oversight

Navy Ships: Turning Over Auxiliary Ship Operations to the Military Sealift Command Could Save Millions

Published by the Government Accountability Office on 1997-08-08.

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

                   United States General Accounting Office

GAO                Report to Congressional Requesters




August 1997
                   NAVY SHIPS
                   Turning Over Auxiliary
                   Ship Operations to the
                   Military Sealift
                   Command Could Save
                   Millions




GAO/NSIAD-97-185
             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             National Security and
             International Affairs Division

             B-277338

             August 8, 1997

             The Honorable Ernest Hollings
             Ranking Minority Member
             Committee on Commerce,
               Science, and Transportation
             United States Senate

             The Honorable Trent Lott
             United States Senate

             As you requested, we evaluated the Navy’s use of alternative crewing
             arrangements for Navy auxiliary ships. Our specific objectives were to
             (1) identify the Navy’s plans for turning over the operation of military
             crewed auxiliary ships to its Military Sealift Command (MSC) for civil
             service and/or commercial crewing, (2) estimate whether cost savings
             would be realized if the Navy turned over the operation of the remaining
             military crewed auxiliary ships to MSC, and (3) analyze the relative costs of
             operating a Navy auxiliary ship with a civil service crew and the costs of
             operating the same ship with a commercial crew. Also, as you requested,
             we calculated the increase in the merchant mariner pool if the operation
             of the multiproduct ships were turned over to MSC.


             Navy auxiliary ships provide underway replenishment1 to Navy combatant
Background   ships worldwide thereby allowing combatant ships to remain at sea for
             extended periods. These ships deliver cargo and provide services such as
             towing and salvage operations. Navy auxiliary ships are crewed either by
             active duty military personnel or civil service mariners. Those ships
             crewed by civil service mariners also have a small detachment of active
             duty Navy personnel aboard to provide communications, ordnance
             handling, supply support, and technical support.

             As of May 1997, the Navy’s auxiliary fleet consisted of 42 ships—15 oilers,
             6 stores ships, 7 ammunition ships, 7 tugs, and 7 multiproduct ships. One
             additional multiproduct ship of a new class is currently under
             construction. The Navy has delegated operational control of 27 of these
             ships to MSC, the military’s single manager for sealift, to better support
             Navy fleet operations. MSC crews these 27 ships with civil service mariners.
             The Navy’s remaining 15 auxiliary ships are crewed by military personnel.


             1
              A process whereby ships transfer petroleum, munitions, provisions, freight, food, and other
             consumable items to combatant ships while steaming along side from 80 to 300 feet apart.



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                   Under current policy, the Navy will not permit the use of commercial
                   crews on any auxiliary ships because it considers their mission purely
                   military in nature.


                   The Navy plans to turn over the operation of its remaining three
Results in Brief   ammunition ships to MSC for crewing with civil service mariners. By 1999,
                   five military crewed oiler ships are to be decommissioned and replaced
                   with four MSC oilers that are now either in reduced operating status or
                   deactivated. The four replacement oilers will be crewed with civil service
                   mariners. With these changes, 34 of the Navy’s 42 auxiliary ships will be
                   under MSC control. As of May 1997, the Navy had not decided if it would
                   turn over the operation of the remaining seven auxiliary ships as well as
                   the single ship under construction to MSC. All eight of these ships are
                   multiproduct ships.

                   Based on Navy cost data and MSC cost estimates, the Navy could save
                   about $139.6 million annually by turning over the operation of these eight
                   multiproduct ships to MSC for crewing with civil service mariners. These
                   savings are due primarily to a much smaller crew size than has been
                   traditional on military crewed auxiliary ships. These savings would be
                   offset by a one-time conversion cost of $30 million to $45 million per ship,
                   or about $300 million for all eight ships, to meet Coast Guard standards.
                   MSC might also need fewer ships to provide underway replenishment since
                   unlike the Navy, it does not have the personnel and operating limitations
                   on the number of operating days per ship and on days at sea per
                   crewmember. Three other studies conducted since 1990 by the Center for
                   Naval Analyses, the Institute for Defense Analyses, and the Naval Audit
                   Service have also identified the potential for large cost savings if the Navy
                   were to transfer additional ships to MSC. These studies’ projected savings
                   were also primarily due to the smaller crew sizes on MSC ships.

                   The Navy does not intend to divert from its current policy of not using
                   commercial mariners to crew auxiliary ships. Its position is that these
                   ships must be crewed by military or civil service personnel due to their
                   military mission. However, if it were to change this policy, our analysis
                   shows that it would cost the Navy about $321,000, or about 5 percent more
                   a year, to operate a commonly used MSC oiler ship with commercial crews
                   than with civil service crews. The difference in costs is primarily
                   attributable to higher fringe benefit costs for commercial crews.




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                                       With respect to the size of the mariner pool under different crewing
                                       alternatives, we calculated that the pool of U.S. civil service mariners
                                       would increase by about 1,700 merchant mariners if the 8 remaining
                                       auxiliary ships were turned over to MSC and were crewed by civil service
                                       mariners. The pool of commercial merchant mariners would increase by
                                       about 2,700 to 3,400 mariners if these same ships were crewed by
                                       commercial mariners.


                                       As of May 1997, the Navy had MSC operating 27 of its 42 auxiliary ships
Navy’s Current and                     with civil service crews. The type and number of auxiliary ships operated
Planned Efforts to                     by MSC with civil service crewing and the crew size for each ship are
Turn Over the                          shown in table 1. This table also shows the size of the military detachment
                                       on these ships.
Operation of Auxiliary
Ships to MSC for Civil
Service and/or
Commercial Crewing


Table 1: Type, Number, and Crew Size
of Auxiliary Ships Operated by MSC                                                            MSC crew size per ship
                                                                                  Number of                   Military
                                       Type of ships                                 ships       Civilian detachment
                                       Ammunition                                         4          125           24
                                       Stores                                             6          125           49
                                       Oiler                                             10           82           23
                                       Tug                                                7           16            4
                                       Total                                             27
                                       Source: MSC.



                                       Under current policy, the Navy will not permit any auxiliary ships to be
                                       crewed with commercial mariners. In an April 1995 letter to the American
                                       Maritime Officers union, the Under Secretary of the Navy stated that the
                                       mission of its auxiliary ships was purely military in nature and not
                                       considered commercial-type operations. Therefore, according to the
                                       Under Secretary, auxiliary ships would only be crewed with government
                                       employees, even if the use of commercial employees was cost-effective. In
                                       an April 1996 letter to the same union, the Assistant Secretary of the Navy




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                                       for Research, Development, and Acquisition reiterated this policy, stating
                                       that the Navy’s auxiliary ships would be crewed by civil service mariners
                                       due to the special nature of the auxiliary ships’ operation. As of May 1997,
                                       Navy officials confirmed that this policy was still in effect.

                                       As of May 1997, the Navy was continuing to crew 15 auxiliary ships with
                                       military personnel. The types of ships are shown in table 2.

Table 2: Type of Auxiliary Ships
Crewed With Military Personnel as of                                                                        Navy crew
May 1997                                                                                       Number of      size per
                                       Type of ship                                               ships           ship
                                       Multiproduct (AOE-1)                                             4         600
                                       Multiproduct (AOE-6)                                             3         562
                                       Oiler                                                            5         219
                                       Ammunition                                                       3         407
                                       Total                                                           15
                                       Source: Navy and MSC.



                                       The Navy plans to (1) turn over the operation of the three ammunition
                                       ships to MSC for crewing with civil service mariners and (2) decommission
                                       the five oilers in fiscal year 1999, replacing them with four oilers built to
                                       commercial standards that are currently in reduced operating status or
                                       deactivated. These latter ships would also be crewed with civil service
                                       mariners.

                                       The Navy has not decided on whether to turn over the operation of the
                                       seven multiproduct auxiliary ships to MSC. Some Navy officials believe that
                                       multiproduct ships should continue to be crewed with military crews
                                       because they are the auxiliary ships that can maintain battle group speeds
                                       and operate within the battle group formations. However, MSC officials
                                       stated that they have studied what it would take to operate the
                                       multiproduct ships and are willing to accept the transfer because they
                                       believe MSC civil service crews can operate these ships.




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                                  Our work and prior studies have shown that the Navy could achieve
Potential Savings by              savings by using civil service crews on auxiliary ships. According to
Turning Over the                  November 1996 data, the most current available, the Navy’s annual cost to
Operation of Navy                 operate a multiproduct ship (AOE-1 class), built in the 1960s, is $54 million
                                  compared to MSC’s estimated cost of $37 million to operate the ship using a
Auxiliary Ships to                civil service crew. The savings of nearly $18 million are primarily
MSC                               attributable to differences in crew sizes. MSC operates its ships with a
                                  smaller crew because it hires skilled mariners, whereas Navy crews are
                                  often recruits that must be trained to replace more skilled sailors. The
                                  Navy operates this ship with 600 crewmembers while MSC would use about
                                  247 crewmembers. Similar differences apply to the multiproduct ship
                                  (AOE-6 class), built in the 1990s, which is a smaller, modified version of
                                  the earlier ship. The Navy operates this ship for $48 million annually, with
                                  580 crewmembers. MSC’s estimated cost to operate this ship is $31 million
                                  annually with 229 crewmembers. The savings of over $17 million are also
                                  primarily attributable to differences in crew sizes. The differences in
                                  annual operating costs between the Navy and MSC to operate the two
                                  classes of multiproduct ships are shown in table 3.

Table 3: Annual Operating Costs
Between the Navy and MSC for      Dollars in millions
Multiproduct Ships                                                                          Ship class
                                                                           AOE-1                                 AOE-6
                                  Cost categories                Navy        MSC     Difference        Navy        MSC      Difference
                                  Crew relateda                  $34.1      $20.6         $-13.5       $32.0      $19.2         $-12.8
                                  Ship fuel                         6.9        6.9              0          2.9     2.9 0
                                  Repair parts                      1.4        0.8           –0.6          1.3       0.8          –0.5
                                  Maintenance                     11.6         8.3           –3.3         11.4       8.3          –3.1
                                  Miscellaneous costsb              0.4          0           –0.4          0.6         0          –0.6
                                  Total                          $54.4      $36.6         $-17.8       $48.2      $31.1         $-17.1
                                  Note: Numbers may not add due to rounding.
                                  a
                                  Includes wages, fringe benefits, training, and other personnel costs.
                                  b
                                      Includes publications, engineering and technical services, and ammunition handling.

                                  Source: Our analysis based on actual data provided by the Navy and cost estimates provided by
                                  MSC.



                                  Using the Navy’s data of the cost to operate the two classes of
                                  multiproduct ships, we estimated that if the Navy turned over the
                                  operation of the seven multiproduct ships to MSC for civil service crewing,




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                                       it could save $122.5 million annually. Table 4 shows these potential
                                       savings.

Table 4: Potential Annual Savings by
Turning Over Navy Multiproduct Ships   Dollars in millions
to MSC                                                                                                     Savings
                                                                                                           per ship       Total
                                                                                              Number of (from table      annual
                                       Ship class                                                ships           3)     savings
                                       AOE-1                                                          4       $17.8       $ 71.2
                                       AOE-6                                                          3       $17.1       $ 51.3
                                       Total                                                          7                  $122.5
                                       Source: Our analysis based on data provided by the Navy.



                                       A fourth AOE-6 class ship is under construction at the National Steel and
                                       Shipbuilding Company in San Diego, California, and is scheduled for
                                       delivery in early 1998. If the Navy chooses to include this ship with the rest
                                       of the multiproduct ships turned over to MSC, an additional $17.1 million
                                       annually would be saved, for a total annual savings of $139.6 million.

                                       According to MSC unofficial estimates, these savings would be offset by a
                                       one-time cost of $45 million for an AOE-1 and $30 million for an AOE-6 to
                                       convert these ships to Coast Guard standards, which differ from Navy
                                       standards, that is, $180 million for all four AOE-1 ships and $120 million
                                       for all four AOE-6 ships, or $300 million for all eight ships. However, such
                                       an investment would seem advantageous considering the annual estimated
                                       savings of $139.6 million.


Prior Studies Also                     In a 1990 study of civilian manning of auxiliary ships, the Center for Naval
Projected Savings                      Analyses found that the Navy would save $265 million annually if the Navy
                                       turned over 42 support ships and tenders to MSC. The study attributed the
                                       annual savings to much smaller crew sizes on MSC ships. It reported, for
                                       example, that civil service crews on a Navy oiler would be half the crew
                                       size the Navy used on those ships.

                                       In 1993, the Institute for Defense Analyses found that the Navy could save
                                       considerable cost and personnel positions by operating more of its
                                       auxiliary ships with civil service mariners. The Institute reported that a
                                       civilian operation saves on cost by reducing the total crew size by about
                                       half for a similar ship. It concluded that the Navy could save $4 million to
                                       $15 million a year per ship, depending on the type, by reducing the number



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                             of sea-going personnel positions on auxiliary ships and crewing them with
                             civilians.

                             A 1994 Naval Audit Service report also found that significant cost benefits
                             could be achieved if Navy auxiliary ships were crewed by civil service
                             mariners. The report, which covered 45 ships, stated that by turning over
                             the ships to MSC, crewing could be reduced 52 percent, from 19,440
                             crewmembers to 9,264 crewmembers. Depending on the cost method
                             applied, the Navy could save $3.7 billion or $4.3 billion over a 5-year
                             period. The Naval Audit Service recommended that the Navy turn over the
                             45 auxiliary ships to MSC for civil service crewing.


Crewing With Civil Service   Another advantage of turning over the Navy multiproduct ships to MSC is,
Personnel Has Other          as Navy and MSC officials pointed out, that MSC ships do not have the
Advantages                   constraints on operating days per ship and on days at sea per crewmember
                             that Navy ships do. It is Navy policy to assign a sailor to a ship for 3 years
                             and not to have the sailor spend more than 6 consecutive months each
                             year at sea, whereas MSC policy is to have MSC crews spend about 9 months
                             out of every 12 months at sea. According to these officials, an MSC ship can
                             operate more days per year than a comparable Navy ship—resulting in
                             fewer MSC ships being needed to conduct underway replenishment.
                             Further, these officials agree that additional savings could be realized
                             because some ships could be retired, decommissioned, or deactivated.

                             The Navy is currently conducting a study to determine whether it is more
                             cost-effective to continue the operation of the multiproduct auxiliary ships
                             under Navy control or turn over the operation of these ships to MSC. The
                             objectives of the study are to (1) determine the Navy minimum crewing
                             level, (2) compare the proposed reduced Navy crewing level with
                             comparable MSC crewing, and (3) recommend a course of action based on
                             a comparison of MSC and Navy crewing levels. Navy officials estimate that
                             this study should be completed by the end of 1997.


                             Although the Navy’s current policy is not to use commercial crews, we
Analysis of Costs            compared the cost of crewing auxiliary ships with commercial and civil
Related to Civil             service crews. Based on our analysis, we found that crewing with
Service and                  commercial mariners costs more. In addition, we calculated an increase in
                             the merchant mariner pool that could be available to crew ready reserve
Commercial Crews             fleet ships in time of conflict.




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Historically, the United States has relied on the private sector for combat
support elements in time of war or national emergency. In 1972, a joint
U.S. Navy-Maritime Administration project used the SS Erna Elizabeth to
test the feasibility of using commercial mariners to conduct underway
replenishment. The SS Erna Elizabeth steamed about 13,000 miles and
refueled 40 ships at sea. In another 1972 test, the SS Lash Italia delivered
food and other consumable items to the Sixth Fleet in the Mediterranean.
During Operations Desert Shield and Storm, a contract-operated tanker,
the MV Lawrence H. Giannella operated by a commercial crew, provided
fuel to Navy combatant ships while at sea.

To analyze the annual costs between civil service and commercial crews,
we obtained crewing levels2 and wage rates from two commercial mariner
unions and MSC for the operation of a Kaiser class oiler, the most
commonly used ship in the MSC fleet. We focused on labor costs and
excluded other costs from the comparison because we assumed other
operation costs, such as fuel, maintenance, and the small detachment of
active duty Navy personnel on board ship, would continue to be incurred
regardless of who operated the ship.

We estimated that the annual labor cost to operate a Kaiser class oiler with
a civil service crew would be $6.562 million and the cost with a
commercial crew would be $6.883 million, a difference of about $321,000,
or about 5 percent. The estimate with a civil service crew was based on a
crew size of 82 members, the authorized crewing level of a Kaiser class
oiler. The commercial crew estimate was based on a crew size of 79
members, a size with which the two commercial mariner unions believed
the mission could be accomplished. The major cost elements were wages
and overtime, pension, medical, vacation, and other fringe benefits and
personnel support costs. The differences between the annual labor costs
of civil service and commercial crews to operate a Kaiser class oiler are
shown in table 5.




2
 We did not validate the crewing information provided by MSC and the commercial mariner unions.



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Table 5: Annual Labor Costs of Civil
Service and Commercial Crews for a     Dollars in thousands
Kaiser Class Oiler                                                                             Civil
                                                                                            service         Commercial
                                       Cost element                                      crew of 82          crew of 79             Difference
                                                                                                                            a
                                       Base wages and overtime                                $4,702               $4,116                  $586
                                       Pension                                                    841                  268                  573
                                       Medical                                                    250                  668                 –418
                                       Vacation                                                   568                  840                 –272
                                                                                                      b                     c
                                       Other fringe benefits and personnel                        202                  992                 –790
                                       support costs
                                       Total                                                  $6,562               $6,883                  $-321
                                       Note: Numbers may not add due to rounding.
                                       a
                                       See scope and methodology for a discussion of how we arrived at this estimate.
                                       b
                                        Includes training, temporary duty, and miscellaneous and administrative support provided by
                                       shore-based personnel.
                                       c
                                        Includes training, employee benefit plan, drug testing, hiring hall, public affairs, and payroll
                                       taxes.

                                       Source: Our analysis based on data provided by MSC, Seafarers International Union, and
                                       American Maritime Officers union.



                                       Our cost comparison showed that the annual base wages and overtime for
                                       civil service crews were $586,000, or 14 percent, more than the annual
                                       wages and overtime for commercial crews. In addition,the civil service
                                       pension costs were $573,000, or 214 percent, higher than commercial
                                       pension costs.

                                       The higher civil service wage and pension costs were offset by higher
                                       medical, vacation, and other fringe benefits and personnel support costs
                                       for commercial mariners, which resulted in a higher overall cost for
                                       commercial operations. Commercial mariner medical costs were $418,000
                                       higher than civil service costs primarily because, according to a union
                                       official, commercial mariners have 100 percent of their medical insurance
                                       paid for (i.e., they make no contribution directly out of their paychecks).
                                       In contrast, civil service mariners pay a part of their medical insurance
                                       costs.

                                       Commercial vacation costs were $272,000 higher than civil service costs
                                       because, according to a union official, a commercial mariner earns 1 day
                                       off for every 3 days at sea, which translates to 1 month off after 3 months
                                       at sea. By comparison, a civil service mariner earns a maximum of 26 days



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                                        a year off, which is supplemented by an additional 2 days of shore leave
                                        for 30 consecutive calendar days at sea.

                                        The commercial costs for fringe benefits and personnel support costs were
                                        $790,000 higher than civil service costs. The two major components in the
                                        commercial costs were payroll taxes and training. The difference is
                                        partially attributable to the fact that the government equivalent to payroll
                                        taxes is included in the civil service pension costs. In addition, based on
                                        the MSC cost formula, MSC would allocate less money for training.


Merchant Mariner Pool                   We calculated that the pool of U.S. civil service mariners would increase
Would Increase                          by about 1,700 merchant mariners if the operation of the multiproduct
                                        ships were turned over to MSC (see table 6). MSC established the size of its
                                        civil service mariner workforce at a ratio of 1.25 of the shipboard positions
                                        to be filled. This crew ratio allows operations to continue while some of
                                        the mariners take vacation, undergo training, or are out sick.

Table 6: Increase in Numbers of Civil
Service Mariners                                                                                                               Estimated
                                                                                                                              increase in
                                                                                                Total crew                         size of
                                                                  Number of       Crew size       size per                      mariners
                                        Ship class                   ships         per ship          class         Crew ratio        pool
                                        AOE-1                                4            173            692             1.25         865
                                        AOE-6                                4a           165            660             1.25         825
                                        Total                                8                         1,352             1.25       1,690
                                        a
                                        There are three AOE-6s in service and one to be delivered in early 1998.

                                        Source: Our analysis of data provided by the Navy and MSC.



                                        We calculated that the commercial mariner pool to support shipboard
                                        positions would increase by about 2,700 to 3,400 mariners if commercial
                                        firms operated the multiproduct ships (see table 7). Each commercial
                                        mariner position is established at the ratio of from 2.0 to 2.5 of the
                                        shipboard positions. This crew ratio allows operations to continue while
                                        some of the mariners take vacation, undergo training, or are out sick.




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Table 7: Increase in Numbers of
Commercial Mariners                                                                                                      Estimated
                                                                                                                        increase in
                                                                                          Total crew                         size of
                                                            Number of       Crew size       size per                      mariners
                                  Ship class                   ships         per ship          class         Crew ratio        pool
                                  AOE-1                                4            173            692        2.0 to 2.5    1,384 to
                                                                                                                               1,730
                                  AOE-6                                4a           165            660        2.0 to 2.5    1,320 to
                                                                                                                               1,650
                                  Total                                8                         1,352        2.0 to 2.5    2,704 to
                                                                                                                               3,380
                                  a
                                  There are three AOE-6s in service and one to be delivered in early 1998.

                                  Source: Our analysis of data provided by commercial unions.



                                  The off duty mariners could be used for the ready reserve fleet in times of
                                  conflict.


                                  Given the potential savings that could result if the Navy turned over the
Recommendation                    operation of the seven active multiproduct auxiliary ships and the one ship
                                  due for delivery in early 1998 to MSC for crewing with civil service
                                  mariners, we recommend that the Secretary of Defense direct the
                                  Secretary of the Navy to devise a detailed plan for turning over, in a timely
                                  manner, the operation of the multiproduct auxiliary ships to MSC.


                                  DOD partially concurred with our recommendation to the Secretary of
Agency Comments                   Defense that the Secretary of the Navy devise a plan for turning over the
and Our Evaluation                operation of the remaining auxiliary ships to MSC. However, DOD noted that
                                  certain operational changes, ship retirements, and other actions affecting
                                  the fleet were under consideration and that more study should be done on
                                  this matter. Accordingly, DOD suggested that we modify our
                                  recommendation to the Secretary of Defense to direct the Navy to
                                  continue a cost-benefit analysis based on the Fleet Commanders’ concept
                                  of operations, crewing alternatives, and conversion costs, including
                                  indirect and additional costs. DOD stated that based on this analysis, the
                                  Navy would then either retain or turn over the operation of the
                                  multiproduct ships to MSC.

                                  We have retained our original recommendation in view of the substantial
                                  costs savings that are possible and the fact that our analysis is supported




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              by three other major studies of this issue since 1990. All of these studies
              have consistently concluded that substantial savings can be achieved by
              turning over the operation of these ships to MSC and crewing them with
              civil service mariners. By developing a plan for a timely transfer of these
              assets to MSC as our recommendation suggests, the Navy can achieve
              substantial savings that might then be applied to other defense priorities.

              DOD’scomments are presented in their entirety in appendix I. DOD also
              provided technical comments, which we have incorporated where
              appropriate.


              To provide information on the Navy’s current and planned efforts to turn
Scope and     over the operation of military crewed auxiliary ships to MSC for civil
Methodology   service and/or commercial crewing, we analyzed data from and
              interviewed officials in the Office of the Chief of Naval Operations, MSC,
              the Center for Naval Analyses, commercial ship operating companies, and
              civilian maritime unions.

              To identify the potential cost savings that would be realized by turning
              over the operation of the Navy’s remaining military crewed auxiliary ships
              to MSC, we compared actual annual operating costs provided by the Navy
              to estimated annual operating costs provided by MSC for both classes of
              multiproduct ships. We then projected the savings per ship over the
              number of ships in each class to arrive at a total annual savings. The
              offsetting costs to convert the ships to Coast Guard standards were
              provided by MSC. We did not validate the accuracy of the cost data
              provided by the Navy or the cost estimates provided by MSC. However, we
              discussed our analysis of these costs and potential savings with the Office
              of the Chief of Naval Operations and MSC officials who generally agreed
              with the cost data used.

              To analyze the costs to operate MSC’s Kaiser class oiler with civil service
              crews and with commercial crews, we reviewed data and interviewed
              officials from the Maritime Administration, MSC, the American Maritime
              Officers union, the National Maritime Union, the Seafarers International
              Union, the National Marine Engineers’ Beneficial Association District #1,
              and the International Organization of Masters, Mates, and Pilots. We
              obtained crew sizes based on the Navy’s mission and manning
              requirements for Kaiser class oilers. We determined the annual labor cost
              of civil service crews by obtaining actual crewing levels and current wage
              rates, including overtime, from MSC. We obtained the overtime rate for the



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crew (the Master and the Chief Engineer do not receive overtime);
vacation and sick leave; compensatory time and training costs; and
pension, medical, and miscellaneous costs. To determine the annual labor
costs for commercial mariners, we obtained proposed crewing levels and
wage rates from two unions that represented all positions on the ship.
While discussing issues with us, officials from the other commercial
mariner unions declined to provide wage and crewing data.

The Service Contract Act of 1965 (SCA), 41 U.S.C. §§ 351 et seq., generally
provides for payment of prevailing wages when operating in U.S. territorial
waters as determined by the Department of Labor for service employees
under government contracts. Union officials stated that SCA was not
applicable to commercial crews when operating outside U.S. territorial
waters. Between May 1996 and April 1997, the Kaiser Class oilers operated
in U.S. territorial waters 37 percent of the time and, thus, would come
under the provisions of SCA during this period.

Because the Kaiser Class oilers have been solely operated by civil service
crews, the Department of Labor has not made a wage determination under
SCA. To estimate the impact of operating with commercial crews, we used
wage and overtime rates provided by two commercial unions for civilian
crews, which is the basis for the $4,116,000 figure.

If, on the other hand, commercial crews were paid the MSC rate while
operating in U.S. territorial waters, total labor costs would be 5 percent
higher than our estimate, assuming they operated as MSC does—about
37 percent of the time in U.S. territorial waters. However, union officials
told us that they would probably operate differently, spending less time in
U.S. territorial waters. We did not validate the cost data obtained from MSC
or the unions.

We conducted our work from April 1996 to July 1997 in accordance with
generally accepted government auditing standards.


We are sending copies of this report to the Secretaries of Defense and the
Navy; the Chairman of the Senate Committee on Commerce, Science, and
Transportation; and other interested congressional committees. Copies
will also be made available to others upon request.




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B-277338




Please contact me at (202) 512-5140 if you or your staff have any questions
concerning this report. Major contributors to this report are listed in
appendix II.




Mark E. Gebicke
Director, Military Operations
  and Capabilities Issues




Page 14                                           GAO/NSIAD-97-185 Navy Ships
Page 15   GAO/NSIAD-97-185 Navy Ships
Contents



Letter                                                                                            1


Appendix I                                                                                       18

Comments From the
Department of
Defense
Appendix II                                                                                      21

Major Contributors to
This Report
Tables                  Table 1: Type, Number, and Crew Size of Auxiliary Ships                   3
                          Operated by MSC
                        Table 2: Type of Auxiliary Ships Crewed With Military Personnel           4
                          as of May 1997
                        Table 3: Annual Operating Costs Between the Navy and MSC for              5
                          Multiproduct Ships
                        Table 4: Potential Annual Savings by Turning Over Navy                    6
                          Multiproduct Ships to MSC
                        Table 5: Annual Labor Costs of Civil Service and Commercial               9
                          Crews for a Kaiser Class Oiler
                        Table 6: Increase in Numbers of Civil Service Mariners                   10
                        Table 7: Increase in Numbers of Commercial Mariners                      11




                        Abbreviations

                        DOD       Department of Defense
                        MSC       Military Sealift Command
                        SCA       Service Contract Act


                        Page 16                                          GAO/NSIAD-97-185 Navy Ships
Page 17   GAO/NSIAD-97-185 Navy Ships
Appendix I

Comments From the Department of Defense




             Page 18           GAO/NSIAD-97-185 Navy Ships
Appendix I
Comments From the Department of Defense




Page 19                                   GAO/NSIAD-97-185 Navy Ships
                Appendix I
                Comments From the Department of Defense




Now on p. 11.




                Page 20                                   GAO/NSIAD-97-185 Navy Ships
Appendix II

Major Contributors to This Report


                        Sharon Cekala
National Security and   Elliott Smith
International Affairs   Frank Bowen
Division, Washington,   Jay Willer
                        Charles Perdue
D.C.                    Sharon Sweeney


                        Roderick Moore
Los Angeles Field
Office




(703153)                Page 21          GAO/NSIAD-97-185 Navy Ships
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