Corps of Engineers:

Effects of Restrictions on Corps' Hopper Dredges Should Be Comprehensively Analyzed

GAO-03-382: Published: Mar 31, 2003. Publicly Released: Mar 31, 2003.

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The fiscal year 2002 Conference Report for the Energy and Water Development Appropriations Act directed GAO to study the benefits and effects of the U.S. Army Corps of Engineers' (Corps) dredge fleet. GAO examined the characteristics and changing roles of the Corps and industry in hopper dredging; the effect of current restrictions on the Corps' hopper dredge fleet; and whether existing and proposed restrictions on the fleet, including the proposal to place the McFarland in ready reserve, are justified. In addition, GAO identified concerns related to the government cost estimates the Corps prepares to determine the reasonableness of industry bids.

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 In reviewing the cost estimation process, GAO found that the Corps' estimates are based on some outdated contractor cost information and an expired policy for calculating transit costs.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

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: The Corps stated that it addressed our recommendation in its June 2005 Report to Congress on hopper dredges. However, we disagree. In the report, the Corps presented data on its hopper dredging contracts that included the average number of bids and the percent of the government estimate for the total winning bid amount. The Corps did not include any data on the frequency, type and cost of emergency work performed by the Corps and private industry; information on contract type; information on the number of solicitations that received no bids; and on the cases where all the bids received exceeded the Corps' estimate by more than 25 percent. Since the Corps' analysis did not include the specific factors included in our recommendation, the recommendation is closed, not implemented.

    Recommendation: In an effort to discern the most economical and advantageous manner in which to operate its hopper dredge fleet, and because the Corps has been unable to support, through analysis and documentation, the costs and benefits of placing its hopper dredges in ready reserve, the Secretary of the Army should direct the Corps of Engineers to obtain and analyze the baseline data needed to determine the appropriate use of the Corps' hopper dredge fleet including, among other things, data on the frequency, type, and cost of emergency work performed by the Corps and the private hopper dredging industry; contract type; and solicitations that receive no bids or where all the bids received exceeded the Corps' estimate by more than 25 percent.

    Agency Affected: Department of Defense: Department of the Army

  2. Status: Closed - Implemented

    Comments: The Corps addressed this recommendation in its June 2005 hopper dredge report to Congress. In the report, the Corps presented the costs and benefits of 12 different options for operating the Corps' hopper dredges that included existing and proposed restrictions. The Corps presented the government's costs for operating its hopper dredges as well as the contract costs. The Corps determined the benefits of each option by assessing the level of risk to navigation and industry. The Corps also noted some general benefits provided by its dredges, such as responding to emergency dredging needs.

    Recommendation: In an effort to discern the most economical and advantageous manner in which to operate its hopper dredge fleet, and because the Corps has been unable to support, through analysis and documentation, the costs and benefits of placing its hopper dredges in ready reserve, the Secretary of the Army should direct the Corps of Engineers to prepare a comprehensive analysis of the costs and benefits of existing and proposed restrictions on the use of the Corps' hopper dredge fleet--including limiting the Corps' dredges to 180 days of work per year, placing the Wheeler into ready reserve, limiting the McFarland to its historic work in the Delaware River, and placing the McFarland into ready reserve status.

    Agency Affected: Department of Defense: Department of the Army

  3. Status: Closed - Implemented

    Comments: The Corps stated that it addressed our recommendation in its June 2005 Report to Congress on hopper dredges. In the report, the Corps stated that it has updated and corrected data in its Dredging Information System. The report does not directly address the issue of examining the policies related to calculating transit costs. Nonetheless, we believe that the action the Corps has taken substantially addresses the intent of our recommendation.

    Recommendation: In an effort to discern the most economical and advantageous manner in which to operate its hopper dredge fleet, and because the Corps has been unable to support, through analysis and documentation, the costs and benefits of placing its hopper dredges in ready reserve, the Secretary of the Army should direct the Corps of Engineers to assess the data and procedures used to perform the government cost estimate when contracting dredging work to the private hopper dredging industry, including, among other things, (1) updating the cost information for private industry hopper dredges and (2) examining the policies related to calculating transit costs.

    Agency Affected: Department of Defense: Department of the Army

 

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