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entitled 'Corps of Engineers: Effects of Restrictions on Corps' Hopper 
Dredges Should Be Comprehensively Analyzed' which was released on March 
31, 2003.



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Report to Congressional Committees:



United States General Accounting Office:



GAO:



March 2003:



CORPS OF ENGINEERS:



Effects of Restrictions on Corps’ Hopper Dredges Should Be 

Comprehensively Analyzed:



GAO-03-382:



GAO Highlights:



Highlights of GAO-03-382, a report to Congressional Committees 



Why GAO Did This Study:



The fiscal year 2002 Conference Report for the Energy and Water 
Development

\ Appropriations Act directed GAO to study the benefits and effects of 
the 

U.S. Army Corps of Engineers’ (Corps) dredge fleet.  GAO examined the 

characteristics and changing roles of the Corps and industry in hopper 

dredging; the effect of current restrictions on the Corps’ hopper 
dredge 

fleet; and whether existing and proposed restrictions on the fleet, 

including the proposal to place the McFarland in ready reserve, are 

justified. In addition, GAO identified concerns related to the 
government 

cost estimates the Corps prepares to determine the reasonableness of 

industry bids.



What GAO Found:



In response to 1978 legislation that encouraged private industry 

participation in dredging, the Corps gradually reduced its hopper 
dredge 

fleet from 14 to 4 vessels (the Wheeler, the McFarland, the Essayons, 
and 

the Yaquina) while a private hopper dredging industry of five firms and 
16 

vessels has emerged.  Dredging stakeholders generally agreed that the 

Corps needs to retain at least a small hopper dredge fleet to (1) 
provide 

additional dredging capacity during peak demand years, (2) meet 
emergency 

dredging needs, and (3) provide an alternative work option when 
industry 

provides no bids or when its bids exceed the government cost estimate 
by 

more than 25 percent.  In reviewing the cost estimation process, GAO 
found 

that the Corps’ estimates are based on some outdated contractor cost 

information and an expired policy for calculating transit costs.



The restrictions on the use of the Corps’ hopper dredge fleet that 
began 

in fiscal year 1993 have imposed costs on the Corps’ dredging program, 
but 

have thus far not resulted in proven benefits.  The Corps estimates 
that 

it spends $12.5 million annually to maintain the Wheeler in ready 
reserve, 

defined as 55 workdays plus emergencies, of which about $8.4 million is 

needed to cover the costs incurred when the vessel is idle.  A possible 

benefit of restrictions on the Corps’ vessels is that they could 

eventually encourage existing firms to add dredging capacity or more 
firms 

to enter the market, which, in turn, may promote competition, improve 

dredging efficiency, and lower prices.  Although there has been an 

increase in the number of private industry hopper dredges since the 

restrictions were first imposed, the number of private firms in the 
hopper 

dredging market has decreased.  In addition, during the same time 
period, 

the number of contractor bids per Corps solicitation has decreased, 
while 

the number of winning bids exceeding the Corps’ cost estimates has 

increased. 



Although the Corps proposed that the McFarland be placed in ready 
reserve, 

it has not conducted an analysis to establish that this action would be 
in 

the government’s best interest.  Specifically, in a June 2000 report to 

the Congress, the Corps stated that the placement of the Wheeler in 
ready 

reserve had been a success and proposed that the McFarland also be 
placed 

in ready reserve.  However, when asked, the Corps could not provide any 

supporting documentation for its report. Furthermore, according to the 

Corps, future use of the McFarland will require at least a $25 million 

capital investment to ensure its safety, operational reliability, and 

effectiveness. Such an investment in a vessel that would be placed in 

ready reserve and receive only minimal use is questionable.



What GAO Recommends:



GAO recommends that the Secretary of the Army direct the Corps of 

Engineers to (1) obtain and analyze baseline data to determine the 

appropriate use of the Corps’ hopper dredge fleet, (2) prepare a 

comprehensive analysis of the costs and benefits of existing and 
proposed 

restrictions on the use of the Corps’ hopper dredge fleet, and (3) 
assess 

the data and procedures used to prepare the government cost estimate.  
The 

Department of the Army agreed with GAO’s recommendations.  The Dredging 

Contractors of America generally agreed with GAO’s recommendations, but 

strongly disagreed that restrictions on the Corps’ hopper dredges have 
not 

resulted in proven benefits.



www.gao.gov/cgi-bin/getrpt?GAO-03-382.



To view the full report, including the scope

and methodology, click on the link above.

For more information, contact Barry T. Hill at (202) 512-3841 or 

hillbt@gao.gov.



[End of section]



Contents:



Letter:



Results in Brief:



Background:



Corps Has Transferred Most of Its Hopper Dredging to Private Industry, 

but Still Needs to Retain a Hopper Dredge Fleet:



Restrictions on the Corps’ Hopper Dredge Fleet Have Imposed Costs, but 

Benefits Are Unproven:



Corps Has Not Justified the Existing and Proposed Restrictions on Its 

Hopper Dredge Fleet:



Conclusions:



Recommendations for Executive Action:



Agency Comments:



Appendix I: Scope and Methodology:



Appendix II: The U.S. Hopper Dredge Fleet:



Appendix III: Comments from the Department of the Army:



Appendix IV: Comments from the Dredging Contractors of 

America:



Appendix V: GAO Contact and Staff Acknowledgments:



Tables:



Table 1: Summary of Operations and Cost Data of Corps’ Dredge Wheeler:



Table 2: Corps and Private Industry Hopper Dredge Fleets:



Figures:



Figure 1: Hopper Dredge:



Figure 2: Maintenance Hopper Dredging Work, Fiscal Years 1995 through 

2002:



Figure 3: Estimated Volume of Material Dredged by Industry and Average 

Number of Industry Bids per Corps Solicitation, Fiscal Years 1990 

through 2002:



Figure 4: Annual Average Number of Industry Bids per Corps Solicitation 

and Winning Bid as a Percentage of the Corps’ Cost Estimate, Fiscal 

Years 1990 through 2002:



Figure 5: Comparison of Number of Industry Bids per Corps Solicitation 

Before and After Restrictions:



Figure 6: Comparison of Winning Industry Bids and Corps’ Cost Estimates 

Before and After Restrictions:



Abbreviations:



Army: Department of the Army:



Corps: U.S. Army Corps of Engineers:



DCA: Dredging Contractors of America:



GAO: General Accounting Office:



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United States General Accounting Office:



Washington, DC 20548:



March 31, 2003:



The Honorable Ted Stevens

Chairman

The Honorable Robert C. Byrd

Ranking Minority Member

Committee on Appropriations

United States Senate:



The Honorable James M. Inhofe

Chairman

The Honorable James M. Jeffords

Ranking Minority Member

Committee on Environment and Public Works

United States Senate:



The Honorable C.W. Bill Young

Chairman 

The Honorable David R. Obey

Ranking Minority Member

Committee on Appropriations

House of Representatives:



The Honorable Don Young

Chairman 

The Honorable James L. Oberstar

Ranking Democratic Member

Committee on Transportation and Infrastructure

House of Representatives:



Keeping the nation’s navigation channels and ports fully functioning is 

vital to U.S. commerce both domestically and abroad. In 2001, shipping 

vessels moved more than $700 billion of import and export cargo through 

the nation’s ports and harbors. Vessels called dredges remove sediment 

from the bottom of navigation channels, ports, and harbors to maintain 

waterways at the navigable depths and widths necessary for shipping. 

There is a variety of dredge types, each designed to perform optimally 

under specific conditions. One dredge type--the hopper dredge--performs 

much of the dredging needed in ports, harbors, and access channels 

exposed to the ocean, where traffic and operating conditions render the 

use of other dredges inefficient or impractical. A hopper dredge pumps 

material (e.g., sand and water slurry) into its hopper where it is 

stored before being transported to the disposal site. (See fig. 1.):



Figure 1: Hopper Dredge:



[See PDF for image]



[End of figure]





The U.S. Army Corps of Engineers (Corps) is responsible for dredging 

U.S. ports and harbors. The Corps is to carry out projects for 

improvements of rivers and harbors, by contract or otherwise, in the 

manner most economical and advantageous to the United States. Until 

1978, the Corps performed all hopper dredging work with its 14 hopper 

dredges. In 1978, legislation directed the Corps to (1) contract out 

much of its dredging work to private industry as industry demonstrated 

that it could perform the work at reasonable prices and in a timely 

manner, (2) reduce the federal fleet as industry demonstrated its 

ability to perform, and (3) maintain a minimum fleet of federal vessels 

for emergency and national defense purposes. The act also directed the 

Corps to retain as much of the fleet as it determined necessary to 

ensure that the federal and private fleets together could carry out 

necessary dredging projects. As a result, the Corps reduced the size of 

its hopper dredge fleet to four vessels--the Wheeler, the McFarland, 

the Essayons, and the Yaquina. In the 1990s, in an effort to further 

promote private industry participation in hopper dredging, the Congress 

imposed restrictions on the Corps’ hopper dredge fleet. These 

restrictions (1) effectively reduced the annual work schedule of each 

of the Corps’ hopper dredges from about 230 to about 180 workdays and 

(2) limited the Wheeler to 55 workdays per year plus emergencies 

(referred to as “ready reserve” status). Furthermore, in fiscal year 

2002, the Congress directed the Corps to confine the McFarland to 

emergency work and operations in the Delaware River. The Corps was to 

periodically evaluate the effects of the ready reserve program on the 

costs, responsiveness, and capacity of the Corps’ and private 

industry’s hopper dredges.



The fiscal year 2002 Conference Report for the Energy and Water 

Development Appropriations Act directed GAO to study the benefits and 

effects of the Corps’ dredge fleet. In response, we examined (1) the 

changing roles of the Corps and industry in hopper dredging and the 

characteristics of the hopper dredging industry; (2) the effect of 

restrictions currently in place on the Corps’ hopper dredge fleet; and 

(3) whether the existing and proposed restrictions on the Corps’ hopper 

dredges, including placing the dredge McFarland in ready reserve, are 

justified. In addition, during the course of our work we identified 

concerns related to the government cost estimates that the Corps 

prepares to determine whether industry bids for dredging work are 

reasonable.



Results in Brief:



In accordance with legislative direction, the Corps has reduced its 

hopper dredge fleet, while the private hopper dredging industry has 

steadily increased its share of the annual hopper dredging workload. 

Today, of the 20 hopper dredges in service in the United States, five 

private industry firms operate 16 vessels and perform about 72 percent 

of the nation’s hopper dredging maintenance work, while the Corps 

operates 4 vessels and performs the remaining 28 percent of the work. 

Corps officials and representatives from the dredging industry, 

selected ports, and the maritime industry generally agreed that the 

Corps needs to retain a hopper dredge fleet to (1) provide additional 

dredging capacity during peak demand years, (2) meet the emergency and 

national defense needs identified in the 1978 legislation, and (3) 

provide an alternative work option at times when industry offers 

unreasonable bids or no bids at all. To determine the reasonableness of 

private contractor bids, the Corps develops a government cost estimate 

that serves as a benchmark against which industry bids are compared. If 

the bids exceed the government estimate by more than 25 percent, the 

Corps may elect to perform the work itself.



During our review, we identified a number of concerns regarding the 

Corps’ government cost estimate. Specifically, the Corps uses outdated 

industry cost data to determine the reasonableness of contractor bids 

when developing its cost estimate. In addition, the Corps continues to 

follow a policy that expired in 1994 when calculating contractor 

transit costs to the dredging site for some of its contracts. These 

concerns raise questions about the practical value of using the Corps’ 

cost estimate as protection against high industry bids.



Restrictions on the use of the Corps’ hopper dredge fleet, which began 

in fiscal year 1993, have imposed costs on the Corps’ dredging program, 

but have thus far not resulted in proven benefits. Most of the costs of 

the Corps’ hopper dredges are incurred regardless of how frequently the 

dredges are used. For example, the Corps’ placement of the Wheeler in 

ready reserve--55 annual workdays plus emergencies--reduced the 

vessel’s productivity by 56 percent but reduced costs by only 20 

percent. The Corps estimates that it spends $12.5 million annually to 

maintain the Wheeler in ready reserve, of which approximately $8.4 

million is needed to cover the costs incurred when the vessel is idle. 

A possible benefit of restrictions on the Corps’ vessels is that they 

could eventually encourage existing firms to add dredging capacity or 

more firms to enter the market, which, in turn, may promote more 

competition, improve dredging efficiency, and lower prices. Although 

there has been an increase in the number of private industry hopper 

dredges since the restrictions were first imposed, the number of 

private firms in the hopper dredging market has decreased. In addition, 

during the same time period, the number of contractor bids per Corps 

solicitation has decreased, while the number of winning bids exceeding 

the Corps’ cost estimate has increased. Another potential benefit of 

the restrictions is enhanced Corps responsiveness to emergency dredging 

needs. However, the Corps is unable to evaluate whether emergency 

dredging needs have been met more or less efficiently since the 

restrictions went into effect because it does not specifically identify 

and track emergency work performed by either Corps or industry vessels.



In a June 2000 report to the Congress, the Corps stated that the 

placement of the Wheeler in ready reserve had been a success and 

recommended that the vessel remain in ready reserve. However, the 

report contained a number of analytical and evidentiary shortcomings, 

and, when asked, the Corps could not provide any supporting 

documentation for its recommendation. In addition, the report also 

proposed that the McFarland be placed in ready reserve, but the Corps 

did not conduct an analysis to support this proposal. Furthermore, 

according to the Corps, the McFarland will require at least a $25 

million capital investment to ensure its safety, operational 

reliability, and effectiveness for future service. It is questionable 

whether such an investment in a vessel that would be placed in ready 

reserve and receive only minimal use is in the best interest of the 

government.



We are making recommendations to the Secretary of the Army regarding 

the need to comprehensively analyze the costs and benefits of existing 

and proposed restrictions on the use of the Corps’ hopper dredge fleet 

and to update the information and methodology that the Corps uses for 

its hopper dredging cost estimates. In commenting on a draft of this 

report, the Department of the Army agreed with all the recommendations 

and provided time frames for implementing each of them. The Dredging 

Contractors of America generally agreed with our recommendations, but 

strongly disagreed that the benefits of the restrictions are unproven.



Background:



Since 1824 the Corps has been responsible for constructing and 

maintaining a safe, reliable, and economically efficient navigation 

system. Today, this system is comprised of more than 12,000 miles of 

inland waterways, 300 large commercial harbors, and 600 small harbors. 

From fiscal years 1998 through 2002, the Corps has removed an average 

of about 265 million cubic yards of material each year from the 

navigable waters of the United States, at an average annual cost of 

about $856 million (in constant 2002 dollars). Private industry 

performs most of the overall dredging, except for the work done by 

hopper dredges, in which both the Corps and industry perform a 

significant amount of the work. Of the $856 million spent annually on 

overall dredging, about $197 million is spent on all hopper dredging 

(both maintenance and new construction), with industry vessels 

accounting for about $148 million annually and Corps vessels accounting 

for about $49 million.



Each of the Corps’ hopper dredges typically operates in a specific 

geographic area. The Wheeler, a large-class dredge,[Footnote 1] usually 

operates in the Gulf of Mexico. The McFarland, a medium-class dredge, 

usually operates in the Atlantic and Gulf of Mexico. The Essayons, a 

large-class dredge, and the Yaquina, a small-class dredge, typically 

work along the Pacific coast.



Legislation enacted in the 1990s sought to further increase the role of 

industry in hopper dredging by placing operational restrictions on the 

Corps’ hopper dredges. Specifically, the Energy and Water Development 

Appropriations Act for fiscal year 1993 and subsequent appropriations 

acts required the Corps to offer for competitive bidding 7.5 million 

cubic yards of hopper dredging work previously performed by the federal 

fleet. Since fiscal year 1993, the Corps has addressed this requirement 

by reducing the use of each of its four dredges from about 230 workdays 

per year to about 180 workdays per year. The Water Resources 

Development Act for fiscal year 1996 required the Corps to initiate a 

program to increase the use of private hopper dredges principally by 

taking the Wheeler out of active status and placing it into ready 

reserve. The Corps implemented this requirement by allowing the Wheeler 

to work 55 days a year plus emergencies (which includes urgent and 

time-sensitive dredging needs). The 1996 act did not alter the Corps’ 

duty to implement the dredging program in the manner most economical 

and advantageous to the United States, and it restricted the Corps’ 

authority to reduce the workload of other federal hopper dredges. The 

conference report that accompanied the act directed the Corps to 

periodically evaluate the effects of the ready reserve program on 

private industry and on the Corps’ hopper dredge costs, responsiveness, 

and capacity. The Energy and Water Appropriations Act for fiscal year 

2002 placed another restriction on the use of the Corps’ dredge 

McFarland, limiting it to emergency work and its historical scheduled 

maintenance in the Delaware River (about 85 workdays per year). Taken 

together, these restrictions have increased private industry’s share of 

the hopper dredging workload.



In theory, restrictions on the use of the Corps’ hopper dredges could 

generate efficiency and cost-savings benefits to both government and 

industry. For example, restricting the Corps’ hopper dredges to fewer 

scheduled workdays could make them more available to respond to 

emergency dredging needs. In addition, the increase in demand for 

dredging by private industry could lead to improvements in dredging 

efficiency. If achieved, firms might be able to dredge the same amount 

of material at a lower cost or more material at the same cost. 

Furthermore, if more work were provided to the private hopper dredging 

industry, competition could increase if the existing dredging firms 

expanded their fleets or more firms entered the market.[Footnote 2] 

Consequently, the prices that the government pays to contractors could 

fall. However, economic principles also suggest that if an industry is 

given more work without increasing capacity or the number of competing 

firms, prices could rise because the demand for its services has 

increased.



Corps Has Transferred Most of Its Hopper Dredging to Private Industry, 

but Still Needs to Retain a Hopper Dredge Fleet:



The Corps’ and private industry’s respective roles in the hopper 

dredging market have changed since legislation enacted in 1978 prompted 

a movement toward privatization of hopper dredging in the United 

States. Since that time, the Corps has gradually reduced its hopper 

dredging fleet from 14 to 4 vessels, while a private hopper dredging 

industry of five firms and 16 vessels has emerged. Corps officials and 

representatives from the dredging industry, selected ports, and the 

maritime industry generally agreed that the Corps needs to retain at 

least a small hopper dredge fleet to (1) provide additional dredging 

capacity during peak demand years, (2) meet the emergency and national 

defense needs identified in the 1978 legislation, and (3) provide an 

alternative work option at times when the industry offers unreasonable 

bids or no bids at all. To determine the reasonableness of private 

contractor bids, the Corps develops a government cost estimate for its 

hopper dredging solicitations. If the low bid is no more than 25 

percent above the government cost estimate, the Corps awards the 

contract. If all bids exceed the government cost estimate by more than 

25 percent, the Corps may pursue a number of options, including 

performing the work itself. The practical value of this protection 

against high bids, however, has been limited by the Corps’ use of some 

outdated contractor cost information and its continued use of an 

expired policy to calculate transit costs.



Corps and Industry Roles in Hopper Dredging Have Shifted:



Before 1978, the Corps performed all of the nation’s hopper dredge 

work. In 1978, the Congress passed legislation to encourage private 

industry participation in all types of dredging and required the Corps 

to reduce the fleet of federal vessels to the minimum necessary for 

national defense and emergency purposes, as industry demonstrated its 

capability to perform the work. According to the Senate committee 

report associated with the 1978 legislation, one of the law’s main 

purposes was to provide incentives for private industry to construct 

new hopper dredges. Between 1978 and 1983, as a private hopper dredging 

industry began to emerge, the Corps reduced its hopper dredge fleet 

from 14 to its current 4 vessels. By the late 1980s, the Corps stopped 

assigning its hopper dredges to new construction projects (primarily 

channel deepening), leaving this work entirely to private industry. 

Both Corps and private industry hopper dredges continue to perform 

maintenance work on existing channels.



From fiscal years 1998 through 2002, the Corps’ dredges performed about 

28 percent of the nation’s hopper dredging maintenance work, annually 

dredging about 16 million cubic yards of material at a cost of about 

$49 million (in constant 2002 dollars). During the same period, 

industry dredges performed about 72 percent of the nation’s hopper 

dredging maintenance work, dredging about 40 million cubic yards of 

material annually, at a cost of about $93 million.[Footnote 3] As a 

result of the 1978 legislation, seven firms emerged to compete for the 

Corps’ hopper dredging contracts. Consolidation and firm buy-outs in 

the 1990s have left five firms in today’s market. (Appendix II contains 

a more detailed description of the U.S. hopper dredge fleet.):



Corps’ Hopper Dredge Fleet Addresses Several Needs:



Corps officials and representatives from the dredging industry, 

selected ports, and the maritime industry generally agreed that the 

Corps’ hopper dredge fleet currently (1) provides additional dredging 

capacity during peak demand years, (2) meets emergency dredging and 

national defense needs identified in the 1978 legislation, and (3) 

provides an alternative work option when industry provides no bids or 

when its bids exceed the government cost estimate by more than 25 

percent. In addition, representatives of selected ports and the 

maritime industry generally supported the Corps’ retention and 

operation of a federal hopper dredge fleet to ensure that dredging 

needs are met in a timely manner.



One of the reasons for the Corps to maintain a hopper dredge fleet is 

that changes in annual weather patterns, such as El Niño, and severe 

weather events, such as hurricanes and floods, can create a wide 

disparity in the demand for hopper dredging services from year to year. 

During fiscal year 1997 the Corps and private industry used their 

hopper dredges for maintenance work to remove almost 77 million cubic 

yards nationwide. In contrast, during fiscal year 2000 they removed 

about 50 million cubic yards. (See fig. 2.) Hopper dredging needs at 

the mouth of the Mississippi River are particularly variable from year 

to year, with annual dredging requirements ranging from 2 million to 50 

million cubic yards. Representatives from private dredging firms 

maintain that industry is not likely to build the additional capacity 

needed to meet demand in peak years. Corps officials and 

representatives from the dredging industry, selected ports, and the 

maritime industry generally agreed that the federal government should 

provide the additional dredging capacity required to meet the needs of 

peak demand years.



Figure 2: Maintenance Hopper Dredging Work, Fiscal Years 1995 through 

2002:



[See PDF for image]



Note: GAO analysis of Corps’ Navigation Data Center data.



[End of figure]



The Corps’ hopper dredges are also needed to respond to emergency 

dredging assignments. For example, according to a Corps official, it 

was necessary for the Corps to send the Essayons to finish work on a 

project in Alaska that was critical to complete before the winter 

season and freezing conditions set in. In addition, Corps vessels have 

been used during instances where industry has submitted no bids in 

response to solicitations. For example, when rains in the Mississippi 

River Basin caused a build-up of material in navigation channels, the 

Corps issued a solicitation, but no bids were received because industry 

vessels were unavailable. Consequently, the Wheeler was used to perform 

the work. In such situations, the Corps’ fleet acts as insurance to 

meet dredging needs, ensuring that shipping patterns are not adversely 

affected.



The existence of the Corps’ fleet theoretically offers a measure of 

protection against inordinately high bids from private contractors. 

While the private dredging market consists of 16 dredges owned by five 

firms, not all dredges compete for any given solicitation because (1) 

some, if not most, hopper dredges are committed to other jobs; (2) 

hopper dredges may be in the shipyard; (3) differences in hopper dredge 

size and capability mean that not all hopper dredges are ideally suited 

to perform the work for a particular job; and (4) hopper dredges cannot 

quickly move from one dredging region to another.[Footnote 4] For 

example, large hopper dredges may have difficulty maneuvering in small 

inlet harbors, and small hopper dredges may be inefficient at 

performing large projects with distant disposal sites. Thus, the Corps’ 

hopper dredge fleet provides an alternative dredging capability that 

can be brought to bear when private dredges are not available or when 

private industry bids are deemed too high.



Corps Bases Its Cost Estimate on Outdated Information:



The Corps’ government cost estimate for hopper dredging work is pivotal 

in determining the reasonableness of private contractor bids. The Corps 

is required to determine a fair and reasonable estimate of the costs 

for a well-equipped contractor to perform the work. By law, the Corps 

may not award a dredging contract if the price exceeds 25 percent of 

the government estimate. In such cases, the Corps has several options. 

It can (1) cancel the solicitation, (2) readvertise the solicitation, 

(3) consider challenges to the accuracy of the Corps’ cost estimate by 

bidders, (4) convert the solicitation into a negotiated procurement, or 

(5) use one of its own dredges to do the work.



The accuracy of the Corps’ cost estimate depends on having access to 

up-to-date cost information. Although the Corps adjusts contractor cost 

data annually to reflect current pricing levels, this step does not 

account for fundamental changes, such as an industry vessel reaching 

the end of its depreciable life or industry acquisition of new vessels. 

The Corps has not obtained comprehensive industrywide contractor cost 

information since 1988. Since then, contractors have provided the Corps 

updated cost information to support specific costs included in the 

Corps’ cost estimates that they believe to be outdated, but they are 

not required to provide updated information for all costs. As a result, 

the Corps only has updated cost information that contractors provide. 

In our discussions with Corps officials, they acknowledged the need to 

initiate an effort to obtain and verify current cost data for industry 

vessels.



In addition, the Corps continues to follow an expired policy when 

calculating contractor transit costs to the dredge site, further 

calling into question the accuracy of the government cost estimates. 

The Corps’ Engineering Regulation 1110-2-1300, which called on the 

Corps to calculate industry transit costs to the dredge site based on 

the location of the second-closest industry dredge, expired in 

1994.[Footnote 5] However, the Corps continues to use this method when 

calculating transit costs for at least some of its solicitations. For 

example, Corps officials followed the expired policy when demonstrating 

to us how they calculated the transit costs for a solicitation in 

Washington State.[Footnote 6] In this case, the second-closest industry 

dredge was located in the Gulf of Mexico, and the estimated transit 

costs amounted to about $480,000 because the vessel would have had to 

travel thousands of miles and go through the Panama Canal. However, the 

private contractor’s dredge that performed the work was located fewer 

than 500 miles from the dredge site, for which the transit costs were 

estimated to be about $100,000. After bringing this issue to the Corps’ 

attention, the Corps told us that it plans to reexamine its transit 

cost policies.



Restrictions on the Corps’ Hopper Dredge Fleet Have Imposed Costs, but 

Benefits Are Unproven:



Restrictions on the Corps’ hopper dredge fleet, which began in fiscal 

year 1993, have imposed costs on the Corps’ dredging program, but have 

thus far not resulted in proven benefits. Most of the costs of the 

Corps’ hopper dredges are incurred regardless of how frequently the 

dredges are used. A possible benefit of the restrictions is that they 

could eventually encourage more firms to enter the market or existing 

firms to add capacity, which, in turn, may promote competition, improve 

dredging efficiency, and thus reduce prices. Although there has been an 

increase in the number of private industry hopper dredges since the 

restrictions were first imposed, the number of private firms in the 

hopper dredging market has decreased. In addition, during the same time 

period, the number of contractor bids per Corps solicitation has 

decreased, while the number of winning bids exceeding the Corps’ cost 

estimate has increased. Restrictions on the Corps’ vessels could also 

potentially enhance the Corps’ responsiveness to emergency dredging 

needs. However, the Corps is unable to evaluate whether emergency 

dredging needs have been met more or less efficiently since the 

restrictions went into effect because it does not specifically identify 

and track emergency work performed by either Corps or industry vessels.



Corps Incurs Costs by Keeping the Wheeler in Ready Reserve:



The Corps incurs many of the costs for maintaining and operating its 

hopper dredges regardless of how much the vessels are used. Thus, as 

shown in table 1, when the Wheeler was placed in ready reserve and 

restricted to 55 workdays plus emergencies, the average number of days 

it worked per year and its productivity (measured by cubic yardage 

dredged) declined by about 56 percent, while its costs declined by only 

20 percent. Crew size declined by about 21 percent, but payroll costs 

declined by just 2 percent because dredging needs required the Corps to 

pay the smaller crew overtime to finish the work. In addition, fuel 

costs did not drop in proportion to use and productivity because the 

vessel’s engines were utilized for shipboard services (e.g., 

electricity) while it remained at the dock--a necessary procedure for 

maintaining minimal vessel readiness. Other costs unrelated to crew or 

fuel represent the plant or capital costs of a dredge, many of which 

the Corps incurs regardless of how much a dredge is used.



Table 1: Summary of Operations and Cost Data of Corps’ Dredge Wheeler:



Component: Average days worked; Before reserve[A]: 183; After 

reserve[B]: 83; Percentage change: -55%.



Component: Average cubic yards; Before reserve[A]: 11,847,040; After 

reserve[B]: 5,245,606; Percentage change: -56%.



Component: Crew size; Before reserve[A]: 54; After reserve[B]: 42; 

Percentage change: -21%.



Component: Average cost[C]; Before reserve[A]: $17,136,028; After 

reserve[B]: $13,631,862; Percentage change: -20%.



Component: Payroll costs; Before reserve[A]: $3,635,146; After 

reserve[B]: $3,557,938; Percentage change: -2%.



Component: Fuel costs; Before reserve[A]: $1,206,578; After reserve[B]: 

$832,452; Percentage change: -31%.



Component: Other costs[D]; Before reserve[A]: $12,294,304; After 

reserve[B]: $9,241,472; Percentage change: -25%.



Source: U.S. Army Corps of Engineers.



Note: GAO analysis of data obtained from the Corps’ Annual Form 27 

Report of Operations--Hopper Dredges, fiscal years 1994 through 2001.



[A] Fiscal years 1994 through 1997 represent the time period before 

ready reserve.



[B] Fiscal years 1998 through 2001 represent the time period after 

ready reserve.



[C] In constant 2001 dollars.



[D] These costs include, among other things, depreciation and repairs.



[End of table]



The Corps refers to the difference between a vessel’s total costs and 

the value of the dredging services it provides (the net cost) as a 

“subsidy.” The Corps estimates the annual subsidy to maintain the 

Wheeler idle in ready reserve at about $8.4 million.[Footnote 7] This 

subsidy is a direct cost of ready reserve. In addition to the subsidy, 

the Corps must pay contractors to do the work the Wheeler no longer 

performs. The difference between the vessel’s traditional workload and 

its current workload is approximately 6.6 million cubic yards. 

Depending on whether private industry hopper dredges are able to 

perform this work in aggregate at a lower or higher cost than if the 

Wheeler performed the work, the total cost to government of the Wheeler 

in ready reserve status could be either lower or higher than the Corps’ 

estimated subsidy.



In addition to the Wheeler’s subsidy, restrictions have led to 

inefficient operations for the other Corps hopper dredges, resulting in 

additional costs for the Corps. According to Corps officials, September 

is the ideal time to dredge in the Pacific Northwest, because dredging 

conditions generally deteriorate in October. The officials mentioned 

that, at times, the Essayons and the Yaquina have reached their fiscal 

year operating limits and returned to port in September, before the 

projects they were working on were complete. The dredges were sent back 

to complete the project after the new fiscal year began in October, 

even though weather conditions may have made dredging conditions less 

than optimal, and the Corps incurred additional transit costs. 

According to some Corps officials, the annual operating limit cannot be 

extended. For example, the Essayons stopped dredging the mouth of the 

Columbia River and returned to port at the end of fiscal year 2001 when 

it reached its operating limit. The vessel returned to finish the work 

at the start of the new fiscal year, but adverse weather conditions 

prevented it from fully dredging the river. As a result, some projects 

may be postponed until the following fiscal year, reprioritized, or 

canceled altogether.



Benefits of Restrictions Are Unproven:



A potential benefit of the restrictions on the Corps’ hopper dredge 

fleet is that an increase in demand for industry’s dredging services 

could encourage existing firms to make capital investments (e.g., build 

new dredges or improve existing dredges) or encourage more firms to 

enter the dredging market. Dredging industry representatives told us 

that the restrictions have already led to an increase in the number of 

industry vessels and, as evidence, pointed to the addition of two new 

dredges, the Liberty Island, a large-class dredge introduced in 2002, 

and the Bayport, a medium-class dredge introduced in 1999, as well as 

the return of the Stuyvesant, a large-class dredge, to the U.S. hopper 

dredging market. Moreover, they added that since the restrictions, the 

private hopper dredging industry has also made improvements and 

enhancements to its existing fleet--specifically the Columbia--thus 

improving the efficiency of its dredging operations and increasing the 

capacity of its vessels. However, the representatives also told us that 

the restrictions are only one of several factors the private hopper 

dredging industry considers when deciding to acquire or build an 

additional dredge. In addition, firms must invest in equipment to 

remain competitive in any industry. As a result, it is unclear to what 

extent the restrictions on the Corps’ vessels were a factor in 

industry’s investment decisions to increase its fleet size and add 

dredging capacity.



While the private hopper dredging industry has recently placed two new 

dredges on line, it has sold the small-class dredge Mermentau and 

placed another small-class dredge, the Northerly Island, up for sale. 

In addition, during the last decade the private hopper dredging 

industry has decreased from seven firms to five firms. Specifically, 

since 1993, two firms exited the market, one firm entered the market, 

and two firms merged. The consolidation in the industry does not 

necessarily mean that competition has been reduced because the new 

industry structure could have resulted in enhanced capacity, 

flexibility, and efficiency for the remaining firms. However, it is 

uncertain whether the private hopper dredging industry is more or less 

competitive now than it was prior to the restrictions.



Historical data reveal that, in general, as shown in figure 3, in years 

when more material is available to private industry, industry submits 

fewer bids per Corps solicitation. For example, during fiscal year 

1991, when the Corps estimated that 31.3 million cubic yards of 

maintenance material would be contracted out to industry, the average 

number of bids per solicitation was 3.2. In contrast, during fiscal 

year 1998, when the Corps estimated that 53.7 million cubic yards of 

maintenance material would be contracted out to industry, industry 

submitted an average of about 2 bids per solicitation.



Figure 3: Estimated Volume of Material Dredged by Industry and Average 

Number of Industry Bids per Corps Solicitation, Fiscal Years 1990 

through 2002:



[See PDF for image]



Notes: GAO analysis of the Corps’ Dredging Information System data.



Each point represents a fiscal year.



The inverse, linear relationship is statistically significant at the 95 

percent level.



[End of figure]:



Likewise, as shown in figure 4, in years when there were fewer industry 

bids per Corps solicitation, the average winning industry bid, as a 

percentage of the Corps’ cost estimate, was higher.[Footnote 8] For 

example, during fiscal year 1991, when the average number of bids per 

solicitation was 3.2, the average winning bid was 79 percent of the 

Corps’ estimate. In contrast, during fiscal year 1998, when the average 

number of bids per solicitation was 2, the average winning bid was 97 

percent of the Corps’ estimate.



Figure 4: Annual Average Number of Industry Bids per Corps Solicitation 

and Winning Bid as a Percentage of the Corps’ Cost Estimate, Fiscal 

Years 1990 through 2002:



[See PDF for image]



Notes: GAO analysis of the Corps’ Dredging Information System data.



Each point represents a fiscal year.



The linear relationship is statistically significant at the 99 percent 

level. 



[End of figure]:



In general, when there are fewer industry bids per solicitation, the 

winning industry bid relative to the Corps’ cost estimate increases. In 

fiscal years 1990 through 2002, more than half of the solicitations for 

hopper dredging maintenance work received just one or two bids from 

private contractors. During these years, when only one contractor bid 

on a solicitation, the bid exceeded the government estimate 87 percent 

of the time. In contrast, when there were three or more bids on a 

solicitation, the winning bid exceeded the government estimate only 22 

percent of the time. After the Corps’ hopper dredge fleet was 

effectively restricted to 180 workdays (fiscal years 1993 through 

2002), the number of industry bids per solicitation declined from about 

3 to roughly 2.4. Specifically, as shown in figure 5, when there were 

no limits on the use of the Corps’ hopper dredges (fiscal years 1990 

through 1992), only 5 percent of solicitations received one bid. After 

limits were placed on the Corps’ hopper dredges (fiscal years 1993 

through 2002), 19 percent of solicitations had only one bid.[Footnote 

9] Moreover, before the restrictions, 67 percent of the solicitations 

had three or more bids, whereas, after the restrictions, only 42 

percent had three or more bids. These changes might have been expected 

because, after the restrictions, industry’s share of hopper dredging 

work increased while the number of hopper dredging firms decreased from 

seven to five.



Figure 5: Comparison of Number of Industry Bids per Corps Solicitation 

Before and After Restrictions:



[See PDF for image]



Note: GAO analysis of the Corps’ Dredging Information System data.



[A] Fiscal years 1990 through 1992 represent the time period before the 

restrictions were implemented.



[B] Fiscal years 1993 through 2002 represent the time period after the 

restrictions were implemented.



[End of figure]:



Furthermore, in the time period following the imposition of the 180-day 

restriction, the frequency with which the winning industry bid exceeded 

the Corps’ cost estimate has increased. For example, as shown in figure 

6, prior to the restrictions, the winning bid exceeded the Corps’ cost 

estimate 24 percent of the time. After the restrictions were imposed, 

the winning bid exceeded the Corps’ estimate 45 percent of the 

time.[Footnote 10] This finding is consistent with economic principles; 

that is, all else equal, an increase in demand for dredging by private 

industry with fixed supply would result in higher prices.



Figure 6: Comparison of Winning Industry Bids and Corps’ Cost Estimates 

Before and After Restrictions:



[See PDF for image]



Note: GAO analysis of the Corps’ Dredging Information System data.



[A] Fiscal years 1990 through 1992 represent the time period before the 

restrictions were implemented.



[B] Fiscal years 1993 through 2002 represent the time period after the 

restrictions were implemented.



[End of figure]



It should be noted that the extent to which the restrictions 

contributed to the decrease in the number of industry bids per Corps 

solicitation and the increase in the winning industry bid relative to 

the Corps’ cost estimate is unknown. Other factors could have also 

contributed to these changes. For example, an increase in the demand 

for hopper dredging services for new construction projects or beach 

nourishment could lead to a decrease in the number of bids received for 

maintenance projects. Similarly, the introduction of environmental 

restrictions on when hopper dredging can take place could contribute to 

an increase in the winning industry bid relative to the Corps’ cost 

estimate. Nevertheless, the decrease in the number of bids per 

solicitation and the increase in bids exceeding the Corps’ cost 

estimates raises questions about the effects the restrictions may have 

had on competition and prices, demonstrating the need for a 

comprehensive analysis of the effects of the restrictions on 

competition, efficiency, and prices.



Another potential benefit of restrictions on the use of the Corps’ 

vessels is enhanced responsiveness to emergencies. However, there is 

disagreement within the Corps on this issue. One Corps official 

believes that a dredge in ready reserve is better able to handle 

emergencies than if it were working 180 days because it is in a 

“standby” status at the dock, ready to respond. In contrast, others in 

the Corps believe that a dredge can respond just as well or better to 

an emergency while working a full schedule because the dredge can 

temporarily halt the project it is working on, respond to the 

emergency, and then return to its scheduled work.[Footnote 11] During 

our discussions with representatives from selected ports and the 

maritime industry, we did not learn of any instances of problems in the 

Corps’ responsiveness to emergencies prior to restrictions or instances 

of improved response time since the restrictions went into effect.



A major reason that the Corps is unable to evaluate whether emergency 

dredging needs have been met more or less efficiently since the 

restrictions went into effect is that its dredging database--the 

Dredging Information System--does not specifically identify and track 

emergency work performed either by Corps or industry vessels. 

Consequently, the Corps cannot readily determine how many days have 

been needed for each of its vessels to respond to emergencies. In 

addition, the Corps does not know whether it is paying contractors more 

or less for performing the emergency dredging projects compared to the 

costs it pays for routinely scheduled maintenance work. Such 

information would be a valuable tool for determining how emergency 

dredging needs can be met in a manner that is the most economical and 

advantageous to the government--that is, when and under what 

circumstances to contract with the private hopper dredging industry for 

these emergencies or when to use Corps vessels. In discussing this 

issue, Corps officials agreed that obtaining information on emergencies 

is important for managing their hopper dredging program and told us 

they have initiated efforts to collect such data to incorporate into 

their dredging database.



Corps Has Not Justified the Existing and Proposed Restrictions on Its 

Hopper Dredge Fleet:



In a June 2000 report to the Congress, the Corps stated that the 

placement of the Wheeler in ready reserve had been a success and 

recommended that the vessel remain in ready reserve. However, the 

report contained a number of analytical and evidentiary shortcomings, 

and, when asked, the Corps could not provide any supporting 

documentation for its recommendation. In addition, the report also 

proposed that the McFarland be placed in ready reserve, but the Corps 

did not conduct an analysis to support this proposal. The costs to 

place the McFarland in ready reserve are likely to be similar to the 

costs incurred by placing the Wheeler in ready reserve. Because the 

McFarland’s workload would be reduced from 180 days to 55 days plus 

emergencies, the Corps would incur annual costs of about $8 million 

when the vessel is idle--largely because much of a vessel’s costs are 

incurred regardless of its level of use. Furthermore, according to the 

Corps, the McFarland will require at least a $25 million capital 

investment to ensure its safety, operational reliability, and 

effectiveness for future service. It is questionable whether such an 

investment in a vessel that would be placed in ready reserve and 

receive only minimal use is in the best interest of the government.



Corps Has Not Comprehensively Analyzed the Costs and Benefits of 

Restrictions:



The Water Resources Development Act for 1996 required the Corps to 

determine whether (1) the Wheeler should be returned to active status 

or continue in ready reserve status or (2) another federal hopper 

dredge should be placed in ready reserve status, and issue a report to 

the Congress on its findings. The Corps issued the required report in 

June 2000,[Footnote 12] recommending that the Wheeler remain in reserve 

and proposing that an additional dredge, the McFarland, also be placed 

in reserve. However, when asked, the Corps official who authored the 

report told us that he did not have any supporting documentation for 

the report. In addition, the report had a number of evidentiary and 

analytical shortcomings. For example, the evidence presented in the 

report showed that the price the government paid to the industry for 

hopper dredging was higher in the 2 years after the Wheeler was put in 

ready reserve than it was the year before. This raises questions about 

the validity of the recommendation contained in the report.



Furthermore, the report did not contain a comprehensive analysis. A 

comprehensive economic analysis of a government program or policy would 

identify all the resulting costs and benefits, and, where possible, 

quantify these measures. Both the quantitative and qualitative costs 

and benefits would need to be compared and evaluated to determine the 

success or failure of a program and to potentially be used as a basis 

for future policy decisions. With regard to the restrictions on the 

Corps’ hopper dredges, a comprehensive economic analysis might contain, 

among other things, all costs associated with the nonuse of the vessel 

and the potential benefits that might result due to efficiency gains, 

increased competition, and lower prices. The analysis might also 

examine whether ports, harbors, and access channels were maintained 

more or less effectively, or whether emergency dredging needs were met 

in a more or less timely and cost-effective manner following 

implementation of the restrictions.



Corps Has Not Demonstrated that Further Restrictions on the Use of the 

Corps’ Dredge McFarland Are Warranted:



The Corps has not demonstrated that placing an additional hopper dredge 

in ready reserve, specifically the McFarland, would be beneficial to 

the United States. In its June 2000 report to the Congress on the ready 

reserve status of the dredge Wheeler, the Corps proposed that the 

McFarland be the next dredge placed in reserve. However, the Corps did 

not offer any analysis on the potential costs of placing an additional 

Corps hopper dredge in reserve or the benefits of such an action. 

Moreover, to be available for future use, the 35-year-old McFarland 

requires at least a $25 million capital investment to ensure its 

safety, operational reliability, and effectiveness. The repairs include 

asbestos removal; repairs to the hull; engine replacement; and upgrades 

of equipment, machinery, and other shipboard systems. It is 

questionable whether spending $25 million to rehabilitate the McFarland 

and then placing it in ready reserve is prudent.



Furthermore, if the McFarland were placed in ready reserve, the Corps 

would incur annual costs similar to the subsidy that is already 

incurred for the Wheeler. Because the Wheeler’s costs do not vary 

proportionally to its use, the costs to operate the vessel 55 days a 

year plus emergencies in ready reserve is only marginally less than if 

it were to operate 180 days a year. The Corps estimates that if the 

McFarland were placed in ready reserve, it would require an annual 

subsidy of about $8 million to remain idle. The Corps would also need 

to contract out the work the McFarland would no longer be doing--

approximately 2 to 3 million cubic yards per year. Depending on whether 

private industry hopper dredges are able to perform this work in 

aggregate at a lower or higher cost than if the McFarland performed the 

work, the total cost to government of the placing the McFarland in 

reserve could be either lower or higher than the estimated annual 

subsidy. Finally, placing the McFarland in ready reserve could increase 

competition if such restrictions spurred an increase in investment in 

private hopper dredges. However, it is questionable whether placing the 

McFarland in ready reserve would provide enough incentive for industry 

to make additional investments.



Conclusions:



Hopper dredges play a critical role in keeping the nation’s ports open 

for both domestic and international trade. This function has been and 

will likely continue to be carried out through a mix of private 

industry and government-owned dredges. At issue is how to use this mix 

of dredges in a manner that maintains the viability of the private 

fleet while minimizing the costs to government. The Corps has proposed 

to the Congress that additional restrictions on the use of its hopper 

dredges are warranted, but it cannot provide any analytical evidence to 

support its position. The limited evidence that does exist indicates 

that these restrictions have imposed costs on the government, while the 

benefits are largely unproven. Unless and until the Corps gathers the 

data, comprehensively analyzes the costs and benefits of restrictions 

on the use of its hopper dredges, and takes the steps to update its 

cost estimates, there is no assurance that the nation’s hopper dredging 

needs are being met in a manner that is the most economical and 

advantageous to the government.



Recommendations for Executive Action:



In an effort to discern the most economical and advantageous manner in 

which to operate its hopper dredge fleet, and because the Corps has 

been unable to support, through analysis and documentation, the costs 

and benefits of placing its hopper dredges in ready reserve, we 

recommend that the Secretary of the Army direct the Corps of Engineers 

to:



* obtain and analyze the baseline data needed to determine the 

appropriate use of the Corps’ hopper dredge fleet including, among 

other things, data on the frequency, type, and cost of emergency work 

performed by the Corps and the private hopper dredging industry; 

contract type; and solicitations that receive no bids or where all the 

bids received exceeded the Corps’ estimate by more than 25 percent;



* prepare a comprehensive analysis of the costs and benefits of 

existing and proposed restrictions on the use of the Corps’ hopper 

dredge fleet--including limiting the Corps’ dredges to 180 days of work 

per year, placing the Wheeler into ready reserve, limiting the 

McFarland to its historic work in the Delaware River, and placing the 

McFarland into ready reserve status; and:



* assess the data and procedures used to perform the government cost 

estimate when contracting dredging work to the private hopper dredging 

industry, including, among other things, (1) updating the cost 

information for private industry hopper dredges and (2) examining the 

policies related to calculating transit costs.



Agency Comments:



We provided a draft of this report to the Acting Assistant Secretary of 

the Army and the Dredging Contractors of America for review and 

comment.



In a letter dated March 21, 2003, the Department of the Army (Army) 

provided comments on a draft of this report. The Army agreed with our 

recommendations and provided time frames for implementing each of them. 

It also provided additional comments suggesting clarification and 

elaboration on a number of issues discussed in our report. See appendix 

III for the Army’s comments and our responses.



In a letter dated March 3, 2003, the Dredging Contractors of America 

(DCA) provided detailed comments on a draft of this report. DCA 

generally agreed with our recommendations. However, it believed 

strongly that reducing the scheduled use of the Corps’ hopper dredges 

has resulted in proven benefits. We continue to believe that the 

relationship between the restrictions and benefits to the government 

are unproven because (1) the Corps incurs costs related to the 

underutilization of its dredges, and (2) since the restrictions were 

first imposed, the Corps has received fewer industry bids per 

solicitation, and the percentage of winning industry bids that exceed 

the Corps’ cost estimates has increased. See appendix IV for DCA’s 

comments and our responses.



We conducted our review between January 2002 and February 2003 in 

accordance with generally accepted government auditing standards. A 

detailed discussion of our scope and methodology is presented in 

appendix I.



We will send copies of the report 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 V.



Barry T. Hill

Director, Natural Resources and Environment:



Signed by Barry T. Hill



[End of section]



Appendix I: Scope and Methodology:



To assess the changing roles of the Corps and industry in hopper 

dredging and the characteristics of the hopper dredging industry, we 

obtained Corps’ studies and data from the Corps’ Navigation Data Center 

that provided information on the hopper dredging requirements of the 

United States, including the quantity of material dredged annually by 

the Corps and the private hopper dredging industry, and their 

associated costs. We also reviewed the laws that define these roles. In 

addition, we interviewed Corps officials; representatives from the five 

hopper dredging firms (B+B Dredging Co., Inc., Bean Stuyvesant LLC, 

Great Lakes Dredge & Dock Company, Manson Construction Co., and Weeks 

Marine, Inc.); the maritime industry (the Delaware River Port 

Authority, Maritime Exchange for the Delaware River and Bay, Navios 

Ship Agencies, Inc., and the Steamship Association of Louisiana); 

dredging and port associations (Dredging Contractors of America, 

Pacific Northwest Waterways Association, and American Association of 

Port Authorities); and selected ports (Portland, Seattle, New York/New 

Jersey, New Orleans, and Wilmington). To obtain a better understanding 

of hopper dredging from the perspective of the private hopper dredging 

industry, we visited and toured a medium-class industry hopper dredge 

working in the Chesapeake and Delaware Canal and interviewed its crew. 

Moreover, we reviewed the Corps’ cost estimating policies.



To determine the intent and effects of the restrictions placed on the 

use of the Corps’ hopper dredge fleet, we analyzed the laws governing 

the use of the Corps’ hopper dredges. We also reviewed studies 

conducted by the Corps and the Pacific Northwest Waterways Association. 

For qualitative information, we obtained documents and interviewed 

Corps officials from headquarters and district and division offices, 

including Jacksonville, New Orleans, Philadelphia, Portland, Walla 

Walla, and the North Atlantic Division, as well as representatives from 

the private hopper dredging firms, selected ports, dredging and port 

associations, and the maritime industry. For quantitative information, 

we performed descriptive statistical analyses using data on the winning 

contractor bids, estimated industry dredging volumes, and the Corps’ 

cost estimate available from the Corps’ Dredging Information System 

database.



To evaluate whether further restrictions on the Corps’ hopper dredge 

fleet, including placing the Corps’ dredge McFarland in ready reserve, 

are justified, we reviewed studies and analyses performed by the Corps 

to support its proposal to place the McFarland in ready reserve. We 

also interviewed officials from the Corps and representatives from the 

private hopper dredging industry, selected ports, and the maritime 

industry to gain their views on the possible effects on competition and 

emergency response if the current restrictions on the Corps’ hopper 

dredges, particularly the McFarland, were modified. To determine the 

costs associated with repairing the McFarland, we obtained and analyzed 

cost estimates for the repairs prepared by the Corps’ Philadelphia 

district office and discussed the estimates with Corps district and 

headquarters officials. We also visited and toured the McFarland when 

it was working in the Delaware River and interviewed the McFarland’s 

crew and Corps officials from the Philadelphia district and the North 

Atlantic Division offices.



We conducted our review between January 2002 and February 2003 in 

accordance with generally accepted government auditing standards.



[End of section]



Appendix II: The U.S. Hopper Dredge Fleet:



There are currently 20 hopper dredges operating in the United States. 

(See table 2.) Of the 20 dredges, 4 are small-class hopper dredges, 10 

are medium-class hopper dredges, and 6 are large-class hopper dredges. 

Of the 16 private hopper dredges, Great Lakes Dredge & Dock Company 

owns 7, Manson Construction Co. owns 3, and the remaining firms (B+B 

Dredging Co., Inc., Bean Stuyvesant LLC, and Weeks Marine, Inc.) each 

own 2.



Table 2: Corps and Private Industry Hopper Dredge Fleets:



Size: Large-class: 



Owner: Great Lakes Dredge & Dock Company; Vessel: Liberty 

Island; Capacity (in cubic yards): 6,540; Year built: 2002.



Vessel: Long Island; Capacity (in cubic yards): 16,000; Year built: 

1971.



Owner: Bean Stuyvesant LLC; Vessel: Stuyvesant; Capacity (in cubic 

yards): 11,200; Year built: 1982.



Vessel: Eagle I; Capacity (in cubic yards): 6,600; Year built: 1981.



Owner: Corps of Engineers; Vessel: Wheeler; Capacity (in cubic yards): 

8,256; Year built: 1982.



Vessel: Essayons; Capacity (in cubic yards): 6,000; Year built: 1983.



Size: Medium-class:



Owner: B+B Dredging Co., Inc.; Vessel: Columbia; Capacity (in 

cubic yards): 4,000; Year built: 1986[A].



Owner: Weeks Marine, Inc.; Vessel: B.E. Lindholm; Capacity (in cubic 

yards): 4,150; Year built: 1985.



Vessel: R.N. Weeks; Capacity (in cubic yards): 4,000; Year built: 1987.



Owner: Manson Construction Co.; Vessel: Bayport; Capacity (in cubic 

yards): 5,000; Year built: 1999.



Vessel: Newport; Capacity (in cubic yards): 4,000; Year built: 1983.



Owner: Great Lakes Dredge & Dock Company; Vessel: Dodge Island; 

Capacity (in cubic yards): 3,600; Year built: 1980.



Vessel: Manhattan Island; Capacity (in cubic yards): 3,600; Year built: 

1977.



Vessel: Padre Island; Capacity (in cubic yards): 3,600; Year built: 

1981.



Vessel: Sugar Island; Capacity (in cubic yards): 3,600; Year built: 

1979.



Owner: Corps of Engineers; Vessel: McFarland; Capacity (in cubic 

yards): 3,140; Year built: 1967.



Size: Small-class:



Owner: Great Lakes Dredge & Dock Company; Vessel: Northerly 

Island; Capacity (in cubic yards): 2,160; Year built: 1983.



Owner: Manson Construction Co.; Vessel: Westport; Capacity (in cubic 

yards): 1,800; Year built: 1978.



Owner: B+B Dredging Co., Inc.; Vessel: Atchafalaya; Capacity (in cubic 

yards): 1,300; Year built: 1980.



Owner: Corps of Engineers; Vessel: Yaquina; Capacity (in cubic yards): 

1,020; Year built: 1981.



Source: U.S. Army Corps of Engineers.



[A] Although the vessel was originally built in 1944 to transport 

military equipment in World War II and later converted to a hopper 

dredge, according to Corps’ data, 1986 is listed as the year the vessel 

began its service.



[End of table]



[End of section]



Appendix III: Comments from the Department of the Army:



DEPARTMENT OF THE ARMY OFFICE OF THE ASSISTANT SECRETARY CIVIL WORKS 

108 ARMY PENTAGON WASHINGTON DC 20310-0108:



REPLY TO ATTENTION OF:



21 MAR 2003:



Mr. Barry T. Hill, Director:



Natural Resources and Environment United States General Accounting 

Office 441 G Street, NW:



Washington, D.C. 20548-0001:



Dear Mr. Hill:



This is in response to your letter dated February 20, 2003, requesting 

comments on GAO’s proposed report entitled Corps of Engineers: Effects 

of Restrictions on Corps’ Hopper Dredges Should be Comprehensively 

Analyzed (GAO-03-382).



Comments on the draft report are enclosed. This constitutes the 

Department of:



Defense response on the draft report.



Sincerely,



George S. Dunlop Deputy Assistant Secretary of the Army (Policy and 

Legislation):



Signed by George S. Dunlop:



Enclosure:



Effects of Restrictions on Corps’ Hopper Dredges Should be 

Comprehensively Analyzed:



GAO-03-382:



Recommendation: Obtain and analyze the baseline data needed to 

determine the appropriate use of the Corps’ hopper dredge fleet 

including, among other things, data on the frequency, type, and cost of 

emergency work performed by the Corps and the private hopper dredging 

industry; contract type; and solicitations that receive no bids or 

where all the bids received exceeded the Corps’ estimate by more than 

25 percent.



Concur. The Corps has initiated a revision to its existing Dredge 

Information System to ensure the appropriate data are included.	These 

data will begin to be collected by:



1 September 2003.



Recommendation: Prepare a comprehensive analysis of the costs and 

benefits of existing and proposed restrictions on the use of the Corps’ 

hopper dredge fleet - including limiting the Corps dredges to 180 days 

of work per year, placing the WHEELER into ready reserve, limiting the 

MCFARLAND to its historic work in the Delaware River, and placing the 

MCFARLAND into ready reserve status.



Concur. The Corps will prepare the analysis, and this analysis will be 

completed on 1 December 2003.



Recommendation: Assess the data and procedures used to perform the 

government cost estimate when contracting dredging work to the private 

hopper dredging industry, including, among other things, (1) updating 

the cost information for private industry hopper dredges and (2) 

examining the policies related to calculating transit costs.



Concur. The Corps has initiated an evaluation of the estimating 

procedures, policies and costs. A report of this evaluation will be 

completed on 15 March 2004.



Additional Comments:



The following additional comments are included.



The GAO report addresses 6 issues, synopsized as follows:



1. Government Estimates - using outdated cost information and policies 

related to calculating transit costs.



2. Restrictions on Corps hopper use not resulting in proven benefits.



3. No net increase in number of industry hopper dredges after 10 years 

of restrictions.



4. Number of bids per solicitation decreased subsequent to imposition 

of restrictions.



5. Data issues, including inability to determine emergency work.



6. June 2000 Report to Congress lacked supporting documentation.



1. Government Estimates:



The cost information for hopper dredges is outdated and needs to be 

evaluated. An effort has been initiated to improve the cost data for 

hopper dredges. However, it should be noted that significant cost 

factors have increased, such as insurance, labor, and fuel. 

Accordingly, when a dredge is at or near full depreciation, it normally 

experiences increased maintenance and repair costs, such that the 

offsets for one cost may be comparable to changes in other costs. The 

issue regarding following an expired policy when calculating contractor 

transit costs, or mobilization/demobilization costs, is not viewed as 

presented by GAO. This issue is only pertinent to the hopper dredging 

work in the Pacific Northwest. It is correct that the previous policy 

prescribed calculating mobilization based on the second closest dredge, 

and Government Estimates for hopper dredge procurements in the Pacific 

Northwest did calculate the mobilization based on the second closest 

dredge. However, the unique situation in the Pacific Northwest with 

only 1 industry hopper dredge normally being stationed on the west 

coast, warrants expansion of the normal area of operations to include a 

reasonable number of bidders to include a second dredge from the Gulf 

of Mexico. This application is consistent with current Corps 

engineering regulations. In addition to having accurate cost 

information to support a Government Estimate, there are opportunities 

to minimize the cost impacts and improve competition by the development 

of a regional hopper dredging procurement for the west coast, which 

includes several navigation projects and additional hopper dredging 

requirements. Regional packaging requires coordinated budget support 

from at least 2 districts in 2 separate Major Subordinate Commands.



2. Restrictions on Corps Hopper Dredge Use Not Resulting In Proven 

Benefits:



The GAO discussion regarding restrictions on Corps hopper dredge use 

needs clarification . The report presents a specific case regarding 

operational constraints in the Northwest, and a statement that the 

total number of hopper dredges has not increased. Both of these are 

misleading. The Corps hopper dredge owning district has the flexibility 

to schedule the dredge, within the constraints of the maximum allowable 

number of days, to be available for known shoaling events in the 

navigation projects served by that dredge. As such, the district can 

either choose to ensure operating days are scheduled to coincide with 

the latter part of the Fiscal Year, or they can proactively procure an 

industry hopper dredge to be scheduled for this same period.



The work not performed by the WHEELER as a result of being in a ready 

reserve status averages about 6.6 million cubic yards (mcy) per year. 

This equates to either 3 small contracts (2.3 mcy) or 1 large (6.8 mcy) 

industry:



hopper dredge contract in the Mississippi River. If the river is not 

shoaling, then none of those contracts would be required, and average 

savings of $4.75 million (based on average cost of current industry 

hopper dredge contracts in the Mississippi River) could be realized . 

However, if the WHEELER were not in ready reserve, it would have been 

scheduled to dredge in the river, or in some other project, taking away 

additional work form the industry hopper dredges. When the WHEELER is 

in ready reserve and industry is performing this work, this added work 

increases the utilization of the industry dredges, and effectively 

reduces the cost of the contractors’ dredges over time. A simple 

sensitivity analysis of hopper dredge utilization as a function of unit 

price indicates that the cost of dredging could be reduced from 13-24 

percent, depending upon the size of the industry hopper dredge and 

whether the dredge worked 6 months or up to 11 months per year.



3. No Net Increase in Number of Industry Hopper Dredges after 10 Years 

of Restrictions:



The GAO report does not address the significance of capacity in 

measuring the net change in the industry hopper dredge fleet.	Since 

1993, significant changes have occurred in the makeup of the Corps and 

industry:



hopper dredge fleets. Besides the acknowledged addition of the BAYPORT 

and LIBERTY ISLAND, there have been additional improvements to the 

industry hopper dredge capacity. The hopper dredge STUYVESANT was not 

in country until 1995, and shortly after returning was committed to a 

long term dredging project with the Navy in San Diego, which meant the 

industry’s largest hopper dredge was not available until 1996. When it 

did return to the U.S., it:



reconfigured its hopper structure and increased the capacity of the 

dredge from 9200 cubic yards to 11,200 cubic yards. The hopper dredge 

COLUMBUS, now called the COLUMBIA, prior to 1998 was not used except 

for daylight dredging for a few months only in the Great Lakes. In 

1998, the dredge was taken out of the Great Lakes and began 

successfully competing for hopper dredge work in the Gulf, operating 24 

hours per day throughout the entire year. These changes are significant 

additions to the industry capability.



4. Number of Bids Per Solicitation Decreased Subsequent to Imposition 

of Restrictions:



With additional workload being offered to the same number of hopper 

dredge companies, it would be expected that some jobs would result in 

experiencing only one bid. With additional workload being offered to 

these same industry hopper dredges resulting in peak workload periods 

when all dredges are working, one would expect a contractor to take 

advantage of an opportunity to bid a higher price, anticipating no 

competition.	The results of the GAO analysis regarding bid results seem 

understandable and reflect normal supply and demand economic 

principles.



S. Data Issues, Including Inability to Determine Emergency Work:



There are additional data sets that need to be included in the existing 

Corps Dredging Information System. The Corps has initiated a revision 

to its existing system to address these data. While it is true that 

there is no current means to retrieve the work that was classified as 

an emergency, the Corps can determine the minor amount of work that was 

an emergency. One action taken as a result of Section 237 of the Water 

Resources Development Act of 1996 (WRDA96) was the establishment of the 

Industry Corps Hopper Dredge Management Group (ICHDMG). This group 

works to ensure that the time-sensitive and urgent dredging needs are 

managed to preclude the need to declare an emergency condition in most 

cases. A mechanism has been developed to flag pending capability 

shortfalls, address urgent dredging requirements, and implement an 

iterative asset management process to ensure a best-case response. This 

process has resulted in both industry and Corps assets being used to 

resolve the time-sensitive dredging needs in a cost effective manner.



6. June 2000 Report to Congress Lacked Supporting Documentation:



In regard to the Report to Congress required by Section 237 of WRDA96, 

the Corps reported to Congress based on the criteria implied in the 

added title of the section, °(c) Program to Increase Use of Private 

Dredges.” The report considered the parameters addressed in the section 

regarding private industry submitting responsive and responsible bids, 

developing procedures to ensure private industry hopper dredge capacity 

is available for routine and time-sensitive dredging needs, and 

ensuring that the WHEELER, in its ready reserve status is able to 

perform emergency work. While the data presented in the report indicate 

a higher average unit price for industry work subsequent to the WHEELER 

being placed in ready reserve, the difference in average unit price can 

not be used as an indicator that the price paid to the industry was 

higher for similar work as was previously performed by the industry. 

There are many variables, as well as substantially different hopper 

dredging requirements for the same projects in different years. Thus, 

comparing average unit price alone can not be used as an indicator of 

increased or decreased cost to the program. In a given year, the mix of 

hopper dredging contracts includes beach nourishment work, shallow and 

deep draft ocean inlet work, river dredging, some of which requires 

pumpout, and new work dredging. The range in unit prices can be from 

$0.26/cubic yard to as much as $14/cubic yard. Dredging in the same 

project can vary substantially from year to year, e.g., the Mississippi 

River can require dredging from 2 million cubic yards to 50 million 

cubic yards per year. When there are several deepening contracts 

underway, the flexibility of the industry hopper dredges are minimized 

and reduced competition for other work may reflect higher unit prices. 

Environmental windows have constricted the available time for 

accomplishing hopper dredging work, imposing higher risks on the 

contractors to complete the requirements in shorter periods of time. 

All of these factors as well as several more can influence the cost of 

hopper dredging. Therefore, it would be extremely difficult to conclude 

that placing the WHEELER in ready reserve would result in increased 

costs. With regard to the recommendation to place a second hopper 

dredge in ready reserve, the Corps considered the changes in the 

industry capacity, the management flexibility of having Corps assets in 

a ready reserve status, and the fact that comparably sized industry 

dredges operate at substantially less per day than the MCFARLAND.



In FY 2002, 73.9 million cubic yards were dredged by hopper dredges, 

with 82% (60.6 mcy) of the hopper work performed in the Atlantic and 

Gulf of Mexico. Of this portion, industry performed 90% of the work 

(54.8 mcy).



Several deep draft navigation projects are being improved, and all have 

an ocean channel that will require hopper dredging. Many of these 

projects are subject to environmental windows.



With the projections for foreign trade expected to double in the next 

20 years, and the rapid expansion, both in number and size, of 

container ships that will use our ports, the requirements for reliable, 

fully maintained navigation channels will increase. Coupled with this 

requirement is the expectation that beach nourishment work will 

continue at a relatively constant level. Hopper dredging workload will 

increase.



In the last three years, industry has added 2 new hopper dredges to 

their capability, the BAYPORT and the LIBERTY ISLAND. In response to 

the large workload in the Gulf and Atlantic, all but two industry 

dredges are located in the east. However, because of the Southeast 

Atlantic turtle window restrictions, and the preference for beach 

nourishment work to be performed during the winter months, peak 

workload demands can exceed the capacity of the industry fleet. It is 

during these peak periods when the value of the Corps dredges is fully 

realized for two reasons. First, as the last available industry dredges 

bid on work, and the expectation of being the sole bidder arises, the 

cost of the work begins to escalate - a normal response to supply and 

demand economics. The Corps minimum fleet hopper dredges represent a 

means to keep these cost escalations in check. If contractor bids 

exceed 125% of the Government Estimate, the Corps can reject the bids 

and perform the work with the minimum fleet hopper dredges. Second, the 

Corps ready reserve hopper dredge WHEELER and the MCFARLAND stand ready 

to respond when industry is fully engaged and unforeseen, time-

sensitive requirements occur.



In summary, the Corps has been continually evaluating and analyzing the 

appropriate use of Federal and industry hopper dredges in fulfilling 

its navigation mission. Determinations of the proper mix of ready 

reserve and fully operational Federal hopper dredges can not be solely 

derived from analyzing previous data. The Corps is in the process of 

refining the Dredging Information System to ensure the data will supply 

the needed information for management of hopper dredging. The 

Government Estimating process and data are being reviewed and, where 

appropriate, will be updated.



We appreciate the opportunity to comment on this draft report.



[End of section]



Discussed below are GAO’s corresponding detailed responses to the 

Army’s six numbered additional comments.



As discussed in our report, the Corps’ cost estimate is pivotal in 

determining the reasonableness of private contractors bids, and by law 

the Corps may not award a contract if the bid price exceeds the cost 

estimate by more than 25 percent. Consequently, we believe that it is 

critical for the Corps to have comprehensive data for all costs and all 

industry vessels. The Army recognized in its comments that the cost 

information for industry hopper dredges is outdated and needs to be 

evaluated, and has initiated an effort to improve the cost data. While 

we recognize that updating the cost data could potentially increase or 

decrease the Corps’ cost estimates, we believe that unless the Corps 

has updated cost data for all industry vessels, there is no assurance 

that the Corps’ cost estimates are a reliable tool for determining 

whether industry bids are within 25 percent of the government estimate 

as required by law. The Army’s suggestion of clustering several 

navigation projects for west coast contracts--similar to the Dredging 

Contractors of America’s comment numbered 3--is one of several possible 

options for addressing the costs of moving dredges to and from the west 

coast region.



In our report, we illustrated how a rigid interpretation of the Corps’ 

policy that limits the number of days its vessel can operate resulted 

in inefficient operations. We recognize that the Corps’ hopper dredge 

owning district has the flexibility to schedule the dredge within the 

maximum allowable number of days. However, because time-sensitive 

dredging needs may disrupt the scheduled use of the dredge, we believe 

that it would be prudent for the Corps to examine whether there is a 

need for some flexibility in implementing the annual operating 

restrictions on the Corps vessels.



As discussed in our report, the Corps incurs many of the costs for 

maintaining and operating its hopper dredges regardless of how much the 

vessels are used. While it is true that the Corps would save 

contracting costs if the river is not shoaling and the work previously 

performed by the Wheeler does not need to be done, the Corps is still 

paying money to maintain the Wheeler idle in reserve when the vessel 

could be working to pay for its costs. We recognize that it is 

plausible that private industry’s hopper dredging costs could decrease 

over time if their vessels performed more work. However, more important 

to the government, is how any potential decrease in industry costs are 

passed along to the government in the form of lower prices. The data in 

our report raise questions about whether any cost savings industry has 

realized have trickled down to the government. The Army’s suggestion 

regarding a sensitivity analysis is one of many analyses that it may 

wish to consider in its comprehensive analysis of the costs and 

benefits of existing and proposed restrictions on the use of the Corps’ 

hopper dredges.



As acknowledged in our report, private industry has increased its 

hopper dredging capacity. However, the exact change in capacity and the 

degree to which the capacity increases are attributable to the 

restrictions on the Corps vessels is uncertain. While it is plausible 

that the restrictions may have caused industry to make these capital 

improvements, representatives of the dredging industry told us that the 

restrictions were one of several factors that they considered before 

building or acquiring additional vessels, including the construction of 

the Bayport and the Liberty Island. It is uncertain whether these 

investments occurred as a result of the restrictions or whether the 

investments were necessary to remain competitive in the industry. 

Hypothetically, more vessels and increased capacity should translate to 

more bids and lower bid prices. However, our analysis showed that the 

number of industry bids per hopper maintenance dredging solicitation 

declined from about 3 bids before restrictions to roughly 2.4 bids 

after restrictions were placed on the Corps vessels. This finding 

reinforces the need for a comprehensive analysis of the benefits and 

costs of the restrictions on the Corps’ dredges.



The Army’s comment reinforces our concerns about whether the 

restrictions have resulted in proven benefits. This is one of the 

issues that should be considered in the comprehensive analysis we are 

recommending.



The Army recognizes the need to update the information being collected 

by its Dredging Information System and has initiated efforts to address 

this issue. Obtaining and analyzing such information is an important 

prerequisite to determine whether all hopper dredging needs, in 

particular time-sensitive needs, are being met in the manner most cost-

effective to the government. While the Army refers to a mechanism they 

have developed with industry to ensure that time-sensitive and urgent 

dredging needs are managed, we believe it is premature to claim that 

the process has resulted in meeting time-sensitive dredging needs in a 

cost-effective manner.



The Army’s comments did not address the lack of supporting 

documentation for its June 2000 Report to Congress. Instead, the Army 

reiterated points it has made in its previous comments and raised a 

number of other issues related to hopper dredging. Until a 

comprehensive analysis is performed on the benefits and costs of 

restrictions on the Corps’ hopper dredge fleet, there is no assurance 

that the Nation’s hopper dredging needs are being met in the manner 

that is most economic and advantageous to the government.



[End of section]



Appendix IV: Comments from the Dredging Contractors of America:



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Dredging Contractors of America	

311 North Washington Street:

Alexandria, Virginia 22314:



(703) 518-8408:

Fax: (703) 518-8490:



March 3, 2003:



Barry T. Hill:



Director, Natural Resources and Environment:



U.S. General Accounting Office 441 G Street NW:



Washington, DC 20548:



Dear Mr. Hill:



Attached are the official written comments of the Dredging Contractors 

of America (DCA) to the proposed General Accounting Office report 

entitled Corps of Engineers. Effects of Restrictions on Corps’ Hopper 

Dredges Should be Comprehensively Analyzed (GAO-03-3 82).



DCA appreciates the opportunity to provide comments on this proposed 

report. The information presented in the report will have direct and 

significant implications for the DCA and its members that operate 

hopper dredges.



DCA is a non-profit organization representing the nation’s dredging and 

marine construction contractors. DCA represents the private companies 

that contract with the Army Corps of Engineers for dredging services, 

including the five companies that provide hopper dredging services to 

the Corps.



Please direct any questions that you may have regarding these comments 

to me on (703) 518-8408. Again, thank you for this opportunity and for 

the cooperation the General Accounting Office has shown regarding this 

matter.



Sincerely yours,



Mark D. Sickles 

Executive Director:



Signed by Mark D. Sickles:



DCA appreciates the opportunity to provide written comments on the 

proposed General Accounting Office (GAO) report entitled Corps of 

Engineers: Effects of Restrictions on Corps’ Hopper Dredges Should be 

Comprehensively Analyzed (GAO-03-382) and offers the following comments 

with attached supporting information.



GAO characterizes the 1978 legislation as “encouraging” private 

industry participation in dredging, but does not include reference to 

the legal mandate requiring the Secretary of the Army to use contracts 

if industry has the capability and can do so at reasonable prices and 

in a timely manner. This provides important context for any analysis. 

DCA generally agrees that the Corps should use updated contractor cost 

information and should not use the expired policy for calculating 

mobilization (transit) costs in developing cost estimates. (Refer below 

to 1, 2 and 3.):



* DCA strongly disagrees that reducing the scheduled use of Corps 
hopper 

dredges has not resulted in proven benefits. Available information and 

data show that benefits have resulted. In particular, benefits and 

competition have been increasing since the Corps hopper dredge Wheeler 

was placed in ready reserve. (Refer below to 4, 5, 6, 7 and 8.):



* DCA generally agrees that the Corps should analyze the costs and 

benefits of existing and proposed reductions in the scheduled use of 

the Corps hopper dredge fleet. Furthermore, DCA suggests that this 

analysis be used to help determine the appropriate Corps minimum hopper 

dredge fleet and how the fleet is managed. (Refer below to 9.):



1. The GAO report should recognize and account for the congressional 

mandate regarding using private contactors for dredging work. 

Specifically, the law states that the Secretary of the Army “shall have 

dredging and related work done by contract if he (the Secretary) 

determines private industry had the capability to do such work and it 

can be done at reasonable prices and in a timely manner.” The law 

further states that as private industry reasonably demonstrates its 

capability to perform the work done by the federally owned fleet, at 

reasonable prices in a timely manner, the federally owned fleet shall 

be reduced in an orderly manner, as determined by the Secretary, by 

retirement of plant. Again, Congress in 1996 said “The Secretary shall 

initiate a program to increase the use, of private-industry hopper 

dredges for the construction and maintenance of Federal navigation 

channels.” (See appendix 1.):



2. DCA maintains that the Corps receives adequate updated contractor 

cost information in its districts through claims and other audit-

related activities. This information should be coordinated and 

distributed through Corps headquarters for the benefit of all 

districts. DCA wants to ensure that current cost information is used 

because the industry faces increasing labor, fuel, maintenance, and 

insurance costs. DCA would welcome the opportunity to work with the 

Corps to help ensure that updated cost data is applied to cost 

estimates across all Corps

districts. It is important to remember that under law [33 U.S. Code § 

624(a)(2)] and Corps policy the ‘fair and reasonable’ estimate is not 

written for the least costly producer for a particular job or for the 

dredge that is closest to the job, but for a “well-equipped 

contractor.” (See appendix 2.):



3. DCA agrees that the Corps should use its existing policy-Corps’ 

Engineering Regulation 1110-2-1302-for calculating mobilization 

(transit) costs in developing cost estimates. DCA considers this policy 

appropriate and reasonable. As noted in the GAO draft report, this 

policy calls on the Corps to base mobilization costs on a radius for a 

normal area of operations from the project site that includes a 

reasonable number of bidders. Concern about estimating mobilization 

costs is primarily an issue in only one region-the West Coast. A 

management option the Corps should explore to help address this issue 

would be to combine several solicitations into a single solicitation. 

(See appendix 3.):



4. For the 10-year period beginning in 1993 when scheduled work 

reductions for the Corps hopper dredges began, there has been an 

increase in the number of private industry hopper dredges available to 

bid on Corps projects from 14 to 16 vessels. There have been two new 

hopper dredges built (Bayport and Liberty Island), a substantial 

investment in, and redeployment of, the Columbia, the return of the 

Stuyvesant to the U.S. hopper market in 1995, and other capacity 

improvements since 1993. (See appendix 4.):



5. For the 10-year period beginning in 1993 when scheduled work 

reductions for the Corps hopper dredges began, there has been a 

significant increase in private hopper dredging capacity from 59,710 

cubic yards in the period 1993 through 1994 to 81,150 cubic yards by 

the end of 2002, a 36 percent increase. This includes an overall 

increase in capacity of 10,240 cubic yards since the Wheeler went into 

ready reserve at the beginning of fiscal year 1998, a 17 percent 

increase. (See appendix 5.):



6. Since the Corps hopper dredge Wheeler was placed in ready reserve 

beginning in fiscal year 1998 and the private industry hopper dredges 

Bayport and Liberty Island began service in 1999 and 2002, 

respectively, there has been an increase in the number of bids per 

Corps solicitation, an increase in the percentage of Corps 

solicitations with three or more bids, an increase in the number of 

winning bids that were below the Corps cost estimate, a decrease in the 

winning bid as a percentage of the Corps cost estimate, and an increase 

in the percentage of winning bids that were below the Corps cost 

estimate. DCA recognizes that the year-to-year variations in the data 

are largely due to fluctuations in Mississippi River levels and when 

those fluctuations occurred during the year. DCA believes that future 

data will confirm the shift over the last several years in increasing 

competition, especially since the Liberty Island has not yet completed 

a full fiscal year in service. (See appendix 6.):



7. The historical data do not generally indicate that the private 
hopper 

dredging industry submits fewer bids per Corps solicitation when it 

“expects” to dredge more material in a given year. Specifically, the 

GAO draft report provides an example to support this position that in 

fiscal year 1991, when the Corps estimated that 31.3 million cubic 

yards of maintenance material would be contracted out to the private 

sector the average number of bids per solicitation was 3.2, while in 

fiscal year 1998 when the Corps estimated that 53.7 million yards of 

maintenance would be contracted out, the average number of bids per 

solicitation was 2. However, in fiscal year 2001 when the Corps 

indicated that nearly 60 million cubic yards would be dredged, the 

average number of bids was 3.1, essentially the same as for fiscal year 

1991. DCA also maintains that it is difficult for industry to know how 

much material it “expects” to dredge and that such projections do not 

influence the future number of bids. (See appendix 7.):



8. DCA contends that for the 10-year period beginning in 1993 when 

scheduled work reductions for the Corps hopper dredges began, there has 

been an increase in the number of companies competing on a nationwide 

basis from four to five. While it is true that seven companies were in 

existence, only four competed on a national basis. Two companies 

(Manson Construction Co. on the West Coast and B+B Dredging on the 

Great Lakes) competed solely on a regional basis and one company 

(Stuyvesant Dredging Co.) had withdrawn its equipment from the market. 

Since the reduction of scheduled work for the Wheeler, which triggered 

industry investment, there are now five companies competing on a 

nationwide basis with an accompanying increase in the number of bids 

received per Corps solicitation. In conjunction with the development of 

the industry, the Industry-Corps Hopper Dredge Management Group 

(ICHDMG) has provided for a national focus and worked to maximize 

utilization of available resources and provide more rapid response to 

urgent and emergency dredging needs. (See appendix 8.):



9. To adequately perform any analysis, the Corps should have complete 

and reliable data. This would include, among other things, inputting 

correct information in the districts for items such as the total cubic 

yards actually dredged and dredge type. Corps headquarters needs 

additional resources to help ensure that data is inputted correctly by 

the districts into their database. DCA welcomes better characterization 

of urgent and emergency response outcomes. A system should be developed 

to capture the nature of the emergency and a post facto analysis of the 

cost and adequacy of the response. DCA also welcomes the opportunity to 

work with the Corps to make these improvements. (See appendix 9.):



DCA generally agreed with our recommendations. However, DCA strongly 

believes that reducing the scheduled use of the Corps’ hopper dredges 

has resulted in proven benefits. DCA stated that available information 

and data show that benefits have resulted. However, we believe the 

relationship between the restrictions on the Corps’ hopper dredge fleet 

and benefits to the government remains unproven. First, the extent to 

which use restrictions on the Corps’ vessels were a factor in 

industry’s investment decisions to increase its fleet size and add 

dredging capacity is unclear. Second, the analysis provided by DCA to 

support its claim is not persuasive; it covered an insufficient period 

of time and presented data in a potentially misleading fashion. 

Specifically, DCA only included data for activities that occurred after 

the implementation of the first restriction on the Corps’ dredges. We 

believe that an analysis of the effects of the restrictions should 

include data covering the period before and after the restrictions 

because the time period before restrictions establishes the appropriate 

baseline to compare changes resulting from the restrictions.



Discussed below are our corresponding detailed responses to DCA’s nine 

numbered comments in the three-page attachment to its letter. DCA also 

provided 21 pages of appendices, which we have not included in this 

final report because of the length. However, we have considered all of 

DCA’s comments in our response.



We have added language to expand our description of the legislation 

enacted in 1996 that further increased the role of private industry in 

hopper dredging.



We disagree that the Corps receives adequate, updated contractor cost 

information through claims and other audit-related activities. As part 

of this process, industry only provides the Corps updated information 

to support specific costs that they believe are outdated. They are not 

required to provide updated information for all costs. In addition, the 

updated information obtained through claims and other audit-related 

activities do not ensure that data are collected consistently for each 

of the vessels. For a vessel involved in multiple claims, the Corps may 

have more up-to-date costs than a vessel with fewer claims. DCA stated 

in its comments that current cost information should be used because 

industry faces increasing labor, fuel, maintenance, and insurance 

costs. As mentioned in our report, the Corps adjusts estimated costs 

annually to reflect current price levels. These adjustments, however, 

do not account for fundamental changes, such as a vessel reaching the 

end of its depreciable life, which may also affect the cost estimate. 

For example, according to a Corps official, industry vessels are 

depreciated over 20 to 25 years. In 2003, 9 of the 16 industry vessels 

were 20 years or older and thus, may be nearing the end of their 

depreciable lives. Unless the Corps has updated data for all costs and 

for all industry vessels, there is no assurance that the Corps’ cost 

estimates are a reliable tool for determining whether industry’s bids 

are within 25-percent of the government estimate as required by law.



As our report recommends, we believe the Corps should examine its 

policies related to calculating transit costs. We agree that DCA’s 

suggestion is one of several possible options for addressing this 

issue.



The extent to which the restrictions on the Corps vessels caused 

industry to make the investments that DCA cited as proven benefits is 

unclear. First, representatives of the dredging firms told us the 

restrictions were only one of several factors they considered before 

building or acquiring additional vessels, including the construction of 

the Bayport and Liberty Island. Second, firms must routinely replace 

and update equipment to remain competitive in any industry. While DCA 

stated that there was a substantial investment in the Columbia 

following restrictions, the vessel was originally built in 1944 and 

designed to transport military equipment during World War II. We 

believe it is plausible that the restrictions on the Corps’ vessels may 

have contributed to industry’s investment decisions; however, it is 

unclear to what extent the restrictions contributed to these decisions.



While private industry has added capacity, we question the basis for 

DCA’s calculation of the exact change in capacity and the degree to 

which the capacity increases are attributable to restrictions on the 

Corps’ hopper dredges. Over half of the increase in capacity cited by 

DCA is attributable to the return of one vessel--the Stuyvesant--to 

service in the United States. However, the Stuyvesant worked in the 

United States prior to the restrictions, and thus it is questionable 

whether this constitutes an increase in capacity. With regard to the 

portion of capacity increase due to the construction of the Bayport and 

the Liberty Island, as previously stated in response 4 above, the 

owners of these vessels said the restrictions were only one of several 

factors they considered in their decisions to build these two vessels. 

For these reasons, we believe it is questionable whether the capacity 

increases cited by DCA are proven benefits of the restrictions.



We believe that DCA’s claims are based on incomplete information and 

can be misleading because its analysis only included data after the 

implementation of the first restriction in fiscal year 1993. As a 

result, DCA only examined the marginal effects after the Wheeler was 

placed in ready reserve, but not the effects of all the restrictions. 

We believe a more appropriate analysis of the effects of the 

restrictions would compare data covering the periods before and after 

all restrictions because the time period before restrictions 

establishes the appropriate baseline to compare changes resulting from 

the restrictions.



The following example illustrates how not examining the entire time 

period before and after all restrictions may produce incomplete and 

misleading results. We found that the percentage of bids less than the 

Corps’ cost estimate was 55 percent after the fiscal year 1993 

restriction went into effect (fiscal years 1993 through 2002) and 58 

percent after the Wheeler was placed in reserve (fiscal years 1998 

through 2002). This finding is consistent with DCA’s claim, and taken 

alone could be viewed as an improvement. However, prior to the 1993 

restriction (fiscal years 1990 through 1992), 76 percent of the winning 

bids were less than the Corps’ cost estimate. Thus, although there has 

been an increase in the percentage of bids less than the Corps’ cost 

estimate following reserve of the Wheeler, this change is significantly 

less than what occurred before the restrictions.



Furthermore, in an appendix to its comments, DCA criticized our 

approach of presenting data as averages across a number of years to 

assess the effects of the restrictions, and argued that a year-to-year 

evaluation should be used. However, in addition to restrictions on the 

Corps’ fleet, a number of other factors can lead to changes in the 

number of bids per solicitation and winning bid relative to the Corps’ 

cost estimate from one year to the next. For example, high water flows 

in the Mississippi River can result in high accumulation of material at 

the mouth of the Mississippi River and increase the demand for time-

sensitive dredging requirements. During such periods, the winning bids 

relative to the Corps’ cost estimate may increase. However, the 

information necessary to control for these factors is unavailable. For 

example, the Corps does not collect data on time-sensitive dredging 

needs. As a result, we believe that presenting changes as averages 

across a number of years is more appropriate because it mitigates for 

the annual variability in the factors that can also affect the number 

of bids per Corps solicitation and winning bid relative to the Corps’ 

cost estimate.



We disagree with DCA’s comment. In fact, the historical data do 

indicate that, in general, in years when more material is available to 

industry, industry submits fewer bids per Corps solicitation. The 

information presented in figure 3 in our report, shows that there is an 

inverse relationship between the estimated volume of material dredged 

and the annual bids per solicitation, which is statistically 

significant at the 95 percent confidence level.



DCA agreed that seven companies operated in the U.S. hopper dredging 

market prior to the fiscal year 1993 restriction, while five companies 

remain in the market today. However, DCA stated that the number of 

companies competing on a nationwide basis has increased from four to 

five in the last 10 years. Regardless of whether dredging firms 

operated on a regional or national basis, prior to the restrictions 

seven firms provided hopper dredging services and now there are five 

firms. Furthermore, as recognized in our report, the consolidation in 

the industry does not necessarily mean that competition has been 

reduced because the new industry structure could have resulted in 

enhanced capacity, flexibility, and efficiency for the remaining firms. 

Moreover, regardless of the number of firms in the industry, DCA 

acknowledged that the number of bids is more indicative of competition 

than merely the number of companies. As stated in our report, the 

number of industry bids per Corps solicitation has decreased on a 

nationwide basis from approximately 3 bids in the 3 years prior to the 

restrictions (fiscal years 1990 through 1992) to roughly 2.4 bids in 

the period following the restrictions (fiscal years 1993 through 2002).



We agree with DCA’s comment, which is already addressed by our 

recommendations.



[End of section]



Appendix V: GAO Contact and Staff Acknowledgments:



GAO contact:



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



Acknowledgments:



In addition, Chuck Barchok, Diana Cheng, Richard Johnson, Jonathan 

McMurray, Ryan Petitte, and Daren Sweeney made key contributions to 

this report.



FOOTNOTES



[1] A hopper dredge’s class is determined by its capacity--hoppers with 

up to 3,000 cubic yards of capacity are considered small, medium 

hoppers have capacity from 3,000 to 6,000 cubic yards, and large 

hoppers have a capacity of 6,000 cubic yards or more.



[2] Hopper dredging requires large capital outlays--a medium-class 

hopper dredge costs between $20 million and $40 million and normally 

takes 18 months to build--making it difficult for firms to enter the 

market quickly. 



[3] A direct and valid comparison of the Corps’ and private industry’s 

costs to perform hopper dredge work is not possible due to various 

factors, which include, among other things, design features in the 

Corps’ vessels in support of national defense missions, which add 

weight to the vessels and make them less efficient than industry 

vessels; limits to the number of days the Corps’ vessels may operate--

180 days or fewer, compared to about 250 days for industry; and 

differences between dredging projects--such as type of material 

dredged, type of work and corresponding risk level, and distance from 

the dredging operations to the disposal site. 



[4] There are three main regions where hopper dredging takes place in 

the United States--the Atlantic, the Gulf of Mexico, and the Pacific. 

Dredges can move readily from the Atlantic to the Gulf of Mexico (which 

requires at least a week), but moving from the Atlantic to the Pacific 

requires several weeks and transit through the Panama Canal.



[5] In 1994 the Corps replaced the expired regulation with Corps’ 

Engineering Regulation 1110-2-1302, which called on the Corps to base 

transit costs on a radius for a normal area of operations from the 

project site that includes a reasonable number of bidders.



[6] Transit costs have a greater impact on solicitations that take 

place in the Pacific Northwest, where the second-closest dredge may be 

more distant from the work site than for solicitations that take place 

in the Gulf of Mexico or the Atlantic.



[7] According to the Corps, the Wheeler’s average annual operating cost 

during ready reserve was $12.5 million. While the vessel is credited 

for “earning” $4.125 million for its 55 days of work (at a daily rental 

rate of $75,000), a subsidy of $8.375 million per year is required to 

maintain the Wheeler idle in ready reserve. 



[8] As previously discussed, we have identified concerns related to the 

Corps’ cost estimate. However, these concerns were largely present both 

before and after the restrictions, thus we have no reason to believe 

that these concerns would materially affect the use of the cost 

estimate in the information presented.



[9] In the 5-year period following ready reserve of the Wheeler (fiscal 

years 1998 through 2002), there were roughly 2.5 industry bids per 

Corps solicitation, and 19 percent of the solicitations had only one 

bid, while 51 percent received three or more bids.



[10] In the 5-year period following ready reserve of the Wheeler 
(fiscal 

years 1998 through 2002), 42 percent of the winning bids exceeded the 

Corps’ cost estimate, and 58 percent of the winning bids were less than 

the Corps’ cost estimate.



[11] A vessel actively working will respond to an emergency with a full 

crew, whereas a vessel in reserve may be called to respond to an 

emergency during a period when it has a reduced crew and may be unable 

to assemble a full crew and respond to an emergency in a timely manner. 



[12] Report to Congress, Section 237, Hopper Dredges: Ready Reserve 

Status of the Hopper Dredge Wheeler.



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