Military Sealift Command:

Weak Controls and Management of Contractor-Operated Ships

NSIAD-96-41: Published: Dec 12, 1995. Publicly Released: Jan 4, 1996.

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Pursuant to a congressional request, GAO reviewed the Military Sealift Command's (MSC) management of its contractor-operated ships, focusing on whether MSC has: (1) adequate management controls to oversee contractors and prevent abuses; and (2) sufficient oversight to ensure that contractual requirements are being met.

GAO found that MSC: (1) does not require contractors to adequately document minor repairs, crew time, or subcontracted work; (2) does not adequately verify crew-performed repairs, review subcontractor invoices, or supervise overhaul work; (3) lacks sufficient internal controls to adequately manage its ship operation contracts; (4) has no guidelines for systematically establishing personnel requirements; (5) does not ensure that contractors comply with requirements for trustworthiness evaluations and security clearances; (6) has no formal system to identify and implement best practices that could improve contractor performance and reduce costs; and (7) has acknowledged its organizational problems and plans to designate program managers and establish formal lines of accountability.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Contract administration plans are being reviewed to ensure that reporting procedures for crew-performed minor repairs accurately report billings and provide the documentation to determine that prices are fair and reasonable. Enforcement of subcontract consent thresholds will be strengthened where appropriate.

    Recommendation: The Secretary of Defense should direct the Commander, MSC, to institute MSC-wide procedures to ensure that contractors are: (1) accurately reporting how they meet contract-defined thresholds for crew-performed minor repairs; (2) submitting adequate documentation with invoices for MSC to determine that prices are fair and reasonable; and (3) obtaining prior MSC approval for subcontracted work above thresholds required by the contracts.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: MSC is performing spot-checking of minor repairs and industrial assistance. Sometimes it has been useful to have local staffs review invoices and sometimes it is more effective to have headquarters staff, who are familiar with the ships and oversee the results of the contractors' efforts, do the reviews. MSC is reviewing methods of establishing an appropriate level of government visitation. MSC will also review the issue of the contractor's internal controls.

    Recommendation: The Secretary of Defense should direct the Commander, MSC, to, when practical, require that MSC representatives verify, through spotchecks, that repairs and industrial assistance paid for by MSC have actually been done and recommend deductions if necessary. These spotchecks could be done by MSC personnel as part of their normal inspections.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: MSC does not appear to have fully responded to the recommendation. It is continuing to explore ways of improving the oversight of subcontracted overhauls, including reliance on improved contractor internal controls. MSC prime contractors are responsible for the operation and maintenance of the ships, part of which includes overhaul of the vessels at subcontracted shipyards. MSC personnel review overhaul specification packages, and MSC consent is required before any overhaul is awarded.

    Recommendation: The Secretary of Defense should direct the Commander, MSC, to, when practical, require an MSC representative to verify, based upon physical observation, the satisfactory completion of work performed at various stages of overhauls of MSC contractor-operated ships.

    Agency Affected: Department of Defense

  4. Status: Closed - Implemented

    Comments: The responsibilities of government representatives during overhauls have been revised and incorporated in MSC's revised contract administration procedures.

    Recommendation: The Secretary of Defense should direct the Commander, MSC, to provide written guidance defining the roles, responsibilities, and authority of MSC representatives in protecting the government's interests during overhauls and other major repair work.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: MSC has created an executive level business manager position, which is over the Comptroller and will report directly to the Deputy Commander. This manager will provide guidance, training, and oversight to the MSC and all area commands.

    Recommendation: The Secretary of Defense should direct the Commander, MSC, to consider expanding the responsibilities of MSC Comptroller or creating a new position for a financial management expert to oversee the implementation of the above recommendations. If a new position is created, this person should report directly to the Commander, MSC. In addition to the existing duties of the Comptroller, this person would be responsible for setting minimal internal controls for all aspects of financial management throughout MSC and overseeing the implementation of these controls. The responsibilities of this person would be similar to those of a Chief Financial Officer established pursuant to the Chief Financial Officers Act of 1990.

    Agency Affected: Department of Defense

  6. Status: Closed - Implemented

    Comments: MSC has strengthened its lines of responsibility along program manager lines.

    Recommendation: The Secretary of Defense should direct the Commander, MSC, to develop and require the use of standardized procedures by program managers and their staffs whenever possible to establish personnel requirements in their contracts.

    Agency Affected: Department of Defense

  7. Status: Closed - Implemented

    Comments: MSC has strengthened its lines of responsibility along program manager lines.

    Recommendation: The Secretary of Defense should direct the Commander, MSC, to, as part of MSC upcoming reorganization, direct program managers to clarify accountability by: (1) assigning a specific individual responsibility for each contract requirement; and (2) periodically checking that contract provisions, such as those dealing with trustworthiness and security clearances, are correctly administered and met.

    Agency Affected: Department of Defense

  8. Status: Closed - Implemented

    Comments: MSC has strengthened its lines of responsibility along program manager lines.

    Recommendation: The Secretary of Defense should direct the Commander, MSC, to instruct program managers and contracting personnel to meet to discuss and evaluate ways to identify and implement best practices into their contractor-operated ship programs.

    Agency Affected: Department of Defense

 

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