By Salvatore R. Mercogliano, Ph.D. – On January 22, 2020, the Inspector General (IG) for the Department of Defense released a declassified and redacted report, entitled, Audit of Surge Sealift Readiness Reporting. The surge sealift fleet, those 15 vessels held by the Navy’s Military Sealift Command (MSC) and the 46 by the Department of Transportation’s Maritime Administration (MARAD), are a key component of the nation’s ability to project military power from the continental United States. The recent Turbo Activation 19 Plus exercise in September 2019, tested the reliability of this fleet, and showed it fell far short of the 85% readiness rate required, with an overall performance of 40%. The new IG report indicates that there may be more systemic issues at the root of the problem but fails to adequately identify the underlying cause of these issues.
The IG undertook the audit to determine if the U.S. Transportation Command provided, “adequate oversight of the reporting on surge sealift activation requirements.” Specifically, they examined the 50 roll-on/roll-off ships (15 held by MSC and 35 by MARAD), that provide a total of 10.7 million square feet of cargo space for the combatant commanders. The information on the individual ships is reported through the Defense Readiness Reporting System. The information is inputted by MSC based on reports from the contract operators and via the Maritime Administration from their commercial companies.
The IG determined that “MSC did not accurately report the readiness status for 15 MSC-owned surge sealift ships during FYs 2017 and 2018.” The cause for this was due to MSC’s reliance on, “ship contractors to accurately report ship readiness.” As a result of inaccurate reporting, US Transportation Command provided unreliable assessments of the surge sealift capability and this, “could lead geographic combatant commanders to make incorrect assumptions.” It also highlights the difference in reporting ship status procedures between MSC and MARAD, an issue previously addressed in a 2019 RAND Corporation report, Approaches to Strategic Sealift Readiness.
The Inspector General proposed five recommendations:
- Verify that deficiencies identified in ship inspection reports match the corresponding contractor-issued casualty reports.
- Hold contractors accountable when casualty reports do not match ship inspection reports or are not submitted as required.
- Reconcile casualty reports to the ship’s reported status in DRRS-N to ensure accurate ship readiness reporting.
- Develop an agreement with MARAD to establish standard criteria for readiness assessments for MSC and MARAD surge sealift ships.
- Develop an oversight plan to verify the readiness status of the MARAD ships and coordinate with MARAD to obtain the documentation and establish the process necessary for MSC to perform the oversight.
These recommendations will address the reporting by MARAD and MSC to U.S. Transportation Command, but misses the larger issue, why are the companies operating these ships not reporting the issues and how is MSC not assessing the surge sealift fleet’s status? The IG met and interviewed with personnel from MARAD, MSC, and the U.S. Transportation Command but only talked with three ship masters. The IG failed to talk with the companies that operated MSC’s and MARAD’s vessels. Interviewing the companies could have revealed the underlying issue.
On August 4, 1983, the Office of Management and Budget under the Executive Branch issued Circular A-76. The aim was to prevent the Government from competing with its citizens in government contracts. For strategic sealift, this meant transferring ships from government operation to commercial firms. A subsequent report, Military Sealift Command: Weak Controls and Management of Contractor-Operated Ships, identified that, “MSC’s internal controls are inadequate to oversee its contractor-operated ship programs,” and lacks, “sufficient oversight to ensure that contractual requirements are met.” This problem, over thirty years in the making, is at the heart of the issues identified in the IG report.
The Inspector General detailed that DOD spent $477.8 million on maintenance and repairs on the 35 MARAD ships between FYs 2016 and 2018, with another $843.9 million programmed for FYs 2019 through 2022. For the 15 MSC ships, another $264.7 million was spent for FYs 2017 and 2018 and $560.4 million through the span of their five-year contracts. It is apparent that more money is programmed for the MSC ships vice the MARAD ro/ros. Yet during Turbo Activation 19 Plus, of the ten large medium-speed ro/ros (LMSRs – the newest and largest cargo carriers in the fleet), six were unavailable for activation due to either a C-4 or C-5 readiness rating (the lowest possible). Of the four that participated in the exercises, all failed their activation, most due to speed issues.
Why then, if MSC is spending more money on newer ships, are they unavailable? It goes back to Circular A-76 and the decision to award ship operating contracts that are fixed-price versus cost-reimbursable. One of the ship classes examined by the GAO were the nine-Sealift class tankers built in the mid-1970s. They were point-to-point tankers built under a build-and-charter agreement. At the start of their tenth year of operations, the contract was switched to fixed-priced and for their fifteenth year, a new operator replaced the original firm and the maintenance and performance of the vessels cratered. The ships did not make it past twenty years of operation before the contract was terminated and the tankers released from their charters. All but one was scrapped by 2000. It was at this point that MSC returned to cost-reimbursable, but then why has the problem persisted?
The fixed-price agreement placed operating firms in a difficult position. First, they had to compete for the award of the contract. Then they had to submit a bid that undercut their opponents. This meant they would have to allocate funds to pay for essential services. As the ships age and breakdown, issues such as maintenance would be typically deferred in order to remain within budget. The previous cost-reimbursement method, while more expensive, allowed the operating company to work with the government to program and fund maintenance and repairs and provide transparency on the material readiness and condition of the vessel. However, this depended on the availability of repair funding, which according to reports was curtailed as of April 1, 2019.
Another issue at play with most government operating contracts is ship operators receive different pay based on whether the ships are fully operational, in a reduced operating status, or in a reduced availability. The latter can occur during a scheduled maintenance or repair period or may result when the operator reports a condition that precludes the ship from being mission ready. This latter condition fosters an atmosphere where an operator may not want to report the actual readiness of the vessel because of the economic impact it has on them, even though the casualty may be easily corrected if the funding and time was available to rectify them.
The recent IG report and the results from Turbo Activation 19 Plus needs to be examined in their entirety. A surge fleet, with the average age being 45 years old, the different management and reporting styles of MSC and MARAD, and the use of lowest-bidder contracts, without the adequate maintenance funding, all contribute to the inability to maintain 85% readiness of the 50 ro/ros in the surge sealift fleet. These reports all shed light on the problem, but do not address the underlying issue. There is an urgent need for more ship inspections by both MSC and MARAD. The US Transportation Command should consider the return to cost-reimbursement contracting, along with a new build-and-charter program to aid in the recapitalization of the surge sealift fleet.
The regional combatant commanders should be concerned about the ability of the surge sealift fleet to provide the needed 10.7 million square feet of cargo space. In a broader context, the military needs to incorporate sealift into its comprehensive strategies and provide the necessary funding and support to maintain the surge fleet, along with the commercial U.S. merchant marine – this includes support for cargo preference, the Jones Act, and the Maritime Security Program. At the same time, the nation needs a viable sealift strategy to ensure that the decline of the commercial maritime industry is reversed, to prevent the nation from losing its ability to build, repair, and maintain merchant ships in the United States.