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T-AOT 168 Sealift Pacific

Tankers (T-AOT) provide worldwide delivery of petroleum products to Department of Defense users and augment and support fleet operating units when required. The most modern of these classes of tankers are the five ships of the Champion class, the last two of which were delivered in 1986, and the nine-ship Sealift class tankers which were built specifically for the Military Sealift Command (MSC). While the Champion class vessels remain in service, the Sealift class tankers were retired in the mid-1990s.

The Sealift class tankers were specifically built for, and chartered to, MSC for 20 years, 1975-95. The Navy would have preferred to purchase new ships but entered the leasing agreement because it had been unsuccessful in obtaining congressional approval of the purchase funds. Under the lease, the government would pay more than double the nine ships' purchase price. From the program's inception in 1975 to March 31, 1994, MSC had obligated $1.3 billion to charter and operate the nine tankers.

The tankers were operated under the Navy Industrial Fund, a revolving fund reimbursed from the appropriated OEM funds of the Army, Air Force, Marine Corps, and Navy. Industrial fund operations allow the Navy to spread costs to the other military services using the POL transported in the tankers. The POL transportation rates are set annually on the basis of forecasted costs, and the military service customers are billed at these rates for services received. Thus, the costs of operating the tanker fleet -- including charter costs -- are ultimately passed on through the Navy Industrial Fund to the OGM accounts of the military services receiving the transported POL products.

The nine ships are the Sealift Atlantic, Sealift Pacific, Sealift Arabian Sea, Sealift China Sea, Sealift Indian Ocean, Sealift Mediterranean, Sealift Caribbean, Sealift Arctic, and Sealift Antarctic. They provide point-to-point fuel deliveries to U.S. defense bases around the world during peacetime and are equipped to transfer fuel to other ships at sea. At the end of the charter period, MSC must return the ships to the owners in the same condition as received, less "depreciation and normal wear and tear."

A contractor operated and maintained the ships. Initially Marine Transport Lines, Inc. [MTL], operated the tankers under two consecutive contracts. The first was a 10-year cost-reimbursement contract; the second, a 5-year fixed-price contract. Marine Transport Lines, had a reputation as one of the best bulk-ship operators in the US. MTL was owned by a large international, transportation-oriented company, the Chicago-based GATX Corporation. The MTL fleet was built in the mid-1970s, and financed by the Irving Trust Co.

In 1977 the Military tanker Sealift Pacific ran aground at Nikiski and spilled 200,000 gallons (757,000 liters) of jet fuel. The US Motor Tankship Sealift China Sea Rammed the Italian Motor Cargo Vessel Lorenzo D'Amico at Los Angeles, CA on January 15, 1978. The Sealift Pacific rescued 186 Vietnamese boat people in July 1980.

In January 1986 MSC noted that, approximately 6 months into the contract, Marine Transport Lines was neglecting to fund ship maintenance and repair in an effort to maximize profit or minimize losses. In January 1989, an internal MSC report described the Sealift Antarctic as a fire and safety hazard and lacking in maintenance. An internal MSC review of the Sealift Indian Ocean reported, "It is a complete waste of money to install equipment and reimburse the contractor for its maintenance if the equipment is deliberately neglected."

One important operational capability, especially during wartime and other emergencies, involves the ability to refuel other naval ships at sea. During Operation Desert Storm, two of the tankers (Sealift Mediterranean and Sealift Caribbean) could not perform this important function when called upon because of inoperable refueling-at-sea equipment.

MSC decided to change contracting methods from a cost-reimbursement to a fixed-price approach to save funds. MSC awarded a 5-year fixed-price contract for about $170 million to International Marine Carriers, Inc. [IMC] in April 1990. However, the contract allowed modifications that increased MSC's payments to IMC, as of April 1, 1994, to about $256 million--including reimbursables for fuel, upgrades, and other costs--with another year to go on the contract. The contract for the operation and maintenance of the Sealift tankers requires the contractor to ensure that all equipment and machinery on the ship be maintained in the highest state of readiness. At various times between August 1991 and February 1993, each of the nine ships received unanticipated material condition upgrades and were out of service while being upgraded.

In a fixed-price contract, any funds not spent for personnel's salary or maintenance remain with the contractor, This may provide an incentive for a contractor to spend as little as possible on preventive maintenance and on securing and retaining the required number of competent crew members, potentially creating the unsafe conditions we noted on all nine tankers. Because of the fixed-price nature of the last two contracts, it was especially important for MSC to closely monitor the contractor's performance in both preventive maintenance and crewing requirements so as to protect the government's and taxpayers' interests. However, MSC failed to do so - at the government's and taxpayers' actual and potential expense.

MSC'S lack of oversight of ship maintenance requirements caused the ships' conditions to deteriorate. The lack of maintenance, in turn, adversely affected the ships' safety and mission readiness. As of April 1994, this shortcoming had resulted in an additional cost to MSC, and thus the government, of approximately $20 rnihion. Second, the Lack of qualified and fully staffed crews contributed not only to oil spills with their adverse effects on the environment but also to the lack of mission security and efficiency. MSC failed to enforce the contract's crewing requirements and had no system to determine if the contractor was complying with the requirements.

IMC was required to maintain the ships' readiness for all operational requirements. One important operational capability, especially during wartime and other emergencies, involves the ability to refuel other naval ships at sea. To ensure that the tankers maintain this capability, the contract stipulated that IMC must maintain refueling-at-sea equipment on each ship in good order and conduct quarterly refueling-at-sea training sessions. The contractor was also required to perform quarterly testing of refueling rigs that are attached astern of the tankers. However, MSC inspection reports indicated that the refueling-at-sea equipment on many of the tankers was frequently inoperable. Many of these reports showed that components of this equipment were either frozen in place by rust or corrosion or that critical parts were missing. These deficiencies adversely impacted the ships' capability to meet their mission. In this regard, during Operation Desert Storm, two of the tankers (Sealift Mediterranean and Sealift Caribbean) could not perform this important function when called upon because of inoperable refueling-at-sea equipment.

MSC records disclosed numerous instances of unsafe operating conditions aboard the nine Sealift tankers. These unsafe conditions included leaking oil, leaking fuel lines and fuel pumps; inoperable lifesaving equipment including life boats; poorly maintained or inoperable fue stations; deteriorated, damaged, or missing railings on the ships' weather decks; and improperly stored chemicals and lubrication oil.

The limited number of MSC inspection reports reflected serious problems with the operation and maintenance of the ships. However, prior to 1994 MSC took little or no action to enforce the provisions of the contract and to require corrective action of problems found during the inspections.



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Page last modified: 22-07-2011 17:43:12 ZULU