Army Corps of Engineers: Action Needed to Ensure the Quality of Maintenance Dredging Contract Cost Data
Published: 2015-09-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The Corps maintains the navigation for thousands of miles of waterways and hundreds of ports of harbors. The Corps conducts maintenance dredging primarily under contract with private industry to remove sediment from waterways. Maintenance dredging is often cyclical in nature, with dredging needed annually or every few years.
GAO was asked to review Corps' maintenance dredging contract costs. This report examines (1) agency data available about the total costs of maintenance dredging contracts, and factors that contributed to any changes, during fiscal years 2004 through 2013, and (2) approaches the Corps reports it has undertaken to manage maintenance dredging contract costs
GAO reviewed laws, regulations, and Corps guidance; analyzed cost data from the Corps' dredging database for fiscal years 2004-2013 and assessed the reliability of these data; reviewed a nongeneralizable sample of four projects selected to reflect geographic variation and a range of contract sizes; reviewed documentation on approaches to manage costs; and interviewed Corps officials from headquarters, divisions, and districts (selected for geographic variation and range of dredging work) and dredging industry stakeholders.
section_title: What GAO Found
paragraphs: Cost data in the U.S. Army Corps of Engineers' (Corps) dredging database are unreliable and, therefore, the total costs of maintenance dredging contracts during fiscal years 2004 through 2013 are unclear. In particular, about 19 percent (264 out of 1,405) of the contract records marked as "complete" did not contain information on the final contract costs or the actual quantity of material dredged. The Corps relies on cost data from its dredging database to assess trends in maintenance dredging contract costs over time, among other things, but its district offices do not have systematic quality control measures in place to ensure these data are complete and accurate. Federal internal control standards indicate that managers should maintain quality information, including accurate and complete operational and financial data, for the effective and efficient management of their operations. Without systematic quality controls at the district-office level to regularly verify the completeness and accuracy of their maintenance dredging contract data, the Corps risks undertaking analyses on incomplete information, and drawing conclusions about cost trends based on unreliable information.
Multiple factors likely contributed to changes in contract costs during fiscal years 2004 through 2013, according to Corps officials. Corps officials, as well as representatives from the dredging industry, told GAO that during this period they believed the cost of dredging had increased for many maintenance projects. However, Corps officials said that it is difficult to discern which factors may have led to specific cost increases for a particular contract given the many factors that influence the cost of a contract. Factors that Corps officials commonly cited as likely contributing to changes in contract costs over the 10-year period included the number of contractors available to bid on the work; fluctuations in the market prices for labor, fuel, and steel; and the costs for transporting dredged material to a placement site, with farther placement sites generally being more costly because of additional time, fuel, and equipment needed to transport the material.
Corps districts reported undertaking various approaches to manage maintenance dredging contract costs, largely on a project-by-project basis because of the unique nature of each project. For example, officials from 11 of 12 Corps district offices interviewed said they have combined work under one or more projects that had historically had separate contracts into a single contract to help manage costs. In combining contracts, Corps district officials estimated reducing total mobilization costs—the costs to transport dredge equipment—based on the need to mobilize dredge equipment once under a combined contract, instead of multiple times for individual contracts. For example, Corps officials estimated that combining dredge work across projects from several West Coast districts saved up to $7 million annually in mobilization costs. Corp officials pointed out, however, that combining contracts may not always be feasible, such as when projects have time-sensitive dredging needs. Additionally, officials from a few district offices said that, in specifying the dredging requirements for a project, they may emphasize performance requirements and not necessarily the type of equipment needed to achieve those requirements, which may result in an increase in the number of contractors available to bid on the work and, therefore, more competitive bids.
section_title: What GAO Recommends
paragraphs: GAO recommends that the Corps require that its district offices establish systematic quality controls to regularly verify the completeness and accuracy of maintenance dredging contract data. The Department of Defense concurred with the recommendation.

section_title: Letter
paragraphs: With more than $1.7 trillion of import and export cargo passing through  U.S. waterways in 2013, maintaining the nation’s waterborne navigation  system—including ports, harbors, and other waterways—is critical. The  navigation mission of the U.S. Army Corps of Engineers (Corps), the  world’s largest public engineering, design, and construction management  agency, is to provide safe, reliable, efficient, effective and environmentally  sustainable waterborne transportation systems for movement of  commerce, national security needs, and recreation in the United States.  Vessels known as dredges are used to remove sediment from waterways  to construct or maintain navigation channels at depths and widths  necessary for shipping. Many waterways need regular maintenance  dredging because of ongoing accumulation of sediment. Since the late  1970s, the Corps has carried out most of its dredging under contract with  private companies. Specifically, in 1978, legislation directed the Corps to  contract with industry to conduct dredging—as industry demonstrated that  it could perform the work at reasonable prices and in a timely manner— and to maintain a minimum fleet of federal vessels to diminish risks to  navigation by performing urgent or emergency work, among other things.
According to Corps reports, overall expenditures on dredging-related  activities over the last 10 years have increased, though the total amount  of material dredged has decreased. Specifically, for fiscal year 2004, the  Corps reported spending about $903 million on dredging-related  activities, removing about 275 million cubic yards of material. By fiscal  year 2013, the Corps reported spending about $1 billion for the removal  of about 197 million cubic yards of material. Dredging-related  expenditures reported by the Corps included costs for all dredging  activities related to maintenance dredging and dredging for the  construction of new or expanding projects, such as for an additional  shipping channel at a harbor. The Corps also reported that during fiscal  years 2004 through 2013, maintenance dredging activities accounted for  the majority of its dredging-related expenditures.
You asked us to examine the costs associated with Corps maintenance  dredging contracts since fiscal year 2004. This report examines (1)  agency data available about the total costs of maintenance dredging  contracts, and factors that contributed to any changes, during fiscal years  2004 through 2013, and (2) approaches the Corps reports it has  undertaken to manage maintenance dredging contract costs.
To conduct our work, we reviewed relevant laws, regulations, and Corps  policy and guidance related to maintenance dredging. For both  objectives, we conducted interviews with, and obtained documentation  from, officials from Corps headquarters, 7 division offices, and 12 district  offices (out of a total of 8 division and 38 district offices, respectively). We  selected this nongeneralizable sample of Corps offices to represent  various geographic regions and a range of maintenance dredging work  carried out by the districts. We also interviewed officials from the  Dredging Contractors of America, a national association for the dredging  industry, as well as industry representatives from five dredging  companies that participated in our interviews, about their views on factors  that contributed to any changes in maintenance dredging contract costs  and on contracting approaches the Corps has undertaken to manage  contract costs.
To examine agency data available about the total costs of maintenance  dredging contracts, and factors that contributed to any changes, during  fiscal years 2004 through 2013, we reviewed data collected for those  fiscal years from the Corps’ dredging database, the Dredging Information  System. To assess the reliability of the data elements needed to conduct  our review—including final contract costs, actual quantity of material  dredged, and other related contract information—we performed electronic  testing of the data elements (such as looking for missing values or  outliers), reviewed related documentation, and interviewed agency  officials knowledgeable about the data. We concluded the data were not  sufficiently reliable for the purposes of reporting information on total costs  and quantities of maintenance dredging contracts. We also reviewed a  nongeneralizable sample of four reoccurring maintenance dredging  projects to determine factors that contributed to any changes in contract  costs during the time period of our review. We selected the projects to  reflect geographic variations and a range of contract sizes in terms of the  total estimated cost of the contract and the total estimated quantity of  material dredged. For each of the projects, we reviewed contract  information and supporting documentation to identify key cost  components and determine to the extent possible how, if at all, various  cost components contributed to any changes in maintenance costs for  contracts over the 10-year period of our review.
To examine approaches the Corps reports it has undertaken to manage  maintenance dredging contract costs, we interviewed Corps  headquarters, division, and district officials and asked officials to identify  approaches they have taken. We also requested and reviewed supporting  documentation from Corps offices when officials identified specific  examples of approaches to manage costs. Information obtained from our  interviews with Corps officials and industry representatives, and from the  projects we reviewed, cannot be generalized to those officials,  representatives, or maintenance projects we did not interview or review.  However, we believe our interviews and review of a sample of projects  provided important insights into factors that may have contributed to  changes in contract costs over the 10-year period, as well as approaches  the Corps has undertaken to manage maintenance dredging contract  costs. Appendix I presents a more detailed description of our objectives,  scope, and methodology.
We conducted this performance audit from June 2014 to September 2015  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: The Corps maintains the navigation for over 25,000 miles of inland and  intracoastal waterways and channels and more than 900 ports and  harbors across the United States. The accumulation of sediment in these  waterways—known as shoaling—reduces navigable depth and width and,  without dredging, may result in restrictions on vessels passing through  the waterways. These restrictions often apply to the vessels’ draft—the  distance between the surface of the water and the bottom of the hull— which determines, in part, the minimum depth of water in which a vessel  can safely navigate. Draft restrictions may result in delays and added  costs as ships may need to off-load some of their cargo to reduce their  draft, wait until high tide or until waterways are dredged, or sail into  another port. These restrictions are imposed at times on various  waterways throughout the United States due to shoaled conditions, which  could disrupt the shipment or delivery of millions of dollars’ worth of  cargo, according to Corps documents and officials. Maintenance dredging  needs across these waterways vary significantly, with the majority of  dredging occurring along the Atlantic and Gulf Coasts, according to Corps  officials.
A variety of dredge vessels and other supporting equipment are used for  dredging, with variation in their sizes and capabilities, and the conditions  under which they best perform. For example, mechanical dredges  excavate and remove material by applying mechanical force to the  material by means of an implement such as a bucket on the end of a  cable suspended from a crane, and deposit the material on a barge for  transportation to a placement site. Dustpan and cutterhead dredges, in  contrast, are hydraulic dredges that use a pump and either a cutterhead  or high-pressure water jets to erode material and remove it from the  bottom of a waterway, and then transport the dredged material through a  pipeline to a placement site. One of the largest dredge types, the hopper  dredge, is a self-propelled ocean-going vessel that hydraulically dredges  material and places it into the hold or “hopper” of the ship, where the  material is stored while being transported to a placement site where the  material may be released from the dredge into open water or pumped to a  placement site. Dustpan and cutterhead dredges may work in shallower  waterways and have the ability to maneuver in river traffic, whereas  hopper dredges perform much of the dredging work in ports, harbors, and  other coastal channels and waterways exposed to the ocean.
Corps headquarters and its 8 regional division offices generally provide  guidance and policy oversight to 38 district offices located throughout the  United States (see fig.1). District offices are generally responsible for  managing dredging projects located within their district boundaries,  including planning, awarding, and administering maintenance dredging  contracts with industry.
The Corps owns and operates a small fleet of dredge vessels, but it relies  mostly on contracts with industry for its maintenance dredging work.  According to Corps officials, the Corps typically solicits fixed-price  competitive bids from contractors. To help evaluate contractor bids, Corps  district offices are to develop an independent government cost estimate  for each contract solicitation. The estimates are to be developed using  information on the costs of owning and operating dredges—such as  acquisition, fuel, labor, and shipyard costs—along with the project  information for which the dredging is needed—including the amount and  type of material to be removed, the distance from the dredging site to a  placement site, and other factors that affect productivity such as  environmental requirements. In soliciting bids from contractors, Corps  districts have most commonly used a sealed-bid process, resulting in a  fixed-price contract between the Corps and the contractor, with the  contract generally awarded to the lowest responsible bidder with a  responsive bid that is no more than 25 percent above the government  cost estimate. Corps officials noted that if the Corps uses a solicitation  type other than sealed bidding, Corps districts generally have flexibility in  determining the specific contract type to employ for their projects, and  may choose other types, such as an indefinite delivery, indefinite quantity  contract. An indefinite delivery, indefinite quantity contract is a type of  delivery contract that provides for an indefinite quantity of supplies or  services within stated limits, during a fixed period.
The basic cost components of a maintenance dredging contract generally  include (1) mobilization of the dredge and related equipment to the  dredging site; (2) utilization of the dredge and related equipment to  conduct the dredging, as well as other project-specific activities required  under the contract, such as environmental monitoring; (3) transport of the  material to a placement site, which can include among others, open water  placement sites, confined placement facilities, or beneficial use sites,  such as for building a wetland or renourishing a beach; and  (4) demobilization of the dredge and related equipment. Each dredging  project is unique and a number of factors influence the cost of these  components across projects, including the type and quantity of material to  be dredged, allowable locations for placement of material, timing,  environmental requirements, and the location and weather conditions  where dredging occurs. Much of the maintenance dredging the Corps  undertakes is cyclical in nature, with dredging needed annually or every  few years, according to Corps officials.
A limited number of companies have conducted the majority of  maintenance dredging contracted by the Corps. Industry data provided by  the Dredging Contractors of America indicate that nationwide, during  fiscal years 2004 through 2013, an average of about 50 companies were  awarded one or more dredging contracts by the Corps annually, though  over 50 percent of the contracts, on average, were awarded to 8  companies. According to Corps and industry information, the ownership  and operating costs of dredges often require large capital outlays to cover  fixed costs such as equipment, insurance, and depreciation, as well as  variable costs such as payroll for crews, fuel, and equipment repairs and  upgrades—and therefore it may be difficult for companies to quickly enter  the dredging market.
Through its dredging database, the Corps maintains data on its dredging  projects, including all maintenance contracts. Information in the database  is used for a variety of purposes, including tracking anticipated and actual  project scheduling information, and tracking information across contracts  on anticipated and actual contract costs and quantities of material  dredged. For each contract, the dredging database includes data  elements to capture information on the project name, status, dredging  location, government cost estimate, type of contract, type of dredge used,  number of bidders, winning bidder, bid amounts, estimated quantities of  material dredged, and final contract costs and actual quantities of material  dredged after the contract is complete. The database also contains data  elements for specific cost components, such as mobilization and  demobilization costs, as well as data on the location and types of  placement sites used. District offices are responsible for entering data  into the database for the contracts they manage, and the database is  overseen by Corps headquarters.
section_title: Corps Data on Total Maintenance Dredging Contract Costs Are Unreliable, but Corps Officials Cited Multiple Factors That Likely Contributed to Cost Changes
paragraphs: Cost data in the Corps’ dredging database are unreliable and, therefore,  the total costs of maintenance dredging contracts during fiscal years 2004  through 2013 are unclear, but Corps officials report that multiple factors  likely contributed to cost changes during this period. The Corps relies on  data from its dredging database for assessing trends in maintenance  dredging contract costs over time, among other things, but we found that  many of the records in the database did not contain information on final  costs or actual quantities of material dredged. Corps headquarters  officials said they review some data in the dredging database monthly  and generally notify district offices when they identify errors or omissions,  but corrections may not always be made by the districts. We found that  Corps districts do not have systematic quality control measures in place  to ensure the data are complete and accurate, but rather the district  offices have taken various approaches to entering cost and cost-related  data into the database. Through our interviews with Corps officials and  review of a sample of projects, we found that multiple factors—such as  the level of competition for contracts and the need to comply with  environmental requirements—likely contributed to changes in  maintenance dredging contract costs during the period of our review.
subsections: section_title: Corps Data on Maintenance Dredging Contract Costs Are Unreliable
paragraphs: The total cost of maintenance dredging contracts during fiscal years 2004  through 2013 are unclear because data in the dredging database are  unreliable. Specifically, of the 1,405 contract records in the database that  were marked as “complete,” we found that about 19 percent (264 out of  1,405) did not contain information on the final contract costs or the actual  quantity of material dredged. In addition, for those 1,141 contract  records marked complete that had final contract cost and actual quantity  information entered, we found instances where other related contract  information was incomplete, including the following:
About 20 percent (224 out of 1,141) of the records did not contain a  contract number, contractor identification number, or contract award  date, raising questions about the validity of these records overall.
About 7 percent (75 out of 1,141) of the records did not have costs for  mobilization and demobilization specified, and it was not clear  whether these cost components may have been entered into the  database.
We also identified anomalies that raised questions about the accuracy of  some of the cost and cost-related information in the database.  Specifically, in analyzing the data to determine the cost per cubic yard of  dredging during fiscal years 2004 through 2013, we found wide variation,  with the cost per cubic yard ranging from $0.03 to $1,736, with an  average cost of $16.08 across the 1,141 records marked as complete and  with final contract cost and actual quantity information. In comparison,  through its analysis of dredging costs, the Corps has reported that, over  this same period, the cost of maintenance dredging—which included work  conducted by both Corps-owned dredges, as well as through contracts— was an average of $4.12 per cubic yard. In further examining the cost  data in the dredging database, we identified several contract records that  could contain incorrect information, potentially explaining the wide  variation in the cost per cubic yard across the 10-year period and  potentially skewing the average cost per cubic yard, including the  following:
One contract record showed the Corps paying a final contract cost of  almost $1.1 million for about 3,900 cubic yards of material dredged, at  a cost per cubic yard of $282. Upon further review of notes contained  within the database for the record, however, we found that the  quantities listed in the record likely represented the number of hours  the dredge operated, rather than cubic yards of material dredged.
Another contract record indicated that the final contract cost was  $875,104 for 504 cubic yards of material dredged, or $1,736 per cubic  yard dredged—more than 400 times the average cost per cubic yards  for other complete records in the database.
One contract record indicated that a contractor bid $1.1 million to  dredge 2,258 cubic yards, at a cost of $487 per cubic yard. The final  contract cost entered, however, indicated that $2,484 was paid for  dredging 2,258 cubic yards of material, or about $1.10 per cubic yard,  calling into question the accuracy of the cost amounts entered for this  record.
Corps headquarters officials said they have taken several steps to  encourage the district offices to enter complete and accurate information  into the dredging database, but they acknowledged that updates or  corrections may not always be made by the district offices. The Corps’  dredging database user guide provides detailed instructions for what  information should be entered for each data element in the database at  the different points along the contracts’ development and execution.  Corps headquarters officials told us that they run monthly database  queries designed to test for errors and omissions across various data  elements and that they may notify individual district offices via e-mail  regarding incomplete information. Headquarters and division officials said  that they also emphasize the importance of the data to districts before  national and regional dredging meetings and send out e-mail reminders  or contact district offices by phone asking them to ensure dredging data  are updated before these meetings take place. Headquarters and division  officials further explained, however, that it is the district offices that are  responsible for entering and maintaining data in the dredging database  for their respective contracts. Headquarters officials said they generally  check to see if updates they request are made, but the officials  emphasized that the responsibility for making updates resides with the  district offices, and that updates may not always be made by the district  offices.
In discussing the dredging database with Corps division and district  officials, we found that the district offices have taken various approaches  to entering cost and cost-related data into the database. The dredging  database user guide specifies how contract-related information is to be  entered, but the Corps does not have agency-wide guidance specifying  steps the districts should take to verify and ensure the completeness and  accuracy of the data. Officials from most of the 12 district offices we  spoke with said that they assign one person to enter data into the  dredging database and that having a single person enter all the data is an  important quality control step and helps ensure that data are entered in a  consistent manner. On the other hand, officials from 4 district offices said  they have the data reviewed by someone else to verify the data’s  completeness and accuracy. In addition, officials from 5 of the 12 district  offices we spoke with said that entering cost data into the database has  not been a high priority because they use other systems or methods to  maintain cost data for the contracts they manage. For example, officials  from 4 district offices told us they maintain spreadsheets to track cost and  other related information for the projects they manage in their district;  according to these officials, these spreadsheets allow them to maintain  detailed information in a more accessible and user-friendly manner than  the information in the dredging database. Moreover, officials from 7  district offices told us that they primarily use the database for planning  and scheduling upcoming dredging work, and thus entering scheduling  information when preparing a solicitation for a contract may be a higher  priority than entering in final costs and quantities when the contract is  complete.
Corps headquarters officials said that, based on their observations of  dredging database records, district offices have made improvements in  entering information into the database over the last several years, but  they acknowledged that some of the data may be of limited quality.  Officials told us that having complete and accurate data in the database— including data on final contract costs and actual quantities of material  dredged—is important for managing contract costs over time, and that  they rely on data in the database to assess various trends. For example,  officials stated that they utilize data from the dredging database to assess  how the numbers of bids may be influencing the prices bid by contractors,  how government cost estimates compare with bid prices, how final  contract costs compare with government cost estimates or bid prices, and  the extent to which there may be patterns or unexplained variations in the  cost of dredging on a per cubic yard basis over time. One headquarters  official further said that the Corps continuously looks for ways to increase  competition for its maintenance dredging contracts and therefore seeks  data to help understand factors affecting competition. For example,  headquarters officials said they review scheduling data in the database  on a weekly basis to try to help increase the number of contractors  available to bid on upcoming work, which could in turn encourage lower  contract bid prices. Federal internal control standards indicate that  managers should maintain quality information, including accurate and  complete operational and financial data, for the effective and efficient  management of their operations. The Department of Defense’s  Financial Management Regulation also requires that relevant and reliable  information related to program costs be provided to program managers so  that management can use the information for decision making. Without  systematic quality controls at the district-office level to regularly verify the  completeness and accuracy of their maintenance dredging contract data,  the Corps risks undertaking analyses on incomplete information, and may  be drawing conclusions about cost trends based on unreliable  information. Furthermore, without complete information, the Corps may  be missing opportunities to identify cost elements contributing to contract  costs, changes in costs over time, or other factors important to the  management of maintenance dredging contracts.
section_title: Corps Officials Cited Multiple Factors That Likely Contributed to Changes in Maintenance Dredging Contract Costs
paragraphs: Through our interviews with Corps officials and review of a sample of  dredging projects, we found that multiple factors likely contributed to  changes in contract costs during fiscal years 2004 through 2013. Corps  officials across many of the headquarters, division, and district offices we  spoke with, as well as representatives from the dredging industry, said  that during this period they believed the cost of dredging had increased  for many maintenance projects. Factors that Corps officials we  interviewed commonly cited as likely contributing to changes in contract  costs over the 10-year period of our review included the following:
Weather conditions and other natural events, such as hurricanes,  greatly influence the location, type, and volume of material that may  need to be dredged from one dredging cycle to the next, which may  affect the size and scope of the work and in turn the total cost of the  contract.
Federal funding available may affect the amount of dredging to be  performed for particular projects, and reducing the scope of  maintenance projects may contribute to higher costs on a per cubic  yard basis for some contracts because dredging smaller volumes of  material may result in less efficient use of dredge equipment given the  fixed costs associated with maintaining and operating dredge  equipment.
Labor, fuel, and steel prices may represent a large portion of the cost  to a contractor in conducting dredging, and fluctuations in the market  prices for these costs may influence contractors’ bids for contracts.
Competition—the number of contractors available to bid on and  conduct the work—may also affect bid prices and during times when  there is a high demand for dredging, the number of contractors  available to bid on work may be limited, which could in turn lead to  higher bid prices.
Material placement costs, which are influenced by nature of the  material, the type of placement method used, and the location where  the material is placed, may affect contract costs with farther  placement sites generally more costly because of additional time, fuel,  and equipment needed to transport the material.
Environmental requirements and dredging windows—requirements  that specify the time of year when dredging may occur at a particular  location—may affect contract costs such as by requiring the use of  enhanced dredging equipment or other equipment, such as trawlers to  monitor for sea turtles or other threatened or endangered species;  restricting dredging to certain times of the year when contractor  availability may be limited; or requiring contractors to conduct work  during times of the year when conditions may be more severe,  potentially making dredging operations more dangerous and less  efficient.
In general, Corps officials we interviewed said it is difficult to discern  which of these various factors may have led to specific cost increases for  a particular contract. For example, officials from several districts we  spoke with said that dredging windows have limited their ability to  schedule work to maximize contractor availability, resulting in fewer bids  and higher bid prices for some contracts. Additionally, some district  officials told us that dredging windows have also led to dredging during  times of the year when weather conditions have made dredging more  dangerous or more difficult, increasing the risk to contractors, which in  turn may have contributed to higher bid prices. Officials further explained,  however, that though these factors likely influenced changes in contract  costs, they could not determine by how much. However, in one instance,  Corps officials identified how certain factors led to cost increases for a  particular contract. Specifically, for one project we reviewed, contract  costs rose when the traditional placement site reached capacity in 2011,  and the new state-run placement site that the Corps began using levied a  fee, on a per cubic yard basis, for material placed there. This fee added  an average of about $8 per cubic yard of material to the annual dredging  contract starting in fiscal year 2012, resulting in an increase of more than  $2 million to the total cost of the contract that year.
section_title: Corps Districts Report Undertaking Various Approaches to Manage Contract Costs
paragraphs: Officials from Corps district offices we spoke with reported undertaking  various approaches to manage maintenance dredging contract costs,  largely on a project-by-project basis. Corps officials explained that,  because each dredging project is unique, a one-size-fits-all approach for  developing and executing contracts cannot be taken. Rather, district  offices have the flexibility to manage their dredging contracts, including  taking various approaches to manage costs. Several Corps officials noted  that identifying approaches for managing their maintenance contracts has  been especially important over the last several years because of  increases in costs, as well as flat or reduced funding for some projects.  We found that the district offices commonly cited approaches relating to  combining contracts, using alternative contract types, and changing the  specifications of the contract.
Corps officials from 11 of the 12 district offices we interviewed said that  they have combined work under one or more projects that had historically  had separate contracts into a single contract in an effort to manage costs.  Combining contracts can result in reduced administrative, mobilization,  and demobilization costs and, in some instances, a lower unit price per  cubic yard, according to Corps officials. The officials explained that, in  general, the larger the quantity of material included in a contract, the  lower the price may be on a per cubic yard basis because contractors are  able to spread out their fixed costs. For example, since fiscal year 2012,  Corps districts on the West Coast have combined some of their hopper  dredging work into one regional contract. Contractors with hopper  dredges primarily work on the East and Gulf Coasts and mobilizing a  hopper dredge from those areas for dredging on the West Coast can be  costly given the distance the dredge must travel, according to Corps  officials. Officials estimated that combining the hopper dredge work  across projects from several West Coast districts saved up to $7 million  annually by having a single hopper dredge mobilize and demobilize once  instead of multiple dredges for individual contracts. In another district on  the East Coast, in fiscal year 2013, the district combined into one contract  the dredging for a coastal storm damage reduction project with a nearby  maintenance dredging project, with officials estimating that the cost per  cubic yard and mobilization costs—about $1.5 to $2 million—were less  than what they may have been had the work been completed under two  separate contracts.
Before combining contracts, Corps district officials said they consider a  variety of factors—such as contracting regulations and requirements, the  nature of the project, dredging windows and other timing needs, allowing  opportunities for small businesses to bid on the work, and availability of  funding—and that combining contracts may be feasible in limited  instances. For example, because additional planning may be needed, it  may not be feasible to combine contracts for projects with time-sensitive  needs, according to the officials. Some Corps district officials noted that  2013 revisions to Department of Defense contracting regulations have  affected the process for combining some contracts. Under the revisions,  if the total combined value of the contract is $2 million or above, the  Corps districts must have, among other things, an acquisition strategy  that includes market research, identifies alternative contracting  approaches, and obtains approval for the contract from a division-level  senior procurement executive. Previously, approval for combining  contracts was not required at the division level unless the contract value  was at least $6 million. Some district officials told us that these additional  steps can add to the contract preparation time and review process and,  as a result, may preclude districts from combining contracts for projects  with time-sensitive dredging needs.
In conjunction with combining contracts, some Corps district officials said  that they have shifted from using fixed-price contracts to employing  alternative contract types to help manage contract costs. For example,  officials from a Gulf Coast district told us that, since fiscal year 2012, they  have employed an indefinite delivery, indefinite quantity contract to help  manage the costs of maintenance work in their district, instead of multiple  fixed-price contracts. According to the officials, this contracting type  provided flexibility related to the amount of material that could be dredged  under the contract, as well as the timing of when dredging could occur.  The district officials explained that given the dynamic nature of some of  their projects, it was challenging to identify specific quantities and  locations of material to be dredged, information that is required in  advance of planning and executing a fixed-price contract. District officials  said that using an indefinite delivery, indefinite quantity contract allowed  the district to issue task orders for dredging needs as they arose across  areas specified in the contract because, under the terms of the contract, a  contractor would be available to conduct dredging as needed during the  period outlined in the contract. By combining the district’s work into one  indefinite delivery, indefinite quantity contract, district officials estimated  saving approximately $670,000 in mobilization and demobilization costs  annually because of the need to pay for these costs under one contract,  instead of for three individual contracts.
Other district officials told us they have begun using multiple award task  order contracts, in part, to help manage contract costs. Under multiple  award task order contracts, officials said they can have a contractor  undertake needed maintenance dredging quickly because, under this  contracting type, contractors are preapproved and, once approved, can  bid on maintenance work in a more streamlined manner than the  solicitation process generally followed under a typical fixed-price contract.  Officials in a Corps district on the East Coast said that, after the 2004 and  2005 hurricane seasons, working under a fixed-price contract—which  generally takes about 45 days to solicit bids and identify a winning  bidder—did not allow them to quickly respond to the substantial time- sensitive dredging needs that the hurricanes had caused. The district  then decided to begin combining dredging for some of its projects into  multiple award task order contracts, which provided them flexibility in  scheduling the work and, according to the officials, reduced the time  needed to award a contract by about 30 days. District officials estimated  that by combining dredging from 17 projects into 7 multiple award task  order contracts over the 3-year period covering fiscal years 2010 through  2012, they reduced the mobilization and demobilization costs for the work  by approximately $18.8 million.
Some Corps officials and industry representatives we spoke with, on the  other hand, said there are trade-offs in using multiple award task order  contract types. They explained that, from a contractor’s perspective,  multiple award task order contracts may be perceived as more risky than  the typical sealed-bid process followed by a fixed-price contract because,  among other things, less information may be available to contractors,  including information on other bidders and their bid prices. According to  Corps officials and industry representatives, higher risk may be reflected  in higher bids. Additionally, they said that, under multiple award task order  contracts, notification of the winning bidder is not made immediately—as  it typically is under a sealed-bid solicitation process—and, therefore,  contractors wait to bid on other contracts, potentially affecting their ability  to bid on contracts for other dredging work.
Several Corps district officials also said that they alter the specifications  or extend the time frames of maintenance dredging contracts, where  feasible, to manage costs. For instance, Corps officials from a few  districts said that, in specifying the dredging requirements of a project,  they may emphasize performance requirements and not necessarily the  type of equipment needed to achieve those requirements. Officials in a  Gulf Coast district said that, for one maintenance contract in fiscal year  2013, they did not specify a required dredge type in the solicitation. The  officials explained that because of the lower amount of material to be  dredged that year compared with past years, there was flexibility related  to the type of dredge that could be used, and by opening up bid  solicitations to contractors with multiple dredge types, a lower bid price  could result from the potentially higher number of bidders. A contractor  with a pipeline dredge had been used over the preceding 10 years but, in  fiscal year 2013, a contractor with a hopper dredge—a dredge type that  district officials said could operate at a lower cost than a pipeline dredge  for that project—was awarded the contract for about $2 million less than  past contracts.
In other instances, Corps district officials said they have used multiyear  contracting to conduct dredging work over more than one dredging cycle.  Officials in a Pacific Northwest district told us that in past years, they  awarded single-year maintenance dredging contracts for one project that  needs annual dredging. Since fiscal year 2008, district officials said they  employed a 1-year contract, but with the option to extend it up to 2  additional years. Structuring the contract in this way provided the district  the ability to change contractors if the current contractor was performing  poorly, by not exercising the next year’s option. District officials were not  able to estimate specific savings from this approach, but they said that  extending the contract to 3 years stabilized the mobilization and  demobilization costs because the contractor kept the dredge equipment in  the area to carry out the entire contract, though keeping the equipment in  the area was not a contract requirement. Officials from this district also  noted, however, that multiyear contracts carry more risk for contractors  because the contractors have to forecast fuel prices and other costs for  the duration of the contract, which can in turn lead to higher bid prices  than if the contract was for a single year.
In addition, Corps officials across all the offices we spoke with said they  share lessons learned and seek opportunities to learn about approaches  that might help them better manage contract costs through a variety of  formal and informal coordination efforts. Several Corps district officials  said they participate in regional dredging teams that meet on a weekly,  monthly, or quarterly basis where they discuss dredging schedules,  contracting approaches, and dredging techniques and technologies,  among other things. Districts that dredge the Mississippi River, for  example, participate in a regional dredging team where they meet weekly  to discuss the scheduling of some of their respective projects and to  combine work where feasible. Corps headquarters also holds annual  national dredging meetings, both internally and with industry, and a  number of Corps district offices we spoke with said these meetings  present regular opportunities to share or learn about cost-effective  approaches others may be taking. Additionally, officials from several  Corps districts said that for some projects—especially those that may be  more complex or less routine in nature—they invite industry contractors to  meet with them to discuss upcoming dredging needs. For example,  officials from one East Coast district office said the district has held  “industry days” since 2012 in advance of soliciting contracts for annual  maintenance dredging in a harbor that includes multiple inner channels,  to obtain industry input on structuring the order of dredging and material  placement so as to efficiently complete dredging needs across these  channels, among other things.
section_title: Conclusions
paragraphs: Dredging is a vital part of keeping the nation’s ports, harbors, and other  waterways open for safe and efficient navigation and for the passage of  import and export cargo crucial to commerce. The Corps removes  millions of cubic yards of material from these waterways annually, relying  mainly on contractors to do this work. Over the past decade, the Corps  has reported that the cost of dredging activities has risen while the  amount of material dredged has fallen. Recognizing the need to dredge  efficiently, the Corps has reported taking some approaches, such as  combining contracts, to manage the costs associated with maintenance  dredging contracts.
The Corps uses data from its dredging database to assess trends in costs  and quantities dredged for its maintenance contracts. The Corps has  measures in place at headquarters to review data in the database, but  these measures themselves have not been effective in ensuring that the  Corps has reliable data. Because Corps district offices are not  consistently populating the database, and because the district offices do  not have systematic quality controls to regularly verify the completeness  and accuracy of their dredging data, the Corps may have an incomplete  picture of the costs of its maintenance dredging contracts. As a result, the  Corps risks undertaking analyses and making conclusions on unreliable  information, and may be missing opportunities to identify factors important  to the management of maintenance dredging, such as cost elements  contributing to changes in costs over time, or additional areas where it  could take further actions to manage costs.
section_title: Recommendation for Executive Action
paragraphs: To help ensure the completeness and accuracy of cost and cost-related  data for maintenance dredging contracts in the Corps’ Dredging  Information System database, we recommend that the Secretary of  Defense direct the Director of Civil Works of the U.S. Army Corps of  Engineers to require that its district offices establish systematic quality  controls to regularly verify the completeness and accuracy of their  maintenance dredging contract data, including processes for ensuring  that corrections are made when errors or omissions may be identified,  such as through headquarters reviews.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Department of Defense for review  and comment. In its written comments, reproduced in appendix II, the  Department of Defense concurred with our recommendation. It stated that  the Corps’ dredging database is not uniquely different from other  database systems with challenges achieving data quality and  completeness. The Department said that the Corps’ Director of Civil  Works will direct district offices to establish systematic quality controls to  regularly verify the completeness and accuracy of their maintenance  dredging contract data, including processes for ensuring that corrections  are made when errors or omissions may be identified through major  subordinate commands (i.e., division offices) and headquarters reviews.  The Department of Defense also provided technical comments that we  incorporated, as appropriate.
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If you or your staff members have any questions about this report, please  contact me at (202) 512-3841 or fennella@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. GAO staff who made key contributions to  this report are listed in appendix III.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report examines (1) agency data available about the U.S. Army  Corps of Engineers (Corps) total costs of maintenance dredging  contracts, and factors that contributed to any changes, during fiscal years  2004 through 2013, and (2) approaches the Corps reports it has  undertaken to manage maintenance dredging contract costs.
For both objectives, we reviewed relevant laws, regulations, and Corps  policy and guidance related to maintenance dredging and the  development and execution of maintenance contracts. We conducted  interviews with, and obtained documentation from, officials from Corps  headquarters, 7 division offices, and 12 district offices (out of a total of 8  division and 38 district offices, respectively). We selected this  nongeneralizable sample of Corps offices to represent various geographic  regions and a range of maintenance dredging work carried out by the  districts (relating to estimated numbers of contracts employed and  estimated contract costs and quantities of material dredged). We  conducted interviews with navigation managers, contracting officials,  project managers, engineers, and other officials from the following Corps  division and district offices:
Division offices: Great Lakes and Ohio River, Mississippi Valley, North  Atlantic, Northwestern, South Atlantic, South Pacific, and  Southwestern.
District offices: Baltimore, Buffalo, Galveston, Jacksonville, Mobile,  New England, New Orleans, New York, Norfolk, San Francisco,  Seattle, and Wilmington.
We also interviewed officials from the Dredging Contractors of America, a  national association that represents the dredging industry, as well as  industry representatives from five dredging companies that participated in  our interviews, about their views on factors that contributed to any  changes in maintenance dredging contract costs and on contracting  approaches the Corps has undertaken to manage maintenance dredging  contract costs.
To examine agency data available about the total costs of maintenance  dredging contracts, and factors that contributed to any changes, during  fiscal years 2004 through 2013, we reviewed dredging data collected for  those fiscal years by the Corps through its dredging database, the  Dredging Information System, and Corps documentation related to the  database, including a database user’s guide and data dictionary. Our  analysis included 2,227 contract records labeled in the dredging database  as maintenance dredging contracts having a “bid open” date (the date  when a bid for a solicitation is opened and the Corps determines whether  it can award a contract for a given project based on the bids received)  during fiscal years 2004 through 2013. These contract records included  maintenance dredging (about 99 percent) and maintenance and  construction work combined (about 1 percent). According to the data,  1,405 of these maintenance contracts were completed during fiscal years  2004 through 2013, with an average of approximately 140 contracts  completed annually. To assess the reliability of the data elements needed  to conduct our review—including final contract costs, actual quantity of  dredged material, and other related contract information—we performed  electronic testing of the data elements (such as looking for missing values  or outliers), reviewed related documentation, and interviewed agency  officials knowledgeable about the data. Specifically, we interviewed  officials from the Corps headquarters Navigation Data Center who  oversee the dredging database, and we interviewed officials from the 12  selected Corps district offices about their offices processes for entering  and updating data for their respective maintenance dredging contracts.  We concluded that the data were not sufficiently reliable for the purposes  of reporting information on total costs and quantities of maintenance  dredging contracts.
We also explored using other data to determine Corps maintenance  dredging contract costs, but we were unable to use other data sources  because complete information for all contracts were not available from  these sources. Specifically, we sought information from the Federal  Procurement Data System-Next Generation, the Corps of Engineers  Financial Management System, and the Corps Resident Management  System (a system to manage construction contracts). With regard to the  Federal Procurement Data System-Next Generation, we obtained data on  Corps contracts from fiscal years 2004 through 2013 that were coded as  “dredging” and attempted to separate out maintenance-related dredging  contracts. However, we were unable to identify a subset of maintenance  contracts given the number of dredging contract codes, as well as the  varying contract descriptions. In addition, the Corps of Engineers  Financial Management System and the Corps Resident Management  System did not contain data in such a way that costs for all maintenance  contracts could be broken out from other cost information.
Additionally, to examine factors that contributed to any changes in  contract costs during fiscal years 2004 through 2013, we interviewed the  selected Corps division and district offices and reviewed a  nongeneralizable sample of four reoccurring maintenance dredging  projects. We selected the following projects to reflect geographic variation  and a range of contract sizes, based on data from the dredging database  on the total estimated cost of the contract and the total estimated quantity  of material dredged:
Atchafalaya River Basin, Gulf Intracoastal Waterways, and   Miscellaneous Project, located in Southern Louisiana;
Baltimore Harbor Project, located in Baltimore, Maryland;
Lorain Harbor Project, located in Lorain, Ohio; and
Palm Beach Harbor Project, located in West Palm Beach, Florida.
For each of the projects, we reviewed contract information and other  supporting documentation to identify key cost components for the projects  and determine to the extent possible how, if at all, various cost  components contributed to any changes in maintenance costs for  contracts executed across the time period of our review. Specifically, we  examined estimated and final contract costs, estimated and final  quantities of material dredged, and various cost components in the  contracts across different years, such as mobilization, demobilization, and  material placement costs.
To examine approaches the Corps reports it has undertaken to manage  maintenance dredging contract costs, we interviewed officials from Corps  headquarters and the selected division and district offices and reviewed  related documentation. Specifically, during our interviews across Corps  offices, we asked Corps officials to identify approaches they have  undertaken to manage maintenance dredging contract costs. We then  requested and reviewed supporting documentation when officials  identified specific examples of approaches they indicated resulted in cost- effective approaches, including examining reports, studies,  memorandums, or other documentation developed to estimate potential  cost savings achieved as a result of a particular approach. Information  obtained from our interviews with Corps officials and industry  representatives and from the projects we reviewed cannot be generalized  to those officials, representatives, or maintenance projects we did not  interview or review. However, we believe our interviews and review of a  sample of projects provided important insights into factors that may have  contributed to changes in contract costs over the 10-year period, as well  as approaches the Corps has undertaken to manage maintenance  dredging contract costs.
We conducted this performance audit from June 2014 to September 2015  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
section_title: Appendix II: Comments from the Department of Defense
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual listed above, Alyssa M. Hundrup, Assistant  Director; Hiwotte Amare; Arkelga Braxton; Stephanie Gaines; Cindy  Gilbert; Richard P. Johnson; Julia Kennon; Michael Krafve; Gerald  Leverich; Kirk D. Menard; Mehrzad Nadji; Cynthia Norris; and Tatiana  Winger made key contributions to this report.