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2 CHARTERING ALTERNATIVES In an assessment of chartering for ship services, a wide range of alternatives can be considered. Chartering alternatives vary in terms of who provides the vessel platform and who carries out the scientific mission. Chapter 2 categorizes the range of charter alternatives by the party (vessel user or the contractor) who provides the platform and/or conducts the scientific mission. Following a discussion of all the possible charter alternatives and examples of each type, Chapter 2 identifies three types of vessel charters that most appropriately would address NOAA's ship service needs: the bare-boat charter, the time charter, and the turnkey contract. Lastly, Chapter 2 includes a discussion of short-term versus long-term charters and some of the advantages of long-term charters. PLATFORM AND MI S S ION ALTERNATIVES A full range of charter alternatives is shown in Table 2-1. The mission alternatives refer to who carries out the scientific mission, the user (NOAA) or the contractor. All of the alternatives assume that the quality assurance would be carried out by the user, in this case NOAA. Almost any of the various schemes involving federal programs, in general, and research and survey missions, in particular, can be described by parametric combinations of the alternatives in Table 2-1. Contractor Provides a Ship Operated by the User In an A-1 type of charter, a bare-boat charter, the shipowner leases the entire vessel (platform), and the charterer has the responsibility of operating it as though it were his own vessel. As the name implies, the bare vessel is chartered. The shipowner has relinquished control of the vessel for the period cove-red by the charter party. The charterer pays all expenses: fuel, stores, provisions, harbor dues, pilotage, and so on, and employs and pays the crew. However, there may be a clause in the charter party* that the master and the chief engineer must be approved by the shipowner. Party is a traditional maritime term and is synonymous with contract or agreement. 15

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16 TABLE 2-1 Charter and Contract Alternatives Type of Charter Platform Mission Alternative A Contractor provides 1. User carries out ship; user operates program missions (bare-boat) Alternative B User provides ship; 1. User carries out contractor crews program missions and operates it 2. Contractor carries out program missions Alternative C Contractor provides 1. User carries out ship and operates program missions (time) it 2. Contractor carries out program missions (turnkey) The charterer is responsible for the upkeep, preservation, and safety of the vessel. Before delivery to the charterer, the vessel is surveyed by representatives of both parties and the same is done on redelivery. The charter party will stipulate that the vessel must be redelivered in the same good order and condition as when delivered, with exception of ordinary wear and tear. Contractor Operates Ship Provided by User Alternatives B-1 and B-2 are variations of A-1, with the single difference being that the user, almost exclusively the federal government, has provided the ship. There are several diverse reasons for this arrangement. One is a result of pressure from OMB (Office of Management and Budget) Circular A-76, where the operation of the government-owned vessel goes to a contractor as a cost-saving method. Another reason is to assure that the best possible or otherwise unique platform which, in this case, is owned by the government, is used for the mission. Examples of B-1 are the U.S. Navy T-AGOR and T-AGS vessels previously operated by the Navy, and now operated by LSC Marine, a subsidiary of the Levino Shipping Corporation (LSC). In the latter category are many of the university (UNOLS) ships built by the Navy and NSF, and operated by a university laboratory on grants and contracts from those agencies. The Navy's R/V Mizar, operated by Bell Labs, and R/V Kaimal ino, operated by SEACO (of Science Applications International Corporation), are additional examples.

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17 Contractor Provides Ship and User Carries Out Mission Program Alternative C-1 is probably the most common form of charter arrangement. As a time charter, it can range from several days to several years. Examples of these include the short-term charters by NOAA for fisheries research and the long-term charters by the NSF for its Ocean Science Drilling Program ~ Joides Resol union) and Antarctic Research Program (Polar Duke). The contractor furnishes a ship to the user's specifications and crews and operates it under a time charter. Science work in all mission areas would continue as an internal function of the user. Examples of this type of charter are becoming increasingly prevalent. It is feasible in all mission areas, probably more so in some than others. This alternative is feasible both for long-term and limited short-term applications. It is a good starting point in exploring charter applications. Contractor Provides Ship and Carries Out Mission Program Of the several levels of charter, Alternative C-2 is the final step where both ship and science mission are contractor performed. The contract is for an end product at either a day-rate or an end-product fixed price. The potential for applications in mission areas is less than in time charters for the reasons described in Chapter 5. This is not technically a charter but a contract for services and is often referred to as a turnkey operation. As noted earlier, it may involve either a bare-boat or a time charter. It is not so common in marine research and surveys as is the C-1 case, but it is becoming more prevalent in consideration of OMB Circular A-76. In addition to the difference between short- and long-term arrangements, an equally important distinction exists as to whether the mission program contractor (usually the prime contractor) operates its own vessels or, in turn, charters them. Examples of turnkey contracts are common in Navy research and development (R&D), activities in oil company seismic surveys, and seen in the research programs of the Departments of Energy and Interior (Minerals Management Service). TYPES OF VESSEL CATERS The charge of this study was to assess alternatives for NOAA to charter vessels. Three of the charter alternatives discussed above involve a contractor providing at least a vessel platform. These three alternatives have been deemed by the committee to be appropriate for NOAA's vessel needs. They are as follows: the bare-boat charter party (alternative A-1), the time charter (alternative C-1), and the turnkey contract (alternative C-2~. The application of each charter alternative to NOAA's mission areas is discussed in Chapter 5.

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18 Bare-boat Charter Party This alternative represents the acquisition of a vessel by NOAA through a long-term charter process. NOAA operation and science programs would continue on as at present. Charters of this sort would be equally applicable throughout all mission areas and are limited to long-term applications. It is repeated that the chief purpose of this type of charter is to replace or add to the NOAA Fleet without any change to ship or science operations and to avoid the high up-front cost of ship building. The chief application of a bare-boat charter party is the classic build and charter, whereby a user contracts with a leasing firm who will build and/or acquire a vessel to meet the user's specifications in return for a long-term charter. Specifically, it is common practice for an investor to build a ship to specification and charge annual lease payments with a "balloon' at the end designed to accommodate the user's budgetary needs. Long-term charters offer NOAA the attractive possibility to renew its aging fleet assets through use of lease-purchase, or similar leasing arrangements, which make the asset available to the user at the end of the lease. This can be a cost-effective mechanism to avoid the difficult process of obtaining major appropriations for high capital cost assets. The incremental purchase of necessary vessels through lease-purchase contracts provides immediate use of the vessel while paying for it incrementally over a fixed period of time. Other long- term leasing arrangements offer the user first rights of refusal to buy the assets for a stipulated residual amount at the end of the lease period. Heretofore little used in the public sector, the build and charter arrangement has been a widely employed commercial means for the vessel user to avoid the high up-front cost of shipbuilding. Now, because of that and other institutional constraints associated with agency construction, the public sector is examining these means. The role, however, is being overtaken by the additional step of contract chewing, which returns it to the C-1 (time charter) category. Time Charter Party In this type of charter, the charterer hires the vessel and entire carrying capacity for a specified time and for a specified sum per day or other time period. All the proper cargo space, including that for deck cargo, is at the charterer's disposal. This is sometimes referred to in a charter party as the "full reach and burden" of the vessel and the charterer invariably assumes it to include any mast or deck lockers available and probably a locker or two in the mate's room. The owner is responsible for the physical operation of the vessel and employs the master and entire crew. The vessel owner also pays for the stores and provisions and the upkeep and repair of the vessel. In other words, the shipowner puts a fully equipped vessel at the charterer's disposal and operates it for the benefit of the charterer.

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19 The charterer pays for fuel, tugs and pilots, harbor dues, and entering and clearing fees; the charterer does not pay expenses pertain- ing to the crew, with the exception of charterer's mission overtime. If the charterer's personnel are carried, food consumed and other supporting expenses are chargeable. Important elements of a time charter party are "off hire" and "mobilization and demobilization." Off hire stipulates that in the event of a loss of time from deficiency of stores or crew, breakdown of machinery, stranding, fire, or any damage preventing the working of the vessel for more than 24 hours, the payment of hire shall cease until the ship is again in an efficient state to resume service. Mobiliza- tion and demobilization provides for extra time at the owner's or other base for the purpose of preparing the ship for the charter. The unique nature of research and survey operations can make mobilization and demobilization a significant element. This is discussed further in Chapter 4. Another type of charter party not especially applicable to research operations is a "voyage charter party." This is a charter for the carriage of cargo, not for a period of time, but at a stipulated rate per ton. In a voyage charter party the charterer assumes no respon- sibility for the operation of the vessel except stevedoring expenses. Terms from a voyage charter party that may apply elsewhere are "paydays," the time available for loading and discharging, and demurrage, charges for time lost caused by the charterer. Turnkey Contract The turnkey contract describes a situation where a contractor would agree to perform a total service for NOAA and to provide the ship, crew, scientific party, and all supplies and equipment necessary to produce a specified end product. Examples of end products that might be acquired by NOAA on a turnkey basis include bathymetric maps of the EEZ or fisheries stock assessments for a designated area. A general contractor proposing a turnkey project may offer an end product on a day-rate or a lump-sum basis (fixed price). The general contractor may assemble a team of subcontractors to carry out the proposed project. For example, a vessel could be chartered as a bare boat from subcontractor one, the crew and ship operations from subcontractor two, the performance of the scientific mission from subcontractor three, and the lease of all necessary oceanographic equipment from subcontractor four. In a turnkey contract the precise specification of the end product (deliverables) to be produced is critical to its success. Application of this chartering alternative to research functions may be limited (see Chapter 5~.

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20 SHORT-TERM VERSUS LONG-TERM ALTERNATIVES A vast difference exists between the short-term and the multLyear charter. The-former usually is a small vessel operation with limited capability and higher cost than a user-owned vessel. Multiyear charters, on the other hand, can provide a highly capable and well- outfitted ship at attractive prices. A multiyear charter must be within the scope of an agency's statutory authority. NOAA has maintained that it is constrained from multiyear contracts, but this may be more of a policy determination than statutory. Whatever the cause, it should be resolved so NOAA can benefit from long-term contractual arrangements. For purposes of this report, long term means 3 years or greater, and short term means less than 1 year. Chapter 5 discusses further the contrasting implications of these two alternatives. A number of disadvantages associated with chartering vessel services can be alleviated through long-term contracts as shown in Table 2-2. Therefore, long-term charters could optimize the advantages of chartering and reduce or eliminate many of the disadvantages. However, the disadvantages and advantages of chartering listed in Table 2-2 may vary in importance for different types of charter alternatives and for different mission areas. Although charter vessel services may offer some cost savings, there are other operational and logistical issues to be considered. TABLE 2-2 Charter Advantages and Disadvantages Potential Advantages Flexibility of getting ship where and when needed No major capital investment Fixed, known cost rates Reduces FTEb positions required of an agency May have favorable cost comparison under suitable planning conditions Can be easily terminated when requirements change/cease Potential Disadvantages Suitable vessel may not be availablea May have substandard safety provis ions May be poorly designed and out- fitted for research purposes, e.g., inadequate laboratories, obsolete oceanographic equipments May have substandard berthing, messing, and comfortsa Contractual problems: multiyear funding, sole-source procurement aReduced or eliminated by long-term (3 years or more) charter. bFull-time equivalent.