidelines require, among 

other things, the removal of PCBs greater than 50 parts per million 

throughout a ship and asbestos in areas of a vessel that could be 

disturbed by explosives used to sink the vessel. Once adopted, the 

guidelines should provide MARAD and the states participating in the 

artificial reef program with clear criteria for removing hazardous 

materials from ships.

• Cost of preparing/remediating vessels. According to MARAD 

officials, the states have been reluctant to take on the responsibility of 

towing, preparing, and sinking ships for artificial reefing because of the 

potentially high costs they could incur. To address this issue, MARAD 

requested and in 2002 Congress provided it with authority to provide 

financial assistance to states to tow, prepare, and sink reef candidates.28

26 Pub. L. No. 107-314, § 3504(b)(1) (2002).

27 See http://epa.gov/owow/oceans/habitat/artificialreefs/guidance.html.

28 16 U.S.C. § 1220c-1.
Page 29 GAO-05-264 Maritime Administration

Since 2002, MARAD has received applications from four states to sink a 

total of five ships, one possibly as early as 2005. Other applications have 

been delayed, partly because of the lack of funding to prepare ships for 

reefing.

• Need to streamline application process. To sink obsolete ships to 

form an artificial reef, MARAD and the states have to coordinate their 

efforts with a number of government agencies, including the U.S. Army 

Corps of Engineers, the U.S. Coast Guard, and EPA. According to 

MARAD, states typically require about 9 months to complete this 

coordination. MARAD and other agencies have been working to 

streamline the process. For example, the Navy and MARAD have 

established a joint reef application process for soliciting, receiving, and 

evaluating applications from interested states. The joint process will 

allow MARAD and the Navy to share resources to achieve common 

reefing goals.

• Limitation of program to the United States. Prior to fiscal year 

2004, reefing candidates were restricted to state governments within the 

United States. MARAD requested and received congressional 

authorization in fiscal year 2004 to accept applications from 

U.S. territories and foreign governments for reefing.29 MARAD has 

received several inquiries since it received this new authority. For 

example, MARAD has had significant interest from the Cayman Islands 

for a reefing project.

Deep-Water Sinking Program MARAD has taken actions that could result in it disposing of a few of its 

ships through the Navy’s Sinking Exercise (SINKEX) program, which 

involves sinking ships in deep water for weapons development testing and 

evaluation and for fleet training exercises. In September 2003, MARAD and 

the Navy developed a memorandum of agreement to include ships in 

MARAD’s inventory in the Navy’s SINKEX program. According to MARAD, 

as with the other disposal methods, deep-water sinking requires the 

removal of environmentally hazardous materials from ships before they are 

sunk. According to MARAD and discussions with the Navy, most of 

MARAD’s high-priority ships do not meet the Navy’s needs because of their 

advanced deterioration. As a result, MARAD considers deep-water sinking 

a low-volume option even though the estimated costs are lower than 

scrapping. MARAD has set a goal of disposing of one or two ships a year 

29 Pub. L. No. 108-136, § 3516(c) (2003).
Page 30 GAO-05-264 Maritime Administration

through this method. However, the one ship that was scheduled, and had 

been prepared by the Navy for deep-water sinking, had to be withdrawn 

when it was determined that the ship had historical significance and thus 

was not suitable for the Navy’s program.

Vessel Donation As a result of recent congressional action, MARAD’s use of a third 

alternative disposal method—the ship donation program—may increase in 

the future. Until 2003, MARAD could donate ships to qualified groups only 

through special congressional legislation that designated a specific ship, 

the recipient, and the conditions under which the donation would take 

place. According to MARAD officials, the agency has set aside four ships 

under this process, making them ineligible for disposal through other 

methods unless their condition deteriorates. This process has been lengthy, 

primarily because recipient groups needed time to raise money to acquire, 

restore, and operate a ship for its intended use. In some cases, ships that 

are on hold for a donation may be removed because the recipient group has 

not been able to make significant progress to complete the donation 

requirements. As table 6 shows, two ships (Hoist and Sphinx) are currently 

in this status.

Table 6: Current Status of Congressionally Designated Ship Donations

Source: MARAD.

Name of ship

Date of 

legislation

Legislation 

expiration 

date Current status of donation

Hoist Nov. 2003 Nov. 2005 Donation hold will likely be 

removed at expiration due to 

lack of recipient’s progress

Sphinx Dec. 2002 Dec. 2004 Donation hold will likely be 

removed at expiration due to 

lack of recipient’s progress 

Glacier Oct. 2000 Oct. 2002 Donation hold maintained 

based on recipient’s progress

Hattiesburg Victory Nov. 1998 None Donation hold maintained but 

completion date not 

determined
Page 31 GAO-05-264 Maritime Administration

At MARAD’s request, Congress, in 2003, gave the agency authorization to 

establish a donation program that would allow it to donate ships directly to 

groups interested in acquiring and preserving ships that have historic 

significance. This change would eliminate the time-consuming procedure 

of interested groups needing special legislation for each donation.30

MARAD established its donation program in July 2004 and indicated that 

accepted applications would be valid for 1 year with two 6-month 

extensions possible based on an applicant’s progress in meeting the 

milestones presented in its business plan. However, the program does not 

have the authority to provide potential recipients with direct financial 

assistance—a barrier to progress in the past. MARAD officials have said 

that the high costs associated with the indefinite preservation of ships for 

historical purposes make it unlikely that the agency could provide 

significant assistance, even if the authority was provided.

MARAD Has Not Developed 

an Overall Plan to Increase 

Usage of Alternative 

Disposal Methods

Despite the steps it has taken recently, MARAD faces some additional 

challenges to using alternative disposal methods. Since its first report to 

Congress in 2001, MARAD has not conducted a systematic assessment of 

its ship inventory to determine the most cost-effective and efficient method 

for getting rid of individual ships. In addition, it has not developed policies 

that would enhance the use of alternative disposal methods. For example, 

while MARAD now has authority to share artificial reefing costs and can 

provide funds to remediate ships in its inventory, it does not have specific 

policies to guide it in determining how much funding it should set aside for 

cost sharing or for remediating ships to make them more readily 

transferable as part of the artificial reefing or donation program. MARAD 

officials told us that their approach is to make all ships available for all 

disposal methods with few exceptions. According to these officials, this 

approach allows states and historical preservation groups to select ships 

according to their preferences without any restrictions. In the past, this 

approach has led to some cases in which recipient groups selected ships 

that were in the worst condition. For example, two of the four ships that 

have been placed on hold for donation have had poor hulls, and MARAD 

officials plan to remove these from hold status. Because of the lack of an 

overall approach, MARAD may be losing opportunities to dispose of more 

of its obsolete ships in the most cost-effective and expeditious manner.

30 Pub. L. No. 108-136, § 3512 (2003).
Page 32 GAO-05-264 Maritime Administration

MARAD’s Use of 

PRDAs to Scrap Ships 

Is Inappropriate

Since fiscal year 2002, MARAD has inappropriately used a procurement 

method—PRDA—to acquire most of its ship disposal services rather than 

other procurement methods that are appropriate for acquiring such 

services. According to MARAD, PRDAs are a variant of broad agency 

announcements, an authorized procurement process under the FAR and 

the Competition in Contracting Act of 1984 (CICA). PRDAs are designed to 

enable federal agencies to acquire basic and applied research and that part 

of development not related to the development of a specific system or 

hardware procurement. MARAD officials cited several reasons for using 

PRDAs, including seeking innovative solutions to ship disposal, attracting 

more industry proposals, and reducing costs. Our analysis of MARAD’s 

PRDAs and contracts awarded under PRDAs through February 2004 

showed that MARAD was not using PRDAs to acquire research or 

development but to procure conventional ship scrapping services. In 

addition to being inconsistent with CICA and the FAR, MARAD’s use of 

PRDAs to acquire ship scrapping services has led to a lack of transparency 

and raised questions about the fairness of MARAD’s contract award 

process.

MARAD’s Rationale for 

Using PRDAs

According to MARAD, PRDAs are a variant of broad agency 

announcements31 and meet the requirements of the FAR for the use of these 

announcements. MARAD officials explained that the agency chose to use 

PRDAs for a number of reasons. MARAD officials said that they have used 

PRDAs to seek innovative, private-sector solutions for controlling ship 

disposal costs and, at the same time, to gain insights into domestic and 

international dismantling and recycling market costs. MARAD officials 

pointed out that market cost data were particularly important when the 

program did not receive appropriated funds in fiscal year 2002. According 

to MARAD, the use of PRDAs provides greater flexibility as it allows 

interested parties to propose methodologies that are broader than those 

received in response to other solicitations. In addition, MARAD officials 

said that they used PRDAs to attract a larger number of proposals from 

qualified firms than they had received under other methods. MARAD 

officials also told us that their use of PRDAs had contributed to the 

significant lowering of disposal prices through greater industry 

participation and increased competition.

31 48 C.F.R. § 35.016. Hereinafter, all references to title 48 of the Code of Federal Regulations 

will be to (“FAR”).
Page 33 GAO-05-264 Maritime Administration

Since fiscal year 2002, MARAD has used PRDAs as its primary procurement 

method. According to MARAD, the agency has used PRDAs to solicit 

proposals for the disposal of over 130 different obsolete ships and has 

awarded contracts for 34 of those ships. In addition to PRDAs, MARAD has 

used other procurement methods—contracting by negotiation, under 

which an agency issues a request for proposals,32 and sealed bidding, under 

which an agency issues an invitation for bids33—to award contracts to 

scrap 6 ships in 2001 and 4 ships in 2003.

Our Assessment of 

MARAD’s Use of PRDAs

Under the FAR, broad agency announcements are used to acquire basic 

and applied research and that part of development not related to the 

development of a specific system or hardware procurement.34 Agencies 

can use this method to fulfill their requirements for scientific study and 

experimentation directed toward advancing the state of the art or 

increasing knowledge or understanding.35 According to the FAR, agencies 

should use this method only when meaningful proposals with varying 

technical approaches can be expected. Although the FAR considers broad 

agency announcements a competitive procurement method, proposals do 

not have to be evaluated against one another since they are not submitted 

against a common work statement. Regardless of MARAD’s stated 

32 Requests for proposals are used to solicit offers from prospective contractors where 

awardees are selected through technical evaluation and with negotiation permitted with 

prospective contractors. Part 15 of the FAR generally governs the use of requests for 

proposals.

33 Using an invitation for bids, an agency solicits sealed bids where price or price-related 

factors are the determinative factor for award and when it is not necessary for the 

government to discuss the technical aspects of bids. Part 14 of the FAR generally governs 

the use of invitations for bids.

34 According to FAR § 2.101, basic research is research directed toward increasing 

knowledge in science. The primary aim of basic research is a fuller knowledge or 

understanding of the subject under study, rather than any practical application of that 

knowledge; according to FAR § 35.001, applied research is the effort that (a) normally 

follows basic research, but may not be severable from the related basic research; 

(b) attempts to determine and exploit the potential of scientific discoveries or 

improvements in technology, materials, processes, methods, devices, or techniques; and 

(c) attempts to advance the state of the art; and development is the systemic use of 

scientific and technical knowledge in the design, development, testing, or evaluation of a 

potential new product or service (or of an improvement in an existing product or service) 

to meet specific performance requirements or objectives.

35 FAR § 35.016(a).
Page 34 GAO-05-264 Maritime Administration

purposes for using PRDAs, their use must be consistent with CICA and 

the FAR.

Generally, CICA requires executive agencies in conducting procurements 

for property or services to “obtain full and open competition through the 

use of competitive procedures.”36 Under CICA, “competitive procedures” 

include “the competitive selection of basic research proposals resulting 

from a general solicitation and peer review or scientific review (as 

appropriate).”37 This provision is implemented by FAR sections 6.102 and 

35.016. FAR section 6.102 describes “other competitive procedures” that 

meet the requirement for full and open competition. That section provides 

that:

[c]ompetitive selection of basic and applied research and that part of development not 

related to the development of a specific system or hardware procurement is a competitive 

procedure if award results from—(i) A broad agency announcement that is general in nature 

identifying areas of research interest, including criteria for selection of proposals, and 

soliciting the participation of all offerors capable of satisfying the Government’s needs; and 

(ii) A peer or scientific review.38

The FAR, in this respect, implements the requirements of CICA by allowing 

agencies to use the broad agency announcement as a means to obtain 

research or development. It follows, and we conclude, that an agency may 

only use broad agency announcements, or any variant of that process, to 

acquire research or development in order to comply with CICA and the 

FAR. Our analysis indicates that MARAD is not using broad agency 

announcements, or PRDAs, to acquire research or development; rather it is 

inappropriately using them to acquire ship scrapping services.39

An appropriate use of PRDAs would have allowed MARAD to solicit 

proposals and award contracts for research or development that sought to 

advance the state of the art or increase knowledge. In other words, MARAD 

could have sought innovation in the ship scrapping industry through 

research or development contracts. PRDAs we reviewed, however, did not 

36 41 U.S.C. § 253(a). 

37 41 U.S.C. § 259(b).

38 FAR § 6.102(d)(2).

39 Although we reviewed the appropriateness of MARAD’s contracting process, our review 

is not related in any way to the statutory bid protest function of the Comptroller General 

under CICA.
Page 35 GAO-05-264 Maritime Administration

seek proposals to perform research or development. Rather, along with 

innovative approaches for ship disposal, the PRDAs indicated that 

proposals should address environmental and worker safety considerations, 

production throughput/capacity, experience with ship disposal, and 

funding requirements. With respect to funding, the PRDAs did not ask firms 

to explain their costs to research or develop new methods or approaches 

for ship disposal; instead, the PRDAs specified that funding “must be 

proposed in sufficient detail to show all anticipated costs associated with 

the complete dismantlement of the vessel(s), including cost categories 

such as towing, remediation of hazardous materials, labor costs, etc., as 

appropriate.” Thus, rather than soliciting proposals to perform research or 

to develop new methods or technologies to scrap ships, MARAD’s PRDAs 

essentially contemplate the award of production contracts to firms with 

ship disposal experience.

In addition, the results of MARAD’s evaluation approach appeared to give 

greater weight to the disposal of ships rather than obtaining innovation, 

research, or development. In our review of MARAD’s evaluations for more 

than 70 proposals submitted under PRDAs from November 2001 through 

March 2003, we found that MARAD had not accepted proposals that were 

identified in program evaluations as having innovative approaches or 

research or development. For example, one evaluation summary stated 

that the proposal was rejected because it would not result in the disposal of 

ships but only in the testing of a hazardous material remediation 

technology and that PRDAs were not intended to solicit proposals of 

untested technologies. Another evaluation summary stated that only one 

ship would be disposed with no cost advantage to MARAD and with no 

guarantee of discovering methods or efficiencies that could be applied to 

the ship dismantlement industry to MARAD’s benefit. On the other hand, 

proposals that MARAD provisionally accepted for further consideration 

were described in the evaluations as providing conventional ship 

dismantling or recycling services and in many instances acknowledged that 

the proposals did not contain innovations.

We also found that MARAD did not award contracts that required 

innovation or research or development. Our analysis of six contracts 

awarded under PRDAs through February 2004 also showed that none of the 

contracts specifically required innovative approaches in disposing of ships. 

Instead, the contracts provided for conventional ship scrapping services, 

with requirements, time lines, schedules, costs, and objectives clearly
Page 36 GAO-05-264 Maritime Administration

spelled out, contrary to most research and development contracts.40 For 

example, a contract between MARAD and Post-SVC Remediation Partners, 

which was effective July 25, 2003, specifies that the contractor is to tow 

13 vessels from their current location (at the James River Reserve Fleet 

and Portsmouth Naval Base) to the United Kingdom and completely 

“dispose of, dismantle and remediate. . .[the] vessels by 31 December 

2005.”41 MARAD officials stated that their dismantling contracts contained 

performance schedules and outcomes as part of the government’s 

responsibility to monitor contractor performance; however, these officials 

stated that MARAD did not mandate the methodology by which the 

contractor was to dispose of the vessels. MARAD officials stated that 

because their contracts are performance based, the contractors are 

responsible for determining how they will comply with the terms of the 

contract, thereby giving them flexibility during the dismantling operations. 

While we agree that the use of a research or development contract would 

not alleviate the government’s responsibility for oversight, we do not 

believe that MARAD acquired the innovative service it indicated PRDAs 

were designed to obtain. In our view, the contracts were for ship scrapping.

In addition, MARAD may not need to specifically acquire innovation to 

expeditiously scrap ships. Industry representatives told us the process of 

scrapping a ship does not require innovative approaches. Industry officials 

said that ship scrapping is a fairly straightforward activity, and most 

companies are using similar techniques to dispose of ships. They pointed 

out that the basic technology for scrapping a ship involves removing 

environmentally hazardous materials and then dismantling the ship with a 

cutting torch. They said that while companies might use different 

processes, the core technology did not change. The representatives said 

that they had not developed any innovative approaches in response to 

MARAD’s PRDA process, and officials at one firm said that they had not 

responded to MARAD’s first PRDA solicitation because they did not believe 

their company was eligible to participate since it had no new technologies 

or innovations to offer. However, once they learned that a competitor was 

obtaining ship scrapping contracts through the PRDA process, they too 

submitted proposals under PRDAs and were subsequently awarded 

contracts for ship disposal. MARAD officials told us that the agency has 

40 FAR § 35.002 states that “unlike contracts for supplies and services, most research or 

development contracts are directed toward objectives for which the work or methods 

cannot be precisely described in advance.”

41 Section C1.5, Towing Schedule. 
Page 37 GAO-05-264 Maritime Administration

seen several innovations from domestic and foreign contractors as a result 

of the PRDA process. Specifically, they pointed to the application of 

technological advances such as hydraulic, articulated shears and high 

pressure, water-cutting technology that have distinct advantages over the 

traditional use of cutting torches, as well as the use of the dry basin for 

dismantling of vessels, and improved business processes in the contract 

performance. However, we did not see any evidence that the use of these 

technologies was required by the terms of the contracts. More importantly, 

the use of these technologies does not make the contracts research or 

development contracts.

While MARAD officials claimed that more firms had responded to PRDA 

solicitations than to other solicitation methods, we found that MARAD did 

not consider several other factors that could have affected participation. 

MARAD officials said that between 2001 and 2004, the agency received 

proposals from 71 firms (57 from October 2001 to March 2003 and 14 from 

January 2004) through PRDA solicitations, compared with 13 firms (8 in 

2001 and 5 in 2003) through invitations for bid and requests for proposals 

(see table 7). However, the higher responses may have been due to the 

number of ships offered and their condition. For example, while the PRDA 

solicitations included around 100 ships and were open to domestic and 

foreign firms, solicitations by other methods were limited to a few highpriority ships and were open only to domestic firms because of concerns 

about long tows to the scrapping sites. Other factors, such as the ship 

disposal program’s larger appropriations in 2003 and 2004 and a rise in the 

price of scrap metal (making scrapping more profitable for the industry), 

could also have affected participation. In addition, there is no evidence to 

suggest the response that other procurement methods might have received 

would have been any different, since most ships were only offered under 

PRDAs. Moreover, several firms we contacted said that PRDAs had not 

positively influenced their decision to make offers to scrap ships over other 

procurement methods.
Page 38 GAO-05-264 Maritime Administration

Table 7: Comparison of Industry Participation in PRDAs Versus Other Solicitation 

Methods

Source: MARAD.

a

The sum of domestic and foreign proposals is greater than the total number of firms because some 

firms submitted both domestic and foreign proposals.

In addition to being inconsistent with CICA and the FAR, MARAD’s use of 

PRDAs has provided less transparency than other available solicitation 

methods. For example, under an invitation for bids, bids are publicly 

opened and typically are available for examination by competing vendors.42

Under a request for proposals, competing vendors are given written notice 

of the reason they are excluded from the competition and are given an 

opportunity for a debriefing explaining the agency’s award decision.43 By 

contrast, proposals submitted under PRDAs are often difficult to compare 

with other proposals because they do not generally cover a specified 

statement of work or a set number of ships. Consequently, firms are often 

unable to determine why their proposal was not selected over another 

proposal. Moreover, MARAD officials were not able to tell us what criteria 

they used to award the six contracts we reviewed. For example, when they 

conditionally accepted proposals from two different firms, they could not 

explain what criteria they used to ultimately award a contract to one firm 

rather than the other. The domestic ship scrapping contractors with whom 

we spoke agreed that there was no way to determine why a particular 

company got a contract.

2001 Invitation 

for bid/ 

Request for 

proposal

Oct. 2001 to 

March 2003 

PRDA

2003 Invitation 

for bid

Jan. 2004 

PRDA

Number of ships 

offered 12 131 4 97

Total number 

of firms 8 57 5 14a

Domestic 

proposals 8 34 5 7

Foreign 

proposals 0 23 0 9

42 FAR § 14.402-1.

43 FAR §§ 15.503, 15.505, and 15.506.
Page 39 GAO-05-264 Maritime Administration

This lack of transparency confuses and can alienate ship scrapping 

contractors. In discussing their experience with MARAD’s PRDA process, 

several ship scrapping contractors told us that although they had received 

contracts, they perceived inconsistencies in MARAD’s use of PRDAs. For 

example, they said that often a long time passes between the acceptance of 

a proposal by MARAD and the award of a contract. Industry officials said 

that although MARAD had informed them that their firm’s proposal was 

acceptable, MARAD took no further action on their proposal for more than 

a year. During this time, MARAD conducted negotiations with other firms 

over disposal issues, including the number of ships, the specific ships, and 

the cost. Some firms questioned MARAD’s ability to assess the best 

proposal if it is negotiating only with selected firms. Delays in awarding 

contracts affect the ship scrapping contractors because of the volatile 

nature of the scrap metal market.

Other Procurement 

Methods Could Provide 

Similar Benefits

At the beginning of the ship scrapping program in fiscal year 2001, MARAD 

had planned to use another procurement method—contracting by 

negotiation—in which an agency issues a request for proposals. MARAD 

expected to use requests for proposals to dispose of vessels that were in 

the worst condition and designated as high priority. It planned to use this 

method to award multiple contracts to various ship scrapping companies in 

different locations, using long-term, indefinite delivery, indefinite quantity 

(IDIQ) contracts. These contracts were to specify a minimum initial 

quantity of high-priority ships to be scrapped but could subsequently be 

used to award additional ships to the same firms within a certain time 

period. MARAD expected to award contracts to a minimum of three 

companies to scrap at least one ship, and these companies would have the 

opportunity to scrap additional ships. However, MARAD officials said that 

when the agency did not receive any fiscal year 2002 appropriations for the 

ship disposal program, it shelved these plans. Instead, it turned to PRDAs 

for almost all of its contracts.

While MARAD stated that other acquisition methods, such as requests for 

proposals and invitations for bids, do not allow offerors to submit solutions 

outside of the defined government requirements as could be done with 

PRDAs, MARAD did not provide a convincing case as to why these 

solutions were necessary to dispose of the ships that were in the worst 

condition as quickly as possible. In fact, MARAD stated in its briefing 

documents, PRDA solicitations, and reports to Congress, that it anticipated 

that it would use methods other than PRDAs to address the worst ships. 

While MARAD has also said that requests for proposals and invitations for 
Page 40 GAO-05-264 Maritime Administration

bids do not accommodate numerous proposals of varied solutions based on 

each offeror’s business model, we found that they can provide some 

flexibility for both the government and the offeror. For example, in a 2003 

invitation for bids for four ships, MARAD stated that it could award each 

ship separately or make multiple awards for any combination of ships. As 

noted earlier, MARAD could also use a request for proposals to select from 

a pool of qualified firms to propose on an indefinite quantity of ships as 

funding became available. Moreover, other federal agencies have used IDIQ 

contracts as a flexible procurement tool when funding is uncertain. For 

example, Navy officials told us that they used this method to gain flexibility 

in awarding contracts for the Navy’s ship disposal program when 

unanticipated end-of-year money became available. Since fiscal year 1999, 

the Navy has used requests for proposals to award IDIQ contracts to scrap 

36 ships.

Overseas Competition 

Just One Factor 

Contributing to

Lower Prices

While we could not isolate the specific impact of foreign competition and 

other factors on reducing the cost of ship disposal, MARAD attributes the 

overall decrease in ship disposal costs almost exclusively to overseas 

competition. However, other factors, such as larger annual program 

funding allowing for more ships per contract and increases in the scrap 

value of steel, may have also played a role. As table 8 indicates, the price of 

contracts that MARAD has awarded since 2001 has generally decreased. 

These decreases included an instance where solicitations were 

geographically restricted to domestic firms only—because of the 

deteriorated condition of some ships. In 2001, MARAD paid contractors an 

average of about $250 per ton to scrap ships. This average price fell to 

about $109 per ton in 2004—a decrease of about 56 percent.
Page 41 GAO-05-264 Maritime Administration

Table 8: Price Trends for Contracts by Fiscal Year Awarded

Source: MARAD.

a

The ship involved in this proposal was unique in that it required disposal in place. 

In its 2004 report to Congress, MARAD attributed the drop in contract 

prices to increased competition due to the inclusion of foreign firms since 

it had received more proposals when international firms have been 

included. However, while the overall price dropped from 2001 for two 

solicitations that included both domestic and international companies, it 

also decreased for one of the domestic solicitations that excluded foreign 

competition. According to industry officials, however, other factors, such 

as the condition of the ship, the amount of remediation that is required, and 

the potential recovery from recyclable material, can affect bid prices; thus, 

average prices based on tonnage alone may not be very meaningful if the 

amount of hazardous materials present on the ships varies.

An increase in appropriations for the ship disposal program since 2003 may 

also have contributed to lower contract prices by allowing larger contracts 

that can benefit from a greater economy of scale. As table 3 shows, the 

program received $10 million in fund transfers from the Navy in fiscal year 

2001 and no appropriated funding in fiscal year 2002. However, since fiscal 

year 2003, MARAD has received an annual average of about $23 million. 

This level of funding has likely attracted new interest among firms. 

According to MARAD officials, they have received proposals from 

companies that had not participated previously and have awarded 

contracts to some firms for the first time in 2004. Several industry 

representatives told us that MARAD’s higher funding levels allowed them to 

offer proposals that represented greater economies of scale, thus lowering 

costs. For example, one firm we visited was awarded a contract in 2003 to 

dispose of five ships, and three other firms received contracts to dispose of 

2001 

Domestic 

only 

proposals

2003 

Domestic 

and foreign 

proposals

2003 

Domestic 

only 

proposalsa

2003 

Domestic 

only 

proposals

2004 

Domestic 

and foreign 

proposals

Number of 

ships offered 12 131 1 4 97

Number of 

ships 

awarded 6 22 1 3 12

Price per ton 

(of ships 

awarded) $250 $102 $762 $179 $109
Page 42 GAO-05-264 Maritime Administration

three ships each in 2004. By contrast, only one firm received a contract to 

dispose of two ships in 2001.

A rise in scrap metal prices since 2003 has also contributed to lower bid 

prices. Representatives from firms we contacted said that higher scrap 

metal prices contributed to a large degree to their ability to offer lower 

prices for scrapping ships in recent proposals because they could expect to 

recover more of their costs from recycling the metal. Figure 5 shows the 

increase in average yearly international scrap steel prices since about 2002.

Figure 5: Annual Average International Scrap Steel Prices, 1994-04

While several firms’ representatives said that the participation of foreign 

companies did not have an affect on their offers, in at least one case 

domestic prices seem to have been influenced by foreign competition. 

According to MARAD officials, one domestic firm reduced its previous 

proposal by about 50 percent when it learned that MARAD was in the latter 

stages of contract negotiations to export several ships to a foreign firm. 

The domestic company made its new offer about 6 months after its original 

offer, and it included many of the ships that were under negotiations with 

the foreign firm. MARAD officials told us that subsequent offers from this 

and other domestic firms have been lower since MARAD awarded the 

contract for foreign export.

0

50

100

150

200

250

Calendar Year

Dollars per ton

152 157 148 145

119

102 101

79.4

93.9

123

204

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Source: GAO analysis of data from Iron Age Scrap Price Bulletin.
Page 43 GAO-05-264 Maritime Administration

Conclusions Although MARAD’s ship disposal program has made some strides in 

reducing its inventory of obsolete and deteriorating merchant ships in the 

National Defense Reserve Fleet, it has managed to dispose of only 

12 percent of its original 2001 inventory, and it is unlikely to meet the 

already extended deadline of September 30, 2006, to get rid of the entire 

inventory. The strides that MARAD has made have been facilitated by 

congressional appropriations of almost $80 million—almost $25 million 

higher than requested—to procure ship scrapping services during fiscal 

years 2001 through 2004 and by congressional support that helped 

streamline the ship donation program and encouraged the development of 

environmental standards for the artificial reefing program.

However, these steps have not been enough to better ensure long-term 

program success. MARAD’s program currently does not have an overall, 

comprehensive management approach that focuses specifically on the ship 

disposal program and on meeting the statutory deadline of 2006. In the 

absence of a comprehensive management approach, MARAD’s ship 

disposal program lacks the vision needed to sustain a long-term effort. In 

addition, the program has not been able—and will likely continue to be 

unable—to obtain, on a consistent and predictable basis, the funding 

resources that it needs to efficiently and expeditiously reduce its obsolete 

ship inventory. Moreover, MARAD has not undertaken an overall 

assessment of its obsolete ship inventory, which is needed to determine 

what disposal methods (e.g., domestic or foreign scrapping, artificial 

reefing, deep-water sinking, or donations to organizations) are the most 

appropriate one for each vessel. It has also failed to set reasonable 

milestones for completing disposal and has not established relevant 

performance measures to periodically measure progress toward meeting 

the deadline. Similarly, MARAD has not established a formal decisionmaking framework that would clearly delineate roles and responsibilities 

and formalize program guidance and procedures. Further, MARAD has not 

established a process to systematically identify and assess the risk that 

external factors pose to the program, nor has it laid out plans that would 

prioritize its actions to mitigate these risks. In addition, MARAD has not 

submitted to Congress on a timely basis the semiannual progress reports 

that the 2001 statute requires. Finally, MARAD has predominately used a 

procurement method that is not appropriate for acquiring ship scrapping 

services and that has led to concerns about the lack of transparency in the 

way that ship scrapping contracts have been awarded. As a result of these 

many weaknesses, MARAD has not been able to ensure Congress that it 

can dispose of the obsolete ships in a timely and cost-effective manner.
Page 44 GAO-05-264 Maritime Administration

Without an improved management approach, MARAD’s ship disposal 

program will be limited in its ability to dispose of—in a timely manner—the 

more than 100 obsolete ships currently in its inventory, as well as the 

additional ships that the program expects to receive each year. As a result 

of its slow progress, MARAD will continue to have a backlog of obsolete 

and deteriorating ships that pose a threat to the coastal waterways where 

they are anchored because of the toxic materials that they contain. If this 

hazardous material should spill out, as it has already in a number of cases, 

the ships could cause a costly environmental disaster in some of the 

nation’s sensitive waterways.

Recommendations for 

Executive Action 

We recommend that the Secretary of Transportation direct the MARAD 

Administrator to take the following three actions. 

• Develop a comprehensive approach to manage MARAD’s ship disposal 

program that would

• identify a strategy and an implementation plan to dispose of all 

existing obsolete ships and future transfers in a timely manner, 

maximizing the use of all available disposal methods;

• determine the needed resources, the associated funding plan, and 

specific milestones for this disposal;

• establish a framework for decision making that would delineate roles 

and responsibilities and establish guidance and procedures;

• identify external factors that could impede program success and 

develop plans to mitigate them; and

• annually evaluate results and implement corrective actions.

• Regularly communicate MARAD’s plan, required resources, and any 

impediments that require congressional assistance in the mandated 

reports to Congress.

We also recommend that MARAD change its contracting approach for 

acquiring ship scrapping services from the use of PRDAs to an appropriate 

method.
Page 45 GAO-05-264 Maritime Administration

Agency Comments and 

Our Evaluation

In commenting on a draft of this report, DOT did not directly state 

whether it agreed with our recommendations but noted that MARAD is 

taking some actions that may address them. DOT’s comments stated that 

MARAD will provide an updated comprehensive, integrated approach to 

program management in subsequent reports to Congress and MARAD 

has terminated its usage of PRDAs. DOT’s comments are included in 

appendix II of this report. 

DOT stated that despite the complex challenges that MARAD’s ship 

disposal program faces, through its efforts and actions, much has been 

achieved including the disposal of 26 vessels. DOT also commented that 

MARAD built a comprehensive disposal plan when the program was 

authorized and provided that plan to Congress in 2001, and also 

acknowledged that MARAD agrees that the time is right to ensure that its 

planning efforts are up to date and are appropriately comprehensive. 

However, MARAD does not believe that effective planning will change the 

fundamental external legal, environmental, and regulatory challenges that 

limit the number of ships that can be processed and the speed at which the 

program can proceed. 

We recognize that the ship disposal program faces a number of complex 

challenges and that MARAD has taken a number of actions to address 

them. However, we do not believe that these actions have been taken in an 

integrated manner. That is why we continue to believe that a 

comprehensive management approach could better focus program efforts 

and lead to better program results. Specifically, we believe that the 

program could benefit from clearly stated goals, planned approaches 

consistent with these goals and with timetables, resource identification 

that could support these approaches in identifying, appropriate 

performance measures, and a process to systemically identify and assess 

the program’s external factors and determine the related mitigation actions 

that could improve MARAD’s chances of meeting its program goals. While 

MARAD developed a plan that contained some of these elements in 2001, 

the plan was not followed or revised. We believe that MARAD’s 

acknowledgment that it needs to ensure that its planning efforts are up to 

date and comprehensive is a good first step. However, MARAD’s comments 

do not provide enough detail for us to determine if these actions are 

sufficient. 

DOT commented that MARAD has revised its contracting approach, which 

resulted in the termination of its use of PRDAs. It stated that MARAD had 
Page 46 GAO-05-264 Maritime Administration

consistently provided fair treatment to contractors and that contract 

awards were made on the basis of best value to the government. We were 

not provided the details of MARAD’s revised contracting approach and thus 

cannot comment on it.

DOT also provided technical comments, which were incorporated as 

appropriate. 

We are sending copies of this report to Senators George Allen and John 

Warner; Representative Jo Ann Davis; the Secretary of Transportation; the 

Director, Office of Management and Budget; and other interested parties. 

We will also make copies available to others upon request. In addition, the 

report will be available at no charge on the GAO Web site at 

http://www.gao.gov.

If you or your staff have questions regarding this report, please contact me 

at (202) 512-8365 or Solisw@gao.gov or Dave Schmitt, Assistant Director, at 

(757) 552-8124 or Schmittd@gao.gov. Other major contributors to this 

report were Rodell Anderson, Harry Jobes, Vijay Barnabas, Kenneth 

Patton, and Nancy Benco.

Sincerely yours,

William M. Solis

Director, Defense Capabilities and Management
Page 47 GAO-05-264 Maritime Administration

Appendix I

Scope and Methodology ApApenednxidexiIs

To assess whether the Maritime Administration (MARAD) is likely to meet 

the statutory deadline of September 2006 and, if not, what factors may 

prevent it from doing so, we reviewed MARAD’s 2001 report to Congress, in 

which it presented its plan to meet the deadline, and its subsequent 2002 

and 2004 status reports to Congress. We also reviewed the Department of 

Transportation’s (DOT) and MARAD’s strategic and performance plans and 

applicable laws and regulations pertaining to the ship disposal program. To 

assess the adequacy of these plans and reports for managing the ship 

disposal program, we compared the elements used in MARAD’s ship 

disposal management approach with those developed from sound 

management principles as embodied in the Government Performance and 

Results Act (GPRA) of 1993 and further refined in GPRA user guides, our 

guide for leading practices in capital decision-making, and our prior 

reports. To measure progress that MARAD was making toward the 2006 

deadline, we determined the number of awarded contracts, ships removed 

from the storage sites, and the number of ships disposed of by reviewing 

program documents. We also obtained data to reflect impediments that 

were impacting the program. During our review, MARAD officials in 

Washington provided us with briefings on the program’s funding, fair 

market value of obsolete ships, domestic and foreign ship scrapping 

capacity, and ship scrapping performance bond cost determination. We 

reviewed and analyzed National Defense Reserve Fleet inventory reports 

for fiscal years 2000 to 2004 to determine the number of ships entering and 

leaving the inventory. We also reviewed reports that categorized the 

condition of ships in the inventory and assessed whether ships in the worse 

condition were given the highest priority for disposal. We also reviewed 

and analyzed funding data for the MARAD ship disposal program for fiscal 

years 2001 through 2004 to identify funding trends and examined a number 

of publications that had focused on ship disposal issues.1

In addition to talking with MARAD officials in Washington, D.C., we 

met with MARAD representatives and conducted on site visits at the 

James River Reserve Fleet near Fort Eustis, Virginia, and the 

1

 Interagency Panel, Report of the Interagency Panel on Ship Scrapping, April 1998 

(the panel was chaired by the Office of the Deputy Under Secretary of Defense for 

Environmental Security with representatives from the Departments of State, Justice, Labor, 

and Transportation; the Navy, Defense Logistics Agency, and Environmental Protection 

Agency); GAO, Federal Surplus Ships, Government Efforts to Address the Growing 

Backlog of Ships Awaiting Disposal, GAO/NSIAD-99-18 (Washington, D.C.: Oct. 22, 1998); 

Rand Corporation, Disposal Options for Ships, 2001; Commission of the European 

Communities, Technological and Economic Feasibility Study of Ship Scrapping in 

Europe, February 2001. 
Appendix I

Scope and Methodology

Page 48 GAO-05-264 Maritime Administration

Suisun Bay Reserve Fleet, Benicia, California. During these visits, we 

talked with officials about their methodology for determining ship 

condition, discussed past instances of oil spills, and observed the condition 

of the ships by touring selected obsolete ships. We selected these two sites 

because they had the largest number of ships and included the ones 

considered to be of highest priority for disposal.

To gain the perspective of domestic scrapping companies, we conducted 

on-site visits at four domestic firms that had submitted proposals for 

scrapping ships and had been awarded scrapping contracts. These 

companies were Bay Bridge Enterprises LLC, Chesapeake, Virginia; and 

International Shipbreaking Limited, LLC, Marine Metals, Inc., and ESCO 

Marine, Inc., all of Brownsville, Texas. At each location, we met with 

company managers to obtain their views on MARAD’s ship disposal 

program and also toured their facilities. We also interviewed officials at a 

fifth firm—All Star Metals, Brownsville—that we had identified as having 

the potential capacity to scrap MARAD ships.

To determine to what extent MARAD has used alternative disposal 

approaches, other than ship scrapping, to dispose of its inventory of 

obsolete ships, we interviewed officials in MARAD’s Office of Ship 

Operations and Ship Disposal Program Office and obtained and reviewed 

MARAD’s 2001 plan for ship disposal and MARAD’s 2002 and 2004 reports 

to Congress on plan implementation. We reviewed a list of alternative 

approaches considered by MARAD and documented the priority that 

MARAD placed on each alternative and the trade-offs associated with each 

alternative in terms of costs, time, and barriers to implementation. In 

addition, we interviewed officials in the U.S. Naval Sea Systems Command 

program office responsible for managing the Navy’s ship disposal program 

in Washington, D.C., to discuss their program.

To assess the appropriateness of MARAD’s procurement methods for 

contracting for the disposal of surplus ships, we interviewed responsible 

MARAD headquarters officials in their ship disposal program office and 

their acquisition office, listened to briefings, and reviewed documents 

related to the acquisition process. We also compared MARAD’s acquisition 

methods for ship disposal services with those used by the Navy. We 

submitted a series of written questions to MARAD to obtain the agency’s 

legal position on the appropriateness of using Program Research and 

Development Announcements (PRDA) as an acquisition method for ship 

disposal. We reviewed MARAD’s responses and reviewed the criteria in the 

Competition in Contracting Act of 1984 and the Federal Acquisition 
Appendix I

Scope and Methodology

Page 49 GAO-05-264 Maritime Administration

Regulation. We also examined MARAD’s contract files containing recent 

ship disposal industry proposals received in response to PRDAs and 

reviewed the criteria and process that MARAD used to evaluate industry 

proposals. We also reviewed the first six contracts that MARAD awarded 

under PRDA to determine if they were consistent with the Federal 

Acquisition Regulation. These contracts were awarded from August 2002 to 

February 2004.

To assess the impact of foreign competition on reducing the cost of ship 

disposal, we compared bid prices for solicitations that were restricted to 

domestic firms only versus those that included domestic and foreign firms. 

We also interviewed officials at MARAD and industry representatives at the 

five domestic ship scrapping firms mentioned previously to obtain their 

perspectives on factors contributing to lower ship scrapping costs. In 

addition, we visited the Institute of Scrap Recycling Industries, 

Washington, D.C., and obtained historical data on world prices for recycled 

steel.

We determined that the data used in this report were sufficiently reliable 

for the purposes of this report. We performed our audit from November 

2003 through November 2004 in accordance with generally accepted 

government auditing standards.
Page 50 GAO-05-264 Maritime Administration

Appendix II

Comments from the Department of 

Transportation ApendxiI

Note: GAO’s comments 

supplementing those in 

the report’s text appear at 

the end of this appendix.
Appendix II

Comments from the Department of 

Transportation

Page 51 GAO-05-264 Maritime Administration

See comment 1.
Appendix II

Comments from the Department of 

Transportation

Page 52 GAO-05-264 Maritime Administration

See comment 2.

See comment 3.
Appendix II

Comments from the Department of 

Transportation

Page 53 GAO-05-264 Maritime Administration

See comment 4.

See comment 5.
Appendix II

Comments from the Department of 

Transportation

Page 54 GAO-05-264 Maritime Administration
Appendix II

Comments from the Department of 

Transportation

Page 55 GAO-05-264 Maritime Administration

GAO’s Comments The following are GAO’s comments on the Department of Transportation’s 

letter dated February 15, 2005.

1. We do not agree that MARAD has made substantial progress since 2001, 

considering less than 12 percent of the ships that have been in its 

inventory had been disposed of through September 2004—4 years later. 

While MARAD has made more progress in disposing of ships in the past 

2 years, much of this progress can be attributed to Congress providing 

about $25 million more than was sought in the fiscal years 2003 and 

2004 budget requests and the rising scrap metal market that has kept 

contract prices low. We also do not agree that the number of ships 

awarded is a good measurement of program progress since contract 

award has not always led to ships being removed and disposed of.

2. MARAD has no way of determining how successful exporting ships 

could be in reducing the number of its ships because it has not 

systematically identified and assessed potential impediments to export 

and determined actions to mitigate them. 

3. As our report points out, while DOT states that domestic capacity is 

limited, our report notes that MARAD has not done an analysis to 

determine the potential domestic capacity nor thought such an analysis 

was necessary. The recent increase in the number of domestic firms 

being awarded contracts would indicate that MARAD underestimated 

domestic capacity in the past.

4. We believe that MARAD lacks an integrated strategy for disposing of all 

of its ships using its available disposal methods. Lacking such a strategy 

contributed to MARAD’s decision to award an export contract that 

included 10 of its worst-conditioned ships before the advisability and 

feasibility of exporting was demonstrated. As a result, almost half of 

the $31 million that Congress appropriated in fiscal year 2003 has been 

tied up, pending the resolution of issues related to the exporting of 

these ships, and the disposal of these 10 deteriorated ships has been 

delayed.
Appendix II

Comments from the Department of 

Transportation

Page 56 GAO-05-264 Maritime Administration

5. We agree that plans must be flexible. However, successful programs 

must have a road map to guide its efforts. While DOT states that its 

strategy emphasizes disposing of ships in the worst condition first, 

neither its reports to Congress nor its strategic planning documents 

have identified the amount of funding needed to accomplish this 

strategy based on its available disposable methods nor given a 

timetable for accomplishing these disposal actions.

(350471)
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