The Maritime Executive – [Op-Ed] Fleecing Maritime Schools and Heritage Organizations

(Written by Denise Krepp)

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3 March 2015 - Many years ago, Tom Brokaw, a NBC Nightly News anchor, did a series called the “Fleecing of America.” His stories exposed wasteful federal government programs that cost taxpayers millions of dollars. With all of this attention, one would assume that the government would have cleaned up its act by now. Nope. The fleecing continues as Representative Garret Graves (R-LA) highlighted at a House of Representative Transportation and Infrastructure Subcommittee hearing last week.

The waste uncovered by Representative Graves relates to ship recycling. The Maritime Administration (MARAD) pays domestic metal recyclers to dismantle excess government vessels. The funds earned from this program support maritime heritage programs, state maritime schools, and the vessel operations revolving fund. This isn’t a small amount of money. Since 2005, the government has collected over $75 million, but where has this money gone?

Well, by law, 25% of the funds are supposed to go to the state maritime schools – California Maritime Academy, Great Lakes Maritime Academy, Maine Maritime Academy, Massachusetts Maritime Academy, State of New York (SUNY) Maritime College, and Texas Maritime Academy. The money isn’t distributed on an annual basis. Instead, the schools received two lump payments in 2012 and 2014. The money they’ve received, $8.9 million, is also not 25% of $75 million.

MARAD’s refusal to share more money with the schools is puzzling. After all, the Administration requested $5 million in its Fiscal Year 2016 budget request for the planning and design on a National Security Multi-Mission Vessel that will be used as a training vessel for SUNY Maritime College. The average age of the state maritime school training vessels is 37 years old. Surely, the money gained from ship disposal sales could be used to build the new vessels?

Maritime heritage organizations are also supposed to receive 25% of the ship disposal sales. MARAD lists this “tangible benefit” in the same budget request so how much money have heritage organizations received? Zero. Nada. Nothing. The last time maritime heritage organizations received funding was in 1999. So again, where did the money go?

According to MARAD’s 2013 annual report, the agency used the money to conduct 10 oral histories of MARAD employees. They also used it to repair 78 model ships located in the Department of Transportation headquarters building. MARAD defended this decision claiming that the model ships “have been protected and conserved so that they can continue to serve as an important illustration of the agency’s heritage.” Funny, I thought the National Maritime Heritage Act said that the money was to be used to preserve the country’s maritime heritage.

Missing money aside, it’s also important to examine how MARAD awards ship disposal contracts to metal recyclers. A reasonable person would assume that the agency accepts the highest bidder as the higher the bid the more money for state maritime schools and maritime heritage organizations will receive. The reasonable person would be incorrect. Administrator Jaenichen testified at the House of Representatives Subcommittee hearing last week that the agency awarded contracts based on the highest bid 72 times in the past 90 contract solicitations.

The remaining bids are problematic. They include a contract that was awarded last fall to a ship recycling company that bid $400,000 less than another company. Representative Graves asked Administrator Jaenichen to explain this decision. Why did the agency award the contract to the lower bidder? Administrator Jaenichen could not answer the question but promised to get back to the Congressman.

Representative Graves then asked Administrator Jaenichen about the agency’s process in evaluating the financial status of bidders. How does the agency know that the company can pay when it bids on vessels? The company that won the MARAD contract last fall despite being the lower bidder closed its doors in February. Workers haven’t been paid. Representative Graves wanted to know why MARAD wasn’t aware of the situation. Good question. Administrator Jaenichen will be providing written responses to the Congressman.

The most startling claim made by Administrator Jaenichen is that MARAD will have to start paying metal recycling companies to recycle vessels because of lack of capacity. There aren’t enough facilities, he claimed, so the price will go up. Not exactly. The agency has been sitting on a Louisiana facility application for two years. The Defense Logistics Agency approved the facility in six weeks several years ago but MARAD hasn’t mastered that speed.

What can be done to fix the problem? The first step is for Congress to pass the STORIS Act. The Act requires an annual reporting of how much money MARAD is (a) collecting from the disposal of excess government vessels and (b) distributing to the state maritime schools and maritime heritage organizations. The legislation also calls for a Government Accountability Office audit to identify how MARAD has spent the ship disposal sale proceeds and hopefully recapture some of the funds that haven’t been used to conduct oral histories and repair model ships.

MARAD’s definition of “best value” must also be revamped. Accepting low bids and claiming that it is in the best interest of the government to do so is absurd. Taxpayers lose out when the government leaves money on the table, training ships don’t get built, and museum rooms lie dormant.

Representative Garret Graves exposed MARAD’s policies for what they are – the fleecing of state maritime schools and maritime heritage organizations. It’s time for the government-sanctioned stealing to stop.

K. Denise Rucker Krepp, is a lobbyist for the ship recycling industry. She is also a former Maritime Administration Chief Counsel.