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APPENDIX D
CASE HISTORIES OF CHARTERING
NOAA'S EXPERIENCE
The chartering experiences discussed herein are summarized from
responses to a questionnaire sent to a variety of vessel operator and
owner organizations. The questionnaire and cover letter are shown in
Figure D-1.
With the exception of the National Oceanic and Atmospheric Admini-
stration's (NOAA) Northwest and Alaska Fisheries Center, NOAA has
conducted only a few projects using charter vessels. In FY 1986 the
center awarded six charter contracts to vessel operators for groundfish
and crab surveys in the Pacific Northeast and the Bering Sea. A
typical charter cost $4,109 per day for a vessel 105 feet in length and
had a duration of 72.5 days. In FY 1987 the center chartered 4 vessels
costing an average of $4,092 per day, averaging 95 feet in length, and
a charter duration of 103 days. The only other fisheries research
vessel chartered recently by NOAA fishery laboratories was a vessel
chartered by the Southeast Fisheries Center to survey populations of
Gulf Coast red drum. Most of these charters were for the vessel and
crew with NOAA supplying the scientific party, specialized instrumen-
tation, and fishing nets. Based on a sampling of questionnaires from
NOAA scientists involved in these charters, it appears that the charter
vessels and crews performed satisfactorily.
NOAA's Undersea Research Program has chartered, to a limited
extent, for submersible support vessels. None of NOAA's vessels
currently have the capability to deploy and recover manned
submersibles. In FY 1986 this program chartered 3 vessels for an
average cost of $7,723 per day and an average charter duration of 43
days. In FY 1987 this program awarded 6 charter vessel contracts
costing $6,561 per day for vessels 133 feet in length with an average
charter duaration of 36 days. NOAA has generally had satisfactory
results chartering these type vessels.
It should be noted that the charters awarded by NOAA in the past
can not be considered typical of NOAA's vessel support requirements nor
do they represent typical charter vessel capability and availability
scenarios. Most NOAA Fishery Research Laboratories do not charter
vessels and have indicated that they would have difficulty satisfying
71
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72
September 30, 1987
MB-87-621
S A ~ P L E
Addressee
Dear :
As you know, the Committee on Alternative Strategies for Obtaining
Ship Services is conducting a study to assess the effectiveness of
chartering vessel support from the private sector versus operating and
owning ships. This assessment will provide NOAA and other organizations
owning vessels with a methodology for comparing alternative strategies
and assessing the implications of each.
~ c7_ _
The Committee has proposed to
identify vessel and system requirements for support of hydrography,
fisheries and oceanographic and atmospheric research programs and to
assess how these requirements might be met through charter alternatives.
,
As a part of this study, the Committee is examining the past
chartering experiences of other organizations in order to understand
the potential problems that might be encountered and the range of
alternatives available. TO ~ -- ~ · -
If you or your agency nas contracted ror end
products or services which have utilized sea coins vessels. the
Committee would appreciate your taking time to complete the enclosed
Questionnaire and
_
tJ V 7
For as many of these contracts as possible and reasonable.
If you do not wish this specific questionnaire to be included in the
appendices of the report, please so state at the end of the
questionnaire, in person, or by phone to Celia Chen (202) 334-3119.
Your wish will be honored and the questionnaire summarized without
agency or contractor identification.
The Committee will greatly benefit from your organization's insights
and experience in the area of vessel chartering. We would appreciate
any input you could provide to us.
Sincerely,
William S. Gaither
Chairman
Enclosures
FIGURE D- 1 Sample cover letter and questionnaire .
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QUESTIONNAIRE
The Committee on Alternative Strategies for Obtaining Ships Services
has broken down contracting into three over-simplified categories
Category I - ''Bare Boat" (No crew, just required sea going
equipment).
Category II - Vessel with crew and required sea going equipment
(Specialized instrumentation and equipment,
government furnished or spelled out to be furnished
by contractor).
Category III - End product contracted for either a day rate basis
or end product fixed price (government responsible
only for quality assurance)
.
How many contracts of each of the three categories has your agency
completed during the past few years? Since 19
Category I
FIGURE D-1 Continued.
Category II
Category III
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Type of Contract Described in the Questionnaire Below:
Category I Category II
Category III
Generalized Contractor/Government Responsibilities
Government Contractor
Crew
Specialized Equipment
Scientific Support
Technical Support
Value of Contract in Dollars
(Total in 19 dollars)
Time from TECHNICAL request to contract award
(Months)
Time From Contract Award to Estimated Contract Completion
(Months)
Time From Contract Award to Actual Completion
(Months)
Was the contract that was awarded the one specifically requested by the
TECHNICAL personnel (as opposed to the contracting personnel)?
Yes
No
Somewhat
Was the contract for a predetermined price (or contingent on items to
be discussed technically during the contract term)?
Yes
No
Somewhat
If predetermined price, were there any hidden, unforseen, or additional
charges?
(A) During contract term?
Yes No Somewhat
FIGURE D-1 Continued.
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7s
(B) After contract term?
Yes No - Somewhat
If there were negotiated charges to the contract by either contractor or
government, what was the magnitude of these price changes
Minor (Less Than 10% of Price)
Major (More Than 10% of Price)
Assessment by Technical group requesting services/contract of these items
Item Satisfactory Unsatisfactory Good Excellent Not Applicable
Overall
Performance
Responsiveness to
Technical Personnel
Equipment Reliability
Instrumentation
Reliability
Scientific Personnel
Accommodations
Scientific Personnel
Working Accommodations-
Quality of Results
Any amplification you wish to add:
Any comments you wish to add:
Any recommendations you wish to add:
FIGURE D- 1 Continued.
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their vessel support requirements if they had to rely on charter
vessels. Most of NOAA's oceanographic and atmospheric research
programs, hydrographic surveys, and bathymetric surveys are performed
by NOAA vessels outfitted for these missions. Therefore, very few case
histories are available for NOAA charters in these'areas.~
In one particular instance when NOAA hired a contractor to conduct
a hydrographic survey and to provide NOAA with a finished product, the
survey was replete with errors and required some areas to be resurveyed
by the contractor. At least one survey sheet was not acceptable.
OTHER AGENCY EXPERIENCE
It appears clear from all agency experience that for basic oceano-
graphic research (and in most instances applied research) a contract
arrangement in which a specified end product is sought (Category III)
is too inflexible an arrangement. The end product of basic research is
not easily defined, and therefore, a fixed price for an end product
cannot be defined contractually. Furthermore, a day-rate cost calcu-
lation for this type of charter has many variables for which it is
difficult to make definitive cost comparisons. It is possible,
however, to award a contract to conduct oceanographic surveys of
specific areas that could support or provide a baseline for basic
research.
The two federal agencies that utilize contracting to obtain ship
services for basic oceanographic research are the Navy and the National
Science Foundation (NSF). Other agencies have contracted for ship
services for oceanographic research but less frequently and for rela-
tively small contracts. By and large these contracts have been for
vessels with crew and scientific equipment (Category II).
The Environmental Protection Agency (EPA) owns a scientific vessel
and provides the necessary equipment and the scientific seagoing person-
nel. A long-term (3-year) contract provides a crew and technicians ''to
operate the vessel for all scientific missions the . . . t government
chief scientist, a civil servant] . . . may direct the vessel to com-
plete.t' The incentive for responsive contractual performance is the
option on the part of technical agency personnel to renew the 3-year
contract. This example is similar to several oceanographic institu-
tions' methods of ship operations in the 1960s.
The U.S. Geological Survey (USGS), Department of Interior' has had
excellent results with several "vessel with crew" contracts that appear
to have been directly contracted for and supervised by the technical
personnel involved (as opposed to centralized contracting procure-
ment). Not surprisingly, the seagoing scientists believed that
scientific personnel accommodations and working space accommodations
could have been improved.
The U.S. Army Corps of Engineers has granted several hundred-
million dollar turnkey contracts involving a specific, well-understood,
nonscientific end product--dredging. In 1978, Congress enacted Public
Law 92-269, mandating that the Corps utilize contractor dredging
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equipment when industry reasonably demonstrated its capability to
perform the work done at reasonable cost and in a timely manner. Until
this time, the Corps accomplished its dredging responsibilities using
its own fleet of vessels. This legislation also called for a study to
determine the minimum, federally owned fleet required to perform
emergency and national defense work.
During the early years of the program, industry responded competi-
tively to 54 percent of the projects advertised for bid, and no bid was
received for 10 percent of the projects advertised. During the first 5
years of this turnkey contract program, contractual costs exceeded bids
by less than 1 percent. Gradually, industry and the Corps developed
common ground, and as time passed, meetings between the two became less
and less controversial, with the current figure being approximately 85
percent of dredging and one-third of bathyme try carried out under
contract. Industry, over time, responded to the real opportunity to
bid with an accelerated construction program, thus increasing both
opportunity to bid and competitiveness.
A major reason for the success of this program has been, the public
law mandate which set the exact standards (including methods of
government cost comparison) and, perhaps most important, dictated that
contractor selection be based on qualifications, not on price. An
interesting observation on the part of the government was that industry
did not use a Cadillac when a basic Ford would do, thereby proposing
competitive bids.
The experience of the international oil companies in conducting
their oil and gas operations illustrates the efficacy of contractor
operations (see Chapter 3~. Contractor operations have been the over-
whelming choice of the oil industry for more than 40 years, particu-
larly for high-resolution, multisource, and receiver arrays. From
1947-1987, the geophysical contractors servicing the oil industry
around the world have acquired more than 95 percent of all marine
geophysical data used by the oil industry.
The NSF has had great success with its two vessel-leasing con-
tracts. As part of the International Drilling Program, NSF's Scien-
tific Drilling Program charters the Joides Resolution on a
long-term basis to accomplish its deep-sea drilling and site survey
requirements. This is a 5-year lease with options for NSF to extend
the lease up to 10 additional years. The lease is funded yearly,
contingent on availability of funds. NSF also leases the Pop or
Duke, an ice-capable research vessel, from a Canadian company to
conduct its high-latitude research in the Antarctic. This lease is a
5-year contract with an option to buy. NSF is soliciting proposals for
contracting an ice breaker.
The Navy has contracted for long-term lease vessels built for
specific tasks and operated by contractor crews. Generally these have
performed in an excellent manner. Contracted hydrographic surveys for
the Navy, however, have spanned the spectrum from excellent to
disappointing.
The Military Sealift Command (MSC) contracted out the operation of
the Navy's 12 hydrographic and oceanographic research vessels based on
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an A-76 cost-comparison study. The 3-year contract was ultimately won
by LSC Marine' Inc., with a contract bid that was 22 percent lower than
the government's cost to operate the ships. In the first year of the
contract, numerous problems were cited by both the Navy and LSC. The
Navy's complaints included problems of coordination and personnel
training. LSC's criticisms centered on the experimental nature of the
contract, which they felt had been administered too rigorously, with
open displays of bias, and contained excessive if not impossible
requirements. Nevertheless, MSC has stated that it has achieved direct
savings and cost avoidance from the improved productivity gain from
this charter arrangement.
LESSONS FROM CHARTERING EXPERIENCE
In general, central procurement and contracting procedures are more
time consuming and less likely to perform in an adequate manner unless
the technical group is both contractually competent and "in charge" of
the technical specifications. Many contracts that the government
technical personnel consider marginal or unsatisfactory can be attri-
buted to central procurement and contracting. It is a significant and
sometimes difficult task to specify adequately all of the technical
requirements in a contract. This is particularly difficult for non-
technical personnel who are often found in procurement and contracting
departments.
Most examples of successful government contracts in which an end
product is sought (Category III/turnkey) have had technically qualified
government personnel (uniformed or civilian) aboard the contractor's
vessels overseeing the vessel operations. This expertise and cost must
be taken into consideration when opting to contract for vessel support
instead of using in-house capability.
At times, the Navy has negotiated umbrella contracts for several
years duration to conduct worldwide oceangoing activities. This
arrangement has a major advantage: the technical personnel are able to
contract on very short notice (several hours) for a specific task at a
predesignated fixed price. Umbrella contracts have included personnel,
vessels, equipment, logistics, and so on.
The potential difficulties of centralized procurement have been
demonstrated in the establishment of some long-term, umbrella contracts
in which services were required on an as needed basis rather than a
known and agreed on minimum baseline of requirements. In one case, a
contractor's proposal was rejected along with technical statements
justifying the rejection. It was very apparent that some of the
statements were not based on sound technical judgment. For example:
o Statement: "No experience in Navy-related problems." Fact: The
proposal contained over 50 cumulative years of top-level, ex-Navy mili-
tary civil service personnel with general Navy experience and specific
experience in the related fields of the Navy request for proposal.
o Statement: "Insufficient experience in acoustics." Fact: one
Of the institutions in the submitting consortium had been a main source
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of acoustics and antisubmarine warefare (ASW) expertise to the Navy
since before World War II.
0 Statement: "Insufficient experience in physical oceanography."
Fact: Several renowned U.S. physical oceanographers and U.S. institu-
tions were included in the contractor's proposal.
Another charter example involved a 3-year, $3-million contract for
vessel with crew (Category II/time charter) from a foreign (allied)
contractor. This arrangement proved to be signif Scantly lower in
cost than a comparable U.S. vessel. Various agencies have procured
foreign-flag vessel contracts for either time charters or turnkey con-
tracts. All of these have been evaluated as excellent in performance
and significantly lower in cost than U.S.-flag vessels.
It appears that U.S. Maritime Union work rules and wage rates must
be avoided to make a contract competitive in both quality and price
compared to a well run in-house operation. To date, no federal
government or industry contract has been successfully procured for time
charters or turnkey contracts using a unionized U.S.-flag vessel
company.
In conclusion, there are examples of charter vessel use for every
type of vessel function in the federal government or in the private
sector. Yet, it is not always clear that the quality of the service is
as good or that the contract is more cost-effective compared to
in-house options.
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Representative terms from entire chapter:
category iii
