Army Corps of Engineers: Actions Needed to Further Improve Management of Hopper Dredging
Released: 2014-05-12T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: The Corps is responsible for dredging sediment from waterways to maintain shipping routes important for commerce. One dredge type, a hopper dredge, performs much of the dredging in ports and harbors, and the Corps uses its own fleet of hopper dredges and contracts with industry to carry out the work. In 2003, GAO examined the Corps' hopper dredging program and made recommendations to improve its management. GAO was asked to review changes to the program.

This report examines (1) actions the Corps has taken to address GAO's 2003 recommendations for improving the information needed to manage its hopper dredging program and develop cost estimates for industry contracts; (2) effects since 2003, if any, of the statutory restrictions placed on the use of the Corps' hopper dredges; and (3) key challenges, if any, the Corps faces in managing its hopper dredge fleet. GAO reviewed laws, regulations, and policies governing the Corps' use of hopper dredges, and related Corps reports. GAO analyzed dredging contract and financial data for fiscal years 2003-2012, assessed the reliability of these data, and interviewed Corps and dredging stakeholders.

section_title: What GAO Found
paragraphs: The U.S. Army Corps of Engineers (Corps) has taken actions to address GAO's 2003 recommendations for improving information related to hopper dredging, but some data gaps remain. First, in response to GAO's recommendation to obtain and analyze data needed to determine the appropriate use of its hopper dredge fleet, the Corps established a tracking log to document urgent or emergency work its dredges carry out. The Corps also modified its dredging database to track solicitations for industry contracts that received no bids and bids exceeding the Corps' cost estimate by more than 25 percent, referred to as high bids. Corps district offices, however, do not consistently enter data on these solicitations, and Corps headquarters has not provided written direction to the district offices to ensure data are consistently entered. Tracking and analyzing no-bid and high-bid solicitation data could enable the Corps to identify and address gaps in industry's ability to fulfill certain dredging needs as the Corps plans its future hopper dredging work. Second, in response to GAO's recommendation, the Corps took action to assess the data and procedures it used for developing cost estimates when soliciting industry contracts. However, certain industry cost data the Corps relies on remain outdated. For example, some of the data it uses on hopper dredge equipment date back to the late 1980s. A senior Corps official stated that a study could be conducted to update the data, but the Corps has no plans to conduct such a study. Having a plan for obtaining updated data is important for developing sound cost estimates.

Statutory restrictions on the use of the Corps' hopper dredges since 2003 have resulted in costs to the Corps, but the effect on competition in the hopper dredging industry is unclear. Restrictions limiting the number of days that Corps dredges can work have resulted in additional costs such as costs to maintain certain Corps dredges while they are idle; the Corps incurs many of the costs for owning and operating its hopper dredges regardless of how much they are used. The restrictions, however, help ensure the Corps has the ability to use these dredges to respond to urgent or emergency dredging needs when industry dredges are unavailable. It is not clear to what extent restrictions have affected competition in the dredging industry. The number of U.S. companies with hopper dredges has not changed, but the number and size of these dredges have decreased since 2003. In addition, GAO did not find evidence of increased competition based on the number of bidders and winning bid prices for Corps hopper dredging projects since 2003.

Key challenges facing the Corps in managing its hopper dredge fleet are (1) ensuring the fiscal sustainability of its hopper dredges and (2) determining the fleet's appropriate future composition. In 2012, the Corps determined that because of increasing ownership and operating costs, among other things, its hopper dredges would become unaffordable unless actions were taken, including increasing the daily rates charged to projects using the Corps' dredges. Factors such as the aging of the Corps' fleet and the effect on industry of possible changes to the Corps' fleet make it difficult for the Corps to determine the best fleet composition. In studies it conducted in 2011 and 2012, the Corps identified actions that could help address these challenges, such as reviewing the operating costs of hopper dredges to evaluate the affordability of certain dredges.

section_title: What GAO Recommends
paragraphs: GAO recommends the Corps provide written direction to its district offices on consistently populating its database with no-bid and high-bid solicitations and develop a written plan for a study to obtain and periodically update certain hopper dredging cost data for its cost estimates. The Department of Defense concurred with the recommendations.

section_title: Letter
paragraphs: Maintaining the nation’s navigation channels and ports is vital to U.S.  commerce, with nearly $1.8 trillion of import and export cargo passing  through the nation’s waterways in 2012. The U.S. Army Corps of  Engineers (Corps) is responsible for dredging—that is, removing  sediment from the bottom of—ports, harbors, and other U.S. waterways  to facilitate their navigation. Vessels called dredges are used to remove  sediment in order to maintain navigation channels at the depths and  widths necessary for shipping. Various types of dredging vessels exist,  each designed to perform in certain conditions or locations. One type— the hopper dredge—performs much of the dredging work in ports,  harbors, and other waterways exposed to the ocean, where shipping  traffic and operating conditions render the use of other types of dredges  inefficient, impractical, or unsafe. A hopper dredge vacuums material  (e.g., a mixture of sediment and water) into its “hopper” or containment  area, where the material is stored before being transported to a  placement site (see fig. 1). In fiscal year 2012, the Corps spent about  $370 million for hopper dredging, removing nearly 72 million cubic yards  of material from dozens of ports and harbors across the country.

The Corps carries out hopper dredging using a combination of its own  fleet of dredging vessels and industry vessels operating under contract,  and it is required to do so in the manner most economical and  advantageous to the United States. Until 1978, the Corps performed all  hopper dredging in the United States with its fleet of 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 hopper fleet as industry demonstrated its ability to perform,  and (3) maintain a minimum fleet of federal vessels. Specifically, the  legislation directed the Corps to retain as much of its fleet as it  determined necessary to ensure that the federal and private industry  fleets together could carry out necessary dredging projects. According to  the Corps, the purpose of the minimum fleet is to diminish risks to  navigation by performing urgent, emergency, or national defense work, or  to respond when industry either does not submit a reasonable bid for  dredging solicitations or does not perform adequately under an existing  contract. Over time, the Corps has reduced the size of its hopper fleet to  four vessels: the Essayons, McFarland, Wheeler, and Yaquina.  Generally, Corps district offices, in coordination with Corps division offices  to which the district offices report, are responsible for managing and  contracting for the dredging that occurs within their districts, under the  guidance of Corps headquarters.

The Corps began implementing the restrictions on the workdays for the Essayons,  McFarland, and Yaquina on October 1, 1993, and placed the Wheeler into ready reserve  on October 1, 1997. See table 1 for the statutory restrictions in place on the use of the  Corps’ hopper dredges, and how they have changed since fiscal year 2003.

McFarland in ready reserve and limited the use of the vessel’s work.contrast, the 2007 act lifted the restrictions that had been in place on the  number of days the Essayons and Yaquina could work.

In a review we conducted in 2003, we found that the restrictions in place  at that time had imposed costs on the Corps’ dredging program but had  not resulted in proven benefits, such as increased industry competition or   In our 2003 report, we made three  lower prices for hopper dredging. recommendations to the Corps for improving the information used to  manage its hopper dredges and develop cost estimates for industry  contracts. Specifically, we recommended that the Corps obtain and analyze baseline data needed to determine the appropriate  use of its hopper dredge fleet, such as data on emergency work  performed by the Corps and solicitations that receive no bids; assess the data and procedures used to perform the cost estimate  used when contracting dredging work to the hopper dredging industry;  and prepare a comprehensive analysis of the costs and benefits of  existing and proposed restrictions on the use of its hopper dredge  fleet.

The Corps concurred with our recommendations and agreed to  implement them.

You asked us to examine changes to the Corps’ hopper dredging  program since our review in 2003. This report examines (1) the actions  the Corps has taken to address our 2003 recommendations for improving  the information needed to manage its hopper dredging program and  develop cost estimates for industry contracts; (2) the effects since 2003, if  any, of the statutory restrictions placed on the use of the Corps’ hopper  dredges; and (3) key challenges, if any, the Corps faces in managing its  hopper dredge fleet.

GAO, Corps of Engineers: Effects of Restrictions on Corps’ Hopper Dredges Should Be  Comprehensively Analyzed, GAO-03-382 (Washington, D.C.: Mar. 31, 2003).

To examine the actions the Corps has taken to address our 2003  recommendations, we reviewed the Corps’ process for tracking and  analyzing data on solicitations for private industry hopper dredging work,  several sources of information the Corps maintains on the use of its  hopper dredge fleet, the Corps’ 2005 report to Congress on hopper  dredges, and Corps documentation related to developing government  cost estimates. To examine the effects since 2003, if any, of the statutory  restrictions placed on the use of the Corps’ hopper dredges, we analyzed  the statutes and regulations governing the use of the Corps’ hopper  dredge fleet, reviewed Corps reports and financial data on the fleet,  obtained and reviewed information from the dredging industry on its fleet  of hopper dredges, and analyzed dredging data collected by the Corps  through its Dredging Information System. To assess the reliability of the  data, we interviewed Corps officials who maintain the database, reviewed  related documentation, and tested the data for missing or erroneous  values. We determined that the data we used were sufficiently reliable for  our purposes. To examine key challenges, if any, the Corps faces in  managing its hopper dredge fleet, we reviewed Corps studies and  financial data on its hopper dredge fleet. For all three objectives, we  interviewed officials from Corps headquarters, division offices, and the 9  Corps district offices with the largest hopper dredging workload during  fiscal years 2003 through 2012 (out of a total of 17 district offices that  contracted with industry for hopper dredging work during the time period).  We also interviewed representatives from the five dredging companies  that own and operate hopper dredges, and other stakeholders including  local pilots’ associations and port authorities from the areas where the  Corps’ hopper dredges are stationed, along with their national-level  counterparts. In addition, we visited the Corps’ four hopper dredges and  one industry hopper dredge for informational tours of these vessels to  gain a better understanding of their physical characteristics and  operations. Appendix I describes our objectives, scope, and methodology  in greater detail.

We conducted this performance audit from January 2013 to April 2014 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: Since 1824, the Corps has been responsible for maintaining a safe,  reliable, and economically efficient navigation system in the United  States. This system currently comprises more than 12,000 miles of inland  and intracoastal waterways and about 180 ports handling at least 250,000  tons of cargo per year. The accumulation of sediment in waterways— known as shoaling—reduces their navigable depth 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 determine, 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. For example,  according to a 2011 Corps study, 1 foot of shoaling in the lower  Mississippi River could result in $2.8 billion worth of cargo being disrupted  annually. To minimize such risks to navigation, the Corps removed an  annual average of about 229 million cubic yards of material from U.S.  waterways from fiscal year 2003 through fiscal year 2012, at an average  annual cost of about $1.1 billion, according to the Corps. Even with these  efforts, draft restrictions have regularly been in place on major waterways  throughout the United States in the past several years, according to  Corps documents and officials.

The Corps contracts with industry to perform most dredging, including  work done by hopper dredges. According to the Corps, of the  approximately $11 billion it spent for dredging from fiscal year 2003  through fiscal year 2012, about $2.37 billion was for hopper dredging. Of  that, industry hopper dredges accounted for about $1.8 billion, and Corps  hopper dredges accounted for about $570 million. Corps spending on  hopper dredging has more than doubled since fiscal year 2003, while the  amount of material removed by hopper dredges has increased only  slightly over that period, according to Corps data. Specifically, as shown  in figure 2, the Corps spent nearly $170 million for Corps and industry  hopper dredges to remove around 66 million cubic yards of material in  fiscal year 2003. By fiscal year 2012, Corps spending on Corps and  industry hopper dredging had increased to about $370 million, while the  amount of material removed increased to nearly 72 million cubic yards.  This growth in spending reflects costs for hopper dredging that, according  to Corps documents, have increased because of rising costs for fuel and  steel, among other factors.

Hopper dredging today is generally performed in three regions of the  United States—the East Coast, Gulf Coast, and West Coast—and each  region has at least one Corps hopper dredge that typically operates in it:  the McFarland on the East Coast, the Wheeler on the Gulf Coast, and the  Essayons and Yaquina on the West Coast. On the East and Gulf Coasts,  the majority of the hopper dredging workload is carried out by industry  dredges, while on the West Coast, Corps dredges remove more than half  of the dredged material. Various factors can influence and complicate  hopper dredging in each region. For example, on the East Coast, much of  the hopper dredging must be performed during certain months of the year  because environmental restrictions related to endangered sea turtles and  other species prohibit dredging while those species are present. On the  West Coast, the Corps must factor in the time and expense of moving  industry dredges through the Panama Canal if the only available industry  hopper dredges are on the East or Gulf Coasts.

The sizes and capabilities of specific hopper dredges—and, therefore, the  projects for which they are suited—vary. For instance, shallow ports and  harbors cannot be dredged by vessels with deep drafts in many cases.  The Corps uses the Yaquina, which is a small dredge with a draft of  around 15 feet when its hopper is fully loaded, for dredging small and  shallow ports along the California, Oregon, and Washington coasts. In  contrast, the Corps uses the Wheeler, which is a large dredge with a draft  of nearly 30 feet when its hopper is fully loaded, for deeper navigation  channels such as those in the lower Mississippi River. See appendix II for  a list of Corps and industry hopper dredges and their characteristics.

As noted, several pieces of legislation were enacted that sought to  increase the role of industry in hopper dredging by placing restrictions on  the use of the Corps’ hopper dredges. More specifically, in 1978,  legislation directed the Corps to contract out much of its hopper dredging  work to industry and reduce the Corps’ fleet to the minimum necessary to  insure the capability of the federal government and industry together to  carry out projects for the improvement of rivers and harbors. The Energy  and Water Development Appropriations Act for fiscal year 1993, and  subsequent appropriations acts in the early 1990s, required the Corps to  offer for competitive bidding at least 7.5 million cubic yards of hopper  dredging work previously performed by the federal fleet. The Corps  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 of 1996 then required the  Corps to take the Wheeler out of active status and place it into ready  reserve. The Corps implemented this requirement beginning in fiscal year  1998 by generally limiting the Wheeler to working 55 days a year plus any  urgent or emergency work. More recently, the Water Resources  Development Act of 2007 required that the Corps place the McFarland in  ready reserve and limited the use of the vessel to 70 working days per  year in the Delaware River and Bay, plus any urgent and emergency  work. See table 1 for the statutory restrictions in place on the use of the  Corps’ hopper dredges and how they have changed since fiscal year  2003.

The Corps follows a process—known as the raise the flag procedure—for  activating its ready reserve dredges to respond to urgent or emergency  dredging needs. The Corps defines an urgent need for dredging as a  time-sensitive situation that may require prompt action for providing a  safe navigation channel, and an emergency as a situation that would  result in an unacceptable hazard to life, a significant loss of property, or  an immediate, unforeseen, and significant economic hardship if corrective  action is not undertaken within a time period less than the normal contract  procurement process. The raise the flag procedure includes a series of  steps intended to allow industry the opportunity to respond to urgent or  emergency dredging needs before the Corps uses its own dredges. The  Corps district office with an urgent or emergency dredging need notifies  the Corps division office overseeing it of the dredging need, and district  and division staff review ongoing hopper dredging work under existing  Corps contracts to see if any industry hopper dredges could be made  available. If no industry hopper dredges could be made available, the  offices notify Corps headquarters. The Corps’ Director of Civil Works may  then decide whether to use one of the Corps’ ready reserve hopper  dredges or make additional efforts to procure an industry dredge, such as  by releasing a dredge from an existing contract.

The Corps contracts for most of the hopper dredging work by soliciting  competitive bids from industry. To determine the reasonableness of  contractor bids, the Corps develops a government cost estimate for its  hopper dredging solicitations. Government cost estimates are developed  using information on the costs of owning and operating hopper dredges— including acquisition, fuel, and shipyard costs—along with information on  the project for which the dredging is needed—including the amount and  type of material to be removed, and the distance from the dredging site to  the placement site. In soliciting bids from contractors, the Corps most  commonly uses a sealed-bid process, through which it generally awards  the contract to the lowest bidder with a bid that is no more than 25  percent above the government cost estimate.receive any bids or if all bids exceed the government cost estimate by  more than 25 percent, the Corps may pursue a number of options,  including (1) negotiating with bidders to get the bid within an awardable  range of the cost estimate; (2) reviewing the cost estimate and revising it  based on additional information, as appropriate, or (3) performing the  work itself such as through its raise the flag procedure.

If the Corps does not  The costs to own and operate hopper dredges include costs such as  payroll for the crews, fuel, repairs, and depreciation. Hopper dredging  requires large capital outlays—a modern hopper dredge comparable in  size to the Wheeler, for instance, would cost around $100 million to build,  according to Corps and industry estimates—and related costs such as  depreciation and replacement of engines or other major equipment can  represent a relatively large portion of the dredges’ total costs. The Corps  and industry incur much of the costs for their hopper dredges—such as  paying a crew and keeping engines and other systems in ready working  condition—regardless of how much the dredges are used.

The Corps uses two funding sources from its annual civil works  appropriation to pay for its hopper dredges. First, for the ready reserve  vessels McFarland and Wheeler, funds are provided for each dredge to  cover their costs while they are idle in ready reserve. Second, the Corps  pays for the use of its dredges with project funds based on a daily rate it  establishes for its dredges. According to Corps officials, the Corps sets a  daily rate specific to each of its hopper dredges at least annually, based  on factors such as the costs of owning and operating the dredge, and the  amount of work the dredge is expected to perform. As the Corps uses its  hopper dredges for projects, the Corps uses funds allocated for those  specific projects to pay its dredges, based on the number of days its  dredges work and the dredges’ daily rate.

section_title: The Corps Has Taken Actions to Address Our 2003 Recommendations but Does Not Collect All of the Recommended Data
subsections: section_title: The Corps Collects Recommended Data on Urgent or Emergency Dredging but Does Not Consistently Collect Data on Certain Solicitations
paragraphs: In response to our 2003 recommendation to obtain and analyze baseline  data needed to determine the appropriate use of its hopper dredge fleet,  the Corps established a tracking log as part of its raise the flag procedure  to maintain and review urgent or emergency work its hopper dredges  carry out, but it does not consistently collect certain solicitation  information that we recommended. Having a means to track urgent or  emergency dredging work helps the Corps ensure it is documenting and  evaluating when and under what circumstances it will use its ready  reserve dredges. According to Corps officials, the Corps established a  tracking log in 2007 to systematically track information on the  circumstances when urgent or emergency hopper dredging may be  needed, and specifically when Corps’ dredges would be used to meet  those needs. Corps district offices that are faced with critical hopper  dredging needs submit information on their plans to address the needs to  their division and Corps headquarters for review and approval. The  Corps’ decision-making process for determining whether to use its ready  reserve vessels is also documented via its tracking log. For example, in  January 2013, a hopper dredge was needed to perform work along the  North Carolina coast because certain areas had become severely  shoaled and were impeding safe navigation. One industry bid was  received to perform the work, but it exceeded the government cost  estimate by more than 25 percent. After determining its cost estimate was  reasonable, the Corps negotiated with the industry bidder in an attempt to  get the bid within an awardable range of the Corps’ cost estimate, but the  parties were unable to come to an agreement. As a result, the Corps  initiated its raise the flag procedure because of the urgent nature of the  situation. Because no other industry contractors were available  immediately to respond, the Corps used the McFarland to perform the  dredging and documented its decision-making process in its tracking log.

We also recommended that the Corps obtain and analyze other data that  could be useful in determining the appropriate use of the Corps’ hopper  dredges, including data on solicitations that receive no bids or where all  the bids received exceeded the Corps’ cost estimate by more than 25  percent. Corps officials we spoke with said that they are aware when a  no-bid or high-bid situation occur, particularly when they use a Corps  dredge through their raise the flag procedure because of such a situation.  But by tracking and analyzing no-bid and high-bid solicitation data, the  Corps may be better positioned to identify gaps in industry’s ability to fulfill  certain dredging needs—such as during certain times of the year, in  particular geographic areas, or for particular types of projects—and avoid  or address any gaps identified. In 2004, the Corps took steps to address  our recommendation by modifying data fields in its dredging database,  the Corps’ database for maintaining dredging information on each of its  dredging projects, to collect data on no-bid and high-bid solicitations. We  found, however, that data for these solicitations were not consistently  entered into the database across the Corps district offices responsible for  entering it. In our review of the Corps’ dredging database, we found that  one district office entered data on no-bid and high-bid solicitations. Corps  officials from several district offices told us that entering information into  the database is tedious and time-consuming. They also indicated that  they do not enter information for all data fields because the officials  primarily use information from the database for planning and scheduling  future dredging work, not for reviewing data on past solicitations or  solicitations that did not result in an awarded contract, which would  include no-bid and high-bid solicitations.

Corps headquarters officials we spoke with recognized that tracking and  analyzing data on no-bid and high-bid solicitations is important and could  serve as a useful decision-making tool in planning future hopper dredging  work. However, they have not provided written direction to the district  offices to help ensure data on these solicitations are consistently entered  into the database. According to officials we spoke with, they have not  done so because of other higher-priority action items. The officials added  that they have made efforts to ensure district offices consistently enter  accurate and complete data into the dredging database, such as  emphasizing this activity during periodic meetings with district offices.  These outreach efforts have been targeted at entering data into the  dredging database as a whole, however, and have not focused  specifically on the importance of the data field for tracking no-bid or high- bid solicitations, according to the officials. Federal internal control  standards state that management should develop written policies and  procedures that staff are to follow as intended. Without complete data  on no-bid and high-bid solicitations, the Corps may be missing  opportunities to plan future hopper dredging work that identifies and  addresses potential gaps in industry’s ability to fulfill certain dredging  needs based on this solicitation information.

section_title: The Corps Reviewed Data and Procedures for Performing Cost Estimates, but Some Information Remains Outdated
paragraphs: In response to our recommendation to assess the data and procedures  used to perform the cost estimate used when contracting dredging work  to the hopper dredging industry, the Corps took several actions to  improve its cost estimates, but some of the information it relies on  remains outdated, such as its dredge equipment cost information dating  back to the late 1980s. In 2004, and again in 2008, the Corps took  actions to evaluate and update certain cost data used in its cost  estimates. In 2004, the Corps prepared an internal document that  summarized the steps it took to analyze, evaluate, and update certain  cost data used in its cost estimates. For example, according to the  document, the Corps examined repair and maintenance costs for industry  hopper dredges and updated some data for dredge engines. In 2008, the  Corps partnered with the Dredging Contractors of America (DCA)—a  national association for the dredging industry—to update industry cost  data. Corps documentation related to the effort indicated that the Corps  learned important information through discussions with industry, and a  senior Corps cost-estimating official that we spoke with said that, on the  basis of these discussions, the Corps updated the training it provides to  Corps staff on preparing hopper dredge cost estimates.

Some of the data the Corps uses in preparing its hopper dredging cost  estimates, however, remain outdated despite the Corps’ attempt to  update the information. Specifically, the Corps has not obtained updated  technical data on industry hopper dredge equipment or labor rates but  instead is relying on outdated information, some of which dates back to  the late 1980s. During efforts to update the Corps’ cost-estimating data in  2008, the Corps prepared a survey to collect industry dredge equipment  information from the five dredging companies that owned hopper  dredges. In cooperation with the Corps, DCA sent the survey to the  companies. In the August 2008 letter accompanying the survey, the  dredging association stated that “much of the cost basis the Corps uses  for industry dredges is old data and limited due to lack of industry input”  and noted that the Corps’ ability to obtain the data would be mutually  beneficial to the companies and the Corps. Among other things, data the  survey sought to collect included costs of dredge acquisition, capital  improvements, and certain types of repairs. Efforts to obtain these data  were unsuccessful, however, due in part to industry’s concerns about  sharing business-sensitive data with the Corps. Industry representatives  from one hopper dredging company we spoke with explained that they  were concerned that cost data provided to the Corps might become  accessible to their competitors and therefore the data were not provided.  A senior Corps cost-estimating official we spoke with told us that the  Corps limits the release of cost data used in preparing cost estimates  within the Corps and that updated industry cost data would assist the  Corps in preparing its cost estimates for hopper dredge work. The official  also stated that other efforts could be made to obtain updated cost data,  including performing a Corps-wide study to evaluate information from  each Corps district office with hopper dredging contracts or reviewing  contract audits. The Corps, however, has no plans for conducting such a  study. In conducting a study, the Corps could assess the most effective  and efficient approach for obtaining updated cost data, including  examining whether and to what extent it would base its study approach  on a review of contracts or contract audits, working directly with industry,  or other approaches. Federal internal control standards state the need for  federal agencies to establish plans to help ensure goals and objectives   A written plan would assist the Corps in obtaining updated  can be met.cost data and following sound cost estimating practices, as described in  our 2009 cost estimating and assessment guide, which is a compilation of  cost-estimating best practices drawn from across government and  industry. Obtaining reliable and up-to-date data are important for  developing sound cost estimates, and the Corps’ cost estimate credibility  may suffer if technical data are not updated and maintained, as noted in  our cost estimating guide.

section_title: The Corps Analyzed Options for Operating Its Hopper Dredges in a Report to Congress
paragraphs: In response to our 2003 recommendation that the Corps prepare a  comprehensive analysis of the costs and benefits of existing and  proposed restrictions on the use of the Corps’ hopper dredge fleet, the  Corps prepared an analysis of its fleet for a 2005 report to Congress.its report, the Corps analyzed a number of options for operating its  hopper dredges and made a recommendation to Congress for adjusting  its fleet based on costs and benefits outlined in its analysis. The Corps  recommended an option that it said would, among other things, ensure  there was a viable reserve capability ready to respond to unforeseen  requirements and ensure the timely accomplishment and reasonable cost  for federal projects requiring hopper dredges. Under the option it  recommended, the Corps would have (1) increased the Essayons’s  dredging by about 35 days, and kept the Yaquina’s dredging days the  same; (2) continued to keep the Wheeler in ready reserve; and (3) retired  the McFarland. The Water Resources Development Act of 2007 did not  specifically address these recommendations, but instead placed the  McFarland in ready reserve and removed the then-existing restrictions on  the Essayons and Yaquina.

section_title: Statutory Restrictions on Corps Hopper Dredges Have Resulted in Additional Costs to the Corps, but Effects on Industry Competition Are Unclear
paragraphs: Since 2003, statutory restrictions on the use of the Corps’ hopper dredges  have resulted in additional costs, but it is unclear whether the restrictions   Restrictions  have affected competition in the hopper dredging industry.effectively limiting the number of days that Corps dredges can work have  resulted in additional costs to the Corps, such as costs to maintain the  ready reserve vessels while idle. On the other hand, the restrictions help  ensure the Corps’ ability to respond to urgent and emergency dredging  needs when industry dredges may be unavailable. The extent to which  restrictions on the use of the Corps’ hopper dredges have affected  competition in the dredging industry—as measured by the number of  companies with hopper dredges and the number of bidders and winning  bid prices for Corps projects—is unclear, based on our analysis of data  on industry bids per Corps solicitation and other factors.
subsections: section_title: Statutory Restrictions Have Resulted in Additional Costs for Corps Hopper Dredging
paragraphs: Since 2003, statutory restrictions on the use of the four Corps’ hopper  dredges—in particular, the Wheeler and the McFarland—have resulted in  additional costs to the Corps. First, the vessels have needed annual  funding to maintain them in ready reserve because, given their limited  use, the Corps is unable to recoup their costs with revenues from  dredging work. The Corps incurs many of the costs for its hopper  dredges—such as paying a crew and keeping engines and other systems  in ready working condition—regardless of how much the dredges are  used. For instance, placing the McFarland in ready reserve resulted in a  substantial decrease in its dredging work (as measured in days worked  and amount of material removed) but a relatively small decrease in its  operating costs. As shown in table 2, the average annual cubic yards of  material removed by the McFarland declined by 60 percent, while its  average annual operating costs declined by 16 percent.

Annual funding needed to maintain the Wheeler and the McFarland in  ready reserve, which is provided through the Corps’ civil works  appropriation, has increased since 2003. Specifically, in fiscal year 2003,  ready reserve funding for the Wheeler was $7.6 million, and it increased  to $13.6 million in fiscal year 2012. In addition, the McFarland has  received ready reserve funding of over $11 million each fiscal year since  it was placed in ready reserve, resulting in total ready reserve funding for  the vessels of over $25 million in fiscal year 2012 (see fig. 3).

Second, the ready reserve restrictions have contributed to increases in  the daily rate the Corps charges projects for use of the Wheeler’s service,  and future increases in the McFarland’s daily rate may also be needed if it  experiences unanticipated cost increases. Increases in daily rates may  result in either increasing costs, fewer cubic yards of material removed, or  both, for the projects that use the Wheeler and McFarland —primarily  projects in the Delaware River and the Mississippi River mouth,  respectively. Officials from Corps headquarters and district offices  responsible for the ready reserve hopper dredges told us they set the  dredges’ daily rates in part based on how many days they expect the  dredges to work in the coming year and that, in the case of the Wheeler,  the limited dredging days since being placed in ready reserve have  contributed to higher daily rates. For instance, the Wheeler’s daily rate  has increased from $75,000 in fiscal year 2003 to $140,000 in fiscal year  2012, and the Corps expects a rate of $165,000 during fiscal year 2014.  Furthermore, although costs for industry hopper dredge work have also  increased, officials from a Corps district office that historically used the  Wheeler told us that they would now be reluctant to use the vessel  instead of an industry hopper dredge because of its high daily rate. In the  case of the McFarland, the Corps has increased the vessel’s daily rate  from $94,000 in fiscal year 2009 (the last full fiscal year before it was  placed in ready reserve) to $100,000 in fiscal year 2012, and officials said  they planned to increase and then maintain the daily rate at $110,000 for  the next several fiscal years. If there are unanticipated increases in costs  for the McFarland, however, such as an unexpected increase in repair  costs, Corps officials said they would likely have to increase the vessel’s  daily rate to cover such costs. As the officials explained, they set the  McFarland’s daily rate with an expectation that the vessel will work 70  days because the ready reserve restrictions do not allow them to increase  the number of days the McFarland can work. Therefore, raising the  vessel’s daily rate would be the Corps’ primary option to cover an  increase in costs.

On the West Coast, restrictions on the number of days the Corps’ hopper  dredges Essayons and Yaquina could work had led to inefficiencies in  completing their work before those restrictions were lifted by the Water  Resources Development Act of 2007, according to Corps officials. Before  the 2007 act, the Essayons and the Yaquina were restricted to working  about 180 workdays annually and, for several years, they reached their  operating limits and, therefore, had to return to port before the projects  they were working on were finished. The dredges were then sent back to  complete the projects once the new fiscal year began, which was in  October when weather conditions had begun to deteriorate. As a result,  the Corps incurred additional transit and payroll costs while returning to  complete the projects. Since the restrictions on these dredges were  removed under the 2007 act, Corps officials said they have not had to  interrupt ongoing work due to operating limits on the dredges and have  had greater flexibility regarding when to perform work.

section_title: Ready Reserve Restrictions Help Ensure the Corps’ Ability to Respond to Critical Dredging Needs
paragraphs: The ready reserve restrictions on the Wheeler and McFarland help  ensure that they are available to the Corps for responding to urgent and  emergency dredging needs, especially in the regions where the dredges  are stationed. Demand for hopper dredging often varies substantially from  year to year, and month to month, due in part to severe weather events  such as hurricanes and floods, other events such as the Deepwater  Horizon oil spill in 2010, or environmental restrictions that limit dredging  work to certain months of the year. This variability has resulted in periods  of high demand during which the Corps has used its ready reserve  hopper dredges to respond to urgent or emergency dredging needs when  industry hopper dredges were not available. As the Corps noted in its  2005 report to Congress, having the Wheeler in ready reserve is  important to ensure that the vessel is available when unforeseen dredging  needs occur, while more fully utilizing the Wheeler could limit the Corps’  capability to respond to peak workload demands. Specifically, the Corps  has used the Wheeler to respond to urgent or emergency dredging needs  15 times during fiscal years 2003 through 2012. In these cases,  according to Corps documents, industry dredges were unavailable to  immediately respond to time-sensitive dredging needs at the mouth of the  Mississippi River, and the Corps was able to quickly move the Wheeler to  the site and conduct the work. Similarly, local pilots and a local port  authority we spoke with told us that the McFarland has been critical in  addressing dredging needs on the Delaware River and Bay, where the  vessel is stationed in ready reserve. Since its placement in ready reserve  at the end of 2009, the Corps has used the McFarland to respond to  urgent or emergency needs 4 times. Industry representatives from most  dredging companies we spoke with agreed that there is a need for Corps  hopper dredges, specifically those placed in ready reserve, to respond to  urgent or emergency situations when industry hopper dredges are  unavailable.

section_title: The Extent to Which Restrictions Have Affected Industry Competition Is Unclear
paragraphs: Since 2003, the extent to which restrictions on the use of the Corps’  hopper dredges have affected competition in the dredging industry—as  measured by the number of companies with hopper dredges and the  number of bidders and winning bid prices for Corps projects—is unclear.  A possible benefit of restrictions on the amount of work performed by the  Corps’ hopper dredges is that the increased demand for industry hopper  dredging services could encourage existing firms to add dredging  capacity or new firms to enter the market, which could promote  competition, raising the number of bidders and lowering winning bid  prices for hopper dredging contracts. In addition, according to dredging  industry representatives we spoke with, the more industry dredges can be  utilized instead of Corps dredges, the lower the contract prices will be  because contractors can spread their costs over more days of operation.  However, on the basis of our analysis of (1) the dredging industry, (2) the  number of bidders and bid prices for Corps dredging contracts, and (3)  other factors that may have affected the level of competition for hopper  dredging contracts, it is unclear whether or to what extent the restrictions  on the Corps’ hopper dredges may have increased the level of  competition in the hopper dredging industry.

First, since 2003, the number of companies with hopper dredges in the  United States has not changed, although the number of industry hopper  dredges and the total size of these dredges have decreased. Specifically,  at the end of 2013, five companies operated one or more hopper  dredges. The same number of companies operated hopper dredges in  2003. Of the five companies we reported on in 2003, two sold their  hopper dredges and exited the hopper dredging market while two new  companies that had not been in the market acquired hopper dredges, and  three companies remained the same. Since 2003, the total number of  industry vessels decreased from 16 to 13, and the total capacity of these  vessels, as measured in cubic yards, decreased by 16 percent. The  decrease from 16 to 13 vessels resulted from one company relocating  four of its U.S. hopper dredges overseas to perform dredging work  primarily in the Middle East,dredge for the U.S. market. In addition, as of January 2014, one company  had begun building a new hopper dredge that it expects will be completed  in late 2014 or early 2015, and another company announced plans to  build a new hopper dredge that it expects will be completed in 2015. If no  companies remove existing hopper dredges from the U.S. market, these  two dredges, if built as planned, would increase total industry capacity to  13 percent above 2003 levels. According to industry representatives with  whom we spoke, dredging companies consider restrictions on the Corps’  hopper dredges in deciding whether to acquire or build a new hopper  dredge, but they also consider other factors, such as anticipated funding  levels by the Corps, as well as nonfederal work.   while another company built a new hopper  Second, we did not find evidence of increased competition based on the  number of bidders and winning bid prices for Corps hopper dredging  projects since 2003. Economic principles suggest that an increase in the  number of competitive bidders in the market should lead to lower prices.  The correlation between the number of companies competing for hopper  dredging contracts and the winning bid prices for those contracts is   As shown in figure 4, in  demonstrated by the Corps’ historical data. years where there were more industry bids per Corps solicitation, the  average winning industry bid, as a percentage of the Corps’ cost  estimate, was generally lower, consistent with economic principles.

Moreover, available Corps data related to the placement of the McFarland  in ready reserve do not show evidence of increased competition in the  dredging industry. Specifically, as shown in table 3, after the McFarland  was placed in ready reserve, average winning bid prices increased for  East Coast maintenance projects (i.e., projects the McFarland might  undertake if use of the vessel were not restricted), and the average  number of bids for those same projects decreased slightly.

Third, other factors aside from the ready reserve restrictions may have  affected the level of competition in the dredging industry since 2003.  Examples of such factors include the following:

Environmental restrictions. Multiple Corps officials and industry  representatives told us that environmental restrictions related to  endangered sea turtles and other species—which prohibit dredging  during the time of year that those species are present—have  contributed to fewer bidders for hopper dredging projects, particularly  on parts of the East Coast. For instance, because of environmental  restrictions, navigation dredging in fiscal year 2014 is limited to  December 15, 2013, through March 31, 2014, in much of the Corps’  South Atlantic Division, during which time there are 48 potential  Corps dredging projects planned, according to a 2013 Corps planning  document. Corps officials attributed the absence of awardable bids for  several recent East Coast hopper dredging solicitations to the  unavailability of industry hopper dredges when the projects were  scheduled to occur—during the period of high demand for hopper  dredges caused by environmental restrictions. In addition, they  expressed concern that similar shortages of bids could occur in the  future.

Coordination among Corps district offices. Increased coordination in  scheduling hopper dredging projects across Corps district offices has  helped distribute projects more evenly over time so that more  companies had hopper dredges available with which to bid on  projects, according to Corps officials. In contrast, when a large  number of projects occur at the same time, dredging companies may  not have enough dredges available to bid on all projects, thereby  reducing the number of bidders for the projects. According to Corps  officials we spoke with, increased regional coordination and sharing of  up-to-date information on upcoming dredging needs across district  offices has helped the Corps to better inform industry of planned work  and align the scheduling of projects with the availability of industry  dredges. In particular, Corps officials said increased coordination  helped the Corps avoid scheduling too many projects simultaneously  during a period of increased demand for hopper dredging work  following Hurricane Sandy and a Gulf Coast rebuilding effort to protect  against the coastal impacts of oil spills.

Demand for nonfederal hopper dredging work. Corps officials and  industry representatives also told us that demand for hopper dredging  work from states, private sources, and foreign governments has  reduced the number of industry hopper dredges available for Corps  projects. For instance, following the Deepwater Horizon oil spill in  2010, there was an increase in private and state funding for hopper  dredge work to construct barrier islands to protect the coastline from  the effects of the oil spill. Demand for hopper dredges for this work  affected the dredges’ availability for Corps navigation projects,  according to Corps documents and officials, and industry  representatives. In addition, representatives from one company said  that, in part, because of increasing demand for hopper dredges from  foreign governments—specifically in the Middle East—the company  relocated several hopper dredges overseas, removing them from the  U.S. market.

Differences in hopper dredge capabilities. Because there are  important variations in the size and capabilities of hopper dredges, the  requirements of specific dredging projects can result in a limited  number of dredges that may be able to effectively compete for a  particular dredging project. For instance, the state of California  requires hopper dredges to use reduced-emissions engines, in  accordance with state air quality regulations. Of the 13 industry  hopper dredges, only 3 have such engines, according to a Corps  official. Similarly, according to Corps documents, a hopper dredge  working at the mouth of the Columbia River in Oregon must be able to  dredge against strong currents and endure large waves—capabilities  that less than half of the industry fleet possesses, according to a  Corps official. Other requirements, such as the depth of the waterway  being dredged, or whether the material removed needs to be pumped  onto the shore, can also limit which dredges can effectively compete  for and carry out the work.

section_title: The Corps Faces Challenges Regarding the Fiscal Sustainability and the Future Composition of Its Hopper Dredge Fleet
paragraphs: Key challenges the Corps faces in managing its hopper dredge fleet are  (1) ensuring the fiscal sustainability of its hopper dredges and (2) making  decisions about the future of its hopper fleet composition, including the  utilization of its existing fleet, changes to its existing fleet—including  repairs, and the replacement or retirement of any vessels—and the  utilization of any new replacement vessels.
subsections: section_title: The Corps Faces Challenges in Ensuring the Fiscal Sustainability of Its Hopper Dredges
paragraphs: The Corps faces challenges in ensuring the fiscal sustainability of its  hopper dredges. In a 2012 study the Corps conducted on the fiscal  condition of its hopper dredges, it identified increasing ownership and  operating costs for its four hopper dredges, among other things, as a  cause for concern and stated that the dredges would become  unaffordable unless actions were taken. For instance, the Corps’ study  projected that, in fiscal year 2012, the Corps’ total end of fiscal year  account balance for its four hopper dredges would exceed their funding  levels by over $15 million dollars, and that fiscal problems would continue  for the four hopper dredges through fiscal year 2016. The Corps stated in  the study that it was concerned that project funding, which the Corps’  hopper dredges depend on to varying degrees, was not increasing and, in  some cases, was decreasing.

The Corps’ 2012 study identified several actions to take to operate all of  its hopper dredges with a positive account balance by the end of fiscal  year 2015. For example, based on the study, a corresponding July 2012  implementation memorandum, and our discussions with Corps officials,  the Corps  increased the daily rates all four of the Corps’ hopper dredges charge  to projects that use the dredges, beginning in fiscal year 2012; increased funding in fiscal years 2013 and 2014 budgets for projects  that use its hopper dredges to compensate for the vessels’  corresponding increases in daily rates; and formed a team to conduct a hopper dredge operating cost review  including, among other things, an evaluation of the affordability of two  hopper dredges, the Wheeler and the Yaquina, by June 30, 2014.

A Corps official told us that the August 2013 grounding accident that the Essayons’  experienced while dredging made the vessel inoperable for about a month while it  underwent repairs. In the case of the Wheeler, a Corps official estimated that the delays in  replacing the Wheeler’s engines caused the vessel to remain out of operation at least 4  months more than the Corps initially planned. In addition, during this time, a cruise vessel  broke free from its moorings during a storm and collided with the Wheeler when it was in  the repair yard, which further delayed the Wheeler’s return to work, according to the  Corps. deficit by about $2 million, increasing the vessel’s daily rate in fiscal year  2014 and dredging work in fiscal years 2014 and 2015 would give the  vessel a positive account balance. Corps officials acknowledged that the  Wheeler’s situation was more precarious because it ended fiscal year  2013 with a deficit of over $5 million more than projected in the Corps’  2012 study, given the engine replacement delay. To get the Wheeler to a  positive account balance by the end of fiscal year 2015, Corps officials  said that they anticipated increasing the Wheeler’s daily rate and potential  dredging activity to more than 70 days under ready reserve in fiscal year  2014. Corps officials said they believe they have some flexibility with the  number of days the vessel can dredge since there is not a set amount  specified in statute. Corps officials stated they are not planning further  actions beyond those identified in the 2012 study at this time, but they  acknowledged that additional measures, such as pursuing a permanent  increase in the amount of days that the Wheeler may dredge each year  under ready reserve, might be warranted if the vessel’s fiscal situation  does not improve by the end of fiscal year 2014.

section_title: The Corps Faces Challenges in Determining the Future Composition of Its Hopper Dredge Fleet
paragraphs: The Corps also faces challenges in making decisions about the future  composition of its hopper dredge fleet. Some of the factors that make it  difficult for the Corps to determine what composition of its fleet would best  allow it to conduct dredging activities in the manner most economical and  advantageous to the United States include the following:

Aging Corps’ fleet. The aging of the Corps’ hopper fleet, contrasted  with the millions of dollars the Corps has invested to upgrade the  vessels, has made it challenging for the Corps to determine the long- term sustainability of its hopper dredges. Three of the Corps’ four  hopper dredges—Essayons, Wheeler, and Yaquina—have been in  service for at least 30 years, and the McFarland has been in service  over 45 years. According to Corps documentation, the Corps plans a  50-year investment life for its hopper dredges and, based on historical  records, major repairs are typically needed when a dredge is about 30  years old. Since 2009, the Corps has invested millions of dollars in  replacing and upgrading needed equipment on its four hopper  dredges. For example, among other things, the Essayons, Wheeler,  and Yaquina all had their engines replaced within the last 5 years  allowing them to meet higher air quality emission standards. Similarly,  the McFarland’s electrical systems were replaced in fiscal year 2011,  which increased the vessel’s efficiency, since many of the systems  were original equipment. According to Corps documents and officials,  overall, all four hopper dredges are in good operating condition, but  given the age of the vessels, the Corps has recognized the need to  assess future repair or replacement options for its hopper dredges.

Effects on industry. Because the Corps relies on both its own dredges  and industry dredges to complete hopper dredging work, it needs to  factor in both fleets in making future decisions about the composition  of its own fleet. As of March 2014, 13 hopper dredges in the U.S.  industry fleet had been in service for an average of about 27 years,  though information on the extent to which these vessels have been  maintained, upgraded, or may be close to going out of service has not  been shared by industry with the Corps. During a discussion with  industry representatives, however, representatives said that the  hopper dredging industry is driven by competition, and they maintain  their dredges to be as efficient as possible to improve their  competitiveness in the market. Corps officials from several district  offices we spoke with said that, because of the increasing use of  industry hopper dredges for nonfederal beach nourishment projects,  as well as anticipated increases in federal hopper dredging projects,  industry’s availability to respond to the nation’s navigation dredging  needs may be stretched. These officials said that, as a result,  maintaining the Corps’ current fleet composition and perhaps  increasing the use of some of the vessels, may be warranted. In  contrast, most of the industry representatives we spoke with said they  believe that industry has the ability to handle any increases in  dredging projects, and the Corps’ fleet should be further restricted or  even reduced. These representatives stated that if the Corps  increased its hopper dredge capability, then industry’s portion of the  overall dredging work would be reduced possibly leading companies  to increase prices to cover their operating costs or potentially relocate  their hopper dredges overseas.

Funding uncertainties. Variability regarding federal funding for  dredging also poses challenges to the Corps’ plans for its fleet. While  funding for hopper dredging has increased since fiscal year 2003 and  was about $370 million in fiscal year 2012, Corps officials and  stakeholders we spoke with said that, at recent funding levels, there  were substantial unmet hopper dredging needs such as providing  dredging for small ports and harbors.

Corps, 2011 Minimum Fleet Capital Investment Report. This study encompassed all 10  dredges in the Corps’ minimum dredge fleet, which includes the 4 hopper dredges  reviewed in this report, and 6 other dredges of different types that are generally used for  different dredging projects. conducting a life-cycle cost analysis to support funding plans for future  dredging needs which would include a cost comparison to either (1)  use and then replace the vessels or (2) repair and sustain the vessels.

The 2011 study developed options based on three funding scenarios— increased, sustained, or decreased—and, as stated in the study and the  Corps’ implementation memorandum, the Corps selected the option  associated with sustained funding levels as the best course of action.  Should increased funding become available for dredging, a Corps official  we spoke with said the Corps may need to adjust its planned course of  action. The officials said that the 2011 study could provide the Corps with  direction for adjusting its actions. For example, as noted in the study  under the increased funding scenario, the Corps could continue with its  planned fleet improvements instead of deferring them under the sustained  option.

section_title: Conclusions
paragraphs: Hopper dredges play a vital role in keeping the nation’s ports, harbors,  and other waterways open for commerce. Over the past several decades,  the Corps has increasingly relied on industry to carry out hopper dredging  work, but it has also maintained its own minimum fleet of four hopper  dredges, in part to ensure its ability to respond to critical dredging needs  during periods of high demand. The Corps is faced with the task of  balancing the hopper dredging work it contracts out to industry and  maintaining the viability of its own fleet. The Corps has recognized the  need to make changes to manage its hopper dredge fleet in a fiscally  sustainable manner and has taken several actions to do so, including  assessing the need to potentially modify the composition of its fleet. Since  our 2003 report, the Corps has also made progress in addressing our  recommendations to improve the information it maintains to manage its  hopper dredging program, including modifying data fields in its dredging  database to track solicitations that receive no bids or where all the bids  received exceeded the Corps’ cost estimate by more than 25 percent.  However, because Corps district offices are not consistently populating  the database with these solicitation data, the Corps does not have  accurate or complete information that may help it identify potential gaps in  industry’s ability to fulfill certain dredging needs, which could inform its  plans for future hopper dredging work. Additionally, the Corps made  attempts to update the industry cost data it uses to prepare its cost  estimates for hopper dredging contracts. Yet, some of the data it relies on  remain outdated, and the Corps has no plans to update the information,  such as through a Corps-wide study. Until the Corps has a plan for  obtaining and then consistently updating reliable cost data, the Corps’  ability to ensure the soundness of its cost estimates may suffer.

section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Defense direct the Corps of  Engineers to take the following two actions:  To ensure the Corps of Engineers has the information it needs to analyze  and make informed decisions regarding future hopper dredging work,  provide written direction to its district offices on the importance of and  need to accurately and consistently populate the data fields in its  dredging database that track solicitations that receive no bids or where all  the bids received exceeded the Corps’ cost estimate by more than 25  percent.

To assist the Corps in preparing sound and credible cost estimates for  soliciting bids for hopper dredge work by industry, develop a written plan  for conducting a study to obtain and periodically update data on hopper  dredging costs for its cost estimates, including reliable data on industry  hopper dredge equipment and labor rates.

section_title: Agency and Third- Party Comments and Our Evaluation
paragraphs: We provided a draft of this report to the Department of Defense and the  Dredging Contractors of America (DCA) for review and comment. In its  written comments, reprinted in appendix III, the Department of Defense  concurred with our recommendations and stated that (1) the Corps will  issue a letter to the district offices reinforcing the need to provide  accurately and timely information in the Corps’ dredging database,  including information for solicitations that receive no bids or where all the  bids received exceeded the Corps’ cost estimate by more than 25 percent  and (2) the Corps will develop a written plan as resources allow. The  Corps also provided technical comments that we incorporated, as  appropriate.

DCA provided written comments, which are summarized below and  reprinted in appendix IV along with our responses. DCA neither agreed  nor disagreed with our recommendations but disagreed with several  statements in our report and raised objections to certain aspects of our  scope and methodology. We disagree with DCA’s comments as  discussed below. Specifically, in its comments, DCA disagreed with our  statement that a direct and valid comparison of work performed by  industry to work performed by the Corps is not possible and stated that a  third-party consultant performed an analysis of the Corps and industry  hopper dredges performing similar work. According to DCA’s comments,  the industry hopper dredges can work for significantly less than Corps  dredges. As we state in our report, we believe that a number of factors  prohibit a direct and valid comparison of the Corps’ and industry’s costs of  performing hopper dredge work, including limits to the number of days  some Corps’ dredges may operate and differences between dredging  projects, such as the type of material dredged. In providing its estimates  of cost savings for industry dredging, DCA did not provide information  indicating how or whether it took such factors into account or to enable us  to evaluate the reasonableness of its estimates.

DCA also questioned how, if one of the fundamental conclusions of our  study is that the Corps has not made sufficient progress to improve the  accuracy of its cost estimates, we could use those same government cost  estimates to make industry competitiveness inferences. We concluded,  however, that it is unclear whether statutory restrictions have affected  competition in the hopper dredging industry. In reaching that conclusion,  we analyzed a number of factors—including the number of companies  with hopper dredges, the number of bidders and winning bid prices for  Corps projects, and other factors such as environmental restrictions, the  demand for nonfederal hopper dredging work, and differences in hopper  dredge capabilities. We agree that obtaining reliable and up-to-date data  are important for developing sound cost estimates, and our report  recommends that the Corps develop a written plan for conducting a study  to obtain and periodically update data on hopper dredging costs for its  cost estimates.

DCA disagreed with our discussion on the capacity of the industry hopper  dredge fleet, stating specifically that one industry dredge, the Long Island,  should not have been included in our analysis because it had not been  used for maintenance dredging and had not been used on a project for  quite a few years. For our report, we did not limit our analysis to particular  types of hopper dredging projects, such as maintenance projects, and we  compared industry’s total capacity today with what we reported in 2003,  which we believe is a valid comparison. Moreover, in its comments on our  2003 report on hopper dredging, DCA included the Long Island in its list  of industry dredges to support its point that industry hopper dredging  capacity had increased in the decade leading up to 2003. As a result, we  continue to believe it was appropriate to include the Long Island as a part  of our analysis.

DCA stated our analysis of how the Corps’ manages its hopper dredges  was not comprehensive or objective and questioned why we did not  examine options for retiring or further reducing the use of Corps’ dredges.  DCA suggested that such an examination should take place and would be  in line with the congressional intent of increasing the use of private  industry dredges. However, DCA quotes selectively from the main statute  that governs the Corps' hopper dredging activities. While those portions  of the law read in isolation could suggest that the Corps should take  further steps to privatize its hopper dredge work, other provisions of the  same law either (1) give the Corps broad discretion to implement its  hopper dredge responsibilities or (2) directly restrict the Corps' ability to  reduce or eliminate Corps’ dredges. It was not the purpose of our report  to examine policy options for carrying out the Corps’ hopper dredge work,  including those not presently authorized under statute. We did examine  and discuss actions the Corps has taken or plans to take in managing its  hopper dredges, which include, among other things, conducting a hopper  dredge operating cost review and evaluating retirement or replacement  options.

As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Secretary of Defense,  Chief of Engineers and Commanding General of the U.S. Army Corps of  Engineers, and the appropriate congressional committees, and other  interested parties. In addition, the report will be available at no charge on  the GAO website at http://www.gao.gov.

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. Key contributors to this report are listed in  appendix V.

section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: This report examines (1) the actions the Corps has taken to address our  2003 recommendations for improving the information needed to manage  its hopper dredging program and develop cost estimates for industry  contracts; (2) the effects since 2003, if any, of the statutory restrictions  placed on the use of the Corps’ hopper dredges; and (3) key challenges,  if any, the Corps faces in managing its hopper dredge fleet.

To conduct our work, we reviewed Pub. L. No. 95-269, which established  the Corps’ minimum fleet, the Water Resources Development Acts of  1996 and 2007, and other laws, regulations, and Corps’ policy and  guidance governing the Corps’ use of hopper dredges. We interviewed  officials from Corps headquarters, division offices, and the 9 Corps district  offices with the largest hopper dredging workload during fiscal year 2003  through fiscal year 2012 (out of a total of 17 district offices that contracted  with industry for hopper dredging work during the time period): Galveston,  Jacksonville, Mobile, New Orleans, New York, Philadelphia, Portland,  San Francisco, and Seattle. We also visited the Corps’ four hopper  dredges and one industry hopper dredge for informational tours of these  vessels to gain a better understanding of their physical characteristics  and operations. We interviewed representatives from the national  association for the dredging industry, the Dredging Contractors of  America, and the five dredging companies that own and operate hopper  dredges—Cashman Dredging, Dutra Group, Great Lakes Dredge & Dock  Company, Manson Construction Co., and Weeks Marine, Inc. We also  interviewed other stakeholders involved in hopper dredging, including a  national pilots’ association and a national port authority association, and  local pilots’ associations and port authorities from the areas where Corps  hopper dredges are stationed—New Orleans, LA; Philadelphia, PA; and  Portland, OR. We focused our review on the 10-year period between  fiscal year 2003—when we conducted our previous review of the Corps’  —and fiscal year 2012—the most recent year for which  hopper dredgesCorps information on hopper dredging was readily available. In addition,  we focused our review on the four hopper dredges in the Corps’ minimum  dredge fleet during the period of our review: the Essayons, McFarland,  Wheeler, and Yaquina, and did not include other dredge types.

U.S. Army Corps of Engineers, Report to Congress: Hopper Dredges (Washington, D.C.:  June 3, 2005). numbers of bids and bid prices for the contracts. To assess the reliability  of the data, we interviewed officials from the Corps’ Navigation Data  Center who maintain the database, as well as officials from nine Corps  district offices who are responsible for entering and updating data on their  district offices’ dredging activities. We reviewed documentation related to  the database, such as the user’s guide and data dictionary, and  electronically tested the data for missing or erroneous values and, in  several cases, obtained updated or corrected data from the Corps. We  determined the data we used on the type and location of the dredging  work, the type of contract, and the number of industry bids and bid prices  for sealed-bid solicitations were sufficiently reliable for our purposes. We  also analyzed financial data on the Corps’ hopper dredges, including their  operating and ownership costs, and income from ready reserve funding.  To assess the reliability of the Corps’ financial data, we interviewed Corps  officials who maintain these data, compared the data to other sources of  information on the Corps’ hopper dredges, and obtained clarifying  information from the Corps for certain items such as ready reserve  funding. We determined the data were sufficiently reliable for our  purposes. We obtained and reviewed information from the five dredging  companies that own and operate hopper dredges, including information  on their hopper dredges’ capabilities, dredging work they performed, and  changes to their hopper dredge fleet since 2003. We did not directly  compare work performed by industry hopper dredges with work  performed by the Corps’ hopper dredges because, as we first reported in  2003, a direct and valid comparison of the Corps’ and industry’s costs to  perform hopper dredge work is not possible due to various factors. of its hopper dredges. In addition to reviewing the 2012 fiscal study, we  also obtained and analyzed additional data related to the financial  condition of the Corps’ hopper dredges. We also obtained and reviewed  the Corps’ 2012 and 2013 implementation memorandums related to both  studies and discussed with Corps officials the actions the Corps has  taken—and plans to take—related to the memorandums. We examined  changes and potential challenges the Corps faces related to managing its  hopper dredge fleet, including dredging accidents, repair delays, and  potential funding changes. We discussed general Corps fleet  management and composition options with industry officials and the other  stakeholders we interviewed.

We conducted this performance audit from January 2013 to April 2014 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: The U.S. Hopper Dredge Fleet
paragraphs: As of March 2014, 17 hopper dredges were operating in the United States, 13  of which were owned by industry (see table 4). In addition, 2 industry hopper  dredges are expected to be added to the U.S. fleet by 2015.

section_title: Appendix III: Comments from the Department of Defense

section_title: Appendix IV: Comments from the Dredging Contractors of America
paragraphs: The following are GAO’s comments on the letter from the Dredging  Contractors of America dated March 11, 2014.  1. We believe that various factors prohibit a direct and valid comparison  of the Corps’ and industry’s costs to perform hopper dredge work  including: (1) design features in the Corps’ vessels in support of national  defense missions, which add weight to the vessels and make them less  efficient than industry dredges; (2) limits to the number of days some of  the Corps’ vessels may operate; and (3) differences between dredging  projects—such as type of material dredged, type of work, corresponding  risk level, and distance from the dredging operations to the placement  site. In providing its estimates of cost savings for industry dredging, DCA  provided no information indicating how or whether its third-party  consultant took such factors into account. DCA also did not provide  enough information on the consultant’s analysis for us to be able to  determine how it reached its conclusions that industry dredges can work  for less than Corps dredges. Based on our work, we continue to believe,  as we state in our report, that since 2003, statutory restrictions on the use  of Corps’ hopper dredges have resulted in additional costs to the Corps.  2. DCA referred to three appendixes in their written comments. These  appendixes included Excel spreadsheets with various dredging data. We  did not reprint these spreadsheets with DCA’s written comments.  3. It was not the purpose of our report to evaluate policy options for  carrying out the Corps’ hopper dredge work, including those not presently  authorized by law, such as vessel retirements or alternative ready reserve  methods. The Corps' authority to retire its hopper dredges or reduce their  workload is limited by statute, and DCA did not indicate why it believes  retirements would be consistent with existing law. According to statute,  the Corps "may not further reduce the readiness status of any Federal  hopper dredge below a ready reserve status except any vessel placed in  such status for not less than 5 years that the Secretary determines has  not been used sufficiently to justify retaining the vessel in such status."The Corps has made no such determination. In addition, the Corps may  "not reduce the availability and utilization of Federal hopper dredge  vessels stationed on the Pacific and Atlantic coasts below that which  occurred in fiscal year 1996 to meet the navigation dredging needs of the  ports on those coasts." In the Water Resources and Development Act of  2007, Congress directed the Corps to place the McFarland in ready  reserve. But even assuming this provision implicitly repealed the prior  statute as applied to the McFarland, the Water Resources and  Development Act of 2007 provided that the McFarland must be  maintained in a "ready reserve fully operational condition." Similarly, the  law requires the Wheeler to be maintained in a "fully operational  condition." Furthermore, the law assigns to the Corps the responsibility  for carrying out hopper dredge work "in the manner most economical and  advantageous to the United States." This language "evidences  congressional intent to confer on the Army Corps wide discretion in  matters relating to its dredging activities.”  4. We used only the Dredging Information System data that we  determined were sufficiently reliable for our purposes. Specifically, as  noted in our report, we used data on the type and location of dredging  work, the type of contract, and the number of industry bids and bid prices  for sealed-bid solicitations. DCA stated that, with the introduction of  Multiple Award Task Order Contracting, our analysis of the number of  bidders and bid prices may be distorted. As noted in our report, however,  we limited our analysis to awarded, sealed-bid solicitations for which the  Corps had reliable data on the numbers of bids and bid prices, and we did  not include the procurement method mentioned by DCA. Our analysis of  the Dredging Information System data indicates that about 76 percent of  hopper dredging contracts awarded by the Corps from fiscal year 2003  through fiscal year 2012 (and about 89 percent of hopper dredging  contracts awarded in fiscal year 2012 alone) were awarded through the  sealed-bid process.  5. In characterizing urgent and emergency work in our report, we relied  on the definitions outlined in the Corps’ raise the flag procedure, which we  believe was the appropriate way to define and report on how the Corps  collects and tracks the urgent or emergency work its hopper dredges  carry out. Corps data show that urgent and emergency work have  occurred from fiscal year 2003 through fiscal year 2012 as we state in our  report.  6. We did not comment on the lack of evidence of increased competition  based solely on the number of bidders and winning bid prices for Corps  hopper dredging projects. Rather, we reached our conclusion—that it is  unclear whether statutory restrictions have affected competition in the  hopper dredging industry— after analyzing a number of factors, including  the number of companies with hopper dredges, the number of bidders  and winning bid prices for Corps projects, and other factors such as  environmental restrictions, the Corps' efforts to better coordinate dredging  activities, demand for nonfederal hopper dredging work, and differences  in hopper dredge capabilities. See also comment 4.  7. We did not make industry competitiveness inferences based on the  Corps’ cost estimates alone, see comment 6. We agree that obtaining  reliable and up-to-date data are important for developing sound cost  estimates, and our report recommends that the Corps develop a written  plan for conducting a study to obtain and periodically update data on  hopper dredging costs for its cost estimates.  8. We included the industry hopper dredge Long Island as available  hopper dredge capacity in 2003, based on information provided by the  Corps and DCA. In official comments on our 2003 report on hopper  dredging, DCA included the Long Island in its list of industry dredges to  support the point that industry hopper dredging capacity had increased in  the decade leading up to 2003. This dredge was since removed from the  U.S. market and, therefore, we factored its removal in our calculation of  the change in overall industry capacity since 2003. We included all  hopper dredging projects in our analysis and did not limit our analysis to  maintenance projects. In addition, we did not examine use, but rather  industry capacity.  9. During interviews with the industry representatives who owned the  dredges that were removed from the U.S. market, we were told that the  dredges were moved overseas, in part, because of increasing demand for  hopper dredges by foreign governments, and, that the dredges have  performed work overseas, indicating overseas demand. We also  recognize a lack of work in the United States may have also been a factor  in the relocation of these dredges, and we have added text to our report  to note this.  10. We used the Corps’ definition of its minimum hopper dredge fleet in  determining the scope of our review. The law establishing the minimum  fleet gave the Corps discretion to determine the fleet’s size and  composition. In addition, the capacity of the four Corps’ hopper dredges  ranges from about 1,050 cubic yards to about 8,300 cubic yards, which is  similar to the private industry hopper dredges’ capacity, which ranges  from 1,300 cubic yards to 13,500 cubic yards. In contrast, the Murden and  Currituck’s total capacity is 512 and 315 cubic yards, respectively, making  them significantly smaller dredges than the hopper dredges in the Corps’  and private industry’s fleet. Moreover, the Murden was commissioned into  active duty in May 2013, and it was, therefore, not part of the Corps’ fleet  during the period of our review, from fiscal year 2003 through fiscal year  2012.  11. The law makes no reference to "training days" and does not impose a  specific cap on the number of days for which the Wheeler may operate.  The Corps has, as a matter of practice, scheduled training work for the  Wheeler in order to "periodically perform routine tests of the equipment of  the vessel to ensure the vessel's ability to perform emergency work.” 12. An examination of using industry dredges in a ready reserve mode  was beyond the scope of this review.  13. In our report, we make frequent references to the fact that legislation  placed the Wheeler and the McFarland in ready reserve, and we provide  funding information for the Corps’ dredging program, including the  specific funding to support the Wheeler and McFarland in their ready  reserve status. We did not identify alternatives for how the Corps might  reduce the costs to operate these vessels, but we did examine and  discuss actions the Corps has taken or plans to take in managing its  hopper fleet, which include, among other things, conducting a hopper  dredge operating cost review and evaluating retirement or replacement  options.  14. The way that hopper dredges recover their costs is by actively  dredging, and, fewer days of work will equate to higher rates when work  is performed because of the fewer days available to spread out costs. As  noted in our report, daily rates for Corps hopper dredges have increased  and may continue to increase due to several factors such as increasing  fuel costs and changes in Corps accounting methods, in addition to ready  reserve restrictions on two of the dredges. We did not quantify the extent  to which individual factors contributed to increases in daily rates, rather  we report that restrictions on the number of days ready reserve hopper  dredges can work have contributed to increases in their daily rates. We  agree that the Essayons, operating on the West Coast with no  restrictions, has increased its annual costs and daily rates since  becoming unrestricted. However, we found that the increase in the  Essayons daily rate from $95,000 in fiscal year 2008—the last year in  which it was restricted—to $100,000 in fiscal year 2012 was substantially  smaller than that of the Wheeler, with a daily rate increase from $95,000  to $140,000 over the same period.  15. We agree that one basic congressional tenet of the Water Resources  Development Act of 1996 was to increase the use of private industry  hopper dredges but, as we have noted, the law also directly restricts the  Corps' ability to reduce the use of or eliminate Corps’ dredges. See  comment 3. We do not agree that collecting more solicitation information  would result in enhanced opportunities for the Corps’ hopper dredges to  be used more. Rather, we believe that in collecting this solicitation  information, the Corps may be able to better plan for future hopper  dredging work, whether done by industry dredges or Corps dredges.  16. Based on our review of Corps’ documentation related to the example  cited, we found that industry was provided several opportunities to bid on  the work. Specifically, after soliciting bids for the work and receiving only  one bid, which was more than 25 percent above the government cost  estimate, the Corps reviewed its cost estimate, found it to be reasonable,  and began negotiations with the company that had submitted the bid. The  parties were unable to agree on a price for the work, however, so the  Corps then provided a second notification to industry, indicating that there  was an urgent need for dredging. According to Corps documentation, no  dredging company expressed both the availability and the capability to  address the dredging need and, therefore, the Corps used one of its own  dredges to complete the work.

section_title: Appendix V: 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; John Delicath; Cindy Gilbert; Miles Ingram;  Richard P. Johnson; Delwen Jones; Kirk D. Menard; Samuel Morris;  Mehrzad Nadji; Dan Royer; and Tatiana T. Winger made key  contributions to this report.


Question-summary annotations: questions: question: What actions has the Corps taken to address GAO's 2003 recommendations?
answer: The U.S. Army Corps of Engineers (Corps) has taken actions to address GAO's 2003 recommendations for improving information related to hopper dredging, but some data gaps remain. First, in response to GAO's recommendation to obtain and analyze data needed to determine the appropriate use of its hopper dredge fleet, the Corps established a tracking log to document urgent or emergency work its dredges carry out. The Corps also modified its dredging database to track solicitations for industry contracts that received no bids and bids exceeding the Corps' cost estimate by more than 25 percent, referred to as high bids.
child_questions: question: Why might this data be incomplete?
answer: Corps district offices, however, do not consistently enter data on these solicitations, and Corps headquarters has not provided written direction to the district offices to ensure data are consistently entered.
child_questions: question: How could improving the quality of this data benefit the Corps?
answer: Tracking and analyzing no-bid and high-bid solicitation data could enable the Corps to identify and address gaps in industry's ability to fulfill certain dredging needs as the Corps plans its future hopper dredging work.

question: What data did the Corps assess in response to GAO's recommendation?
answer: Second, in response to GAO's recommendation, the Corps took action to assess the data and procedures it used for developing cost estimates when soliciting industry contracts.
child_questions: question: Why might this data be unreliable?
answer: However, certain industry cost data the Corps relies on remain outdated. For example, some of the data it uses on hopper dredge equipment date back to the late 1980s.
child_questions: question: How could this data be updated?
answer: A senior Corps official stated that a study could be conducted to update the data, but the Corps has no plans to conduct such a study.

question: How could updating data benefit the Corps?
answer: Having a plan for obtaining updated data is important for developing sound cost estimates.

questions: question: How have statutory restrictions on the use of hopper dredges impacted the Corps' budget?
answer: Statutory restrictions on the use of the Corps' hopper dredges since 2003 have resulted in costs to the Corps, but the effect on competition in the hopper dredging industry is unclear. Restrictions limiting the number of days that Corps dredges can work have resulted in additional costs such as costs to maintain certain Corps dredges while they are idle; the Corps incurs many of the costs for owning and operating its hopper dredges regardless of how much they are used.
child_questions: question: Why are these restrictions beneficial to the Corps?
answer: The restrictions, however, help ensure the Corps has the ability to use these dredges to respond to urgent or emergency dredging needs when industry dredges are unavailable.

question: How have these restrictions impacted competition in the dredging industry?
answer: It is not clear to what extent restrictions have affected competition in the dredging industry. The number of U.S. companies with hopper dredges has not changed, but the number and size of these dredges have decreased since 2003.
child_questions: question: What data did GAO find to support this?
answer: In addition, GAO did not find evidence of increased competition based on the number of bidders and winning bid prices for Corps hopper dredging projects since 2003.

questions: question: What are the key challenges the Corps faces in managing its hopper dredge fleet?
answer: Key challenges facing the Corps in managing its hopper dredge fleet are (1) ensuring the fiscal sustainability of its hopper dredges and (2) determining the fleet's appropriate future composition.
child_questions: question: How did the Corps determine that its hopper dredges were unsustainable?
answer: In 2012, the Corps determined that because of increasing ownership and operating costs, among other things, its hopper dredges would become unaffordable unless actions were taken, including increasing the daily rates charged to projects using the Corps' dredges.

question: What makes it difficult to determine the best fleet composition?
answer: Factors such as the aging of the Corps' fleet and the effect on industry of possible changes to the Corps' fleet make it difficult for the Corps to determine the best fleet composition.

question: How could the Corps address these challenges?
answer: In studies it conducted in 2011 and 2012, the Corps identified actions that could help address these challenges, such as reviewing the operating costs of hopper dredges to evaluate the affordability of certain dredges.

questions: question: How does the Corps bear responsibility for shipping routes?
answer: The Corps is responsible for dredging sediment from waterways to maintain shipping routes important for commerce.
child_questions: question: How does the Corps dredge sediment from waterways?
answer: One dredge type, a hopper dredge, performs much of the dredging in ports and harbors, and the Corps uses its own fleet of hopper dredges and contracts with industry to carry out the work.

question: What did GAO do in 2003?
answer: In 2003, GAO examined the Corps' hopper dredging program and made recommendations to improve its management.

question: What was GAO asked to review?
answer: GAO was asked to review changes to the program.

questions: question: What does this report examine?
answer: This report examines (1) actions the Corps has taken to address GAO's 2003 recommendations for improving the information needed to manage its hopper dredging program and develop cost estimates for industry contracts; (2) effects since 2003, if any, of the statutory restrictions placed on the use of the Corps' hopper dredges; and (3) key challenges, if any, the Corps faces in managing its hopper dredge fleet.
child_questions: question: How did GAO collect data for this report?
answer: GAO reviewed laws, regulations, and policies governing the Corps' use of hopper dredges, and related Corps reports. GAO analyzed dredging contract and financial data for fiscal years 2003-2012, assessed the reliability of these data, and interviewed Corps and dredging stakeholders.