14 July 2011

Washington Explained: Budgets and Bewildering Blunders

If you are wondering how we got to the brink of a government shutdown in our nation’s capitol; well, I can’t help you there. On the other hand, and as a microcosm of how business is done inside the Beltway, this week’s Marad “Ghost Fleet” Media Advisory tells you all you need to know.

The July 11th Media Advisory issued by Marad, DOT reference: xx-xx (I couldn’t possibly make that up), heralds the departure of not one but two ships from the James River Reserve Fleet near Hampton Roads, VA. The James River fleet is one of three so-called “Ghost Fleets” maintained by Marad – DOT’s maritime modal arm – and one which Marad feels constant pressure from the Virginia congressional delegation to move ships from, lest they break loose (which they occasionally do) and threaten the environment. Just imagine the joy in the Navy Yard when they get to compose one of these releases and trumpet the good news.

According to the Media Advisory, issued at 1242 PM of the 12th, the ex-USNS Benjamin Isherwood (T-AO-191) and the ex-USNS Henry Eckford (T-AO-192) were scheduled to depart from the James River Reserve fleet on July 12 and July 19, respectively. Both vessels are to be towed to Brownsville, TX, for recycling at the ISL ship breaking facility. Or, maybe not. That’s because Marad recalled the notice at 1458 hours. I had the temerity to ask why. Marad PAO Kim Riddle told me, “The advisory was recalled by mistake. What you have is correct and the vessels are still leaving the James River Reserve Fleet site, which is maintained by the Maritime Administration.” There you go: the well-oiled machine at Marad plows on, even in the choppiest of waters.

Also according to the Media Advisory, “the vessels are the fifth and sixth ships built in the 18-ship Henry J. Kaiser-class fleet of replenishment oilers of the United States Navy. The two vessels were constructed at the Pennsylvania Shipbuilding Company in Philadelphia, Pennsylvania. After the vessels contracts were cancelled, they were eventually towed to the James River Reserve Fleet, the only two ships of the 18-ship Henry J. Kaiser class not to be completed.” And, all of that is true. What they don’t say is far more important.  

When those vessels finally depart for the scrap yard – and I have no idea whether that has actually happened – it will close one of the saddest chapters in American shipbuilding and for that matter, federal fiduciary folly. Say that five times fast. For Marad, the episode trumps the Hawaii Superferry debacle, if you can believe that.

Construction of the ISHERWOOD was cancelled on August 15, 1993 when it was virtually 95.3% complete. The ECKFORD’s contract was cancelled when that vessel was about 84% complete. The reasons for all of that are too painful to rehash at this moment, and somewhat beside the point. Suffice it to say that in 1998 and 1999, the ships were transferred to Marad’s control and have been berthed at the James River Reserve Fleet ever since. From that moment on, the Navy had nothing more to do with either ship.

In the ensuing years, both hulls were pursued and coveted by many; fully modern and almost complete, both hulls could have been had for a song, saved the taxpayers a bunch of money and been put to work as originally intended. Of course, those contemplating the rebirth of the ships as tankers would probably have had to double hull the units. But, with rated speeds of 20 KT and capacities of almost 180,000 barrels (42,000+ displacement tons), the ships could have enjoyed productive lifespans in the coastwise trades. Or, sent abroad. For a variety of reasons, this never happened. Certainly, there were multiple opportunities to get those vessels into useful service. Still, the vessels sat in the ghost fleet.


In general terms, the “AUTHORITY TO CONVEY” was given to the Secretary of Transportation, who could convey all right, title, and interest of the United States Government in and to the vessels BENJAMIN ISHERWOOD (TAO–191) and HENRY ECKFORD (TAO–192) to a purchaser for the limited purpose of reconstruction of those vessels for sale or charter to a North Atlantic Treaty Organization country for full use as an oiler. These terms went on at length – as only Washington and certain maritime writers are known to do – but also contained three important stipulations: (a.) that conveyance was to be accomplished at no cost to the United States Government, (b.) competitive procedures had to be used for sales under this section – we’ll come back to this section later – and (c.) the vessel were not to be sold for not less than the fair market value of the vessel in the United States. None of those stipulations were ever met.

Whatever you thought of Strom Thurmond, he was no fool. Even back then, he knew the value of these vessels – completed or not. Perhaps it was a political play in an effort to make sure that the oilers went to a particular end user, but page 24 (page 26 on your PDF clicker) of the budget request for three fleet oilers in FY 1985 was more than $562 million, or about $187.5 million each for the Eckford and the Isherwood. According to my source, “This is what the USN requested in the budget, and probably got. Now, that figure would have been more than what would have been awarded to the shipyard, as it includes Government furnished equipment (comms, medical gear, etc.) and program office support.” My source – who also easily outran my request to NAVSEA for the very same information (I’m still waiting…) went on to say, “You can't that say $187.5 million was the contract award, but it is fair to say USN requested Congress appropriate $187.5 for each of those star-crossed oilers.” Actually, given the number of “change orders,” towing back and forth and delays, the figure is probably much higher. Eventually, Marad gave the ships away for nothing. You read that right.

It was in 2003 when Marad inked a $17.8 million deal involving 13 of the oldest vessels at the James River fleet. Eventually, the terms of the deal dictated that the vessels would be towed 4,000 miles to the UK for dismantling. The deal also included – you guessed it – the Eckford and Isherwood – for the nominal fee (credit) of USD $3 million. Hence, both vessels – worth much more no matter how much wine you’ve had to drink – were valued by Marad to be worth just $1.5 million each. And, to meet the language dictated by Congress, they had to be sold. MARAD agreed to accept the "credit" as payment.

In 2007, an amendment to the contract was made and Marad dropped any pretense of receiving payment. No credit transfer, no payment. And, just like that, at least $375 million in tax dollars went up in smoke. A protest from other US-based contractors, although given nominal consideration by GAO, went nowhere.

Fast forwarding to Monday, I asked Marad who had paid for the storage / mooring of the vessels since 2003, or even 2007, the time of the amended contract. If the ships had been “sold” to others, why were they still in the Marad “Ghost fleet” and what did that have to do with Marad? Finally, I asked, how it could be that two vessels, both all but completed and built to USN standards, never got sold, converted or otherwise transferred for service that they could have easily performed – and probably (with modifications) still are capable of doing. Marad PAO Kim Riddle responded that ownership was not passed with the transfer of titles until June 15, 2011. Beyond this, she insisted, “These vessels were both contracted and cancelled by the U.S. Navy, which can provide the requested information.” What?

The assertion that this was “the Navy’s mess” isn’t altogether correct. The Navy might have fumbled the ball on the 13 yard line, but arguably, Marad scooped up the errant pigskin and ran 87 yards the wrong way for the losing score. A NAVSEA spokesperson told me on Monday that once the vessels had been delivered to Marad (the first of the two titles were transferred to MARAD in February 1998, the second in 1999), all responsibilities for their final disposition now lay with DOT. Hence, the task of getting the best possible deal for the taxpayers to end this horrific mess was now with Marad. Eventually, the taxpayers received no payout. And, for years, the vessels have laid dormant – under the care of the U.S. taxpayers – at the James River fleet, waiting this final magic moment. Hey: would it be Okay with you if I parked my boats at your marina for a few years until I’m ready to sell them? Thanks!

All of this brings us full circle to what might be happening in Washington today. Yesterday, I read that a “compromise” on the federal budget and deficit negotiations was in the works. This will apparently involve (a.) raising my taxes and (b.) eliminating some part of my future Social Security and/or Medicare benefits. Now, the latter part of the deal worries me. Since my potential future savings will be eaten up by the tax increase, I’m probably going to need those Social Security checks. And, since Marad today continues to dispose of these old hulls, arguably without due regard to the highest bidder, I’m hoping that the balance of the federal government is operating in a slightly more responsible manner. I have my doubts.

To be fair, the current situation surrounding the Eckford and Isherwood has little or nothing to do with today’s version of Marad and DOT. But Monday’s Media Advisory, subsequently (mistakenly?) recalled, is symptomatic of an organization that does little to help the taxpayers they serve and even less for the domestic waterfront whose commerce they are asked to foster. Perhaps it would have been better if both hulls had slipped quietly from their moorings and been eased out to sea. You can bet your bottom dollar that DOT wishes that errant Media Advisory (DOT reference xx-xx) had never gone out. Based on what’s currently happening inside the Beltway, I know that I do, too.

Source: MaritimeProfessional. by Joseph Keefe. 13 July 2011

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