This is the accessible text file for GAO report number GAO-02-604 
entitled 'Delaware River Deepening Project: Comprehensive Reanalysis 
Needed' which was released on June 10, 2002.



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Report to Congressional Requesters:



United States General Accounting Office:



GAO:



June 2002:



Delaware River Deepening Project:



Comprehensive Reanalysis Needed:



Delaware River Deepening Project:



GAO-02-604:



Contents:



Letter:



Results in Brief:



Background:



Corps’ Analysis Substantially Overestimated Project Benefits:



Corps Has Refined Its Cost Estimate to Reflect Some Changes and 

Corrections, but Additional Updates Are Needed:



Further Corrections for Outdated Information and Additional Errors and 

Omissions Would Likely Increase Project Costs:



Several Uncertainties Could Further Affect Project Benefits and Costs:



Corps’ Quality Control Process Did Not Identify Major Flaws in the 

Economic Analysis:



Most Environmental Concerns Have Been Addressed, but Several Related 

Issues Remain Unresolved:



Conclusions:



Recommendations for Executive Action:



Agency Comments:



Appendix I: Scope and Methodology:



Appendix II: Comments from the Under Secretary of the Army:



Appendix III: GAO Contact and Staff Acknowledgments:



Table:



Table 1: Analysis of Annual Project Benefits:



Figure:



Figure 1: The Delaware River Ship Channel:



Letter:



June 7, 2002:



The Honorable Jon Corzine

The Honorable Robert G.Torricelli

United States Senate:



The Honorable Robert E. Andrews

House of Representatives:



The U.S. Army Corps of Engineers’ February 1992 Final Interim 

Feasibility Study and Environmental Impact Statement reported that 

deepening the Delaware River ship channel from 40 to 45 feet was 

economically justified and environmentally feasible. Following this 

assessment, Congress, in the Water Resources Development Act of 1992, 

authorized the design and eventual construction of the Delaware River 

ship channel to accommodate the movement of larger vessels. The total 

estimated cost of the project is over $420 million. The federal share 

of the project cost--approximately $287 million--would be for 

constructing the deeper channel and the disposal sites for the dredged 

material, as well as maintaining the channel for 50 years at a depth of 

45 feet. The Delaware River Port Authority (DRPA), the nonfederal 

sponsor, would be responsible for most of the rest of the cost. The 

Corps’ economic analysis of the project, updated in 1998, concluded it 

would yield annual benefits of $40.1 million, largely in the form of 

transportation cost savings related to importing crude oil (about 80 

percent of the benefits) and importing or exporting cargo in 

containers, as well as bulk commodities including scrap metal, iron 

ore, and coal. The economic analysis estimated annualized project costs 

of $28.8 million. In addition to questions about the project’s cost and 

benefits, a number of concerns have been raised about whether the 

project would have adverse environmental impacts--for example, whether 

it would resuspend toxic substances in the water, degrade water 

quality, permit salt water intrusion into groundwater supplies used for 

drinking and other purposes, or significantly harm fish and wildlife.



We were asked to review whether (1) the Corps of Engineers’ economic 

analysis accurately and appropriately considered the benefits and costs 

of the project and (2) the environmental implications of the project 

have been fully addressed.



Results in Brief:



The Corps of Engineers’ economic analysis of the Delaware River main 

ship channel-deepening project contains a number of material errors. As 

a result, it does not provide a reliable basis for deciding whether to 

proceed with the project. In particular, our analysis of the Corps’ 

1998 benefit estimate identified several miscalculations, invalid 

assumptions, and the use of significantly outdated information. For 

example, the Corps misapplied commodity growth rate projections, 

miscalculated trade route distances, and continued to include benefits 

for some import and export traffic that has declined dramatically over 

the last decade. In addition, a number of unresolved issues and 

uncertainties were not factored into the Corps’ economic analysis, the 

outcome of which could either increase or decrease the benefits and 

costs of the project. While the Corps has established procedures to 

ensure that its benefit-cost analyses are fundamentally sound and 

properly prepared, in this case at least, the process was ineffective 

in identifying significant errors and analytical problems. Because of 

the shortcomings we identified in the Corps’ analysis, the actual 

economic merits of the project will not be reliably known unless the 

Corps comprehensively reanalyzes it.



The Corps of Engineers has largely addressed environmental concerns 

related to the project to the satisfaction of federal and state 

environmental agencies. On the basis of the results of the Corps’ 1992 

Final Interim Feasibility Study and Environmental Impact Statement, 

1997 Supplemental Environmental Impact Statement, and subsequent 

studies, most federal and state environmental agencies have agreed that 

the project would not significantly affect such areas as water quality 

and fish and wildlife habitat. Consequently, the Corps has obtained 

most of the approvals it needs from these agencies. However, a number 

of unresolved issues remain, including the issuance of a permit from 

the state of Delaware governing construction projects (such as 

dredging) that affect state waters.



Given the serious problems we identified with the Corps’ economic 

analysis, we are making recommendations to the Secretary of the Army on 

the need to comprehensively reanalyze the project. In commenting on a 

draft of this report, the Under Secretary of the Army generally agreed 

with our findings and concurred that a new and comprehensive economic 

analysis of the project’s benefits and costs is warranted. The Under 

Secretary also concurred that once the economic reanalysis is complete, 

an external independent party would be engaged to ensure that the 

reanalysis accurately and fairly represents the expected benefits and 

costs of the proposed project.



Background:



Figure 1 is a map of the Delaware River Ship Channel that also shows 

the locations of various project features discussed throughout the 

report.



Figure 1: The Delaware River Ship Channel:



[See PDF for image]



[End of figure]



The Delaware River project plan calls for deepening the main navigation 

ship channel from the mouth of the Delaware Bay through Philadelphia 

Harbor, and on to Beckett Street Terminal in Camden, New Jersey--a 

distance of 102.5 miles. The project includes plans for constructing 

three new disposal facilities for dredged material, called confined 

disposal facilities, in Gloucester and Salem counties, New Jersey. Two 

of these new disposal facilities would be needed to maintain the 

current channel, even if the project were not built. The new facilities 

and 10 other existing facilities would accommodate the material dredged 

during the construction of the deeper channel and during the 50-year 

maintenance period that would follow. The project also includes plans 

to restore two wetland areas, one in New Jersey and the other in 

Delaware, and to replenish a beach site in Delaware.



The Delaware River Port Authority, the nonfederal sponsor, would share 

in the costs of the project, according to requirements in the Water 

Resources Development Act of 1986 and a project cooperation agreement 

that would need to be signed with the Corps before beginning 

construction. The Port Authority would be responsible for contributing 

25 percent of the total costs of the project’s general navigation 

features--largely constructing and dredging--and for providing lands, 

easements, relocations, and rights-of-way necessary for the project. 

The Port Authority would pay an additional 10 percent of the general 

navigation feature costs after receiving credit for providing for such 

items as lands for dredged material disposal areas. The three states 

that would be affected by the channel deepening, Delaware, New Jersey, 

and Pennsylvania, are expected to contribute funds toward the Port 

Authority’s share of the project.



The Philadelphia district office of the Corps of Engineers is leading 

the effort to prepare the various studies and documents required for 

the project. It completed a Final Interim Feasibility Study and 

Environmental Impact Statement for the project in 1992. This document 

was used to inform decision-makers and the public of the Corps’ 

recommended plan for the project, potential alternatives to it, its 

benefits and costs--annualized over a 50-year period--and its likely 

environmental effects. The Corps then prepared a design memorandum in 

1996, which provided details on the final design and engineering plans 

for the project, and published a Supplemental Environmental Impact 

Statement in 1997. In its Limited Reevaluation Report of 1998, the 

Corps updated the project’s benefits and costs. Approval of this report 

constituted the Corps’ decision to budget construction funds for the 

project. Corps guidance and procedures require that key decision 

documents such as the Feasibility Study and the Limited Reevaluation 

Report undergo review by district officials; the Corps’ North Atlantic 

division in Brooklyn, New York; and the Corps’ Office of Civil Works in 

Washington, D.C., before receiving final approval. On April 22, 2002, 

the Corps’ Director of Civil Works suspended work on the project 

pertaining to the project cooperation agreement, plans and 

specifications, and advertising for construction, until questions 

pertaining to the project justification have been resolved.



Corps’ Analysis Substantially Overestimated Project Benefits:



The Corps’ analysis of project benefits contained or was based on 

miscalculations, invalid assumptions, and outdated information. After 

taking these problems into consideration, we found that the project 

benefits for which there is credible support would be about $13.3 

million a year, as compared to the $40.1 million a year claimed in the 

Corps’ 1998 Limited Reevaluation Report. Some of the major problems we 

identified in the Corps’ analysis of project benefits are discussed 

below.



Corps’ Benefit Analysis Contained Miscalculations:



Based on a number of miscalculations, the Corps’ analysis overstated 

annual project benefits by about $8.6 million. In one instance, the 

Corps misapplied the projections of commodity growth rates for traffic 

in the Delaware River ship channel when estimating future project 

benefits. For example, for oil imports from West Africa, the underlying 

data indicated that the appropriate predicted growth rate for 1992 

through 2000 would be 5.8 percent, and 1.4 percent for 2001 through 

2005. However, the Corps applied the 5.8 percent growth rate to the 

entire 1992 through 2005 time period and repeated the mistake by 

incorrectly applying predicted rates elsewhere in its analysis. In 

aggregate, this miscalculation led to about a $4.4 million overestimate 

of annual project benefits. Corps headquarters officials agreed with 

our analysis.



After taking the Corps’ misapplication of growth rates into 

consideration, there remained about a $4.7 million gap between the 

Corps’ estimated annual project benefits and the outcome of our efforts 

to replicate its results. The Corps’ economist for the project told us 

that this gap was created by a computer error and speculated that it 

could have occurred when files were transferred from one program to 

another. Ultimately, however, the Corps was unable to definitively 

explain the discrepancy between its original estimate and our attempt 

to replicate its estimate and acknowledged that the error overstated 

project benefits by about 

$4.7 million. Corps headquarters officials agreed with our analysis.



The Corps also inconsistently discounted the project’s future benefits 

to determine their net present value. Specifically, the Corps used 

different discount rates, realized benefits at different times of the 

year, and used different 50-year project time periods for the various 

benefit categories. For example, the Corps estimated project benefits 

for coal shipments for the period 2005 through 2055 (note that this is 

51 years, not 50 years), while it estimated benefits for container 

ships from 2000 through 2050. Also, the Corps used an 8.75 percent 

discount rate to discount the coal benefits for present value purposes, 

but used 7.625 percent for crude oil. The Corps’ economist for the 

project acknowledged the errors and noted that the discounting 

procedures used for net present value purposes should have been 

consistently applied. Taking these errors into consideration, as called 

for by applicable Corps guidelines for water resource projects, we 

found that annual project benefits would be about $0.4 million less 

than the Corps had projected.[Footnote 1] Corps headquarters officials 

agreed with our analysis.



Finally, the Corps presented its benefit estimates in dollar values for 

different years for the various benefit categories. The Corps stated in 

its 1998 Limited Reevaluation Report that the benefit and cost 

estimates were in 1996 dollars. However, this was not true for any of 

the benefit categories: coal benefits were calculated in 1991 dollars; 

crude oil, iron ore, and scrap metal benefits in 1993 dollars; and 

container benefits in 1995 dollars. A basic principle of benefit-cost 

analyses is that benefit and cost estimates be given in the same year 

dollar values. Without such consistency, it is not possible to 

accurately compare project benefits and costs. Taking this mistake into 

account, we found that estimated project benefits increased by about 

$0.9 million.[Footnote 2] Corps headquarters officials agreed with our 

analysis.



Corps’ Benefit Analysis Was Based on Invalid Assumptions:



Based on a number of invalid assumptions, the Corps’ analysis 

overstated annual project benefits by about $9.4 million. The Corps’ 

analysis of the benefits that a 45-foot channel would be expected to 

produce was based on several components, such as time at sea, time in 

port, tonnage shipped, and average shipping cost per unit of cargo. For 

certain crude oil vessels, one of these components is time savings in 

unloading crude oil. Currently, crude oil vessels that are loaded to a 

hull depth of more than 40 feet must stop at the mouth of the Delaware 

River to transfer crude oil to smaller vessels (a process called 

lightering) until the ship’s hull is no deeper than 40 feet below the 

surface. This transfer of cargo takes time and thus increases costs. 

With a deeper channel, such ships would spend less time lightering, or 

might not need to lighter at all, thus reducing costs. In calculating 

the economic benefits that a 45-foot channel would produce, the Corps 

assumed time savings from reduced lightering at both the port of origin 

and the port of destination. However, the benefits of reduced 

lightering are realized only at the destination of the voyage. Thus, 

the Corps double-counted this benefit, resulting in an overstatement of 

about $2.6 million in annual project benefits. Corps headquarters 

officials agreed that its analysis double-counted lightering time 

savings and therefore overstated annual project benefits.



The Corps’ economic analysis also claimed project benefits for 

predicted shipments of crude oil on vessels that require a channel 

depth of only 

40 feet. Currently, some of the vessels that deliver crude oil to the 

Philadelphia area refineries require less than a 40-foot channel depth, 

but they have the capacity to more fully load, and thus could 

potentially take advantage of a deeper channel. To estimate the 

benefits of a 45-foot channel for these vessels, the Corps used a 

statistical model (two stage least squares) to predict how much oil 

these vessels would carry if a 

45-foot channel were available. The model predicted benefits by 

analyzing 137 combinations of ship types and trade routes. The model 

predicted that only 32 of these 137 combinations (or 23 percent) would 

require a channel depth of greater than 40 feet to make the trip 

upriver to the oil refineries. Nonetheless, the Corps assumed benefits 

for all 137 combinations. The Corps’ economist was unable to provide a 

clear rationale for claiming benefits for the 105 ship-type/trade-route 

combinations that its model predicted would not benefit from a deeper 

channel. The result was that the Corps claimed about $3.0 million in 

annual project benefits that were not supported by its model. Corps 

headquarters officials told us they believe that a greater number of 

these vessels could benefit from additional channel depth, but they 

could not verify their model. We agree that the deeper channel could 

benefit crude oil vessels with sailing drafts of less than 40 feet, but 

the amount of such benefits cannot be determined without a 

comprehensive reanalysis.



We also found that the Corps’ container ship benefit analysis was based 

on several invalid assumptions. First, the Corps incorrectly assumed 

the same one-way distance (3,600 nautical miles) for each of several 

different container ship trade routes (Australia, East Coast of South 

America, Europe, and the Mediterranean). For example, the one-way 

distance from Australia to Philadelphia via the Panama Canal is about 

10,000 nautical miles. Further, for the Australia-to-Philadelphia 

route, the Corps assumed that with a 45-foot channel containers would 

be shipped on larger vessels and would go through the Suez Canal--as 

opposed to using the Panama Canal, the current trade route for this 

traffic. But, the Suez Canal trade route is significantly longer than 

the Panama Canal trade route, raising serious questions about whether 

shipping via the Suez Canal would be more cost-effective.[Footnote 3] 

After taking this invalid assumption regarding distances into account, 

and using the Corps’ methodology, we found that--even with a 45-foot 

channel depth--the least costly container ship trade route from 

Australia to Philadelphia remains through the Panama Canal. 

Furthermore, vessels using the Panama Canal are currently restricted to 

sailing drafts of 39 feet 6 inches. Thus, the benefits of the deeper 

channel for this trade route would be minimal. After taking the invalid 

assumptions in the Corps’ analysis into account, we estimated that 

annual container ship benefits would be about $1.7 million less than 

the Corps estimated. Corps headquarters officials acknowledged our 

findings and their relative impact, as calculated on the basis of the 

information presented in the 1998 Limited Reevaluation Report. However, 

they now believe that container ship benefits may be higher than 

presented in the 1998 report because of changed shipping patterns. 

While changes have occurred in the container shipping industry, it 

would be premature to speculate on the effect these changes would have 

on project benefits without a comprehensive reanalysis.



Moreover, the Corps also incorrectly assumed the same distance for 

different trade routes when estimating benefits for the category of 

crude oil vessels with sailing drafts less than 40 feet. Taking this 

invalid assumption into account reduced annual project benefits by 

about 

$1 million. Finally, we identified about $1.0 million in additional 

overestimated annual benefits due to other invalid assumptions related 

to the analysis for scrap metal, iron ore, and coal commodities.



Corps’ Benefit Analysis Was Based on Outdated Information:



Much of the baseline information that underpins the Corps’ project 

benefit analysis dates from 1985 through 1991. Thus, the data are 

outdated and do not reflect current shipping practices and trends. For 

example, the data the Corps used in its economic analysis led to a 

projection that crude oil imports up the Delaware River would increase 

by over 20 million short tons from 1992 though 2000.[Footnote 4] 

However, our review of available data indicated that crude oil imports 

increased by only about 10 million short tons over this 

period.[Footnote 5] We identified a number of instances, discussed 

below, in which the information used in the Corps’ analysis was 

outdated. Where possible, we updated the information, and found that 

the Corps’ analysis overstated total annual project benefits by about 

$8.8 million.



The Corps’ 1992 feasibility study included benefits for the time 

savings related to reduced lightering of crude oil by tankers with a 

sailing draft of greater than 40 feet. The Corps estimated that crude 

oil could be unloaded from crude oil tankers to the refineries’ storage 

tanks about twice as fast as it could be transferred to lightering 

vessels. Since that time, however, the company that provides lightering 

services in the Delaware River has modified its fleet of vessels that 

performs this service. Based on information provided by several 

refineries and the lightering company, lightering rates are almost the 

exact opposite of those used in the Corps’ analysis. According to these 

sources, crude oil can be transferred from oil tankers to lightering 

vessels almost twice as fast as it can be unloaded from oil tankers to 

refineries. The Corps’ use of the outdated information resulted in 

overstating annual project benefits by about $3.2 million.



As discussed previously, the Corps overestimated the projected growth 

in crude oil imports. Substituting the predicted growth rates used by 

the Corps with actual growth rates based on historical import data to 

the Philadelphia region (at the time of the 1998 Limited Reevaluation 

Report), we found that the Corps’ annual benefits were overestimated by 

about 

$3.5 million. In commenting on a draft of this report, the Corps stated 

that its crude oil projections (1992 through 2000) were in line with 

actual recorded tonnage. However, this statement is misleading because 

the crude oil import data that the Corps used to make this claim were 

inconsistently collected between 1992 and 2000. Nevertheless, the Corps 

stated in its comments that its project reanalysis would need to verify 

the database used to establish current and historic shipments to ensure 

data reliability. In addition, the Corps’ predicted growth rates for 

container ship imports for some trade routes were also overestimated; 

substituting the predicted growth rates with actual growth rates, we 

found that the Corps’ annual benefits were overestimated by about $0.3 

million.



Finally, the Corps’ analysis included benefits for exporting scrap 

metal to Turkey and importing coal and iron ore. However, since the 

time of the Corps’ 1992 analysis, trade of these commodities on the 

Delaware River has greatly declined. Updating for this information, we 

found that benefits for scrap metal, iron ore, and coal were reduced by 

about $1.7 million a year (beyond the $1.0 million benefit reduction 

mentioned earlier). Corps headquarters officials concurred that 

shipments of scrap metal, coal, and iron ore have decreased since the 

1998 Limited Reevaluation Report but stated that shipments of these 

commodities increased from 2000 to 2001 and may warrant further 

analysis.



Table 1 shows the Corps’ 1998 benefit estimates and summarizes errors 

in those estimates based on our evaluation of the Corps’ analysis.



Table 1: Analysis of Annual Project Benefits:



Dollars in thousands. 



Commodity: Crude oil; 

Corps’ estimates[A]: $32,481; 

Miscalculations[B]: ($8,883); Invalid 

assumptions[B]: ($6,681); Outdated 

information[B]: ($6,764); Remaining benefits[C]: 

$10,153.



Commodity: Containers; 

Corps’ estimates[A]: 4,546; Miscalculations[B]: 

3; Invalid assumptions[B]: (1,742); Dollars in 

thousands: Outdated information[B]: (294); 

Remaining benefits[C]: 2,513.



Commodity: Scrap metal; 

Corps’ estimates[A]: 2,357; Miscalculations[B]: 

406; Invalid assumptions[B]: (938); Dollars in 

thousands: Outdated information[B]: (1,465); 

Remaining benefits[C]: 360.



Commodity: Iron ore; Corps’ 

estimates[A]: 598; Miscalculations[B]: (152); 

Invalid assumptions[B]: 9; 

Outdated information[B]: (244); Remaining 

benefits[C]: 211.



Commodity: Coal; Corps’ 

estimates[A]: 160; Miscalculations[B]: 23; 

Invalid assumptions[B]: (93); Dollars in 

thousands: Outdated information[B]: 8; Remaining 

benefits[C]: 98.



Commodity: Total; Corps’ 

estimates[A]: $40,142; Miscalculations[B]: 

($8,603); Invalid assumptions[B]: ($9,445); 

Outdated information[B]: ($8,759); Dollars in 

thousands: Remaining benefits[C]: $13,335.



[A] Figures obtained from the Corps’ 1998 Limited Reevaluation Report.



[B] Negative values are given in parentheses and represent reductions 

to the Corps’ estimates.



[C] Values are given in 1996 dollars and are calculated as the sum of 

the previous four columns.



[End of table]



It is important to note that because of the numerous shortcomings in 

the Corps’ analysis, the actual project benefits cannot be reliably 

known without a comprehensive reanalysis. To be complete, such a 

reanalysis would need to account for the miscalculations and invalid 

assumptions we identified. Furthermore, it would need to 

comprehensively update the data used in the 1998 analysis to account 

for current shipping trends on the Delaware River, and reexamine the 

methodology used to estimate benefits.



Corps Has Refined Its Cost Estimate to Reflect Some Changes and 

Corrections, but Additional Updates Are Needed:



The Corps has made several changes to reflect project updates and 

correct for cost estimating errors since the 1998 Limited Reevaluation 

Report. Some of these changes--reducing the volume of material and 

locations where dredging would need to be performed--would reduce 

annual project costs. But this cost reduction would be offset by 

several other updates and corrections that would increase project 

costs. Accounting for these increases and decreases, in aggregate, 

annual project costs would likely be about $27 million (in 2001 

dollars) rather than the $28.8 million estimated by the Corps in the 

1998 Limited Reevaluation Report. However, other Corps costs were based 

on outdated information, contained errors, or did not take into account 

all pertinent information. While the Corps has not yet addressed these 

problems, doing so would likely increase project costs. Because of the 

interrelationship among the cost categories, the effects of the 

individual updates and corrections cannot be readily isolated from each 

other.



Reducing Amount of Material and Total Area to Be Dredged Has Lowered 

Project Costs:



The Corps has refined its cost estimate to account for new information. 

Originally, assuming that the overall depth of the existing channel was 

40 feet, the Corps estimated the amount of material to be dredged at 

33 million cubic yards. However, new information developed by the Corps 

indicates that parts of the channel are already deeper than 40 feet. 

Thus, the Corps has reduced its estimate of the material to be dredged 

to approximately 26 million cubic yards, thereby lowering the costs of 

dredging.



Further, new surveys of the main ship channel and the use of new 

technology have given the Corps more accurate information about areas 

of the channel that are 45 feet or deeper already and will not need to 

be dredged. The new technology--side scan sonar--provides more accurate 

mapping of the contour of the shipping channel, thereby enabling the 

Corps to determine that less total area needs to be dredged than it 

previously believed. Thus, costs for construction and equipment have 

declined.



Other Revisions and Corrections Have Increased Project Costs:



In the process of reestimating project costs, the Corps decided to 

extend the construction period from 4 years to 5 years. This extension 

resulted from concerns that additional dredging equipment needed to 

finish the project in 4 years might not be available when necessary. 

Moreover, a Corps official told us that the Corps was concerned that it 

might not be able to obtain the funding necessary to construct the 

project in 4 years.



Additionally, the Corps’ 1998 analysis included the cost of purchasing 

four new confined disposal facilities, but one of these facilities is 

no longer available. The Corps now plans to take the dredge material 

excavated during construction that was intended for this facility to 

another location farther away. The Corps has revised the disposal costs 

for the construction phase of the project to reflect this change.



Also, during our review of the Corps’ cost estimate, we identified a 

number of omissions. For example, in its 1998 cost estimate, the Corps 

did not include construction costs for confined disposal facilities in 

its summary calculations for maintaining the 45-foot channel. A Corps 

official was unable to explain why this occurred, but the Corps has 

since corrected for the omission.



Finally, we identified a number of errors in the Corps’ cost estimate, 

one having to do with inconsistent discounting. In estimating costs for 

maintenance dredging, the Corps used end-year discounting, but for 

construction costs and benefit calculations, it used different discount 

periods. As discussed earlier, benefits and costs should be determined 

using consistent discounting procedures. The Corps agreed that mid-year 

discounting is appropriate and has updated project costs for this.



Further Corrections for Outdated Information and Additional Errors and 

Omissions Would Likely Increase Project Costs:



The Corps has not updated its cost estimates for maintenance dredging 

and deepening the side channels that connect the main channel to the 

benefiting firms’ loading docks. Moreover, a number of specific errors 

and omissions in the cost estimate remain to be addressed; making the 

necessary corrections would likely increase project costs. For example, 

the cost estimate for maintaining a 45-foot channel has not been 

revised to reflect that one of the disposal facilities is no longer 

available. The alternative location is more distant from the dredging 

operation. Corps officials agreed that this problem exists in the cost 

estimate and that the additional distance would increase costs. At the 

time of our review, the Corps had not calculated how much this 

correction would increase project costs. Corps headquarters officials 

believe that updating maintenance and berthing area cost estimates to 

correct for outdated data and inaccuracies would have a marginal impact 

on the total project costs. However, the full extent of the impact 

cannot be accurately estimated until project costs have been completely 

reanalyzed.



In addition, the Corps’ current cost estimate assumes that maintenance 

dredging for the 45-foot channel would begin after the last year of 

construction and continue for 50 years. But maintenance dredging for 

some sections of the channel could begin before the 5-year construction 

phase of the project is completed because the sections that are to be 

deepened to 45 feet in the first years of construction would likely 

start to fill in as sand and silt resettle in the channel. The Corps’ 

estimate for maintenance costs does not account for the fact that some 

costs should be inflated and others discounted to reflect that 

maintenance in certain sections of the channel would need to be done at 

different times. Taking this oversight into account would increase 

costs. Although a Corps official acknowledged this inaccuracy, the 

Corps had not, at the time of our review, calculated how much this 

correction would increase annualized project costs. Corps headquarters 

officials have stated that this problem could potentially be corrected 

by modifying the project construction schedule. However, any 

modification of the schedule would affect the total project cost.



Finally, the Corps did not include in its estimate all the capital 

investments that private companies, such as oil refineries, would need 

to make to take advantage of the deeper channel. For example, officials 

at two refineries told us that they would need to build additional on-

site storage capacity to take advantage of a deeper channel, but these 

costs were not included in the cost estimate. While taking this 

omission into account would likely increase annualized project costs, 

the Corps had not addressed this issue at the time of our review. Corps 

headquarters officials stated that they assumed no land-side costs 

attributable to the proposed project at the time of the 1998 Limited 

Reevaluation Report. However, these officials further stated that a 

reanalysis of the project would reconsider the assumption of no land-

side costs, in addition to other potential capital investment costs 

faced by the benefiting firms.



Several Uncertainties Could Further Affect Project Benefits and Costs:



There are a number of uncertainties related to project benefits and 

costs that could impact the economic analysis. Some of the cases of 

outdated information and invalid assumptions discussed in this report 

are examples of the uncertainty in forecasting information such as 

commodity shipments, technological change, and the economic choices of 

industry. Reanalysis of the project might consider a more careful 

treatment of such uncertainty. Our review identified additional 

uncertainties that the Corps has not addressed in its analysis. If and 

when these uncertainties are resolved, expected benefits and costs 

could further increase or decrease, thus affecting the project’s 

economic merits.



Uncertainties Related to Project Benefits:



It is uncertain whether the companies expected to benefit from the 

project, primarily oil refineries, would undertake the capital 

improvements necessary to take full advantage of a deeper channel and, 

if so, whether they would do it in the same time frame as assumed by 

the Corps. In its economic analysis, the Corps assumed that all 

potential beneficiaries would perform the work necessary to take 

advantage of a deeper channel, such as dredging side channels and 

berthing areas, by the end of the last year of planned construction. 

However, potential beneficiaries have made few firm commitments to make 

these capital improvements. An official of one company wrote to the 

Corps supporting the project, and a public relations official from 

another responded to a local newspaper saying the company would look 

favorably on the project. In addition, representatives of several other 

companies told us they believe the project could benefit them, but 

because substantial work could be necessary to deepen their berthing 

areas, retrofit docking areas, or expand storage capacity, they would 

not make a firm commitment to making these improvements. If any of the 

benefiting companies did not perform the necessary work, or if they 

delayed these efforts until after the project was completed, 

anticipated benefits would be reduced. Corps headquarters officials 

reaffirmed the Corps’ support of the draft project cooperation 

agreement, which calls upon the nonfederal sponsor to enter into 

agreements with the benefiting firms to complete the necessary work in 

conjunction with the construction of the project. The draft project 

cooperation agreement provides that the Corps may elect to stop project 

construction in the absence of such agreements.



As discussed earlier, one of the benefits of the deeper channel--

included in the Corps’ analysis--is a reduced need for the lightering 

of crude oil. In fact, the company that provides lightering services in 

the bay currently estimates that the demand for its services could 

decrease by a third, from lightering 90 million barrels of crude oil 

per year to 60 million. The uncertainty involves how this company would 

react to a reduction in demand for its services. An official of this 

company told us that the company might reduce the number of lightering 

vessels operating in the bay from three to two, which could potentially 

increase the time that vessels might have to wait for lightering 

services, increase lightering fees, or both. These scenarios would 

likely decrease the economic benefits of reduced lightering. Another 

possibility is that the lightering firm could reduce its fees in an 

effort to maintain demand for its services. In any event, less 

lightering could reduce gaseous emissions that occur during the 

lightering process, thus resulting in some environmental benefits.



In addition, Federal Principles and Guidelines for Water Resource 

Agencies call for including project benefits that contribute to 

national economic development. Yet, it is uncertain whether all of the 

potential benefits of a 45-foot channel would contribute to national 

economic development because most of the ships coming into Delaware 

River ports are foreign-owned. The Corps’ analysis did not take into 

account the distribution of the project benefits between U.S. and 

foreign interests; in essence, the Corps assumed that all 

transportation savings attributable to the project would accrue to U.S. 

interests. In commenting on a draft of this report, the Corps stated 

that we are making an implicit assumption that all benefits should 

accrue to American interests, and those realized by foreign interests 

should be netted out in the determination of U.S. national economic 

development. First, we are not making an implicit assumption. The 

Economic and Environmental Principles for Water and Related Land 

Resources Implementation Studies--a publication that establishes 

principles intended to ensure proper and consistent planning by the 

Corps--and the Corps’ own guidance state: “The Federal objective of 

water and related land resources project planning is to contribute to 

national economic development consistent with protecting the Nation’s 

environment, pursuant to national environmental statutes, applicable 

executive orders, and other Federal planning requirements.” Second, it 

is unclear how the Corps can meet that definition of national economic 

development without analyzing the distribution of project benefits 

between U.S. and foreign interests. In summary, our concern is that to 

the extent that some of the transportation cost savings of this 

project--as well as those for other similar Corps navigation projects-

-accrue to foreign interests, the contributions of the project to 

national economic development are overstated.



Finally, an area of uncertainty that could increase project benefits is 

the degree to which there are commodities being shipped on the Delaware 

River that the Corps did not include in its economic analysis. For 

example, recent shipping data indicate that imports of iron and steel 

increased from about 550,000 short tons in 1990 to about 4 million 

short tons in 2000. The importers of these and other goods might 

benefit from a deeper channel, but the Corps’ benefit analysis did not 

consider these commodities.



Uncertainties Related to Project Costs:



There are several uncertainties regarding project costs. One area of 

uncertainty involves mitigation costs for any unexpected environmental 

damage that could potentially emerge. While the Corps has included some 

costs for assessing the likely environmental impacts of the project, 

should monitoring or construction activities reveal unanticipated 

problems, the costs to slow the dredging schedule or rebuild damaged 

habitat are unclear. In addition, discussed below are several other 

uncertainties that we identified during our review that may increase or 

decrease costs by an as yet unquantified amount.



One such uncertainty concerns the recent addition of beach 

replenishment to the project’s plan for disposal of dredged material. 

The Corps’ current disposal plan calls for transporting sand dredged 

from the lower Delaware Bay to Broadkill Beach in Delaware. However, it 

is unclear whether the clean sand will ultimately go to Broadkill Beach 

because, pending an agreement with the state of Delaware, another 

beach, or beaches, could be selected. Using a beach that is closer to 

the dredging area would result in a lower cost for beach replenishment 

than is currently estimated. Alternatively, if the selected beach were 

farther from the channel-dredging area, the cost of the operation would 

be higher than estimated. For example, the current costs of dredging 

the channel and transporting the sand to Broadkill Beach are estimated 

at $10 per cubic yard; the costs for the same activities with Dewey-

Rehoboth Beach as the destination would be about $18 per cubic yard. 

Given the uncertainty about which beach or beaches will ultimately be 

chosen, the final cost of this activity is unclear.



It is also uncertain how much purchasing the sites for the three new 

confined disposal facilities in New Jersey would cost, and whether the 

project sponsor would be able to acquire all of these sites. Currently, 

these sites are estimated to cost $15.4 million.[Footnote 6] The Corps 

does not intend to update its appraisal of these sites, which would 

involve estimating the amount of land to be purchased, until after the 

project cooperation agreement between the Corps and the nonfederal 

sponsor has been signed. In the meantime, the Gloucester County 

Improvement Authority of New Jersey is seeking to buy portions of these 

areas for recreational purposes. Given these uncertainties, it is 

possible that the costs of land needed for new confined disposal 

facilities could increase.



Another uncertainty concerns how much it would cost the Corps to comply 

with certain environmental restrictions, called windows. Designed to 

protect habitat and vulnerable populations such as horseshoe crabs, 

oysters, and winter flounder in certain sections of the Delaware River, 

the windows limit where and when dredging, beach replenishment, and 

wetland restoration activities can occur. For example, to protect the 

habitat of winter flounder, dredging cannot occur in the lower portion 

of the river from January through May without relief from the window. 

If the Corps could not complete its scheduled dredging from June 

through December, it would incur additional costs to stop the work and 

start it up again later. The Corps is currently studying the extent to 

which fish and surrounding habitat would be harmed by dredging 

activities. A Corps official told us that these studies may show that 

the current windows are overly protective, a finding that the official 

believes would provide some support for federal and state agencies to 

provide relief from some of the restrictions. In addition, the Corps 

plans to use two dredges in the areas where restrictions are 

established to reduce dredging time. In any event, the 1998 estimate 

and its recent update do not include the potentially increased costs of 

complying with these windows. According to a Corps official, because 

the Corps is unsure how much relief it would obtain from the 

restrictions, it is uncertain how much project costs would increase. 

Corps headquarters officials now state that a significant portion of 

the project construction work could be accomplished within the existing 

environmental windows. Specifically, they have said that the operations 

at Broadkill Beach and Kelly Island would not require relief. However, 

to the extent that the Corps cannot obtain the necessary relief in 

other areas, project costs would increase.



A further uncertainty concerns whether the Corps will employ the 

technique known as economic loading for its dredging operations in the 

lower bay area. Using this technique, the water content of dredged 

material that has been loaded onto a barge, or dredge, is allowed to 

drain back into the river at that site. Therefore, when the barge is 

fully loaded, it contains a higher percentage of dredged material, 

resulting in fewer trips to the disposal sites. Because of concerns 

that the water drained from the dredge material would contain a large 

amount of particulate matter that would cause a plume in the water 

column, the Corps studied the potential environmental effects of 

economic loading in 1999. The study concluded that economic loading 

would not cause significant long-term environmental harm. Having 

reviewed the results of the study, officials from Delaware and New 

Jersey said they would consider allowing the use of economic loading in 

the lower bay. However, it should be noted that this option was not 

included as part of the Corps’ permit application to the state of 

Delaware and that formal approvals from either Delaware or New Jersey 

have not been requested. Should the Corps formally seek and obtain 

permission to use economic loading, costs would decrease. In commenting 

on the draft of this report, Corps officials said that indications from 

the states of New Jersey and Delaware are that this process may be 

viable and practical in the Delaware Bay for dredging sandy material. 

The Corps estimated that if economic loading were permitted, it could 

result in a 30 to 40 percent reduction in the unit cost of dredging, 

which the Corps stated previously would translate into approximately $2 

million in annualized cost savings. However, the Corps recognized that 

it is uncertain whether economic loading would be used, and that this 

issue would need to be investigated in any reanalysis of the project.



Finally, a new dredging technology, known as a ladder pump, increases 

dredge material production rates and has the potential to decrease 

costs for some of the dredging operations that would occur during the 

construction and maintenance phases of the project. However, the Corps 

did not incorporate the use of this new technology into its cost 

estimate, and it is not known whether the contractors that would 

conduct the project’s dredging operations would use it.



Corps’ Quality Control Process Did Not Identify Major Flaws in the 

Economic Analysis:



The Corps has a three-tiered quality control process designed to ensure 

that its economic analyses of proposed projects are factually accurate 

and based on sound economic principles. Three organizational levels are 

involved: the Corps’ district offices, division offices, and 

headquarters. In general, for projects such as the Delaware River 

deepening project, the following process is used:



* The relevant district office is responsible for conducting a 

feasibility study that addresses the technical and economic aspects of 

a proposed project and manages the planning, engineering, and design 

work that follows. The district office also prepares the Limited 

Reevaluation Report that updates the technical and economic data as 

needed. Once it has developed these project justification documents, 

the district office reviews them for technical accuracy and quality, 

and upon approval, it forwards them to the division for its review.



* The division’s responsibility is primarily procedural. It reviews the 

project justification package to ensure that the district has prepared 

the required documents such as the Feasibility Study and Limited 

Reevaluation Report and has obtained all necessary approvals. It does 

not review such documents for technical accuracy or to verify the 

underlying analysis. The division ensures that reports such as the 

Limited Reevaluation Report have undergone a technical review and that 

the district has issued a quality control certification report with the 

required district office level approvals. Once the division is 

satisfied that procedures have been followed, it approves the package 

and forwards it to headquarters.



* Headquarters is responsible for ensuring that critical documents such 

as the Feasibility Study and Limited Reevaluation Report, the major 

assumptions on which the justification is based, and the 

recommendations adhere to Corps policy for conducting benefit-cost 

analyses and environmental studies. Headquarters also ensures that any 

concerns that it has raised have been addressed. Once headquarters is 

satisfied that policy has been followed and that the justification is 

based on sound economics and environmental studies, it approves the 

project for construction funding.



Although the district, division, and headquarters offices approved the 

project according to the procedures in place in 1992 and changes that 

followed in 1995, these review processes were ineffective in detecting 

and correcting the significant miscalculations, invalid assumptions, 

and outdated information in the economic analysis that our review 

revealed. For example, we found no indication that problems related to 

benefits, such as misapplying growth rates, double-counting lightering 

time savings, and miscalculating potential benefits derived from time 

savings in unloading crude oil at the refineries, were detected during 

the internal reviews and quality control certification process. This 

raises serious questions about the adequacy and effectiveness of the 

Corps’ review process. Corps headquarters officials have stated that 

notwithstanding the changing and existing procedures, there were 

failures in the execution of the process for the development and review 

of the feasibility analysis and the Limited Reevaluation Report. The 

economic update in the Limited Reevaluation Report was performed in 

accordance with existing regulations but did not get to the root of the 

underlying problems, some of which were carried forth from the original 

report.



Another concern is that since 1995, the primary responsibility for 

performing the quality reviews of key project documents has been 

largely delegated to the district office level. The Philadelphia 

district office prepared the economic analysis and other documents 

justifying the deepening project and, following the 1995 change in 

Corps procedures, prepared the 1998 Limited Reevaluation Report and 

then conducted the technical review and quality control certification 

process on the report. The fact that the same office that prepared the 

economic analysis was also responsible for conducting the technical and 

quality reviews raises questions about the independence of the review 

process. Similar concerns about the Corps’ project review procedures 

were addressed in section 216 of the Water Resources Development Act of 

2000, which directed the Corps to contract with the National Academy of 

Sciences to study and make recommendations with regard to the need for 

independent reviews of Corps feasibility studies. The estimated date of 

completion for the study is 2003.



Looking beyond the Delaware River deepening project, the number and 

magnitude of problems that were not detected by the Corps’ quality 

control process raises questions about whether, or to what degree, such 

oversights might exist for other Corps projects. This concern is 

shared, at least, to some degree by the Corps of Engineers. 

Specifically, shortly after we briefed the Corps’ Director of Civil 

Works on our findings regarding the Delaware River deepening project, 

he initiated a pause on projects authorized, but not yet under 

construction, to resolve any questions about the accuracy and currency 

of the Corps’ economic analyses, the validity of plan formulation 

decisions, and the rigor of the Corps’ review process.



Most Environmental Concerns Have Been Addressed, but Several Related 

Issues Remain Unresolved:



The Corps has largely addressed the likely environmental effects of the 

project’s dredging operations and dredge material disposal to the 

satisfaction of federal and state environmental agencies; however, 

several issues are not yet resolved. On the basis of their review of 

the Corps’ environmental impact statements and studies of the potential 

for the project to disturb toxic dredge material, contaminate water, 

and harm wildlife and habitat, most federal and state agencies granted 

the Corps the necessary approvals to proceed with the project. A major 

exception is the Corps’ request for a permit to conduct dredging 

operations in Delaware waters, which is still pending. In addition, 

several other issues remain outstanding.



Most Federal and State Environmental Agencies Have Approved the 

Project:



With few exceptions, the Corps has obtained the approvals it needs from 

federal and state environmental agencies to proceed with project 

construction plans. As required by the National Environmental Policy 

Act of 1969, the Corps coordinated with other federal agencies and 

states; obtained comments from the agencies, the states, and the 

public; and reported on the potential environmental impacts of the 

project in the 1992 Environmental Impact Statement and the 1997 

Supplemental Environmental Impact Statement. The Corps also made some 

changes as a result of agencies’ comments. For example, in response to 

concerns raised by the National Marine Fisheries Service and others, 

the Corps eliminated its proposal to dispose of some dredged material 

at an underwater sand stockpiling location. On the basis of their 

review of these and subsequent documents, as well as consultations 

performed by the Corps, officials from the U.S. Environmental 

Protection Agency, the National Marine Fisheries Service, the U.S. 

Geological Survey, and the states of New Jersey and Pennsylvania 

determined that deepening the Delaware River ship channel would not 

cause significant long-term harm to the environment. Specifically, 

these officials told us they were satisfied that the project’s dredging 

and disposal operations would not degrade water quality, cause 

saltwater intrusion, release contaminated sediments, or seriously harm 

endangered or other species.



The federal and state approvals were also based on a commitment by the 

Corps to conduct additional studies and monitor the environmental 

impact of the ongoing channel deepening and construction of confined 

disposal facilities. Such monitoring would be central to ensuring that 

project activities would not degrade water quality, damage groundwater 

through saltwater intrusion, or harm commercially valuable or 

vulnerable species. Consequently, the Corps has conducted 

preconstruction monitoring studies on whether the project would 

adversely affect oysters and water and sediment quality. In addition, 

the Corps has studied the likely impact of the project on blue crabs in 

the lower part of the bay and on winter flounder, horseshoe crabs, and 

shorebirds at Kelly Island. The Corps has provided the results of these 

studies to the federal and state environmental agencies for their 

review, and Corps officials told us that they would continue to monitor 

these and other environmental issues during and after construction. 

Federal and state officials told us that should monitoring reveal a 

problem, the Corps would have to undertake some form of mitigation, 

such as slowing the dredging schedule or rebuilding damaged habitat.



Delaware Permit Is Still Pending:



The Corps has not yet obtained a permit from Delaware to conduct 

dredging operations for the project that affect its waters. The Corps 

has stated that it will not begin the project until it obtains this 

permit. Its Philadelphia district office applied for the permit in 

January 2001 and participated in a public hearing on the application in 

December 2001. Delaware officials told us that should the state approve 

the permit application, the permit could include a number of monitoring 

requirements. For example, Delaware could require the Corps to monitor 

for possible violations of PCB[Footnote 7] standards near the dredging 

zone. As of May 2002, the State of Delaware was still considering the 

permit application.



Other Issues and Permit Approvals Remain Outstanding:



One remaining issue concerns the possibility that, under certain 

conditions, the project might cause increased saltwater intrusion into 

the Delaware River estuary and the groundwater of the area. While 

Pennsylvania and New Jersey accepted the results of the Corps’ earlier 

tests for saltwater intrusion, the Delaware River Basin Commission, 

which sets water quality standards for the Delaware Estuary, requested 

an additional test. To satisfy the commission’s concerns, the Corps 

agreed to the test, which it has not yet conducted.



In addition, New Jersey officials told us that they would encourage the 

Delaware River Port Authority to explore alternatives to disposing of 

dredge material, such as using it for highway construction, before New 

Jersey would grant water quality certificates for the three confined 

disposal facilities to be acquired by the Port Authority and built by 

the Corps in New Jersey. In addition, the Corps and New Jersey’s 

Department of Environmental Protection have developed a groundwater-

monitoring program designed to ensure that existing confined disposal 

facilities in New Jersey do not harm drinking water. A similar program 

is planned for the three new confined disposal facilities.



Finally, as mentioned earlier, the Corps has not sought formal approval 

from New Jersey and Delaware for using the economic loading technique. 

A Corps official told us that the Corps would probably wait until it 

knows the outcome of its Delaware permit application before deciding 

whether to seek economic loading approval. Similarly, the Corps has not 

applied to Delaware or the National Marine Fisheries Service for relief 

from environmental windows, which restrict when dredging can be 

performed. However, the Corps is conducting an evaluation of essential 

fish habitat and is collecting information on the potential effects of 

the project on horseshoe crabs, shorebirds, and hibernating female blue 

crabs to determine whether to seek relief from regulatory agencies’ 

restrictions on dredging. Also, the Corps has not yet obtained a 

special use permit from the U.S. Fish and Wildlife Service for its 

planned wetlands restoration at Bombay Hook National Wildlife Refuge.



Conclusions:



We found significant problems in the Corps’ most recent economic 

analysis for the Delaware River deepening project. These involved 

several miscalculations, invalid assumptions, and reliance on outdated 

information. Consequently, we believe that the Corps’ current project 

analysis does not provide a reliable basis for deciding whether to 

proceed with the project. In addition, there are a number of 

uncertainties about the project that could increase or decrease both 

benefits and costs. Because of the significance of the problems we 

identified, the uncertainties that surround the project, and the 

ineffectiveness of the Corps’ quality control process, the actual 

economic merits of the Delaware River deepening project will not be 

reliably known unless and until it is comprehensively reanalyzed.



Recommendations for Executive Action:



Considering the significant problems we identified with the Corps’ 

economic justification for the Delaware River project, we recommend 

that the Secretary of the Army direct the Corps of Engineers to:



* prepare a new and comprehensive economic analysis of the project’s 

benefits and costs, which includes all aspects of the analysis and 

corrects for the miscalculations, erroneous assumptions, and outdated 

information contained in the current analysis;



* obtain the information, where possible, that is needed to address the 

uncertainties--such as changing commodity movements over the last 

decade and alternative dredging techniques--that could significantly 

affect project benefits and costs;



* engage an external independent party to review the revised economic 

analysis to ensure that it accurately and fairly represents the 

expected benefits and costs of the proposed project; and:



* submit the revised analysis, including the external independent 

review, to the Congress for its use in considering future appropriation 

requests for the project.



Agency Comments:



We provided a draft of this report to the Secretary of the Army for 

review and comment. In response, the Under Secretary of the Army stated 

that the report is important to the department because it provides a 

current, critical look at the proposed Delaware River deepening project 

and identifies legitimate concerns that warrant comprehensive 

reanalysis. More specifically, the Under Secretary stated that the 

Corps concurs that a new and comprehensive economic reanalysis of the 

project’s benefits and costs would be undertaken, and that once the 

economic reanalysis is complete, an external independent party would be 

engaged to ensure that it accurately and fairly represents expected 

benefits and costs of the proposed project. The Under Secretary also 

provided additional comments on various aspects of the project, which 

are discussed as appropriate in:



the body of the report. The full text of the comments is included as 

appendix II.



We conducted our review between July 2001 and May 2002 in accordance 

with generally accepted government auditing standards. A detailed 

discussion of our scope and methodology is presented in appendix I.



As arranged with your offices, unless you publicly announce this 

report’s contents earlier, we plan no further distribution of the 

report until 10 days after the date of this letter. At that time, we 

will send copies to the Secretary of the Army, appropriate 

congressional committees, and other interested Members of Congress. We 

will also make copies available to others upon request. In addition, 

the report will be available at no charge on the GAO Web site at http:/

/www.gao.gov.



If you or your staff have questions about this report, please contact 

me at (202) 512-3841. Key contributors to this report are listed in 

appendix III.



Robert A. Robinson

Managing Director, Natural Resources

 and Environment:



Signed by Robert A. Robinson:



[End of section]



Appendix I: Scope and Methodology:



Overview:



Our review had two main objectives: to determine (1) whether the Corps 

of Engineers’ economic analysis accurately and appropriately considered 

the benefits and costs of the project and (2) whether the environmental 

implications of the project have been fully addressed.



To determine whether the Corps of Engineers’ economic analysis 

appropriately considered the benefits and costs of the Delaware River 

deepening project, we assessed the extent to which the Corps met 

requirements and followed accepted practices in estimating the various 

elements of the benefits and costs, including whether the major 

assumptions were reasonable and well supported. To determine whether 

the environmental implications of the project have been fully 

addressed, we contacted a number of federal and state environmental 

agencies such as the Environmental Protection Agency, the Delaware 

River Basin Commission, and the Delaware Department of Natural 

Resources and Environmental Control. We also obtained information from 

environmental groups and other interested parties. For both these 

objectives, we obtained the Corps’ key documents for the project, such 

as the Interim Final Feasibility Study of 1992, the Design Memorandum 

of 1996, the Limited Reevaluation Report of 1998, the Environmental 

Impact Statement of 1992, and the Supplemental Environmental Impact 

Statement of 1997. We discussed the content and sources of the data in 

these reports with Corps officials and staff responsible for their 

preparation and approval.



To validate the data and assumptions the Corps used in its analyses, we 

obtained external data and contacted external parties where 

appropriate. Where we obtained other analyses or studies, we considered 

the points raised in these external studies but conducted our own 

independent review. Where we identified problems with or changes to 

benefits, costs, or environmental issues, we discussed them with the 

responsible Corps staff and considered any new data or revisions that 

they provided. If the problems involved miscalculations, invalid 

assumptions, errors, omissions, or outdated information that would 

affect the project’s benefits, costs, or the environment, we attempted 

to identify how or why these problems occurred. In addition, we 

identified uncertainties related to the benefits, costs, and the 

environmental implications of the project and considered whether 

resolving these uncertainties would increase or decrease the benefits 

and costs. We also reviewed the Corps’ quality control processes. In 

the following sections, we provide more detail on our first objective 

consisting of benefits, costs, uncertainties, and the Corps’ quality 

control process; and our second objective about the potential 

environmental implications of the project.



Project Benefit Estimate:



To evaluate the Corps’ project benefit analysis, we had three primary 

objectives. First we used the Corps’ data and methodology--obtained 

from the 1992 Interim Final Feasibility Report, and the 1996 Design 

Memorandum, and through interviews with the Corps’ economist--to 

attempt to replicate the estimated annual project benefits for each 

commodity as published in the Corps’ 1998 Limited Reevaluation Report. 

These commodities included coal, containers, crude oil shipped on 

vessels with sailing drafts greater than 40 feet, crude oil shipped on 

vessels with sailing drafts less than or equal to 40 feet, iron ore, 

and scrap metal. Where we were unable to replicate the Corps’ 

estimates, we met with the Corps’ economist to discuss and resolve the 

discrepancies. Second, to identify questionable assumptions in the 

analysis, we examined the data used and calculations applied in the 

Corps’ benefits programs. To determine whether the Corps’ assumptions 

were supportable, we requested documentation or guidelines from the 

Corps’ economist that validated the questioned approach. In addition, 

we met and talked with industry representatives to obtain their 

response. Third, to identify whether the analysis was based on up-to-

date information, we reviewed the origin of any changes to the benefits 

estimates in the 1998 Limited Reevaluation Report from the 1992 Interim 

Final Feasibility Study and the 1996 Design Memorandum. Where no 

changes in benefits estimates occurred, we searched for data sources 

available at the time of the Corps’ latest report. Where possible, we 

updated the information on the basis of historical or industry trends 

at the time of the 1998 Limited Reevaluation Report.



We met with officials from the four companies that own the six oil 

refineries representing 80 percent of the benefits in the Corps’ 

analysis, as well as Maritrans Corporation, which conducts the 

lightering operations for the oil refineries on the Delaware River. We 

obtained information on commodity shipments up the Delaware River to 

the Philadelphia region from the Delaware River Port Authority. We also 

spoke with the Maritime Exchange, which gathers data on ship tracking 

and reporting on the Delaware River and represents a cross section of 

interests and companies that depend upon or conduct business on the 

river. In addition, we met with the firm Rice, Unruh, and Reynolds--

shipping agents--to gather information on shipping practices, and with 

the National Ports and Waterways Institute to gather information about 

the container shipping industry.



We determined the net effect of the miscalculations, invalid 

assumptions, and outdated information on the Corps’ $40.1 million 

annual project benefit estimate by applying an eight-step iterative 

approach. In the first four steps, we corrected for an error in the 

Corps’ computer program, the misapplication of growth rates, 

inconsistent discounting, and different year dollar values. For the 

fifth step, we corrected for the Corps’ invalid assumptions regarding 

trade route distances and its calculation of average shipping costs. 

With the sixth and seventh steps, we updated the information used in 

the Corps’ analysis--specifically, the relative difference between the 

unloading and lightering rates, and the commodity growth rate 

information through 1997. In the eighth step, we corrected for the 

Corps’ incorrect assumption that its statistical model predicted 

benefits for the 45-foot channel deepening project--when it did not. 

The net effect of the eight steps was a reduction in the estimated 

annual project benefits to about $13.3 million (in 1996 dollars).



Project Cost Estimate:



To establish a baseline against which future revisions could be 

compared for completeness and accuracy, and to get detailed information 

on planning, engineering, and design study costs, we used the 1996 

Design Memorandum. We then compared the 1996 estimate with that in the 

Limited Reevaluation Report of 1998. Our subsequent efforts focused on 

changes to the project, various updates to costs by the Corps, 

corrections we identified, and additional issues that could further 

affect costs. Where changes in the project had occurred, and where we 

identified errors or omissions that the Corps agreed to correct, we 

determined whether the changes or corrections would increase or 

decrease the annualized project costs.



Our review included the two main parts of the Corps’ cost estimate: the 

construction costs for the main navigation ship channel and the private 

berthing areas, and the operations and maintenance costs for operating 

and maintaining a 45-foot channel rather than a 40-foot channel. We 

also reviewed the Corps’ estimates of costs to construct or modify both 

new confined disposal facilities and existing confined disposal 

facilities. Because the Corps makes extensive use of internally 

developed cost-estimating computer programs, we obtained these programs 

so that we could replicate construction costs and operations and 

maintenance costs using the Corps’ programs and methodology. We gained 

an understanding of the Corps’ Cost Engineering Dredge Estimating 

Program, which estimates costs for each of the three types of dredging 

operations used in the project, and the Corps’ Micro Computer-Aided 

Cost Estimating System, which estimates the costs of constructing 

elements of the project that require land equipment, such as the 

confined disposal facilities. We discussed these programs, and the 

major assumptions and information used in them, with Corps staff in 

other offices responsible for developing the cost-estimating programs 

and providing updates for them.



To identify a more accurate and updated cost estimate, we took into 

account changes to the project that had occurred since the 1998 Limited 

Reevaluation Report and corrections for errors and omissions that we 

identified during our work. We obtained documentation on the project 

changes, verified the information, and determined whether any updated 

cost estimates undertaken by the Corps accurately reflected the 

changes. For example, where new information existed on the volume of 

the material to be dredged from the channel, we asked for documentation 

from the Corps, not only on the volume of material that had been 

reduced but also on where those reductions had occurred in the channel. 

When we learned that less of the channel needed to be dredged because 

side-scan sonar technology provided better information on the areas of 

the river that were already 45 feet deep, we obtained survey maps from 

the Corps and verified that the estimated reductions in surface areas 

that the Corps was using in its revised costs were reasonable. We also 

identified any costs that were in error, or that were omitted, such as 

costs to reflect the loss of a disposal site and to transport material 

to other locations.



Since the Corps was updating various cost factors and revising its 

estimates for changes in the project design and scope at the same time 

that we were identifying the extent to which costs were accurate, we 

reestimated the overall project costs using the Corps’ programs and 

most recent data. We compared our estimate with that of the Corps and 

obtained agreement with the Corps on a revised annualized project cost 

estimate that accounted for project changes and corrections that had 

been made as of the time of our review.



Uncertainties of Project Benefits and Costs:



During our review, we identified a number of uncertainties related to 

project benefits and costs that the Corps had not addressed in its 

economic analysis. In some cases, the uncertainties are linked to 

decisions that are outside the control of the Corps, while others 

concern information that may not be currently available. Some of these 

uncertainties are the result of environmental issues that could affect 

future project benefits and costs. When we identified an uncertainty, 

we sought information from Corps officials and others that would allow 

us to say whether the uncertainty would increase or decrease benefits 

and costs.



Corps’ Quality Control Process:



We obtained the Corps’ quality control procedures to gain an 

understanding of its processes and discussed them with Corps officials. 

We identified the roles and responsibilities of the district, division, 

and headquarters offices as they related to the Delaware River channel 

deepening project at the time of the feasibility study in 1992 and any 

changes in the review processes after that time. In doing so, we 

obtained copies of technical reviews and the quality control 

certification for the project, identified the offices responsible for 

the reviews, and obtained comments that the reviewers had on the 

economic analysis and the environmental impact statement. We also 

reviewed the responses of the Philadelphia district staff to determine 

whether comments by headquarters and the division were taken into 

consideration in any updated analysis.



Environmental Implications of the Project:



To determine whether the Corps had considered and analyzed all areas of 

environmental concern, we reviewed the Corps’ Environmental Impact 

Statement of 1992, the Supplemental Environmental Impact Statement of 

1997, and other Corps studies. We contacted the Environmental 

Protection Agency, the National Marine Fisheries Service, the U.S. Fish 

and Wildlife Service, the Delaware River Basin Commission, the U.S. 

Geological Survey, and environmental agencies in the states of 

Delaware, New Jersey, and Pennsylvania to discuss the project and 

obtain studies and documents from them. We also reviewed information 

provided to us by environmental groups and other interested parties. 

Where the Corps had tested for contaminated sediments and hazardous 

materials, and had conducted studies to determine the potential impact 

of the project on water quality, groundwater, fish and wildlife and 

their habitat, we reviewed the test data and studies and discussed them 

with responsible federal and state agencies. Further, we reviewed the 

Corps’ studies and monitoring plans for identifying any adverse impacts 

of the project on water quality, groundwater, fish and wildlife, and 

aquatic habitat with these agencies.



For example, to address concerns about contaminated sediments from the 

dredging operations in the main navigation ship channel, in the private 

berthing areas of the oil refineries, and at confined disposal 

facilities, we reviewed sampling data in the Corps’ Supplemental 

Environmental Impact Statement. We reviewed the type of tests the Corps 

had conducted and the number of samples and sites selected, and we 

discussed the tests and results with Corps staff. We contacted 

officials from the Environmental Protection Agency, the Delaware River 

Basin Commission, and state environmental agencies in Delaware, New 

Jersey, and Pennsylvania to determine whether they were satisfied with 

the test results and the Corps’ monitoring plans for identifying 

potential problems during and after construction.



Additionally, we identified unresolved environmental issues and any 

outstanding approvals that remain open. For instance, to determine 

whether and to what extent saltwater intrusion into aquifers from 

dredging operations was addressed and what the Corps intended to do to 

resolve any outstanding concerns, we discussed this issue with Corps 

staff, and officials from the Environmental Protection Agency in 

Philadelphia and New York City, as well as with officials from the 

departments of environmental protection in Delaware, New Jersey, and 

Pennsylvania. We determined how satisfied these officials were with the 

Corps’ studies and tests. We also met with officials from the Delaware 

River Basin Commission to discuss their outstanding request for an 

additional test for saltwater intrusion under certain drought 

conditions. We followed up with Corps officials to identify what they 

planned to do to resolve the Delaware River Basin Commission’s concern.



[End of section]



Appendix II: Comments from the Under Secretary of the Army:



UNDER SECRETARY OF THE ARMY WASHINGTON:



29 May 2002:



Mr. Robert A. Robinson:



Managing Director, Natural Resources and Environment U.S. General 

Accounting Office:



Washington, DC 20548:



Dear Mr. Robinson:



This is in response to your May 22, 2002, letter to Secretary White 

requesting Department of the Army review of the draft GAO report 

entitled “Delaware River Deepening Project: Comprehensive Reanalysis 

Needed”.



We appreciate the opportunity to comment on GAO’s draft report as well 

as GAO’s cooperation with the Corps of Engineers in providing 

clarification of issues and conclusions. The report is important to the 

Department because it provides a current, critical look at the proposed 

Delaware Deepening project and identifies legitimate concerns that 

warrant comprehensive reanalysis.



Enclosed are our comments on the report.



Sincerely,



R. L. Brownlee:



Signed by R. L. Brownlee:



Enclosure:



Overall Corps of Engineers Evaluation of the Report:



The Corps of Engineers has reviewed GAO’s draft final report entitled 

“Delaware River Deepening Project: Comprehensive Reanalysis Needed.” 

The report raises serious concerns on the benefits analysis 

accompanying the original 1992 authorization and 1998 limited 

reevaluation report (LRR) and how well the ten-year period since 

authorization is actually reflective of current conditions and 

commodity projections. The following discusses GAO’s report on the 

benefits, costs, other uncertainties, the Corps review process, 

environmental concerns, and the Corps plan to remedy those concerns. 

Because of the complexities and uncertainties since the 1998 timeframe, 

the Corps concurs with GAO that a re-analysis is warranted.



Project Benefits:



GAO’s investigation was based upon an attempt to replicate and verify 

the Philadelphia District economic models results from the 1996-98 

timeframe and bring those economic forecasts up to date based on 

today’s actual port conditions. The models were the basis for the 

original 1992 feasibility report. GAO found, and the Corps concurs, 

that the Corps analysis of project benefits contained miscalculations, 

invalid assumptions, and outdated information. Concerning model errors, 

the Corps crude oil transportation savings models were revised to 

correct for the growth rate and trade route tabulation errors as part 

of the district coordination efforts with GAO during its benefit 

review.



Assumptions in Crude Oil Benefit Evaluations. GAO also stated the Corps 

used invalid assumptions in its benefit evaluations. Because of channel 

depth restrictions, crude oil vessels calling at port refineries 

currently lighter at the mouth of the river, thus enabling safe passage 

at reduced draft to the refineries. GAO cited a number of problems in 

the Corps analysis from 1998 relating to the lightering process.First, 

the timesavings on the lightering process that could be expected from a 

deeper channel would be reflected only at the point of destination. 

Second, the vessel loading patterns predicted by the statistical model 

that the district used to calculate expected crude oil vessel behavior 

with a 45-foot channel could not be replicated. Other factors affecting 

benefits include the comparative shore side and lightering vessel rate 

of cargo transfer for crude oil imports. GAO sources indicated that the 

lightering cargo transfer rate was twice as fast as the shore side 

cargo transfer rate. The overseas source of crude oil imports has 

changed significantly since the 1998 LRR. The reanalysis will verify 

this new information as well as other current conditions. For example, 

recent information from the oil company accounting for one-half the 

benefiting crude oil imports indicates that some of its tankers could 

unload at the dock at a rate six times as great as the dockside rate 

applied in the 1998 LRR analysis. Accordingly, the crude oil benefits 

could be greater and should be reaffirmed in the re-analysis. Corps 

crude oil projections were in line with actual recorded tonnage. The 

actual tonnage through the six benefiting facilities exceeded projected 

tonnage by 15 percent for the year 2000. GAO recommended that the Corps 

reexamine all the options and variables inherent in the process. 

Because of the complexities and uncertainties since the 1998 timeframe, 

the Corps concurs with GAO that a re-analysis is warranted. To ensure 

data reliability, the re-analysis would need to verify the database 

used to establish current and historic shipments and industry input on 

future trends.



Containership and Other Commodity Groups. For containership traffic, 

port dynamics have been even more pronounced over the last 10 years. 

The original feasibility report and LRR were predicated on traffic 

utilizing the Suez Canal route. As further evidence of the dynamic 

situation, since the LRR was completed, the trade routing of the 

shipper has changed to include New Zealand, other East Coast ports, and 

Europe for around the world service. GAO notes, and the Corps concurs, 

that these changed conditions warrant re-analysis. What was observed in 

the 1998 timeframe has changed today. Furthermore, since the 1998 LRR, 

the export of scrap metal to Turkey has ceased but new commodity 

traffic--coal, iron ore, and steel--provides substantial new tonnage 

and economic benefits which support the need for a critical re-analysis 

of both the containership benefit methodology and the verification of 

inputs of the economic model.



Project Costs:



The GAO report also examined costs and concluded there were a number of 

variables that could potentially affect project costs. As part of its 

normal process, the Corps continually updates project costs to reflect 

current conditions and provides their current estimate of costs to its 

project cost sharing sponsors as a basis for sponsors to use as an 

estimate of costs they could be expected to incur and finance. The 

Corps is presently estimating an average annual cost of $26.42 million, 

which is based on a 5-year construction period, exclusion of an 

unavailable disposal area, and discounting for maintenance dredging 

costs. The GAO and Corps both acknowledge that cost reductions could 

occur based on more current sediment surveys, recalculation of dredging 

loads, and economic loading, if permitted.



Capital Investments. GAO stated that the Corps had not included in its 

estimate all capital investments that private companies would need to 

undertake to realize the benefits of a deepened channel. The Corps 

benefit analysis in the LRR assumed that tonnages would be the same in 

both the with-and without-project conditions. Thus, any landside 

capital improvements to handle increased crude oil shipments would not 

be required as a result of the project but would occur gradually over 

time, regardless of the proposed deepening project. The essential 

factor is that the Corps receives a commitment from the port that non-

Federal berthing areas be deepened to realize the benefits of any 

proposed Federal channel deepening. The LRR decision document was based 

upon the assumption that there are no associated landside costs 

attributable to the proposed project required to be included in the 

economic analysis. The GAO industry sources indicated a need to invest 

in additional shore side facilities for unloading and inventory in the 

with-deepening condition. The re-analysis needs to utilize industry 

sources in determining the applicability of any shore side associated 

costs needed to achieve the benefits from a deeper channel.



Uncertainties that Could Affect Project Benefits and Costs:



Principles & Guidelines. GAO takes issue with the fundamental 

procedures under which potential navigation improvement projects are 

analyzed. Under the Federal Principles and Guidelines for Water 

Resources Agencies, navigation projects are formulated based upon 

transportation cost savings that can potentially be realized in the 

proposed with-project condition. The Principles and Guidelines (P&G) 

provide that this is based upon transportation savings to U.S. and 

foreign-based vessels involved in the import and export of commodities. 

GAO is concerned that that there is an implicit assumption that all 

benefits should accrue to American interests, and those realized by 

foreign interests should be netted out in the determination of U.S. NED 

benefits. The P&G does not call for netting out these benefits. The 

principle embodied in Corps regulations is that benefits would be 

passed on to the U.S. consumer and the national economy as a whole 

from the flow of funds generated to producers and consumers 

participating in import-export trade.



Local Service Facility Commitments. GAO expressed concern that the 

Corps must secure more definitive commitments from the potentially 

benefiting parties before any proposed project could be allowed to 

proceed. The project cooperation agreement (PCA) provides that before 

any construction could proceed, the sponsor must assure that 

improvements are made at the local service facilities necessary to 

realize project benefits and provide copies of third party agreements 

as evidence of their commitment.



Lightering Practices. GAO notes that crude oil lightering needs to be 

thoroughly revisited to determine the impact of potential reduced 

lightering services, increased lightering fees, and time to wait for 

lightering in the with-project condition. The Corps notes that the 

lightering service implications need to be fully investigated to 

determine the impact on ultimate project benefits. The P&G economic 

analysis assumptions are that the improvements are undertaken under a 

full employment economy and any resources like lightering ships can be 

successfully reemployed elsewhere in the economy. The resource savings 

from improvements occur over the 50-year economic analysis period. Any 

uneconomic displacement of resources can be expected to be short run 

and probably less than one year in duration.



Recent Commodity Changes. GAO notes that an area of uncertainty that 

could potentially increase project benefits may result from the 

increase in.other commodity traffic that has occurred during recent 

years. The Corps concurs with GAO that the importers of iron and steel 

could potentially benefit from a deeper channel, and should be 

thoroughly addressed in a comprehensive re-analysis.



Potential Reduction in Dredging Costs. Economic loading could 

substantially reduce project costs. Indications from the states of New 

Jersey and Delaware are that this process may be viable and practical 

in Delaware Bay for dredging sandy material. If economic loading were 

permitted, it could result in a 30-40 percent reduction in unit cost of 

dredging. This is another uncertainty that would need to be 

investigated in any re-analysis of the project.



Corps Quality Control Procedures:



This project has highlighted the difficulties in thoroughly analyzing a 

navigation project experiencing dynamic changes that extends over a 10-

year planning horizon. Complicating the changes in port dynamics over 

the last 10 years were the changes occurring to the Corps review 

process. The review process, in the initial stages when the feasibility 

report was prepared was sequential; districts were responsible for the 

quality of the feasibility report they prepared and its underlying 

analysis, with both division and headquarters offices providing 

additional technical and policy review.



Between 1992 and when the LRR was prepared, further changes occurred, 

which principally moved technical review out of Washington and the 

division offices and placed it totally at the district level. This was 

in response to numerous sponsor and congressional concerns over the 

cost of studies and the length of time from project authorization to 

construction. This aspect was driven principally by the additional 

costs due to inflation that lengthy delays generally cause, as well as 

these costs being absorbed by sponsors, and the Federal Government, in 

their respective increased cost shares. During the timeframe of the LRR 

through the present, division offices were responsible for quality 

assurance of technical review and the headquarters was responsible for 

policy compliance. Notwithstanding the changing and existing 

procedures, there were basic failures in the execution of the process 

for the development and review of the feasibility analysis and the LRR. 

The economic update in the LRR was performed in accordance with 

existing regulations, but did not get to the root of the underlying 

problems some of which were carried forth from the original feasibility 

report. Although the established project review process was followed, 

GAO notes, and the Corps acknowledges, the failure in the process was 

to adequately verify the model and data input. The Corps agrees that it 

must re-examine the basis, development, and verification of economic 

modeling for commercial navigation projects and its internal checks and 

controls to prevent similar problems occurring in the future.



Environmental Concerns:



In general, GAO notes that with few exceptions, the Corps has obtained 

the approvals it needs from Federal and State environmental agencies. 

GAO did not find any material weaknesses in the NEPA process. The State 

of Delaware permit is still pending and the Corps could not, and would 

not, proceed to construction without the State’s Subaqueous Lands/

Wetlands Permit. The PCA specifically recognizes this fact. We concur 

with GAO that the Corps would have to receive approval from the 

affected states before any potential use of economic loading of dredged 

material could proceed.



GAO’s Recommendations for Executive Action:



GAO recommends, and the Corps concurs, that a new and comprehensive 

economic analysis of the project benefits and costs be undertaken. 

Furthermore, GAO recommends, and the Corps concurs, that once the 

economic re-analysis is complete, an external independent party be 

engaged to ensure that it accurately and fairly represents expected 

benefits and costs of the proposed project.



[End of section]



Appendix III: GAO Contact and Staff Acknowledgments:



GAO Contact:



Barry T. Hill, (202) 512-3841:



Acknowledgments:



In addition to the individual above, Chuck Barchok, Maureen Driscoll, 

Christopher Murray, Ryan Petitte, Harold Brumm, Richard Johnson, Jay 

Scott, and Nancy Crothers made key contributions to this report.



[End of section]



FOOTNOTES



[1] We updated the Corps’ estimates so benefits are realized from 2005 

through 2054, at the mid-point of each year, using the discount rate 

applicable at the time of the 1998 Limited Reevaluation Report--7.375 

percent.



[2] Using the gross domestic product implicit price deflator, we 

escalated the input data used in the Corps’ analysis to reflect 

benefits in 1996 dollars.



[3] The difference in route distances for container ship trade between 

Australia and Philadelphia via the Suez Canal and via the Panama Canal 

ranges from 3,500 to 5,000 nautical miles, depending on the port of 

origin (in Australia) and the number of port calls.



[4] The term “short ton” is a unit of weight equal to 2,000 pounds.



[5] We obtained historical data on crude oil imports from the project’s 

nonfederal sponsor (DRPA). Data were drawn from the Journal of Commerce 

(PIERS) database.



[6] This figure was cited in the 1998 Limited Reevaluation Report; it 

is presented in 1996 dollar values.



[7] Polychlorinated biphenyls (PCBs) are highly toxic cancer-causing 

pollutants used in producing, among other things, plastics.



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