Maritime Administration's Satellite Communications Program: Is It Still Needed?

Published by the Government Accountability Office on 1977-10-27.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                         DOCUMENT RESUME i             .

04146 - [B30142901 (Restrictedl)

Mar1time AdministratiOn's Satellite Coamunications ProgLam: Is
it Still Needed? LCD-77-107; B-18610C. October 27, 1977. 31 pp.
+ 3 appendices (7 pp.).
Report to Rep. Jack Brooks, Chalrman, Eouse Committee cn
Government Operations; by Robert F. heller, Acting Comptrcller

Issue Area: Federal Procurement of Goods and Services (1900).
Contact: Logistics and Comiunications Di-.
Budget Function: Commerce and Transportation: Water
     Transportation (4C ) .
Orqanization Concerned: Computer Sciences Ccrp.; Zaritime
     Ad minis _a tion.
Conqressional Relevance: House Committee on Government
     Ope ra ti on s.
Au.th.ority: Merchant Marine Act of 19-6 (49 Stat. 1985).
          The Maritime Administration needs to identify and
demonstrate specific benefits that sxceed the Governnent's costs
for continuinq the satellite communications services offered
shippers. The continuing development of maritime satellite
communications-rciated technology by the Maritime Administration
is questionable Lecause this technology is now available
commercially.    Findings/Conclusions: Many shifping companies
have stated that the costs for procuring, installing, and
o;:erating shipboard satellite communications equipment are too
high for them to independently finance these cserations,
especially since it has not been demonstrated that the cpotential
benefits of satellite communications and related data processing
could offset these costs.     Recommendations: Tnhe Secetary ct
commerce should direct    che Assistant Secretary tox Maritime
Affaiis to: undertake a cost-benefit enalysis of the satellite
program: to determine the value to the U.S. shipping industry ot
using the satellite communications and the available fleet
management computer programs; demonstrate these benetits tc the
shipping industry if they can be shcun to offset the equivalent
commercial or Government costs for these services; ccrrect
promptly manaqe ment deficiencies with emphasis on the
development or and adherence to a master plan and zequisite
manaqement controls and the method by u,,ich the Kings Point
Center's functions can be turned over to private industry; and
terminate the satellite prcgra. unless the first      two-'
recommendations   can be  fully achieved.  (Author/SC)
                 akTIRtRMcTD -- Not to be rJ,.sed @ou  t      C malq
              .*"U.ei Offitce eXcat on the basis/     peit .l   i
             iby ae Offttee f C6 Fcg tional ft i on&


     i-al,      OF THE UNITED STA TES

               Maritime Administration's Satellite
               Communications Program: Is It
               Still Needed?

               The Maritime Administration needs to iden-
               tify and demonstrate specific benefits that
               exceed the Government's costs for continuing
               the Maritime satellite communications
               Maritime should terminate the satellite
              program in early 1978 unless (1) a meaningful
              cost-benefit analysis is accomplished and (2)
              the program's benefits are then demonstrated
              to the U.S. shipping industry. If the program
              is continued or reoriented, Maritime should
              improve its management of the program sig-

              LCDo77.107                                      OCTOBER 27, 1977
                                WASIINGTON, D.C. 05148


The Honorable Jack Brooks, Chairman
Committee on Government Operations
House of Representatives

Dear Mr. Chairman:
     This report, prepared in response to your March 8, 1976,
request and subsequent meetings held with your Office, dis-
cusses t.he management and value of the Maritime Administra-
tion's Maritime Satellite Program. We are also enclosing
copies (only to you) of our decision and letters concerning
the relateC protest against the contract awarded to Computer
Sciences Corporation for operation of Maritime's Fleet
Management tests.
     We recommend that the Maritime Administration terminate
the satellite program in early 1978 unless it (1) undertakes
a cost-benefit analysis of the program to determine its value
to the U.S. shipping industry and (2) demonstrates any iden-
tified benefits of the program to the same industry. We also
recommend, it.the event the above is done and the satellite
program is continued, that the Maritime Administration correct
numerous management deficiencies, which are described in our

     This report contains recommendations to the Secretary
of Commerce on pages 27 and 28. As you know, section 236 of
the Legislative Reorganization Act of 1970 requires the head
of a Federal agency to submit a written statement on actions
taken on our recommendations to the House Committee on Gov-
ernwent Operations and the Senate Committee on Governmental
Affairs not later than 60 days after the date of the report
and to the House and Senate Committees on Appropriations with
the agency's first request for appropriations made more than
60 days after the date of the report. We will be in touch
with your office in the near future to arrange for release
of the report so that the requirements of section 236 can
be set in motion.

                                         Sincerely yours,

                                    dkiag Comptroll r General
                                          of the United States

             DIGAO queEST
             GAO questions the continuing development of
             maritime satellite communications-related
             technology by the Maritime Administration
             because this technology is available com-
             mercially.  (See p. 1.)
             For several years Maritime has been de-
             veloping satellite communications and re-
             lated computer techniques using its com-
             munications and computer center at Kings
             Point, New York, as the base for these
             experiments.   (See pp. 8 and 13.)
            A commercial maritime satellite communica-
            tions system became available in mid-1976
            to the world shipping community. Its owners
            offered the same range of communications
            services as did the Maritime Administration.
            Twenty-two foreign-flag and 10 U.S.-flag
            ships have been using the system, including
            6 U.S. ships for which the costs were being
            paid by Maritime. Maritime satellites now
            co.er the Atlantic, Pacific, and Indian
            Oceans. Maritime's program covers mainly
            the Atlantic.  (See pp. 11, 15 and 16.)
            Officials from 14 shipping companies told
            GAO that the costs for procuring, installing,
            and operating shipboard satellite communica-
            tions equipment are too high for them to in-
            dependently finance these operations, espe-
            cially since it has not been demonstrated
            that the potential benefits of satellite
            communications and related data processing
            could offset these costs. Officials from
            12 companies not participating in Maritime's
            program said that present methods of communi-
            cations and present navigation techniques are
            more than adequate for shipping operations
            and they could not justify changes to the new
            methods because of the costs. (See p. 9.)

Ta. Shet. Upon removal, the report
cover date should be noted hereon.                        LCD-77-107
                                     i                    LCD-77-107
 Maritime continues to provide, largely at
 Government expense, satellite communica-
 tions services also offered by private
 industry.   (See pp. 16 and 18.) Moreover,
 it has not, either by cost-benefit studies
 or test demonstrations, established bene-
 fits of its satellite communications and
 computer services which would offset their
 ccsts. (See p. 8.)

 This duplication of satellite communica-
 tions services no longer appears essen-
 tial. Unless Maritime can demonstrate
 cost-benefits to the users of its computer
 services, the satellite program should be
 terminated.  (See p. 18.)
Maritime's three program development con-
tracts are cost-reimbursable arrangements.
 (See p. 3.)  Dollar expenditures have
exceeded the funding originally intended.
(See p. 19.) Maritime ha; not taken the
management measures required to insure
that its program can proceel in an effi-
cient, economical manner. Specifically,
it should have an overall satellite pro-
gram plan and prescribed management con-
trols.   (See pp. 19 and 26.)
GAO concludes, and recommends that the
Secretary of Commerce direct the Assist-
ant Secretary for Maritime Affairs to:
-- Undertake a cost-benefit analysis of the
   satellite program to determine th value
   to the U.S. shipping industry of using
   the satellite communications and the
   available fleet management computer pro-
  grams; benefits should be compared with
  commercial or Government costs for the
-- Demonstrate these benefits to the shipping
   industry, if they can be shown to offset
   the equivalent commercial or Government
   costs for these services.

-- Correct promptly the management deficien-
   cies discussed in this report, emphasis

                should be placed upon the development of
                and adherence to a master plan and requi-
                site management controls, and the method
                by which the Kings Point Center's func-
                tions, if proven cost effective, can be
                turned over to private industry.
              -- Terminate the satellite program unless
                 the first two recommendations can be
                 fully achieved.  (See pp. 27 and 28.)
              The Maritime Administration agreed with
              most GAO recommendations and stated that
              definite actions are in progress to carry
              them out.  It disagreed with the recom-
              mendation to terminate the program. (See
              pp. 28 and 29.)

              The conditional nature of the recommendation
              to terminate the program presents Maritime
              with the opportunity to determine whether
              the program's present direction and costs are
              justified, provided this is done by the end
              of 1977.  (See pp. 29 and 31.)
              The Congress should review the results
              of the program's "fourth phase"--a determi-
              nation of program costs and benefits by the
              end of 1977--in conjunction with its con-
              sideration of research and development fund-
              ing requested by the agency for fiscal year
              1979. (See p. 31.)

              The Maritime Administration questions GAO's
              conclusion that satellite communications
              cost more than conventional high-frequency
              communications for shipboard use. GAO's
              survey of high-frequency costs compared to
              shipboard maritime satellite equipment shows
              Maritime's cost assumptions to be inaccurate
              and reinforces the conviction that maritime
              satellite communications are more expensive
              than conventional communications. (See
              p. 30, and app. III, p. 35.)

              The Maritime Administration disagrees that
              it has performed no cost-benefit analysis
              since the first phase of the satellite pro-
              gram. GAO found that one cost-benefit

Iuar   5aih                        iii
analysis was drafted in 1975, but due to its
lack of specific benefits, was not acknowl-
edged by the shipping companies nor incor-
porated into the program.  (See p. 31 and
app. III, p. 35.)

The Maritime Administration also disagrees
that it provides services that duplicate
those of private industry. In GAO's opinion,
every communications function being processed
through the Center and then through the com-
mercial system, can be provided directly
through the system (except the data process-
ing functions for which the value is to be
determined).  (See p. 29 and app. III, p. 37.)




   1      INTRODUCTION                                   1
              Rationale for direction of maritime R&D    1
              Maritime Satellite Program                 2
              Scope of review                            6
            ESTABLISHED                                  8
              Cost-benefit studies not made              8
              Lack of apparent user benefits in-
                hibited interest in program              8
              Sumrmary                                  11
            SERIOUS QUESTION                            13
              Dedicated maritime satellite communica-
                tions system now available commer-
                cially                                  15
              Value of MAPAD's computer service- nnt
                substantiated                           17
              Summary                                   18
            CONTINUED                                   19
              Program plan needed                       19
              Summary                                   26
           FOR CONSIDERATION BY THE CONGRESS            27
             Conclusions                                27
             Recommendations                            27
             Agency comments and our evaluation         28
             Matters for consideration by the
               Congress                                 31

      I     Office of Commercial Development Projects
              (Organizational chart)                         32
  II        Configuration of Maritime Coordination
              Center with Maritime Sa'ellite System         33
 III        Letter dated July 22, 1977, from the
              Assistant Secretary for Maritime Affairs,
              Maritime Administration, Department of
              Commerce                                      34
AII         Applied Informaticn Industries
ATS         Applications Technology Satellite
CDS         Construction Differential Subsidy
CPFF        cost plus fixed fee
CSC         Computer Sciences Corporation
DOD         Department of Defense
FLTSATCOM   Fleet Satellite Communications
GAO         General Accounting Office
INMARSAT    International Maritime Satellite
MARAD       Maritime Administration
MARISAT     maritime satellite
MMS         Marine Management Systems
NASA        National Aeronautics and Space Administration
R&D         research and development
SSB-HF      single side band--high frequency
                             CHAPTER 1

       At the request of Congressman
  the House Committee on Government Jack Brooks, Chairman of
                                     Operations, we initiated
  a review of the award by the Maritime
 of a cost-reimbursable-type contract Administration (MARAD)
 Corporation (CSC) for operating MARAD's Computer Sciences
 Tests, Maritime Satellite Program,          Fleet Management
                                      phase IV. The contract
 award was aJ 3 the subject of a protest
 cessful offeror, Marine Management          to GAO by an unsuc-
                                      Systems, Inc. (MMS).
       During our preliminary inquiry into
 award, we observed and questioned            the protested
 mce ; in the development of maritime          continuing involve-
 related technololgy, Cince this technology        communications-
 and marketed on a commercial basis.            is now developed
 commercially owned maritime communications   MARISAT 1/is a
 that is presen-tly offering a full             satellite  system
services between shore              range of communications
                         offices and ships at sea. Reportedly,
32 2/ U.S. and foreign flag vessels
                                       are using these services.
WitI the concurrence of the Committee
the review to incli'e an evaluation      staff, we expanded
                                      of MARAD's program.
      As part of our review, and also as
                                            originally requested,
we examined the protested award to
of our review disclused no significant       However, th s part
tion to that reported in the Compt3oller  information.  in addi-
(B-185860) dated September 14, 1976,         General's  decision
General's letters dated December 10, and in the Comptroller
of Commerce and to the attorney fvr 1376, to the Secretary
     The Merchant Marine Act of 1936 (49
                                          Stat. 1985), as
amended, provides MARAD with the responsibility
the development and maintenance of               for fostering
                                    an American merchant
marine sufficient to meet the needs
                                     of the national security
and of the domestic and foreign commerce
                                          of the United States.

1/This is the title used by the COMSAT
                                       General Corporation
  and its partners for the maritime
                                    communications satellite
2/This number has increased to 5i
                                  since mid-1976, the time of
  our review.
The 1970 amendment to the legislation (Public Law 91-469),
authorizes MARAD to subsidize and help rebuild a 300-ship
U.S. merchant fleet. The 300 ships are to be built by 1980.
FIARAD is also authorized to subsidize the operation of eligi-
ble American-flag merchant ships to help offset the cost
of paying seamen's wages, which are high compared to other
nations' maritime wages.

     MARAD interprets the legislation as authority to under-
take programs that will increase the efficiency, economy,
and effectiveness of the American Merchant Marine's opera-
tions, and elevate its competitive position within the inter-
national shipping market. Also, as one of the bases for its
present direction of research and development (R&D) effort,
MARAD cites the President's message of October 23, 1969,
which states:   'We will enlarge and redirect the maritime
research and development activities of the Federal Government.
Greater emphasis will be placed on practical applications
of technological advances and on the coordination of Federal
programs with those of industry." This message has been
interpreted as a Presidential objective by MARAD and is
also used as justification for the present R&D program

     MARAD's stated goal for the R&D program is to make the
U.S. merchant fleet more competitive through application
of technological advances. The R&D program is also expected
to help shipping companies become more self-sufficient, and
to eventually rely less on Government subsidies. Thus, MARAD
states that a measurement of the success of its R&D perfor-
mance is a reduction in the amount of operating and construc-
tion subsidies required by U.S. companies.


     The satellite program 1/ is an R&D program sponsored
by MARAD's Office of Commercial Development. Appendix I
(p. 32) shows the Office's organizational structure and
each research and development program it is presently spon-
soring.  The Assistant Administrator for Commercial Develop-
ment is the principal official responsible for MARAD's R&D.
He reports directly to the Deputy Assistant Secretary for
Maritime Affairs.

1/ During the past years, MARAD has applied different titles
   to this program. This report uses the term "satellite
   program" to encompass all titles used by MARAD in the past.

     MARAD's initial work in satellite communications started
in 1969. Since that time, MARAD's satellite-related projects
have cost over $10.5 million. Future satellite-related costs
have been estimated by MARAD to be about $5.3 million through
fiscal year 1980. Although no costs have been projected
beyond 1980, MARAD documentation shows more development
planned in this area through 1990.
     A program manager from MARAD's Office of Advanced Ship
Operations (see app. I, p. 32) directs the satellite pro-
gram's elements. At the time of our review, MARAD had four
major contracts l/ to perform the elements. The following
table shows the satellite program's existing contracts,
contractors, estimated costs per contract, and period of

                                                      Period of
                                          Estimated    contract
    Contract         Contractor             costs      (months)   Concluding
   Fleet manage-     CSC              $    416,052        23        :2/77
     ment services
   Engineering and   Magnavox
     technical         Corporation         640,253        30        12/77
   Engineering       Mitre
     services          Corporation         149,713       13         12/77
   Satellite         Comsat General
     terminals         Corporation         162,400       23           not

1/Three cost-reimbursable development contracts and one lease
  arrangement for satellite terminals.

     The stated objectives of MARAD's satellite program are:

     -- To extend to ships the quality, real-time communica-
        tions services now provided between locations ashore.
     -- To make continous, accurate ship location information
        available for use by both ship and shore stations.
     -- To enable U.S. companies to use new ship management
        techniques that exploit aerospace technology.

     --To increase operating efficiency through management
       techniques which expand use of the technologies men-
       tioned above.

     The actual purpose of the present satellite program
is to conduct several fleet management experiments between a
Maritime Coordination Center and participating ships at
sea, utilizing the MARISAT communications link.

Maritime Coordination Center

     The Center, located at the U.S. Merchant Marine Academy,
Kings Point, New York, is an experimental computer/satellite
communications processing facility built for MARAD in 1972.
The Center is the central facility for operating and coordi-
nating each 6f ?.ARAD's fleet management tests. These tests
are a series of satellite-communications and computer-
processing experiments being conducted by CSC and the Magnavox
Corporation, which are designed to determine both the value
and the feasibility of using the Center's shore-based computer
to aid ship operations in such areas as navigation, fuel
economy, and reduced maintenance costs.

     The following satellite communications services can be
provided between shipping companies (or other shore points)
and ships at sea.

    -- Telex (Teletype)

    -- Digital and analog facsimile

    -- Medium- and high-speed digital data transmissions

     Appendix II (see p. 33) shows the schematic representa-
tion of the present commercial satellite system and the MARAD

Center's cornection. The routing of communications via the
FiARAD Center offers no communications services not already
commercially available but, as can be seen, adds an addi-
tional link between the participating shipping companies
and ships at sea. It appears that this additional link could
increase end-to-end transmission time.
     In addition to its communication switching function, the
MARAD Center is providing two categories of computer-proces-
sing experiments which are being conducted between the Center
and the ships participating in MARAD's program. MARAD
calls these experiments the fleet management tests.

Fleet management tests

     The first fleet management test category is concerned
with the communications of operations data between the ships
and their respective shore offices, such as ship performance
(position, speed, course, estimated time of arrival),
engine room data (boiler steam pressure, engine RPM), pay-
roll data, ship stores and spare parts re ,isitions, and
cargo manifest data. A minicomputer at the Center receives
and assists with formatting the data, stores it in memory
files, processes it where required, and forwards it to either
the ships (via the MARISAT communications link) or to their
shore offices (via the conventional communications lines).
The data is transmitted in either raw, digital form or in
the forms of teletype and facsimile reports.
     The second category of tests involves the Center's
collection and transmission of Government service data
to the ships (via the MARISAT link), such as weather fore-
casts, notices to mariner reports, and vessel emergency
Global fleet management

     To place the satellite program in proper perspective
with MARAD's total R&D effort, an explanation of MARAD's
overall fleet management concept would be pertinent at
this point.

     The Office of Advanced Ship Operations is attempting
to attain as a major goal by 1980, a U.S. fleet management
network that will direct at least 300 American-flag vessels
worldwide. This concept was conceived by MARAD as the means
of improving the competitive position of the U.S. merchant
fleet. According to MARAD, global fleet management is the

process of optimizing the productivity and safety of the ocean
transport of cargo, using to the best economic advantage all
available capital, procedural and personnel resources on a
global basis for the U.S. merchant fleet. To achievs this
goal, which is in essence an integrated U.S. merchant marine
transportation-management network, MARAD has been developing
techniques that involve the use of advanced communications
and management control systems such as satellites and com-

     Three R&D programs comprise vhe elements of the Global
Fleet Management program:  (1' competitive shipping, (2)
advanced ship control, and (3) QAvanced communications and
navigation. 1/ MARAD plans to integrate these elements by
1978 and to have a global fleet management system by the
early 1980s.
     In the competitive shipping program, MARAD has developed
and is promoting the use by shipping companies, of a com-
puter-based Shipping Operations Information System, which is
expected to afford the companies computerized management
systems to more effectively handle shore- and ship-based
operations. In the Advanced Ship Control program, MARAD
expects to develop high levels of automation aboard ships
in such areas as machinery operations, bridge, and cargo-
handling functions. Subsequently, these two elements are to
be integrated with the results of the Advanced Communica-
tions and Navigation element. Altogether, the three elements
are expected by MARAD to tie all U.S. merchant slipping
companies and their ships together, into an integrated
American fleet management system, with the ships and logis-
tics operations controlled by each of the companies; and
to coordinate them through one common facility, the Maritime
Coordination Center.

     During our review we examined pertinent background
information, legislation, agency correspondence, and con-
tractor files.   We interviewed key officials and other per-
sonnel at the Office of Administrative Services and Procure-
ment, Department of Commerce; the Office of Audit, Department
of Commerce; the Maritime Administration, Washington, D.C.,

l/The Maritime Satellite Program is the major portion of
  this element.

and the Maritime Coordination Center at Kings Point, Long
Island, New York; several merchant shipping companies;
Computer Sciences Corporation, Falls Church, Virginia;
Marine Management Systems, Inc., Stamford, Connecticut;
the Magnavox Corporation, Silver Spring, Maryland, and
Torrance, California; and Comsat General Corporation,
Washington, D.C.   We also discussed the program with
officials of the American Institute of Merchant Shipping,
the Radio Officers' Union, the U.S. Coast Guard, the U.S.
National Weather Service, and the Defense Mapping Agency.

                            CHAPTER 2

                    HAVE NOT BEEN ESTABLISHED
      The Maritime Satellite Program appears to have
 initiated as the result of a 7-month study contractedbeen
 November 1970, with Applied Information Industries,    in
 (AII), of Moorestown, New Jersey. The                Inc.
 that potential dollar savings of about study postulated
                                        $120,000 to $470,000
 per year for each ship would be achieved if between
 and 2,000 ships used the combination of maritime satellite
 communications and a MARAD-developed satellite communica-
 tions coordination and computer center. 1/


     The AII study urged the establishment of an
center which would measure, rather than estimate, experimental
                                                   the bene-
fits to ship operations of satellite communications
                                                     and com-
puter technology. MARAD proceeded with this suggestion
and awarded another contract to AII for the design
                                                    and imple-
mentation of the center and the follow-on communications
experiments. The center was completed in lMarch 1973
under AII's contract cost just over $4.8 million.     and work

     Despite the completion of AII's contract and several
additional contracts and numerous experiments since
                                                     that time,
MARAD, up to the end of our review, had neither developed
cost/benefit studies, nor had it measured the
mensurate with the costs for potential users ofbenefits com-
                                                 the satellite
program. In short, the savings postulated by the
have not been confirmed.                           AII study
                          Although six vessels are now par-
ticipating in the program, MARAD is paying for most
                                                     of the
associated costs.


     During our review we interviewed 20 key officials
15 U.S. merchant shipping and 3 U.S. oil companies       of
in the ocean transport of goods. Included were       involved
merchant shipping companies and the two U.S. oil the  four

1/Presently called the Maritime Coordination Center.

  participating in MARAD's program. We discussed
  potential for using satellite communications        each company's
  attempted to determine the officials' overall  equipment     and
                                                   knowledge of
  MARAD's satellite program. We found from
                                             these interviews
  and examination of MARAD documentation that,
                                                 of the 18 U.S.
 companies contacted, only 3 U.S. oil companies
  4 merchant shipping companies being funded        1/ and the
 gram expressed any immediate interest in either  MARAD's     pro-
 lite communications or participating in the          using   satel-
                                               fleet management,
 data processing aspects of the satellite
       More specifically, officials from 14 different
 companies told us that the costs for procuring,           shipping
 and operating shipboard satellite communications
 were too high for them to independently               equipment
                                          fund these operations,
 especially since it had not been demonstrated
                                                  to them that
 the potential benefits of satellite communications
 related data processing use could offset these           and the
 These officials included two of those involved    high    costs.
 program. Also, 12 of the same officials from       in  the  MARAD
                                                companies not
participating in the program told us that
methods of communications and their presenttheir present
                                              navigation tech-
niques were more than adequate for shipping
                                              operations, and
 that they could not justify the costs for changes
new methods. For example, most of these companies to the
operate shipboard, single side-band high-frequency own and
radio equipment. According to these officials,            (SSB-HF)
ment is capable of ocean coverage and affords        this   equip-
communications with their ships. The officials   them    adequate
                                                     also stated
that navigational equipment being used aboard
for some time, afforded the ships' officers      ship    had,
                                              with more than
adequate course information. Consequently,
was no need to automatically transmit or      they felt tjhere
data via satellite--one of the functions proposed navigation
                                                        in MARAD's

     One other point was made by these officials,
to have a significant impact on their decision      which seems
satellite equipment at present. Those companies not  to use
to build new ships in the near future             planning
satellite communications equipment, in can defer procuring
                                        order to allow the
Government to help fund the venture. For
                                           example, when
these companies build new ships, if the construction
gible for Government subsidization, MARAD constructionis eli-

1/One oil company not funded by MARAD.

differential subsidy (CDS) will be used to fund the ship's
construction. According to several of these officials (and
supported by MARAD documentation), CDS funding could include
a major portion of the costs for procurement and installa-
tion of satellite communications equipment for that ship.
According to MARAD, CDS funding will include any shipboard
communications system that has a total cost of between $100,000-
125,000. Therefore, since MARAD could eventually fund the
procurement of satellite communications equipment for new
U.S.-registered merchant ships, the ships' owners deem it cost
effective to delay this procurement. In the meantime, present
shipboard communications methods are thought to be adequate.

     Our analysis of satellite communications versus existing
shipboard communications methods shows that the costs for
procuring and operating satellite equipment are much higher
than for communications equipment presently in use. The
following schedule compares the costs of marine mobile message
services (SSB-HF) costs versus the costs for MARISAT communi-
cations services.

                      Marine mobile                  MARISAT
                     message service                 services
Shipboard hardware
   Lease (monthly)      $     -                    $1,275
   Purchase                 6,000                   51,750
Telex (note a)           3 per minute               6 per minute
                        (3 minute minimum)            (bulk rate--
                                                      $4 per min-
                                                      ute over 200
                                                      minimum usage)
Telephone                  5 per minute            10 per minute
Message (note b)            .33 per word            .35 per full-
                                                        rate word
a/Teletype or immediate machine-to-machine record communica-
b/Cablegram or telegram.

     It is obvious from this cost comparison that, except for
the first minute's Telex services, the marine communications
services presently in use are less expensive than similar
services offered by MARISAT. Also, since the typical Telex
traffic described by the shipping companies averages more
than 3 minutes in length, the 1 minute comparison between
MARISAT and conventional Telex has no major significance.

     We should point out that of the 32 vessels using the
MARISAT service, 22 foreign-flag vessels and 4 U.S.-flag
vessels are paying these satellite communications costs
independent of MARAD funding. One U.S.-flag vessel, the
"ARCO Prudhoe Bay," is owned by the Atlantic Richfield Oil
Company and, according to a company official, his manage-
ment has expressed an interest in participating in and being
funded by MARAD's satellite program. He feels that the 24-
hour communications with his company's ships at sea will
greatly benefit his company and the U.S. merchant fleet.

     Of the other three U.S.-flag vessels using MARISAT,
two are operating under Government contract and the other
is foreign owned.

     MARAD-supplied documentation shows that satellite pro-
gram officials were aware of the relatively high cost of
satellite communications at least 1 year before the satel-
lite's availability. Nevertheless, MARAD might have pro-
moted wider participation in the satellite program had
it been able to demonstrate the potential benefits of
satellite communications and related data processing tech-
niques to the shipping companies.

     The six U.S. shipping companies now participating in
the MARAD satellite program seem interested in the benefits
of satellite communications and the data processing services
offered by the program. These services, however, are being
funded largely by MARAD.

     Fourteen different U.S. shipping companies saw no
evidence of benefits that would offset the higher costs
of satellite communications, and 12 felt that existing (HF
radio) communications were adequate. Some companies agreed
that, if ship construction subsidies would help defray
the costs of satellite terminals for new ships, the potential
benefits of satellite communications might be attractive.
Nevertheless, 22 foreign-flag and 4 U.S.-flag vessels are

using the MARISAT communications satellite and paying for
its costs independent of any MARAD funding. Apparently,
these companies expect to benefit from the service.

     MARAD should proceed promptly to establish whether bene-
fits associated with the satellite program are commensurate
with its costs. If so, it should be demonstrated to the U.S.
shipping industry. This is equally important to MARAD's
future program planning, since it will apparently be called
upon to subsidize the more costly advanced satellite communi-
cations technology, if employed.

                           CHAPTER 3
                  NEED FOR MARAD'S SATELLITE

     In 1969 MARAD identified communications satellites and
computers as the best U.S. technologies available to solve
maritime shipping problems. Reliable communications between
shipping companies and their ships at sea and the utilization
of computer techniques to facilitate shipping management were
assessed by MARAD as specific requirements for improving
U.S. shipping operations. Therefore, in 1970 MARAD estab-
lished the satellite and the Shipping Operations Information
System programs to (1) develop reliable satellite communica-
tions between ships at sea and their owners and (2) to
develop comprehensive, computer-based data processing tech-
niques to improve the responsiveness of management and con-
trol of ship or fleet operations. It should be noted that,
by this time, the NASA Applications Technology Satellites
had demonstrated the practicality of satellite communications
employing relatively small, mobile communications terminals
and they were available for MARAD testing.

      When MARAD initiated the satellite program by contracting
to AII, two requirements were identified that would have to
'be developed to implement a successful maritime, satellite-
aided communications system.

     1.   A marine data center to integrate and disseminate
          all important performance and safety information
          affecting maritime operations. The center would
          provide continuously available and reliable com-
          munications via high-altitude satellite to each
          ship and ship operator.
     2.   A compact, shipboard communications terminal
          operating in consonance with the marine data
          center and with available communications satellites.
     Therefore, in March 1972 MARAD awarded a second contract
(sole source) to AII for the development of an experimental
Maritime coordination center to be located at the Merchant
Marine Academy, Kings Point, New York. Officials, however,
contemplated eventually turning the center's functions
over to private industry when MARAD's objectives were at-
tained. In addition to developing the center, AII was
required to develop shipboard satellite communications

terminals that would operate with available NASA satellites
and to perform communications experiments between selected
ships at sea and the Center.

     More specifically, AII was requi     to:
     -- Define and implement a Marine -..a Coordination
        Center at the Merchant Marine Academy, Kings

     -- Provide an earth station at the center for
        access to NASA ommunications Applications
        Technology Satellites (ATS).

     -- Design and develop 10 shipboard satellite com-
        munications terminals for MARAD.

     --Provide program support and operate a 5-month,
       on-air experiment of sateli te communications
       between 10 ships at sea ard che center, utilizing
       NASA's ATS 1, 3, and 5.
This contract was awarded to AII for about $2.9 million,
it was modified six times, and another contract was added;
 .tleresulting cost to the Government was about $4.8 million.

      In documents dated March and October 1972, MARAD pro-
posed the development of an expanded or a worldwide mariti;,;e
satellite communications system, consisting of three coordi-
nation centers--one located on the east coast, one on the
west coast, and one overseas. Each would provide the system
with the capability of communicating via any available (NASA;
satellites, and between ships located in the Atlantic and
Pacific Oceans and their respective shore offices. In es-
sence, MARAD was proposing to develop a dedicated maritime
communications system capable of processing marine data
through any available communications satellite. At that
time, a dedicated commercial maritime satellite system was
not under development.

     Specific capabilities of the center were to be:

     -- Developing and transmitting communications and
        navigational signals to any available communications
        satellite(s) for broadcast to addressed ships.

    -- Acting as a communicatic s center for ship/shore/
       ship transmission of any required data.

     It was also to be capable of receiving various other
types of service information and of processing and dissemi-
nating this information to selected ships, such as

     -- sea traffic direction advice,

     -- search and rescue information,

     --local environmental conditions,

     --weather data,

     -- ship distress,

     -- private and company business information, and

     -- time-shared computer services.

MARAD's specific requirement for the maritime satellite
communications system was that it be capable of transmit-
ting (and receiving) teletype, voice, facsimile, and digi-
tal information between the shore offices and ships.

       It is important to note that during the early 1970s
the only communications satellites available for Merchant
Marine experiments or use were the ATS satellites owned by
NASA. In these circumstances, it was appropriate for MARAD
to have taken the initiative in arranging for and facili-
 .ating (via the Center) their experimental use by shipping
companies and their ships. These circumstances were destined
  !. change, however.


     In early 1973 the COMSAT General Corporation entered
the commercial maritime communications satellite business
with a system called MARISAT. This move was prompted, in
part, by a Navy contract of March 1973 to lease certain
channels from the satellites for 2 years with options for
additional services. Subsequently, three U.S. international
record communications carriers 1/ joined in the venture.

1/Western Union International, RCA Globcom, and ITT Worldcom.

 (These latter companies have, for years, provided
 high-frequency radio services for ships at sea.)

       After some delays, on July 9 and August
 Atlantic- and Pacific-based MARISAT satellites15, 1976, the
 available for commercial use. 1/ According to the made
 owners, MARISAT is a dedicated- maritime satellite satellite
 tions system capable of selectively broadcasting communica-
 at sea and also of receiving Telex, voice, digitalto ships
 facsimile, and medium- and high-speed digital data and analog
 sions. The MARISAT system is also capable of selectively
 broadcasting to specific ships, or groups of ships,
 information as weather or hydrographic and navigationalsuch
 information. This can be provided directly
communications facility by the U.S. National to  the MARISAT
                                               Weather Ser-
vice, the Defense Mapping Agency, and the U.S.
                                                 Coast Guard.
The MARISAT system can be used to relay general
to ships of a specific line, to ships of specific  messages
ties, or those ships sailing in a specific, geographical
If necessary, all ships in such groups could simultaneously  area.
receive the service messages transmitted by the
earth station(s).                                  MARISAT
                     Also, emergency distress signals received
from a shipboard communications terminal would
priority over all other traffic. The point herereceive
MARISAT system presently has all the capabilities is that the
contemplated for MARAD's coordinated system except
fleet management, data processing services whose      for the
                                                    value (as
we pointed out earlier) has not been adequately
by MARAD to date.                                 assessed

Shipboard terminals now offered
as off-the-shelf commercial items

     One other area of development--shipboard satellite
terminals--was established by MARAD as a requirement
the original satellite program but since that time
been developed commercially. However, as we point has
chapter 4 (see pp. 24 and 25), terminal development out in
being conducted by MARAD during the time of our      was

1/A third satellite was placed over the Indian
                                               Ocean for
  Navy use.

     Comsat General Corporation presently offers, for lease
or purchase, shipboard satellite communications terminals.
The lease price for each terminal is $1,275 per month for
a 5-year lease, and the purchase price for a terminal is
$51,750. A one-time installation charge of $3,000 per ter-
minal is required in addition to the lease price. The
terminals are compatible with the MARISAT system and provide
the following information: ev':hange capabilities.

     -- Telex (teletype).

     -- Voice.
     -- Digital and analog facsimile.

     -- Medium- or high-speed data transmissions.

      RCA Globcom and Western Union International, two of the
other MARISAT owners, also offer shipboard satellite terminals
with capabilities similar to Comsat's. So far, as we pointed
out earlier, 32 ships have been equipped with MARISAT ter-
minals--22 foreign-flag vessels, 6 leased by MARAD, and 4 by
other U.S. companies. The ships are linked--via earth
stations located at Southbury, Connecticut, and Santa Paula,
California, and via normal terrestrial (land-line) communi-
cations--to their respective shore offices and also to one
another, if required.


     Although the satellite communications services provided
by MARAD's satellite program are now fully available commer-
cially, the fleet management, data processing hardware and
software programs portion of the MARAD-provided services
are not. However, MARAD has made no relevant cost-benefit
studies, nor have they been able to demonstrate the value of
these services to the shipping industry.

     Other than the six U.S. companies now participating in
the MARAD program (largely at Government expense), no other
U.S. companies contacted, including those who are indepen-
dently leasing MARISAT communications services, seem interested
in the computer services.

     The provision of Government service data to ships,
such as weather forecasts, notices to mariners, and vessel
emergency reports using computer-aided store/forward
 or digital facsimile message techniques,
 be done by agencies furnishing such data could just as readily
 MARISAT communications facility rather   directly to the
                                        than duplicating these
 services via the MARAD center.

      Finally, should MARAD demonstrate the benefits
 viding data through the Center, a plan              of pro-
 to turn the Center's functions over to should be formulated
                                        private industry. as
 originally contemplated.


      MARAD's satellite program and the operation
ter are adding no value to the communications      of its cen-
are now commercially available. This part      services  which
(i.e., processing service messages, voice   of the  program
                                           and Telex traffic,
etc.) appears duplicative of services provided
industry. Also, the value of the computer       by private
by MARAD have not, in our opinion, been     services  provided
                                         clearly established.

      Since 4 U.S. and 22 foreign flag ships
 costs for commercial satellite communicationsare paying the
 of MARAD's program, these services alone
 to the shipowners. However, since six     may  be  beneficial
                                         U.S.  shipping
companies are receiving comparable communications
 together with the additional computer services,       services
largely at MARAD's expense, we question             provided
                                          whether the com-
puter services portion would prove cost
shipping companies if the MARAD funding   beneficial    to the
                                          were to be withdrawn.
      MARAD's role in duplicating the satellite
services now available from industry               communications
                                      no longer appears essen-
tial. Therefore, unless MARAD can demonstrate
to the users of its computer services,            cost-benefits
funding, we believe the satellite program        of  Governmental
minated.                                    should   be  ter-

                            CHAPTER 4

                      IF SATELLITE-RELATED
     Apart from questions as to the effectiveness
for the satellite program, MARAD should have       of or need
management measures to insure that the maritime
program could proceed in an efficient, economicalsatellite
The program's expenditures have greatly exceeded manner.
funding originally intended by MARAD. We believe the
excess could have been avoided, to some extent,    this
                                                 had these
management measures been implemented.
     The satellite program's total contract costs,
                                                   to the
time of our review, have been about $10.5 million;
the level of program development that had been     but,  for
available documentation shows that MARAD had   attained,
spend only about $3 million.                 intended to

     We believe that, should the program
proceed based on MARAD's identification ofbespecific
                                             permitted to
for the U.S. merchant fleet and commensurate         benefits
management measures, such as program planning with its costs,
should be implemented.                         and control,


     In our review of MARAD's R&D program documents,
find no overall satellite program plan.              we could
                                         The formulation
and use of a written program plan is a basic
                                             requirement for
proper management control, and MARAD should have
requirement before either awarding satellite     met this
                                             program con-
tracts or continuing the program's activities.

      The satellite program manager told us that, because
the high degree of technical complexity involved           of
program and because of such contingencies as      in this
                                              the delays in
the availability of the MARISAT satellites and
in obtaining shipping companies' requirements the delays
satellite program tests, he did not formulate for the
plan. Also, he felt that since the satellite a program
                                               program was
reviewed each year during MARAD's annual budget
cation cycle, MARAD management had adequate opportunity
assess the program's performance.                         to

     We believe that MARAD has had ample opportunity to
organize the program's technical requirements and the
shipping companies' requirements and to develop a compre-
hensive plan for the satellite program. In our opinion,
the failure to do so is attributable to MARAD's not
following sound management practices and not emphasizing
the need for such a plan.
     For example, we found that in 1973 the Commerce
Department's Office of Audit completed a survey of the
programs under MARAD's Office of Research and Development
(now called the Office of Commercial Development). The
auditors' report, dated March 20, 1973, cited MARAD's
lack of written guidelines for planning R&D programs and
recommended that MARAD issue instructions for preparing
and periodically updating R&D planning documents. In
response, MARAD R&D officials stated that the recommen-
dation would be followed and that written instructions
for program planning would be formulated. However,
MARAD has not complied with that recommendation.

     In the absence of its own formal program-planning
criteria, MARAD's Office of Commercial Development could
have profited by the guidelines used by other departments
in such matters. For example, Department of Defense
Directives 5000.1 and 5000.2 1/ provide explicit guidance
for the planning and management of major defense acquisi-
     Application of these directives in their entirety would
be inappropriate for the much smaller MARAD program. However,
the planning and management prirciples should apply, as would
the procedures applicable to more modest programs.

     These principles have been more recently enunciated in
the Office of Management and Budget Circular No. A-109,
dated April 5, 1976, which now requires among other things,
that agencies:

     "Maintain a capability to:  Predict, review,
     assess, negotiate and monitor costs for system
     development, engineering, design, demonstration,

1/DOD Directive 5000.1 issued July 13, 1971, and DOD
  Directive 5000.2 issued January 21, 1975; both revised
  January 18, 1977.

      test. * * * Assess acquisition cost, schedule
      and performance experience against predictions,
      and provide such assessments for consideration
      by the agency head at key decision roints.
      Make new assessments where significant costs,
      schedule or performance variances occur."

     Obviously, this cannot be accomplished without a time-
phased plan with clearly identified milestones for measurement
of progress and control.  The following examples illustrate
the type of program deficiencies which we believe could have
been avoided if MARAD had employed such sound management
Work called for under initial
phase IV contract not completed

     On January 27, 1975, MARAD awarded a cost-plus-fixed-
fee (CPFF) contract (modification) to Marine Management
Systems, Inc. for the follow-on or fourth phase of
fleet management testing of the Maritime Satellite Program.
The modification was made to MARAD's (then) existing CPFF
contract with MMS for the satellite program's third phase.
The duration of the new contract, as revised, was 12 months,
to January 1976, and the estimated costs for the new level
of effort proposed were $300,000.

     Under the terms of MARAD's modification, MMS was to
perform four major tasks.

1.   Develop and implement a plan for augmenting the
     center's present (third phase) hardware and software
     configuration for the fourth phase of operations.
     This task was to take about 6 months and 38 percent
     of the contract's total level of effort.

2.   Operate the center during phase four tests and coordin-
     ate the tests with participating shipping companies.
     MMS' proposed level of effort for this task was about
     50 percent of the contracted resources, to be utilized
     over a'9 month period.

3.   Evaluate and report on the results of phase four
     testing. This task was to take about 8 percent of
     MMS' resources and would be completed during the last
     4 months of the contract period.

 4.    Provide overall contract management for phase
       MMS proposed that this task take about 4 percent
       its resources.                                   of

 Although MARAD contemplated that this contract
                                                 might be
 eventually extended for an additional period
                                               of testing,
 the $300,000 was considered to be an adequate
                                                estimate for
 the above mentioned tasks.

       On February 5, 1976, MARAD awarded another
 for "Fleet Management Tests, Maritime Satellite CPFF contract
 Four," to Computer Sciences Corporation. This Program Phase
 duration was to be 23 months, and its total      contract's
                                              estimated cost
 to the Government was to be $416,052.
      Under the terms of this contract, CSC had five
 1.   Operate the center during phase four testing.
      task was estimated to take about 55 percent of This
      total effort.
2.    Provide technical assistance to the shipping
      in developing phase four tests. CSC's proposed
      of effort for this task was about 20 percent.    level

3.    Further develop the center, including an examination
      of the potential services that the Center could
      both commercially and to the Government. This offer,
      was to take about 6 percent of CSC's total effort.
4.    Coordinate the dissemination of results of the
      program to participants. CSC estimated about test
      of the total resources for this task.          16 percent

5.    Assume overall management of the contract and
      and report on the test results. CSC's estimate
      about 2 percent of the total for this task.     was

     Our review of the circumstances concerning the
four MMS and CSC contracts shows that (1) MMS        phase
plete its contracted tasks, although it was   did  not com-
                                            only required
to concentrate its resources on about 40 percent
contract's total level of effort (as shown below),of the
                                                    (2) MARAD
failed to assess MMS' ineffective contract performance
it was too late and, (3) as a result, MMS was            until
the total estimated cost of its contract. In  reimbursed   for
                                              addition, CSC

is required to complete those tasks not completed during
the MMS contract.
     For example, the Atlantic-based MARISAT was not made
available for commercial use until July 9, 1976. So, for
the duration of MMS' phase four contract, or from January
1975 to April 1976, 1/ MMS could not perform those tasks
that were MARISAT-dependent. Our analysis of the MMS con-
tract activities shows that the operation of tasks 2, 3,
and part of task 4 were MARISAT-dependent. Therefore, about
60 percent of MMS' proposed level of effort could not be
performed without the satellite. Consequently, the antici-
pated costs related to the MARISAT-dependent tasks (about
40 percent of the contract's level of effort), which could
not be completed by MMS, were about $180,000.

     Since the satellite did not become available for
commercial use during its contract period, MMS could con-
centrate its manpower resources on those tasks not requiring
the satellite, such as test plan development and, more
significantly, on the design and development of the center's
phase four software. MMS did not complete these tasks.

     In a memorandum dated January 6, 1976, MMS reported to
MARAD's satellite program manager that all of its required
software development for the fleet management reports and
its development of test plans would be completed during the
week of January 19, 1976. On January 30, 1976, MARAD
modified the MMS contract to extend its period, without
additional cost, to March 15, 1976, to allow MMS to continue
debugging and documenting the software developed under the
contract. On April 5, 1976, MARAD again extended the
contract to allow MMS until April 20 of that year to com-
plete it3 software development.

     Although the contract extensions were made to accommo-
date MMS, not all of the software tasks were completed at
the termination of MMS' contract. As an example, in a
MARAD memorandum dated March 11, 1976, the satellite pro-
gram manager recommended to the Department of Commerce
Procurement Division that the task of developing the center's
software for input and transmission of service reports
(weather, notice to mariners, etc.) to ships should be
canceled since it could not be completed within the remaining

1/MARAD extended the MMS contract to April 20, 1976.

contract peri(od.   This software was important to MARAD's
program because   the center's processing of service in-
formation was one of the two major Fleet Management Test

     Although the contracted tasks were not completed, MMS
was reimbursed the total estimated $300,000 based on its
vouchers for those services that were performed.

     The satellite program manager stated that he was unaware
of MMS' improper performance until early January 1976 when
the contract was nearly completed. In a January 27, 1976,
memorandum to the Department of Commerce Procurement
Division, the program manager stated that, under MMS' con-
tract, a rather substantial overrun of the tasks occurred
that amounted to over 100 percent. He also stated that
"MARAD was able to accommodate the additional expense,
because of the delay of the r.^RISAT launch." He also
indicated that MMS was usually late with delivery of
monthly program status reports, and for that reason he
was not able to detect these problems sooner.      It appears
that it was January 1976  before  MARAD's  program  manager
became aware of the  shortfall in  MMS' performance    under
this contract--too  late to effectively   control  it.

     The second phase four contract was then competitively
awarded to CSC. This contract included all of the tasks
not yet accomplished in the previous contract with MMS.
Moreover, the unfavorable conditions that existed during
the MMS performance period (i.e., lack of an overall
program plan and demonstrated benefits) continued during
the CSC contract and at the time of our review.

Communications hardware development
contract requires more stringent specifications
     On June 27, 1975, MARAD awarded a CPFF contract to the
Magnavox Corporation, essentially to design and provide
hardware needed for the satellite program. This hardware
development was to include the modification of 10 satellite
terminal systems, 2 of which had been used with the NASA
satellites, to make them work in a different frequency band
allocated for the commercial MARISAT satellites. In addition,
Magnavox was to provide modems 1/ and interface electronics

1/Modems are used to interface with data processing devices
  and to convert data to a form comFatible for sending and
  receiving on transmission facilitates such as satellite voice
  communications channels.

for use with the 10 terminals. They were also to test and
maintain all equipment involved.

     In June 1976, MARAD modified its Magnavox contract,
increasing its value from about $436,000 to $640,000.
Under this contract modification Magnavox was to furnish four
MARISAT-compatible terminals of its own design and install
these together with six MARISAT terminals, which MARAD had
leased from Comsat General, on ships designated by MARAD.
Additionally, they were to continue their delivery and test
of special modems. Work on modifying the original satellite
terminals was canceled.

     We found that the specific amounts and types of special
communications modems to be provided and experimented with
under the basic Magnavox contract were deleted in favor of no
specific amount or types, in the contract modification.
However, the estimated cost allotted by MARAD for providing
the unspecific modems and their experimentation was almost
doubled. MARAD's documentation that accompanied and
justified the contract modification stated that the modi-
fication was made because the satellite program's require-
ments had been more specifically defined, but the action
taken in the modification appeared to contradict the

     For example, in the basic contract's task 4, MARAD had
provided about $152,000 for the development and experimsn-
tation of nine special communications modems (3 for data,
3 for analog and digital facsimile and 3 for voice communi-
cations).  The contractor was also to install the modems and
to develop electronics equipment as interfaces between the
modems and satellite terminals being provided under task 1.
In the modification, however, the number and types of special
modems to be provided under task 4 were specified "as approved"
in the "deliverables" clause instead of the specific number
"nine" as they were in the basic contract. Also, MARAD pro-
vided $280,000, or an additional $128,000, for the modified
task 4.

     We questioned the satellite program manager about the
rationale for deleting the specific number ana types of
special modems in favor of no specific number and types in
the modification and for almost doubling the estimated fund-
ing for this task. We also asked him to explain why this
an-'on was taken, especially ir light of MARAD's written
justification foL the additional funding, which stated
that the satellite program's requirements had been more
specifically defined.

     The program manager told us that the lack of specific
types and numbers of modems allows him more leeway in
managing the communications aspects of the program. He can
decide what modems should be developed during the course of
the program. He also said that the program's requirements
are more specifically defined and, for that reason, he will
be able to make more specific decisions on what should be
developed during the course of the program.

     This shows again, in our view, the need for definite
planning and management control that should be a pre-
requisite for cost estimating, funding, and procurement

     MARAD should not proceed with any continued or new
satellite/computer related developments unless formal specific
planning and management controls are employed such as those
from applicable portions of DOD Directive 5000.1, 5000.2 and
Office of Management and Budget Circular No. A-109.


     The satellite program should be continued only if MARAD
can resolve the issues and questions raised in earlier
chapters. If these matters are resolved in a timely manner
and the program is continued, the management weaknesses
noted in this chapter, specifically the lack of a master
plan and prescribed management contr ls, demand prcmpt and
effective remedies.

                          CHAPTER 5



                                                 program is
     The continued need for the MARAD satellite
questionable because:
     -- It is doubtful that the program can attain the
        objectives unless MARAD can demonstrate to
        U.S. shipping industry, and for its own purposes,
        the benefits of the program commensurate with its

     -- The communications services provided by the program,
        although warranted in earlier years, duplicate
        those now available from private industry.
     -- The value of the computer services provided by
        program has not been established. Their benefits,
        in excess of their costs, need to be shown.
                                                 more than
     Satellite communications cost considerably
                                                 see no ad-
conventional HF radio, and many U.S. shipowners     flag and
vantages to using satellites. However, 22 foreign
                                                MARISAT system,
4 U.S. flag ships are now using the commercial It appears
independent of the 6 ships in MARAD's program.benefit by
that these ships, or their owners, expect to
using satellite communications services.

     Apart from the questionable merits of the satellite
                                                    of the
program, MARAD has not exercised prudent management
program's objectives, activities, and costs.

     We recommend that the Secretary of Commerce direct
Assistant Secretary for Maritime  Affairs to:

     -- Undertake a cost-benefit analysis of its satellite
        program to determine the value to the U.S. shipping
        industry of (1) using the MARAD-provided satellite
        communications and (2) using the available fleet

       management computer programs. Benefits should be
       compared with the commercial or Government costs
       (respectively) for these services.

     -- Demonstrate these benefits to the U.S. shipping
        industry, if they can be shown to offset the
        equivalent commercial or Government costs for
        these services.

     -- Correct promptly the management deficiencies dis-
        cussed r. this report, if the program is continued
        or reoriented. Particular emphasis should be placed
        upon the development of and adherence to a master
        plan and requisite management controls and the method
        by which the center's functions, if proven cost effec-
        tive, can be turned over to private industry.

     -- Terminate the satellite program unless the
        first two recommendations can be fully im-
        plemented in a timely manner.

     MARAD generally concurred with most
tions and stated that definite actions areof inour recommenda-
                                                 progress to
carry them out.  (See app. III, p. 37.) 1/ MARAD did not
agree, however, with our recommendation to terminate the
satellite program unless its specific benefits can be
identified and clearly demonstrated, in a timely manner,
for the U.S. shipping industry.

     MARAD feels that our recommendation to terminate the
program seems premature because (1) the combined Shipping
Operations Information System and satellite programs may
eventually realize compound benefits, (2) continued Navy
funding for the commercial MARISAT is not assured, (3)
the United.States should continue to prepare for its
participation in the proposed, commercial international
maritime satellite (INMARSAT) venture, (4) MARAD desires
to help U.S. shipping companies to learn to fully utilize
satellite communications and (5) the Maritime Coordination
Center's potential benefits have not been fully explored.

1/Twenty-five pages of detailed data provided as appendixes
  to MARAD's comments are not included.

     In our opinion, the conditional nature of our recom-
mendation to terminate the program affords MARAD the oppor-
tunity to study these five points and to determine whether
or not these are adequate requirements to cost justify con-
tinuing the program's present direction of effor'..

     The question of continued Navy support for MARISAT is
still open. Although the Navy has three FLTSATCOM satellites
in production, the Congress' refusal to allow funds in fiscal
year 1978 for two more satellites will likely increase the
Navy's dependency upon MARISAT. If FLTSiiTCOM gets no more
funding, the Navy might be obliged to seek a successor to
MARISAT for the early 1980s.
     Concerning point three, the United States has become a
participant in the planning foi an international (commercial)
maritime satellite system. (INMARSAT) scheduled for operation
in the mid-1980s. The INMARSAT system will not be directly
related to MARISAT, although the two systems could be tech-
nically similar. For example, INMARSAT satellites are ex-
pected to be positioned over the Atlantic, Pacific, and
Indian Cleans to provide transoceanic communications between
ships . sea and shore offices.

     Although it is conceivable that MARISAT could be the
forerunner of the international system, the INMARSAT's
specific technical requirements have not been defined, and
the participating countries have not delegated the INMARSAT's
management responsibilities to any commercial entity. The
point we are making here is INMARSAT and MARISAT are two
unique systems, which are not specifically Lelated to one
another. MARAD's present satellite program is concerned
mainly with the utilization of the MARISAT communications
system. Once INMARSAT's requirements are known, MARAD
should then determine if and how its R&D resources should
be allocated for the international program.

     MARAD disagrees that it provides services which duplicate
those of private industry, since the MARISAT owners are not
charging space segment communications costs to the six com-
panies in MARAD's program. As we pointed out earlier, how-
ever, MARAD's Center proceses service messages that can be
transmitted directly to ships via the MARISAT syste..  This
action obviously duplicates activities that could be served
on a commercial basis. In addition, every communications
fnction being processed through the Center (except the
questionable data processing services for which the V.Lue
is to be determined) can be provided directly through the
commercial system, without, in our opinion, the need for
coordinating it through an additional dedicateo maritime
processing center.

     As one other point, MARAD disagrees with our view, and
with several shipping companies' points of view, that conven-
tional shipboard communications costs less than MARISAT com-
muni:ations. Specifically, MARAD disagrees that a typical,
shipboard HF equipment configuration (new) costs less than
MARISAT shipboard equipment. MARAD supports its view by ref-
erence to a study performed by the COMSAT General Corporation,
one of the MARISAT co-owncrs, which analyzes the relative
costs for HF and maritime satellite, shipboard communications.

       The significant point we can make concerning this study
 is that one of its critical assumptions is inaccurate. COMSAT
General assumes that a typical, shipboard HF configuration
 costs $70,000 1/, which indeed, is more expensive than MARISAT
equipment, which costs about $52,000.    However, we discussed
 the costs of typical HF equipment with two major suppliers of
marine communications equipment (in addition to the several
 shipping company officials with --hom we discussed the same
 issue).   Both vendors pointed out that it is common knowledge
 in the shipping industry that satellite communications costs
more than conventional communications presently being used.
Also, between the two vendors, they suggested a range of costs
for marine HF radio equipment (depending upon the degree of
sophistication and redundancy desired) between $4,000 and
$35,000, with a typical or adequate installation without Gov-
ernment subsidy costing about $6,000. However, it is plau-
sible that shipping companies could elect to install the more
sophisticated, expensive HF communications equipment should
the Government subsidize a significant portion of their costs.
Nevertheless, since MARISAT equipment costs $52,000 and HF
equipment typically costs between $4,000 and $35,000, it seems
clear that costs of shipboard equipment for satellite communi-
cations are significantly more than those for HF communications.

     Also, a recent study performed by the Exxon Corporation
compared the actual costs of MARISAT and marine HF. The
study results show marine HF equipment and operating costs
to be less costly than MARISAT costs.

     In addition to the issue of MARISAT versus HF costs,
MARAD contends that satellite communications services are
of a higher quality than HF services now being provided, and
if U.S. flag companies are to capitalize on this advan:ced
technology they must be encouraged to use it.

1/These costs were included as detailed support data in
 appendix B of MARAD's comments on our draft report.   The
 detailed support data was omitted from our report.

      It is difficult for us to reconcile this
 fact that MARAD's Office of Commerciel Development with the
                                                       is also
 sponsoring a 2-year R&D program to improve
 ventional HF communications services for    the  quality  of con-
                                           the U.S. shipping com-
 munity.  It seems that if this effort is successful,
                                                         it will
 tend to deter rather than promote the use
                                            of satellite services.
      In any event, we should point out that our
                                                   report does
 not purposely imply that one particular communications
 ice is more beneficial than the other.                   serv-
                                          As we mentioned on
 page 9, several shipping companies we contacted
 review felt that the additional cost for         during our
                                           satellite communica-
 tions over the use of conventional services
                                              was not justified
 by the amount of improvement gained.   We do question the
 added value of MARAD's satellite program,
                                            since the commercial
 satellite communication system is completely
     MARAD disagrees that it has performed no
analysis since the first phase of the satellitecost-bene'it
                                                 program. We
found, however, that one cost-benefit analysis
MMS in 1975, but due to its lack of specific    was drafted by
                                             benefits, was not
acknowledged by the shipping companies nor
                                           incorporated into
the program.

     In light of our comments, therefore, it is
tionable whether MARAD can identify any          still ques-
                                         specific benefits of
satellite communications use that offset
                                          the equivalent com-
mercial or Government costs for these services.

     Finally, MARAD says that the objectives of
                                                its current
phase IV contract with Computer Sciences
                                         Corporation are to:
     -- permit an evaluation of the benefit of
        communications applications by U.S. shipping
        companies, and

     -- evaluate the potential services which the
        Coordination Center will offer ana their
     These actions should be completed in a timely
If, in fact, MARAD's objectives are met at
                                            the conclusion of
phase IV (due by end of 1977), then continuation
program--with management improvments--may         of the
                                           be of value.  Con-
versely, if they are not met, the program
                                           should be terminated
in early 1973.

     The Congress   should review the results of MARAD's
phase (due by the end of 1977) in conjunction          fourth
                                              with its con-
sideration of any R&D funding requested
                                        by the agency for
fiscal year 1979.

     APPENDIX I                                                                                                                       APPENDIX I

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APPENDIX III                                                              APPENDIX          III

                                          I UNITD STATES DEPARTMEIlNTF -COMMERCE
                                            The Assibrtant Saeretary for Maritime Aitairs
                                            Washirnon. D.C. 20.30
    JUL 22, 1977

    Mr. Henry Eschwege
    Director, Community and Economic
      Development Division
    U.S. Ceneral Accounting Office
    Washington, D.C. 20548

    Dear Mr. Eschwego:

   The Secretary of Ccomerce has requested me to comment on your draft report
   entitled "The Maritime Satellite Program; Is It Still Needed?" (GAO Code

   The report has been carefully reviewed by our staff. As written, it demonstrates
   a significant grasp of a highly complex and dynamic program. Its delineation
   of certain areas where deficiencies appear to exist is very beneficial to the
   Department of Commerce and the Maritime Administration, in their efforts to
   maintain a high level of quality in their programs. There are, however,
   certain errors of fact in this report. Perhaps more seriously, there appear
   to be misunderstandings of the intent and scope of the current program phase
   that should be corrected.

   Dwelling as it does on th* central question of whether the program should continue
   in the future, perhaps it is understandable that the report does not discuss
   the success of the program to date. However, I believe it is appropriate to
   point out the Maritime Administration Satellite (MARSAT) program has contributed
   significantly to the development of a major maritime communications capability
   which should benefit the safety and efficiency of operation of ships of the
   U.S. 'Mrchant Marine. The NARSAT program as conceived in 1969-1970 envisioned
   an international satellite communications system to meet maritime requirements
   by 1980. The fact that a commercial U.S. maritime satellite O(BARISAT) communi-
   cations service was created and made available in 1976--four years ahead of
   the original target date--is a significant achievement and worthy of note. At
   last count, and after only this short period, 51 vessels and mobile platforms
   (including 23 U.S. users) have installed MARISAT terminals. The MarAd program
   has made important contributions to those successes.

   The question, however, is "Is it still needed?" Rather than to attempt to
   comment in detail on the report, it is more productive to address the sense
   of the six major recommendations summarized on pages ii and iii, and to
   refer to matters of detail in the context of those recommendations. Each of
   these recommendations is addressed below.

APPENDIX III                                                      APPENDIX III

1. The Naritime Administration concurs in the recomendation
has anticipated the need to "undertake a cost/benefit anal-sis and in fact
                                                                of its
satellite program -- ". As discussed in Appendix A, "Cost/Benefits
Satellite Comunications," a series of cast/benefit studies were conducted
during Phases I-III. (See GAO Note 2 below.) The following abstracts
Contract No. 6-38012 indicate the relevant work now being performed under
Phase IV by Computer Sciences Corporation:
     "1.0 Objectives - The objectives of this effort are to:

           Provide a technical and economic base of valid data to permit
           an adequate evaluation of the potential benefits of satellite
           communication applications by U.S. shipping companies.

    3.3   Task 3 Maritime Coordination Development Center

          --- During Phase IV, tests will be conducted that are intended tn
          realistically allow evaluation of new satellite-supported
          communication procedures on -ship manageent. In addition, an
          analysis of the potential services and value- of the MCbC (See GAO
          Note 3 below.) is required. This task will examine potential
          services that an MCC will offer; both commercial and government.
          Benefits and costs for such service, will be projected."

With regard to costs, the report as presently written, can be misinterpreted.
The table and supporting language on page 13 of the report indicate
"the costs for procuring and operating satellite equipment are significantly
higrhe than the costs incurred by shipping companies for presently utilized
communications equipment." The data used does not reflect comparable
services by marine mobile message service and MARISAT, nor does it
reflect total communications costs. Appendix B covers these mattersaccurately
                                                                     in some
detail and concludes that MARISAT TELEX for low-vulume users     MARMSAT
voice cannels .for bigh-olume users are less expeasive than and
                                                             HF services.
(See GAO Note 2 below.)

2. We also concur in the recommendation to "domonstrate these benefits
the U.S. shipping industry --- ". In fact, this is the major thrust of
Phase IV. The U.S. maritime industry is a very conservative community
and tends to judge benefits and costs on the basis of experience rather
studios. IWhile commercial satellite communications services are now    than
as are some fleet management services, it is unlikely that an industry
concerned with many other serious problems will readily adopt such services
rapidly and widely without some Government leadership.

In an earlier paragraph, it was noted that 23 terminals have been
on U.S. vessels or platforms. During the same time there have beeninstalled
foreign installations. Out of 14 pending orders,.4 are for U.S. flag28

                                                                     APPENDIX III

   installations and the other 10 are foreign, even
                                                     though U.S, users have
   significant advantages in both installation costs
                                                      and user charges. It
   seems clear that if U.S. flag companies are to capitalize
   technology, they must be encouraged and assisted            on this advanced
                                                     in learning to use it.
  Our present program is designed to provide such assistance.
  3. Chapter 4 of the GAO-report, "Need for Better
                                                      Management, etc.," states
  that the Satellite program was lacking in program
  and that formal guidelines for planning and relatedplanning and control
  improve the program. Our honest assessment of this management tools would
  review of the program lead us to the same conclusion statement and internal
                                                         although we may
  disagree with the GAO in certain specific areas.
 First of all, the direction of a satellite communication
 undertaking of great technical complexity and is          program is an
 uncertainties in schedule and performance because inherently subject to
                                                    of the potential problems
 with equipment, booster launch and operation. Thnerefore,
 program plan cannot be so rigidly planned that schedule    any satzllite
 cannot be accommodated. The structure of a workable      changes, etc.,
                                                       plan for the satellite
 communications area should be arranged to handle'
                                                   such contingencies by
 means of periodic review and revision.
  lbe Advanced Communications and Navigation program
                                                      has already allocated
 manpower and funds for the specific purpose of developing
 program planning and review document which will               a comprehensive
 management tool for the '4 ontinucd direction of the used  as  a primary
 document will also address the manner in which the   satellite   program. This
                                                      Maritime Coordination
 Center's functions can be turned over to private industry,
 care that the interests of the user community are              exercising due
 We believe that this action both anticipates and    adequately   protected.
                                                    complies with the substance
 of the GAO recomendations in this area.
4. The recormendation to terminate the satellite
                                                  program unless certain
coaditions arenmt seems premature. Even if not
near future, the potential compound benefits for fully quantified in the
the Shipping                                     U.S. flag shipping from
             Operations Information System and
should not be discounted. Furthermore, while Maritime Satellite programs
                                               the United States now has a
clear lead in satellite communications, it is
                                               based to
on U.S. Navy support. Such continued Navy participationa considerable degree
Accordingly, preparations for U.S. participation           is not assured.
                                                  in INMARSAT must continue.
It also follows that emphasis on helping U.S.
fully utilize satellite communications to improve companies to learn to
                                                    their competitive position
must continue.
The ICC plays an important part in this process.
                                                    While it does not provide
a Comunication capability p    so, it provides an information interchange
function between ships, shipping companies and Government
Weather Service, U.S. Coast Guard, Defense Flapping         agencies (National
                                                    Agency, and the fIaritimoe
Administration).   Neither the economic, safety nor security aspects
function have been fully explored and evaluated.                     of this
                                                       evaluation will
take several years to complete, and operation
                                              as - profitable commercial
venture my well be further abay.

APPENDIX III                                                         APPENDIX III

S. The recommendation that the Congress should consider whether further
funding should be made is properly conditioned upon the demonstration of the
program's value. In the executive budget process, review of further funding
is accomplished within the Maritime Administration, the Department of Commerce,
and the Office of Management and Budget.

The report makes reference to some growth of the program costs. It is equally
important to point out that the program has saved substantial amounts of
Covernment funds. The original program plan was dependent upon NASA providing
a dedicated satellite at the following estimated costs:

     Revised ATS-3 satellite and L-Band
       Transponder (ATS-Yl - October 1971)                          $ 4.4M,
     Thor Delta Launch System                                         6.1M
     NASA Facilities, Management, etc., (2 years)                     2.01
                                                            Total   $12.SM

Not only was the above amount saved by the Government by the development of the
KARISAT capability, but a more realistic "operational" system was made

6. The question of "whether the Gevernment fMarAd) should provide communications
services (at Government cost) which' duplicate those of private industry" seems
to be based on a misunderstanding. Communications services are provided
commercially by the MARISAT consortium--not tarAd. No-cost service is provided
under bilateral agreements. between larAd and members of the consortium for
use by shipping companies in specific Fleet Management Tests. Hence the
MarAd services use, rather than duplicate, those of private industry. As a
matter of general policy, it is our intention to make maximum use of the
capabilities of private industry in carrying out our responsibilities.

In summary, we are of the opinion that the Maritime Satellite program in the
past has made commendable contributions to the development aid implementation
of a major technological innovation in maritime communications.  While the
equipment development phase is now essentially complete, a major task still
remains, that of developing and demonstrating the value of Fleet Management
activities made possible by this new capability.    It is    the purpose of the
ongoing program to carry out that task, making use of commercially available

While disputing some of the details of the draft report, we are in agreement
with most of the recommendations, and definite actions are in progress to
carry them out. With regard to the recommendations concerning termination
of the program, we feel that such recommendations, while conditional, may
raise false doubts about the future and potential benefits of satellite
communications. Such doubts would likely inhibit their use, to the detriment

                                                                     APPENDIX III

 of the U.S. flag carriers in a commercial
                                           sense and to the national objectives
 which the Maritime Administration seeks to.achieve..,
 Thank you for the opportunity to respond to
                                             this interesting report.
 .Sincorely,                                     "

 R6BERT J.       KWEL
 Asscristant  eta;y
 for Maritime Affairs

  GAO NOTES:   1. Page references in this appendix may not
                  correspond to pages of this report.
               2. Twenty-five pages of detailed data provided
                  as appendixes are not included in this report.

               3. The MCC is MARAD's Maritime Coordination