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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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73 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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74 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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76 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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77 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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78 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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79 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: