Corps of Engineers: Effects of Restrictions on Corps' Hopper Dredges Should Be Comprehensively Analyzed
Published: 2003-03-31T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: The fiscal year 2002 Conference Report for the Energy and Water Development Appropriations Act directed GAO to study the benefits and effects of the U.S. Army Corps of Engineers' (Corps) dredge fleet. GAO examined the characteristics and changing roles of the Corps and industry in hopper dredging; the effect of current restrictions on the Corps' hopper dredge fleet; and whether existing and proposed restrictions on the fleet, including the proposal to place the McFarland in ready reserve, are justified. In addition, GAO identified concerns related to the government cost estimates the Corps prepares to determine the reasonableness of industry bids.
section_title: What GAO Found
paragraphs: In response to 1978 legislation that encouraged private industry participation in dredging, the Corps gradually reduced its hopper dredge fleet from 14 to 4 vessels (the Wheeler, the McFarland, the Essayons, and the Yaquina) while a private hopper dredging industry of five firms and 16 vessels has emerged. Dredging stakeholders generally agreed that the Corps needs to retain at least a small hopper dredge fleet to (1) provide additional dredging capacity during peak demand years, (2) meet emergency dredging needs, and (3) provide an alternative work option when industry provides no bids or when its bids exceed the government cost estimate by more than 25 percent. In reviewing the cost estimation process, GAO found that the Corps' estimates are based on some outdated contractor cost information and an expired policy for calculating transit costs. The restrictions on the use of the Corps' hopper dredge fleet that began in fiscal year 1993 have imposed costs on the Corps' dredging program, but have thus far not resulted in proven benefits. The Corps estimates that it spends $12.5 million annually to maintain the Wheeler in ready reserve, defined as 55 workdays plus emergencies, of which about $8.4 million is needed to cover the costs incurred when the vessel is idle. A possible benefit of restrictions on the Corps' vessels is that they could eventually encourage existing firms to add dredging capacity or more firms to enter the market, which, in turn, may promote competition, improve dredging efficiency, and lower prices. Although there has been an increase in the number of private industry hopper dredges since the restrictions were first imposed, the number of private firms in the hopper dredging market has decreased. In addition, during the same time period, the number of contractor bids per Corps solicitation has decreased, while the number of winning bids exceeding the Corps' cost estimates has increased. Although the Corps proposed that the McFarland be placed in ready reserve, it has not conducted an analysis to establish that this action would be in the government's best interest. Specifically, in a June 2000 report to the Congress, the Corps stated that the placement of the Wheeler in ready reserve had been a success and proposed that the McFarland also be placed in ready reserve. However, when asked, the Corps could not provide any supporting documentation for its report. Furthermore, according to the Corps, future use of the McFarland will require at least a $25 million capital investment to ensure its safety, operational reliability, and effectiveness. Such an investment in a vessel that would be placed in ready reserve and receive only minimal use is questionable.

section_title: Letter
paragraphs: Keeping the nation’s navigation channels and ports fully functioning is  vital to U.S. commerce both domestically and abroad.  In 2001, shipping  vessels moved more than $700 billion of import and export cargo through  the nation’s ports and harbors.  Vessels called dredges remove sediment  from the bottom of navigation channels, ports, and harbors to maintain  waterways at the navigable depths and widths necessary for shipping.   There is a variety of dredge types, each designed to perform optimally  under specific conditions.  One dredge type—the hopper dredge— performs much of the dredging needed in ports, harbors, and access  channels exposed to the ocean, where traffic and operating conditions  render the use of other dredges inefficient or impractical.  A hopper  dredge pumps material (e.g., sand and water slurry) into its hopper where  it is stored before being transported to the disposal site.  (See fig. 1.)
The U.S. Army Corps of Engineers (Corps) is responsible for dredging U.S.  ports and harbors.  The Corps is to carry out projects for improvements of  rivers and harbors, by contract or otherwise, in the manner most  economical and advantageous to the United States.  Until 1978, the Corps  performed all hopper dredging work with its 14 hopper dredges.  In 1978,  legislation directed the Corps to (1) contract out much of its dredging  work to private industry as industry demonstrated that it could perform  the work at reasonable prices and in a timely manner, (2) reduce the  federal fleet as industry demonstrated its ability to perform, and (3)  maintain a minimum fleet of federal vessels for emergency and national  defense purposes.  The act also directed the Corps to retain as much of the  fleet as it determined necessary to ensure that the federal and private  fleets together could carry out necessary dredging projects.  As a result,  the Corps reduced the size of its hopper dredge fleet to four vessels—the  Wheeler, the McFarland, the Essayons, and the Yaquina.  In the 1990s, in  an effort to further promote private industry participation in hopper  dredging, the Congress imposed restrictions on the Corps’ hopper dredge  fleet.  These restrictions (1) effectively reduced the annual work schedule  of each of the Corps’ hopper dredges from about 230 to about 180  workdays and (2) limited the Wheeler to 55 workdays per year plus  emergencies (referred to as “ready reserve” status).  Furthermore, in fiscal  year 2002, the Congress directed the Corps to confine the McFarland to  emergency work and operations in the Delaware River.  The Corps was to  periodically evaluate the effects of the ready reserve program on the costs,  responsiveness, and capacity of the Corps’ and private industry’s hopper  dredges.
The fiscal year 2002 Conference Report for the Energy and Water  Development Appropriations Act directed GAO to study the benefits and  effects of the Corps’ dredge fleet.  In response, we examined (1) the  changing roles of the Corps and industry in hopper dredging and the  characteristics of the hopper dredging industry; (2) the effect of  restrictions currently in place on the Corps’ hopper dredge fleet; and (3)  whether the existing and proposed restrictions on the Corps’ hopper  dredges, including placing the dredge McFarland in ready reserve, are  justified.  In addition, during the course of our work we identified  concerns related to the government cost estimates that the Corps prepares  to determine whether industry bids for dredging work are reasonable.
subsections: section_title: Background
paragraphs: Since 1824 the Corps has been responsible for constructing and  maintaining a safe, reliable, and economically efficient navigation system.   Today, this system is comprised of more than 12,000 miles of inland  waterways, 300 large commercial harbors, and 600 small harbors.  From  fiscal years 1998 through 2002, the Corps has removed an average of about  265 million cubic yards of material each year from the navigable waters of  the United States, at an average annual cost of about $856 million (in  constant 2002 dollars).  Private industry performs most of the overall  dredging, except for the work done by hopper dredges, in which both the  Corps and industry perform a significant amount of the work.  Of the $856  million spent annually on overall dredging, about $197 million is spent on  all hopper dredging (both maintenance and new construction), with  industry vessels accounting for about $148 million annually and Corps  vessels accounting for about $49 million.
Each of the Corps’ hopper dredges typically operates in a specific  geographic area.  The Wheeler, a large-class dredge, usually operates in  the Gulf of Mexico.  The McFarland, a medium-class dredge, usually  operates in the Atlantic and Gulf of Mexico.  The Essayons, a large-class  dredge, and the Yaquina, a small-class dredge, typically work along the  Pacific coast.
Legislation enacted in the 1990s sought to further increase the role of  industry in hopper dredging by placing operational restrictions on the  Corps’ hopper dredges.  Specifically, the Energy and Water Development  Appropriations Act for fiscal year 1993 and subsequent appropriations acts  required the Corps to offer for competitive bidding 7.5 million cubic yards  of hopper dredging work previously performed by the federal fleet.  Since  fiscal year 1993, the Corps has addressed this requirement by reducing the  use of each of its four dredges from about 230 workdays per year to about  180 workdays per year.  The Water Resources Development Act for fiscal  year 1996 required the Corps to initiate a program to increase the use of  private hopper dredges principally by taking the Wheeler out of active  status and placing it into ready reserve.  The Corps implemented this  requirement by allowing the Wheeler to work 55 days a year plus  emergencies (which includes urgent and time-sensitive dredging needs).   The 1996 act did not alter the Corps’ duty to implement the dredging  program in the manner most economical and advantageous to the United  States, and it restricted the Corps’ authority to reduce the workload of  other federal hopper dredges.  The conference report that accompanied  the act directed the Corps to periodically evaluate the effects of the ready  reserve program on private industry and on the Corps’ hopper dredge  costs, responsiveness, and capacity.  The Energy and Water  Appropriations Act for fiscal year 2002 placed another restriction on the  use of the Corps’ dredge McFarland, limiting it to emergency work and its  historical scheduled maintenance in the Delaware River (about 85  workdays per year).  Taken together, these restrictions have increased  private industry’s share of the hopper dredging workload.
In theory, restrictions on the use of the Corps’ hopper dredges could  generate efficiency and cost-savings benefits to both government and  industry.  For example, restricting the Corps’ hopper dredges to fewer  scheduled workdays could make them more available to respond to  emergency dredging needs.  In addition, the increase in demand for  dredging by private industry could lead to improvements in dredging  efficiency.  If achieved, firms might be able to dredge the same amount of  material at a lower cost or more material at the same cost.  Furthermore, if  more work were provided to the private hopper dredging industry,  competition could increase if the existing dredging firms expanded their  fleets or more firms entered the market.  Consequently, the prices that the  government pays to contractors could fall.  However, economic principles  also suggest that if an industry is given more work without increasing  capacity or the number of competing firms, prices could rise because the  demand for its services has increased.
section_title: Corps Has Transferred Most of Its Hopper Dredging to Private Industry, but Still Needs to Retain a Hopper Dredge Fleet
paragraphs: The Corps’ and private industry’s respective roles in the hopper dredging  market have changed since legislation enacted in 1978 prompted a  movement toward privatization of hopper dredging in the United States.   Since that time, the Corps has gradually reduced its hopper dredging fleet  from 14 to 4 vessels, while a private hopper dredging industry of five firms  and 16 vessels has emerged.  Corps officials and representatives from the  dredging industry, selected ports, and the maritime industry generally  agreed that the Corps needs to retain at least a small hopper dredge fleet  to (1) provide additional dredging capacity during peak demand years, (2)  meet the emergency and national defense needs identified in the 1978  legislation, and (3) provide an alternative work option at times when the  industry offers unreasonable bids or no bids at all.  To determine the  reasonableness of private contractor bids, the Corps develops a  government cost estimate for its hopper dredging solicitations.  If the low  bid is no more than 25 percent above the government cost estimate, the  Corps awards the contract.  If all bids exceed the government cost  estimate by more than 25 percent, the Corps may pursue a number of  options, including performing the work itself.  The practical value of this  protection against high bids, however, has been limited by the Corps’ use  of some outdated contractor cost information and its continued use of an  expired policy to calculate transit costs.
subsections: section_title: Corps and Industry Roles in Hopper Dredging Have Shifted
paragraphs: Before 1978, the Corps performed all of the nation’s hopper dredge work.   In 1978, the Congress passed legislation to encourage private industry  participation in all types of dredging and required the Corps to reduce the  fleet of federal vessels to the minimum necessary for national defense and  emergency purposes, as industry demonstrated its capability to perform  the work.  According to the Senate committee report associated with the  1978 legislation, one of the law’s main purposes was to provide incentives  for private industry to construct new hopper dredges.  Between 1978 and  1983, as a private hopper dredging industry began to emerge, the Corps  reduced its hopper dredge fleet from 14 to its current 4 vessels. By the late  1980s, the Corps stopped assigning its hopper dredges to new construction  projects (primarily channel deepening), leaving this work entirely to  private industry. Both Corps and private industry hopper dredges continue  to perform maintenance work on existing channels.
From fiscal years 1998 through 2002, the Corps’ dredges performed about  28 percent of the nation’s hopper dredging maintenance work, annually  dredging about 16 million cubic yards of material at a cost of about $49  million (in constant 2002 dollars).  During the same period, industry  dredges performed about 72 percent of the nation’s hopper dredging  maintenance work, dredging about 40 million cubic yards of material  annually, at a cost of about $93 million.  As a result of the 1978 legislation,  seven firms emerged to compete for the Corps’ hopper dredging contracts.   Consolidation and firm buy-outs in the 1990s have left five firms in today’s  market.  (Appendix II contains a more detailed description of the U.S.  hopper dredge fleet.)
section_title: Corps’ Hopper Dredge Fleet Addresses Several Needs
paragraphs: Corps officials and representatives from the dredging industry, selected  ports, and the maritime industry generally agreed that the Corps’ hopper  dredge fleet currently (1) provides additional dredging capacity during  peak demand years, (2) meets emergency dredging and national defense  needs identified in the 1978 legislation, and (3) provides an alternative  work option when industry provides no bids or when its bids exceed the  government cost estimate by more than 25 percent.  In addition,  representatives of selected ports and the maritime industry generally  supported the Corps’ retention and operation of a federal hopper dredge  fleet to ensure that dredging needs are met in a timely manner.
One of the reasons for the Corps to maintain a hopper dredge fleet is that  changes in annual weather patterns, such as El Niño, and severe weather  events, such as hurricanes and floods, can create a wide disparity in the  demand for hopper dredging services from year to year.  During fiscal year  1997 the Corps and private industry used their hopper dredges for  maintenance work to remove almost 77 million cubic yards nationwide.  In  contrast, during fiscal year 2000 they removed about 50 million cubic  yards.  (See fig. 2.)  Hopper dredging needs at the mouth of the Mississippi  River are particularly variable from year to year, with annual dredging  requirements ranging from 2 million to 50 million cubic yards.   Representatives from private dredging firms maintain that industry is not  likely to build the additional capacity needed to meet demand in peak  years.  Corps officials and representatives from the dredging industry,  selected ports, and the maritime industry generally agreed that the federal  government should provide the additional dredging capacity required to  meet the needs of peak demand years.
The Corps’ hopper dredges are also needed to respond to emergency  dredging assignments.  For example, according to a Corps official, it was  necessary for the Corps to send the Essayons to finish work on a project  in Alaska that was critical to complete before the winter season and  freezing conditions set in.  In addition, Corps vessels have been used  during instances where industry has submitted no bids in response to  solicitations.  For example, when rains in the Mississippi River Basin  caused a build-up of material in navigation channels, the Corps issued a  solicitation, but no bids were received because industry vessels were  unavailable.  Consequently, the Wheeler was used to perform the work.  In  such situations, the Corps’ fleet acts as insurance to meet dredging needs,  ensuring that shipping patterns are not adversely affected.
The existence of the Corps’ fleet theoretically offers a measure of  protection against inordinately high bids from private contractors.  While  the private dredging market consists of 16 dredges owned by five firms,  not all dredges compete for any given solicitation because (1) some, if not  most, hopper dredges are committed to other jobs; (2) hopper dredges  may be in the shipyard; (3) differences in hopper dredge size and  capability mean that not all hopper dredges are ideally suited to perform  the work for a particular job; and (4) hopper dredges cannot quickly move  from one dredging region to another.  For example, large hopper dredges  may have difficulty maneuvering in small inlet harbors, and small hopper  dredges may be inefficient at performing large projects with distant  disposal sites.  Thus, the Corps’ hopper dredge fleet provides an  alternative dredging capability that can be brought to bear when private  dredges are not available or when private industry bids are deemed too  high.
section_title: Corps Bases Its Cost Estimate on Outdated Information
paragraphs: The Corps’ government cost estimate for hopper dredging work is pivotal  in determining the reasonableness of private contractor bids.  The Corps is  required to determine a fair and reasonable estimate of the costs for a  well-equipped contractor to perform the work.  By law, the Corps may not  award a dredging contract if the price exceeds 25 percent of the  government estimate.  In such cases, the Corps has several options.  It can  (1) cancel the solicitation, (2) readvertise the solicitation, (3) consider  challenges to the accuracy of the Corps’ cost estimate by bidders, (4)  convert the solicitation into a negotiated procurement, or (5) use one of its  own dredges to do the work.
The accuracy of the Corps’ cost estimate depends on having access to up- to-date cost information.  Although the Corps adjusts contractor cost data  annually to reflect current pricing levels, this step does not account for  fundamental changes, such as an industry vessel reaching the end of its  depreciable life or industry acquisition of new vessels.  The Corps has not  obtained comprehensive industrywide contractor cost information since  1988.  Since then, contractors have provided the Corps updated cost  information to support specific costs included in the Corps’ cost estimates  that they believe to be outdated, but they are not required to provide  updated information for all costs.  As a result, the Corps only has updated  cost information that contractors provide.  In our discussions with Corps  officials, they acknowledged the need to initiate an effort to obtain and  verify current cost data for industry vessels.
In addition, the Corps continues to follow an expired policy when  calculating contractor transit costs to the dredge site, further calling into  question the accuracy of the government cost estimates.  The Corps’  Engineering Regulation 1110-2-1300, which called on the Corps to  calculate industry transit costs to the dredge site based on the location of  the second-closest industry dredge, expired in 1994.  However, the Corps  continues to use this method when calculating transit costs for at least  some of its solicitations.  For example, Corps officials followed the  expired policy when demonstrating to us how they calculated the transit  costs for a solicitation in Washington State.  In this case, the second- closest industry dredge was located in the Gulf of Mexico, and the  estimated transit costs amounted to about $480,000 because the vessel  would have had to travel thousands of miles and go through the Panama  Canal.  However, the private contractor’s dredge that performed the work  was located fewer than 500 miles from the dredge site, for which the  transit costs were estimated to be about $100,000.  After bringing this issue  to the Corps’ attention, the Corps told us that it plans to reexamine its  transit cost policies.
section_title: Restrictions on the Corps’ Hopper Dredge Fleet Have Imposed Costs, but Benefits Are Unproven
paragraphs: Restrictions on the Corps’ hopper dredge fleet, which began in fiscal year  1993, have imposed costs on the Corps’ dredging program, but have thus  far not resulted in proven benefits.  Most of the costs of the Corps’ hopper  dredges are incurred regardless of how frequently the dredges are used.  A  possible benefit of the restrictions is that they could eventually encourage  more firms to enter the market or existing firms to add capacity, which, in  turn, may promote competition, improve dredging efficiency, and thus  reduce prices.  Although there has been an increase in the number of  private industry hopper dredges since the restrictions were first imposed,  the number of private firms in the hopper dredging market has decreased.   In addition, during the same time period, the number of contractor bids  per Corps solicitation has decreased, while the number of winning bids  exceeding the Corps’ cost estimate has increased.  Restrictions on the  Corps’ vessels could also potentially enhance the Corps’ responsiveness to  emergency dredging needs.  However, the Corps is unable to evaluate  whether emergency dredging needs have been met more or less efficiently  since the restrictions went into effect because it does not specifically  identify and track emergency work performed by either Corps or industry  vessels.
subsections: section_title: Corps Incurs Costs by Keeping the Wheeler in Ready Reserve
paragraphs: The Corps incurs many of the costs for maintaining and operating its  hopper dredges regardless of how much the vessels are used.  Thus, as  shown in table 1, when the Wheeler was placed in ready reserve and  restricted to 55 workdays plus emergencies, the average number of days it  worked per year and its productivity (measured by cubic yardage dredged)  declined by about 56 percent, while its costs declined by only 20 percent.   Crew size declined by about 21 percent, but payroll costs declined by just  2 percent because dredging needs required the Corps to pay the smaller  crew overtime to finish the work.  In addition, fuel costs did not drop in  proportion to use and productivity because the vessel’s engines were  utilized for shipboard services (e.g., electricity) while it remained at the  dock—a necessary procedure for maintaining minimal vessel readiness.   Other costs unrelated to crew or fuel represent the plant or capital costs of  a dredge, many of which the Corps incurs regardless of how much a  dredge is used.
The Corps refers to the difference between a vessel’s total costs and the  value of the dredging services it provides (the net cost) as a “subsidy.”   The Corps estimates the annual subsidy to maintain the Wheeler idle in  ready reserve at about $8.4 million.  This subsidy is a direct cost of ready  reserve.  In addition to the subsidy, the Corps must pay contractors to do  the work the Wheeler no longer performs.  The difference between the  vessel’s traditional workload and its current workload is approximately 6.6  million cubic yards.  Depending on whether private industry hopper  dredges are able to perform this work in aggregate at a lower or higher  cost than if the Wheeler performed the work, the total cost to government  of the Wheeler in ready reserve status could be either lower or higher than  the Corps’ estimated subsidy.
In addition to the Wheeler’s subsidy, restrictions have led to inefficient  operations for the other Corps hopper dredges, resulting in additional  costs for the Corps.  According to Corps officials, September is the ideal  time to dredge in the Pacific Northwest, because dredging conditions  generally deteriorate in October.  The officials mentioned that, at times,  the Essayons and the Yaquina have reached their fiscal year operating  limits and returned to port in September, before the projects they were  working on were complete.  The dredges were sent back to complete the  project after the new fiscal year began in October, even though weather  conditions may have made dredging conditions less than optimal, and the  Corps incurred additional transit costs.  According to some Corps officials,  the annual operating limit cannot be extended.  For example, the  Essayons stopped dredging the mouth of the Columbia River and returned  to port at the end of fiscal year 2001 when it reached its operating limit.   The vessel returned to finish the work at the start of the new fiscal year,  but adverse weather conditions prevented it from fully dredging the river.   As a result, some projects may be postponed until the following fiscal year,  reprioritized, or canceled altogether.
section_title: Benefits of Restrictions Are Unproven
paragraphs: A potential benefit of the restrictions on the Corps’ hopper dredge fleet is  that an increase in demand for industry’s dredging services could  encourage existing firms to make capital investments (e.g., build new  dredges or improve existing dredges) or encourage more firms to enter the  dredging market.  Dredging industry representatives told us that the  restrictions have already led to an increase in the number of industry  vessels and, as evidence, pointed to the addition of two new dredges, the  Liberty Island, a large-class dredge introduced in 2002, and the Bayport, a  medium-class dredge introduced in 1999, as well as the return of the  Stuyvesant, a large-class dredge, to the U.S. hopper dredging market.   Moreover, they added that since the restrictions, the private hopper  dredging industry has also made improvements and enhancements to its  existing fleet—specifically the Columbia—thus improving the efficiency  of its dredging operations and increasing the capacity of its vessels.   However, the representatives also told us that the restrictions are only one  of several factors the private hopper dredging industry considers when  deciding to acquire or build an additional dredge.  In addition, firms must  invest in equipment to remain competitive in any industry.  As a result, it is  unclear to what extent the restrictions on the Corps’ vessels were a factor  in industry’s investment decisions to increase its fleet size and add  dredging capacity.
While the private hopper dredging industry has recently placed two new  dredges on line, it has sold the small-class dredge Mermentau and placed  another small-class dredge, the Northerly Island, up for sale.  In addition,  during the last decade the private hopper dredging industry has decreased  from seven firms to five firms.  Specifically, since 1993, two firms exited  the market, one firm entered the market, and two firms merged.  The  consolidation in the industry does not necessarily mean that competition  has been reduced because the new industry structure could have resulted  in enhanced capacity, flexibility, and efficiency for the remaining firms.   However, it is uncertain whether the private hopper dredging industry is  more or less competitive now than it was prior to the restrictions.
Historical data reveal that, in general, as shown in figure 3, in years when  more material is available to private industry, industry submits fewer bids  per Corps solicitation.  For example, during fiscal year 1991, when the  Corps estimated that 31.3 million cubic yards of maintenance material  would be contracted out to industry, the average number of bids per  solicitation was 3.2.  In contrast, during fiscal year 1998, when the Corps  estimated that 53.7 million cubic yards of maintenance material would be  contracted out to industry, industry submitted an average of about 2 bids  per solicitation.
Likewise, as shown in figure 4, in years when there were fewer industry  bids per Corps solicitation, the average winning industry bid, as a  percentage of the Corps’ cost estimate, was higher.  For example, during  fiscal year 1991, when the average number of bids per solicitation was 3.2,  the average winning bid was 79 percent of the Corps’ estimate.  In  contrast, during fiscal year 1998, when the average number of bids per  solicitation was 2, the average winning bid was 97 percent of the Corps’  estimate.
In general, when there are fewer industry bids per solicitation, the winning  industry bid relative to the Corps’ cost estimate increases.  In fiscal years  1990 through 2002, more than half of the solicitations for hopper dredging  maintenance work received just one or two bids from private contractors.   During these years, when only one contractor bid on a solicitation, the bid  exceeded the government estimate 87 percent of the time.  In contrast,  when there were three or more bids on a solicitation, the winning bid  exceeded the government estimate only 22 percent of the time.  After the  Corps’ hopper dredge fleet was effectively restricted to 180 workdays  (fiscal years 1993 through 2002), the number of industry bids per  solicitation declined from about 3 to roughly 2.4.  Specifically, as shown in  figure 5, when there were no limits on the use of the Corps’ hopper  dredges (fiscal years 1990 through 1992), only 5 percent of solicitations  received one bid.  After limits were placed on the Corps’ hopper dredges  (fiscal years 1993 through 2002), 19 percent of solicitations had only one  bid.  Moreover, before the restrictions, 67 percent of the solicitations had  three or more bids, whereas, after the restrictions, only 42 percent had  three or more bids.  These changes might have been expected because,  after the restrictions, industry’s share of hopper dredging work increased  while the number of hopper dredging firms decreased from seven to five.
Furthermore, in the time period following the imposition of the 180-day  restriction, the frequency with which the winning industry bid exceeded  the Corps’ cost estimate has increased.  For example, as shown in figure 6,  prior to the restrictions, the winning bid exceeded the Corps’ cost estimate  24 percent of the time.  After the restrictions were imposed, the winning  bid exceeded the Corps’ estimate 45 percent of the time.  This finding is  consistent with economic principles; that is, all else equal, an increase in  demand for dredging by private industry with fixed supply would result in  higher prices.
It should be noted that the extent to which the restrictions contributed to  the decrease in the number of industry bids per Corps solicitation and the  increase in the winning industry bid relative to the Corps’ cost estimate is  unknown.  Other factors could have also contributed to these changes.   For example, an increase in the demand for hopper dredging services for  new construction projects or beach nourishment could lead to a decrease  in the number of bids received for maintenance projects.  Similarly, the  introduction of environmental restrictions on when hopper dredging can  take place could contribute to an increase in the winning industry bid  relative to the Corps’ cost estimate.  Nevertheless, the decrease in the  number of bids per solicitation and the increase in bids exceeding the  Corps’ cost estimates raises questions about the effects the restrictions  may have had on competition and prices, demonstrating the need for a  comprehensive analysis of the effects of the restrictions on competition,  efficiency, and prices.
Another potential benefit of restrictions on the use of the Corps’ vessels is  enhanced responsiveness to emergencies.  However, there is disagreement  within the Corps on this issue.  One Corps official believes that a dredge in  ready reserve is better able to handle emergencies than if it were working  180 days because it is in a “standby” status at the dock, ready to respond.   In contrast, others in the Corps believe that a dredge can respond just as  well or better to an emergency while working a full schedule because the  dredge can temporarily halt the project it is working on, respond to the  emergency, and then return to its scheduled work.  During our  discussions with representatives from selected ports and the maritime  industry, we did not learn of any instances of problems in the Corps’  responsiveness to emergencies prior to restrictions or instances of  improved response time since the restrictions went into effect.
A major reason that the Corps is unable to evaluate whether emergency  dredging needs have been met more or less efficiently since the  restrictions went into effect is that its dredging database—the Dredging  Information System—does not specifically identify and track emergency  work performed either by Corps or industry vessels.  Consequently, the  Corps cannot readily determine how many days have been needed for  each of its vessels to respond to emergencies.  In addition, the Corps does  not know whether it is paying contractors more or less for performing the  emergency dredging projects compared to the costs it pays for routinely  scheduled maintenance work.  Such information would be a valuable tool  for determining how emergency dredging needs can be met in a manner  that is the most economical and advantageous to the government—that is,  when and under what circumstances to contract with the private hopper  dredging industry for these emergencies or when to use Corps vessels.  In  discussing this issue, Corps officials agreed that obtaining information on  emergencies is important for managing their hopper dredging program and  told us they have initiated efforts to collect such data to incorporate into  their dredging database.
section_title: Corps Has Not Justified the Existing and Proposed Restrictions on Its Hopper Dredge Fleet
paragraphs: In a June 2000 report to the Congress, the Corps stated that the placement  of the Wheeler in ready reserve had been a success and recommended that  the vessel remain in ready reserve.  However, the report contained a  number of analytical and evidentiary shortcomings, and, when asked, the  Corps could not provide any supporting documentation for its  recommendation.  In addition, the report also proposed that the  McFarland be placed in ready reserve, but the Corps did not conduct an  analysis to support this proposal.  The costs to place the McFarland in  ready reserve are likely to be similar to the costs incurred by placing the  Wheeler in ready reserve.  Because the McFarland’s workload would be  reduced from 180 days to 55 days plus emergencies, the Corps would incur  annual costs of about $8 million when the vessel is idle—largely because  much of a vessel’s costs are incurred regardless of its level of use.    Furthermore, according to the Corps, the McFarland will require at least a  $25 million capital investment to ensure its safety, operational reliability,  and effectiveness for future service.  It is questionable whether such an  investment in a vessel that would be placed in ready reserve and receive  only minimal use is in the best interest of the government.
subsections: section_title: Corps Has Not Comprehensively Analyzed the Costs and Benefits of Restrictions
paragraphs: The Water Resources Development Act for 1996 required the Corps to  determine whether (1) the Wheeler should be returned to active status or  continue in ready reserve status or (2) another federal hopper dredge  should be placed in ready reserve status, and issue a report to the  Congress on its findings.  The Corps issued the required report in June  2000, recommending that the Wheeler remain in reserve and proposing  that an additional dredge, the McFarland, also be placed in reserve.  However, when asked, the Corps official who authored the report told us  that he did not have any supporting documentation for the report.  In  addition, the report had a number of evidentiary and analytical  shortcomings.  For example, the evidence presented in the report showed  that the price the government paid to the industry for hopper dredging was  higher in the 2 years after the Wheeler was put in ready reserve than it was  the year before.  This raises questions about the validity of the  recommendation contained in the report.
Furthermore, the report did not contain a comprehensive analysis.  A  comprehensive economic analysis of a government program or policy  would identify all the resulting costs and benefits, and, where possible,  quantify these measures.  Both the quantitative and qualitative costs and  benefits would need to be compared and evaluated to determine the  success or failure of a program and to potentially be used as a basis for  future policy decisions.  With regard to the restrictions on the Corps’  hopper dredges, a comprehensive economic analysis might contain,  among other things, all costs associated with the nonuse of the vessel and  the potential benefits that might result due to efficiency gains, increased  competition, and lower prices.  The analysis might also examine whether  ports, harbors, and access channels were maintained more or less  effectively, or whether emergency dredging needs were met in a more or  less timely and cost-effective manner following implementation of the  restrictions.
section_title: Corps Has Not Demonstrated that Further Restrictions on the Use of the Corps’ Dredge McFarland Are Warranted
paragraphs: The Corps has not demonstrated that placing an additional hopper dredge  in ready reserve, specifically the McFarland, would be beneficial to the  United States.  In its June 2000 report to the Congress on the ready reserve  status of the dredge Wheeler, the Corps proposed that the McFarland be  the next dredge placed in reserve.  However, the Corps did not offer any  analysis on the potential costs of placing an additional Corps hopper  dredge in reserve or the benefits of such an action.  Moreover, to be  available for future use, the 35-year-old McFarland requires at least a $25  million capital investment to ensure its safety, operational reliability, and  effectiveness.  The repairs include asbestos removal; repairs to the hull;  engine replacement; and upgrades of equipment, machinery, and other  shipboard systems.  It is questionable whether spending $25 million to  rehabilitate the McFarland and then placing it in ready reserve is prudent.
Furthermore, if the McFarland were placed in ready reserve, the Corps  would incur annual costs similar to the subsidy that is already incurred for  the Wheeler.  Because the Wheeler’s costs do not vary proportionally to its  use, the costs to operate the vessel 55 days a year plus emergencies in  ready reserve is only marginally less than if it were to operate 180 days a  year.  The Corps estimates that if the McFarland were placed in ready  reserve, it would require an annual subsidy of about $8 million to remain  idle.  The Corps would also need to contract out the work the McFarland  would no longer be doing—approximately 2 to 3 million cubic yards per  year.  Depending on whether private industry hopper dredges are able to  perform this work in aggregate at a lower or higher cost than if the  McFarland performed the work, the total cost to government of the  placing the McFarland in reserve could be either lower or higher than the  estimated annual subsidy.  Finally, placing the McFarland in ready reserve  could increase competition if such restrictions spurred an increase in  investment in private hopper dredges.  However, it is questionable  whether placing the McFarland in ready reserve would provide enough  incentive for industry to make additional investments.
section_title: Conclusions
paragraphs: Hopper dredges play a critical role in keeping the nation’s ports open for  both domestic and international trade.  This function has been and will  likely continue to be carried out through a mix of private industry and  government-owned dredges.  At issue is how to use this mix of dredges in  a manner that maintains the viability of the private fleet while minimizing  the costs to government.  The Corps has proposed to the Congress that  additional restrictions on the use of its hopper dredges are warranted, but  it cannot provide any analytical evidence to support its position.  The  limited evidence that does exist indicates that these restrictions have  imposed costs on the government, while the benefits are largely unproven.    Unless and until the Corps gathers the data, comprehensively analyzes the  costs and benefits of restrictions on the use of its hopper dredges, and  takes the steps to update its cost estimates, there is no assurance that the  nation’s hopper dredging needs are being met in a manner that is the most  economical and advantageous to the government.
section_title: Recommendations for Executive Action
paragraphs: In an effort to discern the most economical and advantageous manner in  which to operate its hopper dredge fleet, and because the Corps has been  unable to support, through analysis and documentation, the costs and  benefits of placing its hopper dredges in ready reserve, we recommend  that the Secretary of the Army direct the Corps of Engineers to    obtain and analyze the baseline data needed to determine the  appropriate use of the Corps’ hopper dredge fleet including, among  other things, data on the frequency, type, and cost of emergency work  performed by the Corps and the private hopper dredging industry;  contract type; and solicitations that receive no bids or where all the  bids received exceeded the Corps’ estimate by more than 25 percent;    prepare a comprehensive analysis of the costs and benefits of existing  and proposed restrictions on the use of the Corps’ hopper dredge  fleet—including limiting the Corps’ dredges to 180 days of work per  year, placing the Wheeler into ready reserve, limiting the McFarland to  its historic work in the Delaware River, and placing the McFarland into  ready reserve status; and    assess the data and procedures used to perform the government cost  estimate when contracting dredging work to the private hopper  dredging industry, including, among other things, (1) updating the cost  information for private industry hopper dredges and (2) examining the  policies related to calculating transit costs.
section_title: Agency Comments
paragraphs: We provided a draft of this report to the Acting Assistant Secretary of the  Army and the Dredging Contractors of America for review and comment.
In a letter dated March 21, 2003, the Department of the Army (Army)  provided comments on a draft of this report.  The Army agreed with our  recommendations and provided time frames for implementing each of  them.  It also provided additional comments suggesting clarification and  elaboration on a number of issues discussed in our report.  See appendix  III for the Army’s comments and our responses.
In a letter dated March 3, 2003, the Dredging Contractors of America  (DCA) provided detailed comments on a draft of this report.  DCA  generally agreed with our recommendations.  However, it believed  strongly that reducing the scheduled use of the Corps’ hopper dredges has  resulted in proven benefits.  We continue to believe that the relationship  between the restrictions and benefits to the government are unproven  because (1) the Corps incurs costs related to the underutilization of its  dredges, and (2) since the restrictions were first imposed, the Corps has  received fewer industry bids per solicitation, and the percentage of  winning industry bids that exceed the Corps’ cost estimates has increased.   See appendix IV for DCA’s comments and our responses.
We conducted our review between January 2002 and February 2003 in  accordance with generally accepted government auditing standards.  A  detailed discussion of our scope and methodology is presented in  appendix I.
We will send copies of the report to the Secretary of the Army, appropriate  congressional committees, and other interested Members of Congress.  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 about this report, please contact me at  (202) 512-3841.  Key contributors to this report are listed in appendix V.
section_title: Appendix I: Scope and Methodology
paragraphs: To assess the changing roles of the Corps and industry in hopper dredging  and the characteristics of the hopper dredging industry, we obtained  Corps’ studies and data from the Corps’ Navigation Data Center that  provided information on the hopper dredging requirements of the United  States, including the quantity of material dredged annually by the Corps  and the private hopper dredging industry, and their associated costs.  We  also reviewed the laws that define these roles.  In addition, we interviewed  Corps officials; representatives from the five hopper dredging firms (B+B  Dredging Co., Inc., Bean Stuyvesant LLC, Great Lakes Dredge & Dock  Company, Manson Construction Co., and Weeks Marine, Inc.); the  maritime industry (the Delaware River Port Authority, Maritime Exchange  for the Delaware River and Bay, Navios Ship Agencies, Inc., and the  Steamship Association of Louisiana); dredging and port associations  (Dredging Contractors of America, Pacific Northwest Waterways  Association, and American Association of Port Authorities); and selected  ports (Portland, Seattle, New York/New Jersey, New Orleans, and  Wilmington).  To obtain a better understanding of hopper dredging from  the perspective of the private hopper dredging industry, we visited and  toured a medium-class industry hopper dredge working in the Chesapeake  and Delaware Canal and interviewed its crew.  Moreover, we reviewed the  Corps’ cost estimating policies.
To determine the intent and effects of the restrictions placed on the use of  the Corps’ hopper dredge fleet, we analyzed the laws governing the use of  the Corps’ hopper dredges.  We also reviewed studies conducted by the  Corps and the Pacific Northwest Waterways Association.  For qualitative  information, we obtained documents and interviewed Corps officials from  headquarters and district and division offices, including Jacksonville, New  Orleans, Philadelphia, Portland, Walla Walla, and the North Atlantic  Division, as well as representatives from the private hopper dredging  firms, selected ports, dredging and port associations, and the maritime  industry.  For quantitative information, we performed descriptive  statistical analyses using data on the winning contractor bids, estimated  industry dredging volumes, and the Corps’ cost estimate available from the  Corps’ Dredging Information System database.
To evaluate whether further restrictions on the Corps’ hopper dredge fleet,  including placing the Corps’ dredge McFarland in ready reserve, are  justified, we reviewed studies and analyses performed by the Corps to  support its proposal to place the McFarland in ready reserve.  We also  interviewed officials from the Corps and representatives from the private  hopper dredging industry, selected ports, and the maritime industry to  gain their views on the possible effects on competition and emergency  response if the current restrictions on the Corps’ hopper dredges,  particularly the McFarland, were modified.  To determine the costs  associated with repairing the McFarland, we obtained and analyzed cost  estimates for the repairs prepared by the Corps’ Philadelphia district office  and discussed the estimates with Corps district and headquarters officials.   We also visited and toured the McFarland when it was working in the  Delaware River and interviewed the McFarland’s crew and Corps officials  from the Philadelphia district and the North Atlantic Division offices.
We conducted our review between January 2002 and February 2003 in  accordance with generally accepted government auditing standards.
section_title: Appendix II: The U.S. Hopper Dredge Fleet
paragraphs: There are currently 20 hopper dredges operating in the United States.  (See  table 2.)  Of the 20 dredges, 4 are small-class hopper dredges, 10 are  medium-class hopper dredges, and 6 are large-class hopper dredges.  Of  the 16 private hopper dredges, Great Lakes Dredge & Dock Company  owns 7, Manson Construction Co. owns 3, and the remaining firms (B+B  Dredging Co., Inc., Bean Stuyvesant LLC, and Weeks Marine, Inc.) each  own 2.
section_title: Appendix III: Comments from the Department of the Army
subsections: section_title: Discussed below are GAO’s corresponding detailed responses to the Army’s six numbered additional comments.
paragraphs: 1.  As discussed in our report, the Corps’ cost estimate is pivotal in determining  the reasonableness of private contractors bids, and by law the Corps may not  award a contract if the bid price exceeds the cost estimate by more than 25  percent.  Consequently, we believe that it is critical for the Corps to have  comprehensive data for all costs and all industry vessels.  The Army  recognized in its comments that the cost information for industry hopper  dredges is outdated and needs to be evaluated, and has initiated an effort to  improve the cost data.  While we recognize that updating the cost data could  potentially increase or decrease the Corps’ cost estimates, we believe that  unless the Corps has updated cost data for all industry vessels, there is no  assurance that the Corps’ cost estimates are a reliable tool for determining  whether industry bids are within 25 percent of the government estimate as  required by law.  The Army’s suggestion of clustering several navigation  projects for west coast contracts—similar to the Dredging Contractors of  America’s comment numbered 3—is one of several possible options for  addressing the costs of moving dredges to and from the west coast region.  2.  In our report, we illustrated how a rigid interpretation of the Corps’ policy that  limits the number of days its vessel can operate resulted in inefficient  operations.  We recognize that the Corps’ hopper dredge owning district has  the flexibility to schedule the dredge within the maximum allowable number  of days.  However, because time-sensitive dredging needs may disrupt the  scheduled use of the dredge, we believe that it would be prudent for the Corps  to examine whether there is a need for some flexibility in implementing the  annual operating restrictions on the Corps vessels.
As discussed in our report, the Corps incurs many of the costs for maintaining  and operating its hopper dredges regardless of how much the vessels are used.   While it is true that the Corps would save contracting costs if the river is not  shoaling and the work previously performed by the Wheeler does not need to  be done, the Corps is still paying money to maintain the Wheeler idle in  reserve when the vessel could be working to pay for its costs.  We recognize  that it is plausible that private industry’s hopper dredging costs could  decrease over time if their vessels performed more work.  However, more  important to the government, is how any potential decrease in industry costs  are passed along to the government in the form of lower prices.  The data in  our report raise questions about whether any cost savings industry has  realized have trickled down to the government.  The Army’s suggestion  regarding a sensitivity analysis is one of many analyses that it may wish to  consider in its comprehensive analysis of the costs and benefits of existing  and proposed restrictions on the use of the Corps’ hopper dredges.    3.  As acknowledged in our report, private industry has increased its hopper  dredging capacity.  However, the exact change in capacity and the degree to  which the capacity increases are attributable to the restrictions on the Corps  vessels is uncertain.  While it is plausible that the restrictions may have caused  industry to make these capital improvements, representatives of the dredging  industry told us that the restrictions were one of several factors that they  considered before building or acquiring additional vessels, including the  construction of the Bayport and the Liberty Island.  It is uncertain whether  these investments occurred as a result of the restrictions or whether the  investments were necessary to remain competitive in the industry.   Hypothetically, more vessels and increased capacity should translate to more  bids and lower bid prices.  However, our analysis showed that the number of  industry bids per hopper maintenance dredging solicitation declined from  about 3 bids before restrictions to roughly 2.4 bids after restrictions were  placed on the Corps vessels.  This finding reinforces the need for a  comprehensive analysis of the benefits and costs of the restrictions on the  Corps’ dredges.  4.  The Army’s comment reinforces our concerns about whether the restrictions  have resulted in proven benefits.  This is one of the issues that should be  considered in the comprehensive analysis we are recommending.   5.  The Army recognizes the need to update the information being collected by its  Dredging Information System and has initiated efforts to address this issue.   Obtaining and analyzing such information is an important prerequisite to  determine whether all hopper dredging needs, in particular time-sensitive  needs, are being met in the manner most cost-effective to the government.   While the Army refers to a mechanism they have developed with industry to  ensure that time-sensitive and urgent dredging needs are managed, we believe  it is premature to claim that the process has resulted in meeting time-sensitive  dredging needs in a cost-effective manner.  6.  The Army’s comments did not address the lack of supporting documentation  for its June 2000 Report to Congress.  Instead, the Army reiterated points it  has made in its previous comments and raised a number of other issues  related to hopper dredging.  Until a comprehensive analysis is performed on  the benefits and costs of restrictions on the Corps’ hopper dredge fleet, there  is no assurance that the Nation’s hopper dredging needs are being met in the  manner that is most economic and advantageous to the government.
section_title: Appendix IV: Comments from the Dredging Contractors of America
paragraphs: DCA generally agreed with our recommendations.  However, DCA strongly  believes that reducing the scheduled use of the Corps’ hopper dredges has  resulted in proven benefits.  DCA stated that available information and  data show that benefits have resulted.  However, we believe the  relationship between the restrictions on the Corps’ hopper dredge fleet  and benefits to the government remains unproven.  First, the extent to  which use restrictions on the Corps’ vessels were a factor in industry’s  investment decisions to increase its fleet size and add dredging capacity is  unclear.  Second, the analysis provided by DCA to support its claim is not  persuasive; it covered an insufficient period of time and presented data in  a potentially misleading fashion. Specifically, DCA only included data for  activities that occurred after the implementation of the first restriction on  the Corps’ dredges.  We believe that an analysis of the effects of the  restrictions should include data covering the period before and after the  restrictions because the time period before restrictions establishes the  appropriate baseline to compare changes resulting from the restrictions.
Discussed below are our corresponding detailed responses to DCA’s nine  numbered comments in the three-page attachment to its letter.  DCA also  provided 21 pages of appendices, which we have not included in this final  report because of the length.  However, we have considered all of DCA’s  comments in our response.  1.  We have added language to expand our description of the  legislation enacted in 1996 that further increased the role of private  industry in hopper dredging.    2.  We disagree that the Corps receives adequate, updated contractor  cost information through claims and other audit-related activities.    As part of this process, industry only provides the Corps updated  information to support specific costs that they believe are  outdated.  They are not required to provide updated information  for all costs.  In addition, the updated information obtained  through claims and other audit-related activities do not ensure that  data are collected consistently for each of the vessels.  For a vessel  involved in multiple claims, the Corps may have more up-to-date  costs than a vessel with fewer claims.  DCA stated in its comments  that current cost information should be used because industry  faces increasing labor, fuel, maintenance, and insurance costs.  As  mentioned in our report, the Corps adjusts estimated costs  annually to reflect current price levels.  These adjustments,  however, do not account for fundamental changes, such as a vessel  reaching the end of its depreciable life, which may also affect the  cost estimate.  For example, according to a Corps official, industry  vessels are depreciated over 20 to 25 years.  In 2003, 9 of the 16  industry vessels were 20 years or older and thus, may be nearing  the end of their depreciable lives.  Unless the Corps has updated  data for all costs and for all industry vessels, there is no assurance  that the Corps’ cost estimates are a reliable tool for determining  whether industry’s bids are within 25-percent of the government  estimate as required by law.    3.  As our report recommends, we believe the Corps should examine  its policies related to calculating transit costs.  We agree that  DCA’s suggestion is one of several possible options for addressing  this issue.  4.  The extent to which the restrictions on the Corps vessels caused  industry to make the investments that DCA cited as proven  benefits is unclear.  First, representatives of the dredging firms told  us the restrictions were only one of several factors they considered  before building or acquiring additional vessels, including the  construction of the Bayport and Liberty Island.  Second, firms  must routinely replace and update equipment to remain  competitive in any industry.  While DCA stated that there was a  substantial investment in the Columbia following restrictions, the  vessel was originally built in 1944 and designed to transport  military equipment during World War II.  We believe it is plausible  that the restrictions on the Corps’ vessels may have contributed to  industry’s investment decisions; however, it is unclear to what  extent the restrictions contributed to these decisions.  5.  While private industry has added capacity, we question the basis  for DCA’s calculation of the exact change in capacity and the  degree to which the capacity increases are attributable to  restrictions on the Corps’ hopper dredges.  Over half of the  increase in capacity cited by DCA is attributable to the return of  one vessel—the Stuyvesant—to service in the United States.   However, the Stuyvesant worked in the United States prior to the  restrictions, and thus it is questionable whether this constitutes an  increase in capacity.  With regard to the portion of capacity  increase due to the construction of the Bayport and the Liberty  Island, as previously stated in response 4 above, the owners of  these vessels said the restrictions were only one of several factors  they considered in their decisions to build these two vessels.  For  these reasons, we believe it is questionable whether the capacity  increases cited by DCA are proven benefits of the restrictions.    6.  We believe that DCA’s claims are based on incomplete information  and can be misleading because its analysis only included data after  the implementation of the first restriction in fiscal year 1993.  As a  result, DCA only examined the marginal effects after the Wheeler  was placed in ready reserve, but not the effects of all the  restrictions.   We believe a more appropriate analysis of the effects  of the restrictions would compare data covering the periods before  and after all restrictions because the time period before  restrictions establishes the appropriate baseline to compare  changes resulting from the restrictions.
The following example illustrates how not examining the entire  time period before and after all restrictions may produce  incomplete and misleading results.  We found that the percentage  of bids less than the Corps’ cost estimate was 55 percent after the  fiscal year 1993 restriction went into effect (fiscal years 1993  through 2002) and 58 percent after the Wheeler was placed in  reserve (fiscal years 1998 through 2002).  This finding is consistent  with DCA’s claim, and taken alone could be viewed as an  improvement.  However, prior to the 1993 restriction (fiscal years  1990 through 1992), 76 percent of the winning bids were less than  the Corps’ cost estimate.  Thus, although there has been an  increase in the percentage of bids less than the Corps’ cost  estimate following reserve of the Wheeler, this change is  significantly less than what occurred before the restrictions.
Furthermore, in an appendix to its comments, DCA criticized our  approach of presenting data as averages across a number of years  to assess the effects of the restrictions, and argued that a year-to- year evaluation should be used.  However, in addition to  restrictions on the Corps’ fleet, a number of other factors can lead  to changes in the number of bids per solicitation and winning bid  relative to the Corps’ cost estimate from one year to the next.  For  example, high water flows in the Mississippi River can result in  high accumulation of material at the mouth of the Mississippi River  and increase the demand for time-sensitive dredging requirements.   During such periods, the winning bids relative to the Corps’ cost  estimate may increase.  However, the information necessary to  control for these factors is unavailable.  For example, the Corps  does not collect data on time-sensitive dredging needs.  As a result,  we believe that presenting changes as averages across a number of  years is more appropriate because it mitigates for the annual  variability in the factors that can also affect the number of bids per  Corps solicitation and winning bid relative to the Corps’ cost  estimate.    7.  We disagree with DCA’s comment.  In fact, the historical data do  indicate that, in general, in years when more material is available  to industry, industry submits fewer bids per Corps solicitation.    The information presented in figure 3 in our report, shows that  there is an inverse relationship between the estimated volume of  material dredged and the annual bids per solicitation, which is  statistically significant at the 95 percent confidence level.    8.  DCA agreed that seven companies operated in the U.S. hopper  dredging market prior to the fiscal year 1993 restriction, while five  companies remain in the market today.  However, DCA stated that  the number of companies competing on a nationwide basis has  increased from four to five in the last 10 years.  Regardless of  whether dredging firms operated on a regional or national basis,  prior to the restrictions seven firms provided hopper dredging  services and now there are five firms.  Furthermore, as recognized  in our report, the consolidation in the industry does not necessarily  mean that competition has been reduced because the new industry  structure could have resulted in enhanced capacity, flexibility, and  efficiency for the remaining firms.  Moreover, regardless of the  number of firms in the industry, DCA acknowledged that the  number of bids is more indicative of competition than merely the  number of companies.  As stated in our report, the number of  industry bids per Corps solicitation has decreased on a nationwide  basis from approximately 3 bids in the 3 years prior to the  restrictions (fiscal years 1990 through 1992) to roughly 2.4 bids in  the period following the restrictions (fiscal years 1993 through  2002).    9.  We agree with DCA’s comment, which is already addressed by our  recommendations.
section_title: Appendix V: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments:
paragraphs: In addition, Chuck Barchok, Diana Cheng, Richard Johnson, Jonathan  McMurray, Ryan Petitte, and Daren Sweeney made key contributions to  this report.