Defense Acquisition:

Historical Insights Into Navy Ship Leasing

T-NSIAD-99-141: Published: Apr 21, 1999. Publicly Released: Apr 21, 1999.

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Pursuant to a congressional request, GAO discussed the Navy's decisions in the early 1970s and early 1980s to lease Sealift Tankers, Maritime Prepositioning Ships, and T-5 replacement tankers, and more recently, Chouest specialized support vessels, focusing on the: (1) basis and support for the Navy's decisions to lease rather than purchase these vessels; (2) concerns that surrounded the decisions; and (3) legislative and regulatory changes that have been implemented that will influence future lease versus purchase decisions.

GAO noted that: (1) the primary reason the Navy decided to use long-term leases to acquire auxiliary vessels in the early 1970s and early 1980s was because available procurement funds were needed for higher-priority combat ships, and leasing arrangements allowed the Navy to acquire the support ships without a large, up-front obligation of procurement funds; (2) the Navy also believed that leasing was cost-effective and helped support the industrial base; (3) the Navy complied with existing requirements to perform lease versus purchase cost comparisons; (4) these comparisons concluded that leasing was cheaper than purchasing; (5) the Navy's decision to enter into long-term leases in the early 1970s and early 1980s raised concerns regarding the budget authority needed to make such large long-term funding commitments; (6) Congress expressed concern about whether the Navy Industrial Fund could adequately cover the total obligations that would accrue from these leases; (7) to address this concern, the Navy requested and received specific congressional authorization to carry out the acceptance provisions of the long-term leasing contracts; (8) there were also concerns regarding the cost-effectiveness of these leases; (9) when the leasing decisions were made, there were limited standardized governmentwide guidelines for conducting lease versus purchase analyses; (10) as a result, the studies used different assumptions and methodologies in analyzing the alternatives and drew different conclusions; (11) in 1983, GAO's report and a congressional staff study questioned the validity of the assumptions used in the Navy's studies and their conclusions; (12) had the Navy's studies used assumptions that more fully reflected the government's total costs, they would have concluded that purchasing was the cheaper alternative; (13) since the long-term leasing decisions of the early 1970s and early 1980s, a number of changes have occurred that will affect future long-term leasing decisions by increasing oversight and improving cost analyses; (14) Congress has increased visibility of and control over these types of decisions; (15) budget-scoring guidelines increase the emphasis on up-front budget authority by providing Congress with a mechanism to assess the cumulative impact of long-term leasing decisions prior to the obligation of funds; (16) tax benefits that favored leasing have been reduced; and (17) as part of the decisionmaking process, more detailed guidelines require that the Navy perform lease versus purchase analyses that better reflect the government's total cost of long-term leasing arrangements.

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