B-169094(3), AUG 13, 1971

B-169094(3): Aug 13, 1971

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BELIEVES THAT THE LANGUAGE OF THE STATUTES IS A CLEAR INDICATION OF CONGRESSIONAL INTENT TO VEST IN MAR AD CONSIDERABLE DISCRETION IN THE DISPOSAL OF SURPLUS VESSELS. MAR AD HAS INDICATED THAT THEY ARE RE-EXAMINING THE FLOOR PRICE IN LIGHT OF CURRENT CONDITIONS. TO BARRETT KNAPP SMITH SCHAPIRO & SIMON: FURTHER REFERENCE IS MADE TO YOUR PROTEST ON BEHALF OF THE INSTITUTE OF SCRAP IRON & STEEL AGAINST SALES BY THE MARITIME ADMINISTRATION (MARAD) OF SURPLUS GOVERNMENT VESSELS FROM THE NATIONAL DEFENSE RESERVE FLEET TO FOREIGNERS FOR SCRAPPING ABROAD. IT IS YOUR CONTENTION THAT MARAD'S PROGRAM OF SALES TO FOREIGNERS IS IN CLEAR VIOLATION OF THE PREFERENCE TO BE AFFORDED UNITED STATES CITIZENS UNDER SECTIONS 5 AND 6 OF THE MERCHANT MARINE ACT OF 1920.

B-169094(3), AUG 13, 1971

SALE OF RESERVE FLEET VESSELS TO FOREIGN NATIONALS DENIAL OF PROTEST ON BEHALF OF THE INSTITUTE OF SCRAP IRON & STEEL AGAINST SALES BY THE MARITIME ADMINISTRATION (MAR AD) OF SURPLUS GOVERNMENT VESSELS FROM THE NATIONAL DEFENSE RESERVE FLEET TO FOREIGNERS FOR SCRAPPING ABROAD. PROTESTANT CONTENDS THAT MAR AD'S POLICIES CONSTITUTE A CLEAR VIOLATION OF SECTIONS 5 AND 6 OF THE MERCHANT MARINE ACT OF 1920, AND SECTION 809 OF THE MERCHANT MARINE ACT OF 1936. THE COMP. GEN. BELIEVES THAT THE LANGUAGE OF THE STATUTES IS A CLEAR INDICATION OF CONGRESSIONAL INTENT TO VEST IN MAR AD CONSIDERABLE DISCRETION IN THE DISPOSAL OF SURPLUS VESSELS. FROM THIS RECORD, IT APPEARS THAT THE ONLY QUESTIONABLE EXERCISE OF THAT DISCRETION BY MAR AD LIES IN THE ESTABLISHMENT OF THE FLOOR PRICE FOR SALES TO CITIZENS, AND MAR AD HAS INDICATED THAT THEY ARE RE-EXAMINING THE FLOOR PRICE IN LIGHT OF CURRENT CONDITIONS.

TO BARRETT KNAPP SMITH SCHAPIRO & SIMON:

FURTHER REFERENCE IS MADE TO YOUR PROTEST ON BEHALF OF THE INSTITUTE OF SCRAP IRON & STEEL AGAINST SALES BY THE MARITIME ADMINISTRATION (MARAD) OF SURPLUS GOVERNMENT VESSELS FROM THE NATIONAL DEFENSE RESERVE FLEET TO FOREIGNERS FOR SCRAPPING ABROAD.

IT IS YOUR CONTENTION THAT MARAD'S PROGRAM OF SALES TO FOREIGNERS IS IN CLEAR VIOLATION OF THE PREFERENCE TO BE AFFORDED UNITED STATES CITIZENS UNDER SECTIONS 5 AND 6 OF THE MERCHANT MARINE ACT OF 1920, 46 U.S.C. 864 AND 865, AND SECTION 809 OF THE MERCHANT MARINE ACT OF 1936, 46 U.S.C. 1213, CITING IN THIS REGARD OUR DECISION, B-169094, SEPTEMBER 4, 1970, 50 COMP. GEN. .

IT IS YOUR CONTENTION THAT, WITHOUT JUSTIFICATION, MARAD HAS ACCELERATED THE RATE OF OFFERINGS OF SURPLUS VESSELS FAR BEYOND THE CAPACITY OF DOMESTIC FIRMS TO ABSORB THEM, AND HAS FAILED TO REDUCE ITS "FLOOR PRICE" OF $40,000 PER VESSEL IN OFFERINGS TO CITIZENS, EVEN THOUGH THE GREATER SUPPLY OF VESSELS DICTATES SUCH ACTION. FURTHER, YOU CONTEND THAT THE FOREIGN FIRMS HAVE BEEN FAVORED BY ACCEPTANCE OF REDUCED PRICES AND EXTENSIONS IN REQUIRED REMOVAL TIMES, WHILE SUCH EXTENSIONS HAVE BEEN DENIED CITIZENS.

YOU STATE THAT THE RATE OF OFFERINGS INCREASED DRAMATICALLY IN 1970 WHEN MARAD OFFERED A TOTAL OF 296 VESSELS TO CITIZENS, WHEREAS DURING THE PREVIOUS 12 YEARS AN AVERAGE OF 107 VESSELS WERE SOLD ANNUALLY. YOU POINT OUT THAT BECAUSE OF THE INCREASED OFFERINGS AND FAILURE TO REDUCE THE MINIMUM FLOOR PRICE, CITIZENS FAILED TO BID ON AT LEAST 77 VESSELS OFFERED IN 1970 AND HAD BIDS REJECTED ON 27 VESSELS. YOU ASSERT THAT MARAD IS CONTINUING THE ACCELERATED OFFERINGS IN 1971, AND REJECTED BIDS ON 21 VESSELS DURING THE FIRST 3 MONTHS. ON THE OTHER HAND, YOU POINT OUT THAT WHILE THE SALES TO FOREIGNERS HAVE BEEN INCREASING AND THEIR AVERAGE BID PRICE DROPPING, NO MINIMUM PRICE HAS BEEN ESTABLISHED.

IT IS ALSO REPORTED THAT WHEREAS MARAD ADVISED CITIZENS THAT THEY WOULD NOT BE PERMITTED TO LEAVE VESSELS AT ANCHORAGE BEYOND THE DELIVERY DATE BY PAYING LIQUIDATED DAMAGES OF $15 PER DAY, FOREIGNERS HAVE BEEN EXTENDED SUCH PERMISSION. IN THIS CONNECTION, YOU REFER TO THE SALE OF 16 VESSELS FROM THE HUDSON RIVER FLEET TO A PAKISTANIAN CONCERN.

IT IS YOUR POSITION THAT THESE CIRCUMSTANCES INDICATE THAT MARAD HAS NOT ONLY FAILED TO MAKE A "DILIGENT EFFORT" TO SELL TO CITIZENS BEFORE SELLING TO FOREIGNERS AS REQUIRED BY SECTION 6 OF THE 1920 ACT, BUT HAS IN FACT FAVORED FOREIGNERS OVER CITIZENS IN ITS SCRAPPING PROGRAM.

IT IS MARAD'S POSITION THAT UNITED STATES CITIZENS ARE BEING GRANTED PREFERENCE CONSONANT WITH APPLICABLE STATUTES AND ITS ADMINISTRATIVE RESPONSIBILITY WITH RESPECT TO THE NATIONAL DEFENSE RESERVE FLEET. THE INCREASED RATE OF SCRAP SALES FROM THE RESERVE FLEET IS SAID TO BE A MATTER OF NECESSITY. MARAD'S GOAL IS TO DISPOSE OF THE SURPLUS SHIPS AS SOON AS POSSIBLE TO REDUCE THE SUBSTANTIAL COST OF MAINTENANCE OF VESSELS NO LONGER NEEDED AND TO AVOID THE SUBSTANTIAL EXPENSE WHICH WILL RESULT FROM THEIR SINKING. IT IS REPORTED THAT THE FREQUENCY OF HOLING INCIDENTS IS SHARPLY INCREASING BECAUSE OF THE DISCONTINUANCE OF PRESERVATION WORK, THE LACK OF CATHODIC PROTECTION, AND UNFAVORABLE WATER CONDITIONS. THIS CONNECTION, MARAD CITES 23 CASES OF UNDERWATER CORROSION DAMAGE TO THE SURPLUS VESSELS IN THE HUDSON AND JAMES RIVER FLEETS.

WITH REGARD TO WHETHER IT HAS EXERTED "DILIGENT EFFORT" TO AFFORD CITIZENS PREFERENCE, MARAD POINTS OUT THAT THE SURPLUS VESSELS SOLD FROM THE RESERVE FLEETS HAVE, WITHOUT EXCEPTION, BEEN OFFERED FIRST AND EXCLUSIVELY TO DOMESTIC SHIPBREAKERS, AND NO BIDS FROM THE DOMESTIC FIRMS HAVE BEEN REJECTED WHEN THE PRICES OFFERED ARE CONSIDERED FAIR, EVEN THOUGH SUBSTANTIALLY HIGHER PRICES COULD BE OBTAINED FROM FOREIGN FIRMS. IT IS MARAD'S POSITION THAT WHAT CONSTITUTES FAIR PRICES ON THE DOMESTIC MARKET IS A MATTER FOR IT TO DETERMINE IN LIGHT OF THE SCRAPS MARKET GENERALLY. IN THIS CONNECTION, MARAD POINTS OUT THAT BASED UPON ITS REVIEW OF THE DOMESTIC SCRAP MARKET A "FLOOR PRICE" OF $40,000 HAS BEEN ESTABLISHED FOR LIBERTY SHIPS AND CONTINUING SALES AT THIS PRICE INDICATE THE REASONABLENESS OF THIS FIGURE. MARAD ALSO CITES AN INCREASE FROM $31.54 IN 1966 TO $43.36 IN 1970 IN SCRAP EXPORT PRICES WITHOUT A COMMENSURATE INCREASE IN DOMESTIC BIDS AS INDICATING DOUBT AS TO THE VALIDITY OF A MINIMUM ACCEPTABLE PRICE OF ONLY $40,000. THEREFORE, IT IS REPORTED THAT A MINIMUM PRICE RELATED TO SCRAP EXPORT PRICES IS NOW BEING DEVELOPED. IT HAS NOT BEEN CONSIDERED NECESSARY TO ESTABLISH A FLOOR PRICE FOR FOREIGN SALES AS THE PRICES RECEIVED HAVE BEEN FROM TWO TO TWO AND ONE-HALF TIMES MORE THAN THE DOMESTIC SALES PRICES.

MARAD STATES THAT IT HAS FROM TIME TO TIME GRANTED BOTH DOMESTIC AND FOREIGN FIRMS EXTENSIONS IN TAKING DELIVERY OF VESSELS. AS AN EXAMPLE, IT IS REPORTED THAT UNION MINERALS & ALLOYS CORPORATION WAS GRANTED AN EXTENSION OF ABOUT 5 MONTHS BEYOND THE CONTRACT DELIVERY DEADLINE TO REMOVE 16 VESSELS FROM THE HUDSON RIVER FLEET. THE LAST 16 VESSELS IN THE HUDSON RIVER FLEET WERE SOLD TO A FOREIGN FIRM ON DECEMBER 23, 1970. THE VESSELS WERE NOT REMOVED WITHIN THE TIME ALLOWED. HOWEVER, IT IS REPORTED THAT THE PURCHASER IS BEARING THE FULL COST OF CUSTODY AND MAINTENANCE OF THE VESSELS THAT REMAIN AT THE SITE.

IN DECISION, B-169094, SEPTEMBER 4, 1970, 50 COMP. GEN. , THE ISSUE WAS WHETHER CITIZENS OF THE UNITED STATES WERE ENTITLED TO A PREFERENCE IN THE SALE FOR SCRAPPING OF GOVERNMENT OWNED SURPLUS VESSELS FROM THE NATIONAL DEFENSE RESERVE FLEET. WE CONCLUDED THEREIN THAT UNDER SECTIONS 5 AND 6 OF THE 1920 ACT AND SECTION 809 OF THE 1936 ACT THERE IS A LEGAL REQUIREMENT FOR SUCH PREFERENCE. THE QUESTION HERE IS WHETHER THE ANTICIPATED SALE TO FOREIGN FIRMS OF THE 15 VESSELS FOR WHICH UNION MINERALS' BIDS WERE REJECTED IS IN VIOLATION OF THE LEGAL REQUIREMENT FOR PREFERENCE; AND WHETHER THE RATE AT WHICH THESE VESSELS ARE BEING DISPOSED OF EFFECTIVELY DENIES CITIZENS OF THE UNITED STATES THE LEGAL PREFERENCE TO WHICH THEY ARE ENTITLED.

SECTION 6 OF THE 1920 ACT AUTHORIZES AND EMPOWERS MARAD TO SELL TO ALIENS, AT SUCH PRICES AND ON SUCH TERMS AND CONDITIONS AS IT MAY DETERMINE, NOT INCONSISTENT WITH THE PROVISIONS OF SECTION 5, IF AFTER DILIGENT EFFORT, IT HAS BEEN UNABLE TO SELL, IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF SECTION 5, SUCH VESSELS TO CITIZENS OF THE UNITED STATES. SECTION 5 AUTHORIZES AND DIRECTS MARAD TO SELL, CONSISTENT WITH GOOD BUSINESS METHODS, THE DESIGNATED VESSELS AT SUCH PRICES AND ON SUCH TERMS AND CONDITIONS AS IT MAY PRESCRIBE. WITH REGARD TO FIXING THE SALES PRICE THE STATUTE PROVIDES THAT MARAD SHALL TAKE INTO CONSIDERATION, AMONG OTHER THINGS, THE PREVAILING DOMESTIC AND FOREIGN MARKET PRICE OF, THE AVAILABLE SUPPLY OF, THE DEMAND FOR VESSELS, AND ANY OTHER FACTS OR CONDITIONS THAT WOULD INFLUENCE A PRUDENT, SOLVENT BUSINESS MAN IN THE SALE OF SIMILAR VESSELS OR PROPERTY WHICH HE IS NOT FORCED TO SELL.

ALTHOUGH THE LEGISLATIVE HISTORY OF FOREGOING STATUTES PROVIDES NO ASSISTANCE IN THEIR INTERPRETATION, WE BELIEVE THE LANGUAGE OF THE STATUTES IS A CLEAR INDICATION OF A CONGRESSIONAL INTENT TO VEST IN MARAD CONSIDERABLE DISCRETION IN THE DISPOSAL OF SURPLUS VESSELS. WHILE SECTION 6 OF THE 1920 ACT CONDITIONS SALES TO FOREIGNERS UPON FIRST MAKING A "DILIGENT EFFORT" TO SELL TO CITIZENS, IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF SECTION 5, NO WHERE IS "DILIGENT EFFORT" DEFINED. THE ONLY SPECIFIC CONDITION OF SECTION 5 RELATES TO THE FIXING OF A SALE PRICE WHICH IS TO INCLUDE CONSIDERATION OF VARIOUS FACTORS. NEITHER SECTION INCLUDES ANY RESTRICTION OR GUIDELINE AS TO THE RATE OF DISPOSAL. IN VIEW THEREOF, WE DO NOT BELIEVE IT WOULD BE PROPER FOR OUR OFFICE TO OBJECT TO MARAD'S CURRENT PROGRAM OF DISPOSAL OF SURPLUS VESSELS IN THE ABSENCE OF A CLEAR INDICATION THAT SUCH ACTION WAS ARBITRARY OR CAPRICIOUS. IN THE CIRCUMSTANCES, HOWEVER, WE PERCEIVE OF NO BASIS UPON WHICH WE COULD PROPERLY CONCLUDE THAT THERE HAS BEEN AN ABUSE OF THE DISCRETION PERMITTED.

MARAD HAS STATED A SOUND BASIS FOR ACCELERATING THE RATE OF DISPOSAL, AND WE WOULD NOT BE JUSTIFIED IN ASSUMING IN THE ABSENCE OF SUFFICIENT PROOF THAT THIS IS A SUBTERFUGE TO PERMIT IT TO SELL TO FOREIGNERS. WE BELIEVE MARAD'S POLICY OF FIRST OFFERING CITIZENS THE EXCLUSIVE OPPORTUNITY TO BUY THE VESSELS AT A MINIMUM PRICE IS CONSISTENT WITH THE DILIGENT EFFORT REQUIRED. OF COURSE, WE BELIEVE THE FLOOR PRICE FOR SALES TO CITIZENS SHOULD BE DETERMINED ON A CURRENT BASIS AND INCLUDE CONSIDERATION OF ALL RELEVANT FACTORS, INCLUDING THOSE SPECIFIED IN SECTION 5. AS INDICATED PREVIOUSLY, MARAD IS REEXAMINING THE FLOOR PRICE IN LIGHT OF CURRENT CONDITIONS.

ACCORDINGLY, YOUR PROTEST IS DENIED.