Navy Contracting: Military Sealift Command's Contract for Operating Oceanographic Ships

Published by the Government Accountability Office on 1990-04-18.

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

                  1Jni ted Statw   General   Accounting   Office    -~-“_

GAO               Report to the Chairman, Subwmmittee
                  on Defense, Committee on
                                                                                   ’ ‘:
                  Appropriations, IJS. Senate

April   lW0
                  NAVY CONTRACTING
                  Military Sealift
                  Command’s Contract
                  for Operating
                  Oceanographic Ships


                                                                   IllI lllll

                   United States
GAO                General Accounting  Office
                   Washington, D.C. 20548

                   National Security and
                   International Affairs Division


                   April 18,199O

                   The Honorable Daniel K. Inouye
                   Chairman, Subcommittee on Defense
                   Committee on Appropriations
                   United States Senate

                   Dear Mr. Chairman:

                   In your November 2,1989, letter, you asked us to examine the con-
                   tracting practices of the Military Sealift Command (MSC),particularly
                   those concerning its recent award of a S-year contract for the operation
                   of 10 oceanographic ships. In later discussions with your office, we
                   agreed to concentrate on examining (1) whether MSC complied with the
                   Service Contract Act of 1966 (41 USC. 351 et seq.) in the 1989 contract
                   award for the operation of oceanographic ships and (2) whether the
                   award may have been influenced by the involvement of certain former
                   Msc employees.

                   Our review showed that (1) MSCcomplied with the Service Contract Act
Results in Brief   and (2) the suggestion that certain former MSC employees may have
                   improperly influenced the contract award is unsubstantiated.

                   MS43 operates and maintains a number of government-owned special pur-
Background         pose ships to support various missions, including cable laying and
                   repair, range instrumentation, oceanographic research, underway
                   replenishment, ocean surveillance, and hospital services. Some of the
                   ships are operated by civil service mariners that MSC employs, and
                   others are operated under commercial contracts with civilian crews.

                   MSC   operated oceanographic ships with civil service mariners until 1986
                   when, as a result of a competition and cost comparison conducted under
                   the provisions of Office of Management and Budget Circular A-76, it
                   turned the operation of these ships over to a commercial contractor. The
                   initial contract was for 3 years, expiring in 1989. The subject of our
                   review was a follow-on contract for the operation of 10 oceanographic
                   ships, which was awarded in April 1989.

                   Page 1                                    GAO/NSIADsO-151   Service Contract   Act

                   The Service Contract Act requires that “service employees” of a govern-
MSC’sCompliance    ment contractor furnishing services in the United States be paid not less
With the Service   than prevailing wages and fringe benefits as determined by the Secre-
Contract Act       tar-y of Labor. The question of MSC’S compliance with the act concerns
                   whether licensed mariners (generally ships’ masters, chief engineers,
                   mates, and assistant engineers) should be defined as “service employ-
                   ees” and therefore included in coverage under the act.

                   Before 1986, MSCbelieved that the act did not apply to contracts for the
                   operation of ships because they were operated mostly outside U.S.
                   waters. However, in 1986 the Department of Labor informed MSC that
                   the act applied to the first contract for the oceanographic ships. MSC and
                   Labor later agreed to apply the act to all ship operating contracts when-
                   ever the ships are in U.S. waters. There appears to be no dispute that
                   the act does not apply when the ships are outside U.S. waters.

                   After the agreement with Labor, requests for proposals issued by M!3C to
                   prospective contractors for ship operating contracts have (1) included
                   notification that the act would be applied to the contract and (2)
                   required offerors to quote separate rates for the periods the ships will
                   be within U.S. waters, As part of the contracting process, MSCrequests
                   from Labor a determination of the minimum wages and fringe benefits
                   applicable to the contract and includes it in the request for proposals in
                   accordance with the act. In making this determination, Labor must
                   decide which employees are service employees for whom prevailing
                   wages apply and which employees are exempt under the act as persons
                   employed in a “bona fide executive, administrative or professional
                   capacity.” Wage determinations issued by Labor for MSC ship operating
                   contracts previously excluded licensed mariners from coverage.

                   With regard to the request for proposals for the follow-on contract for
                   the oceanographic ships, MSCrequested a wage determination from
                   Labor on May 26,1988. The request included (1) a listing of each class
                   of mariner, both licensed and unlicensed, expected to be employed
                   aboard the ships, (2) copies of the collective bargaining agreements for
                   both licensed and unlicensed mariners under which the current contrac-
                   tor was operating, and (3) a listing of the equivalent civil service wages
                   for the unlicensed mariner positions. MSCsaid that the listing of civil
                   service wages excluded licensed mariners because the previous Labor
                   wage determination for the same ships had included only unlicensed

                   Page 2                                     GAO/NSIADBO-151   Service Contract   Act

                                 The request for proposals was released on August 8,1988, and Labor
                                 issued a wage determination for the oceanographic ships on August 3 1,
                                 1988. The wage determination included only unlicensed mariners and
                                 was based on the wage structure of the contractor then operating the
                                 ships. MSC forwarded the wage determination to all prospective offerors,
                                 as Amendment One to the request for proposals, on September 14,1988.
                                 MSCreceived initial proposals from eight offerors in December 1988, con-
                                 ducted negotiations, and received best and final offers in March 1989.

                                 On April 6, 1989, before award of the contract, MSC received an inquiry
                                 from a Member of Congress concerning the application of the act to
                                 licensed mariners on the oceanographic ships. The Member also pro-
                                 posed that MSC cancel and readvertise the request for proposals with
                                 coverage of licensed mariners under the act. However, MSC determined
                                 that readvertisement would entail a 6- to Q-month delay, impact the
                                 operational commitments of the ships, and require a sole-source
                                 extension of the existing contract. Additionally, MSC calculated that
                                 inclusion of licensed mariners under the act’s coverage would add only
                                 about $160,000 to the contract over 5 years and would have no effect on
                                 the relative standing of the offerors. Therefore, MSC decided to award
                                 the contract to the low offeror, request a new wage determination, and,
                                 as provided in the request for proposals, incorporate any revised wages
                                 in the contract after award. The contract was awarded on April 21,
                                 1989. Labor has not yet issued a revised wage determination.

                                The question of whether or not licensed mariners should be included
                                under the act’s coverage is a matter awaiting decision by the Secretary
                                of Labor. We believe that MSC’S request for a wage determination for
                                operation of the oceanographic ships provided sufficient information to
                                determine appropriate wages for both licensed and unlicensed mariners.
                                By providing Labor the necessary information and requiring contractor
                                compliance with the resulting wage determination, we also believe that
                                MSChas complied with the requirements of the act.

                      The suggestion that former employees of MSCmay have influenced the
Suggestion of         award of this contract apparently referred to a former naval officer and
Improper Influence by h’is wife, a former employee in MSC’S contracting office. The former
Former MSC            naval officer was assigned to MSC as Director of Operations. This individ-
                      ual was transferred from MSC to the Office of the Chief of Naval Opera-
Employees Is          tions in March 1986 and retired from the Navy on January 1,1988. As
Unsubstantiated       the Director, the officer was responsible for ship operations worldwide
                                 and for requesting that the procurement office enter into contracts

                                Page 3                                     GAO/NSIADgO-151   Service Contract   Act

              (such as ship operating contracts) to support those operations. The pur-
              chase request for the oceanographic ships operations contract we
              reviewed was initiated on May 20, 1988, more than 2 years after the
              officer left Msc.

              The officer accepted part-time employment with a commercial firm on
              June 13, 1988, and, after MSC issued the request for proposals for the
              oceanographic ships, was employed full-time to help the company pre-
              pare its proposal for submission to MSC.Subsequently, the firm formed a
              wholly-owned subsidiary to submit the proposal and to operate the
              ships if it won the contract, and the officer was named Vice President
              for Operations in the new company, which was later awarded the con-
              tract. The officer was not involved in this procurement action while
              assigned to MSC, and we therefore believe his subsequent employment
              was not in conflict with post-employment restrictions.

              The officer’s wife was employed at MSC as the Director of the Small and
              Disadvantaged Business Utilization Program. The only action she took
              regarding the request for proposals for the oceanographic ships was to
              issue a recommendation that the request for proposals not be set aside
              for small business because performance would require (1) more than
              600 employees and (2) a cash availability exceeding $6 million. Within 2
              weeks after the request for proposals was issued, she requested to be
              withdrawn from further involvement in the procurement action because
              of her husband’s employment. She was not involved in this procure-
              ment between her request for withdrawal and her temporary assign-
              ment away from MSC to the Office of the Assistant Secretary of the Navy
              (Shipbuilding and Logistics) on January 15, 1989. She returned to MSC on
              July 16, 1989, after the contract had been awarded, and transferred per-
              manently to the Small Business Administration on August 26, 1989.

              The naval officer left MSC more than 2 years before the request for pro-
              posals for the oceanographic ships was issued. The officer’s wife was
              withdrawn from involvement in the procurement and was away from
              MSC during much of the procurement process. Therefore, we believe the
              suggestion that these two employees may have improperly influenced
              the award of the oceanographic ships contract is unsubstantiated.

              To answer the specific questions asked by your office, we examined MSC
Scopeand      correspondence, contract files, and relevant records. We also talked with
Methodology   officials in MSC'S contracting and personnel offices in Washington, D.C.

              Page 4                                    GAO/NSIAD-90-161   Service Contract   Act

           We performed our work between November 1989 and March 1990 in
           accordance with generally accepted government auditing standards.

           As requested, we did not obtain official Navy comments on this report;
           however, we discussed the results of our work with MSC officials and
           they agreed with the facts presented.

           We are sending copies of this report to the Chairmen, House and Senate
           Committees on Appropriations and on Armed Services, House Commit-
           tee on Government Operations, and Senate Committee on Governmental
           Affairs. Copies also are being sent to the Secretary of the Navy and the
           Commander of MSC and will be available to other interested parties upon

           Major contributors to this report were Robert Eurich, Assistant Director,
           and Robert Wright, Senior Evaluator, both in the National Security and
           International Affairs Division, Washington, D.C. Please contact me on
           275-6604 if you or your staff have any questions concerning this report.

           Sincerely yours,

           Martin M Ferber
           Director, Navy Issues

(394351)   Page 5                                    GAO/NSIAD&O-161&n&e   Contract   Act
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