Military Sealift Command: Weak Controls and Management of Contractor-Operated Ships

Highlights

Pursuant to a congressional request, GAO reviewed the Military Sealift Command's (MSC) management of its contractor-operated ships, focusing on whether MSC has: (1) adequate management controls to oversee contractors and prevent abuses; and (2) sufficient oversight to ensure that contractual requirements are being met.

Recommendations

Recommendations for Executive Action

Agency Affected	Recommendation	Status
Department of Defense	The Secretary of Defense should direct the Commander, MSC, to institute MSC-wide procedures to ensure that contractors are: (1) accurately reporting how they meet contract-defined thresholds for crew-performed minor repairs; (2) submitting adequate documentation with invoices for MSC to determine that prices are fair and reasonable; and (3) obtaining prior MSC approval for subcontracted work above thresholds required by the contracts.	Closed – Implemented Contract administration plans are being reviewed to ensure that reporting procedures for crew-performed minor repairs accurately report billings and provide the documentation to determine that prices are fair and reasonable. Enforcement of subcontract consent thresholds will be strengthened where appropriate.
Department of Defense	The Secretary of Defense should direct the Commander, MSC, to, when practical, require that MSC representatives verify, through spotchecks, that repairs and industrial assistance paid for by MSC have actually been done and recommend deductions if necessary. These spotchecks could be done by MSC personnel as part of their normal inspections.	Closed – Implemented MSC is performing spot-checking of minor repairs and industrial assistance. Sometimes it has been useful to have local staffs review invoices and sometimes it is more effective to have headquarters staff, who are familiar with the ships and oversee the results of the contractors' efforts, do the reviews. MSC is reviewing methods of establishing an appropriate level of government visitation. MSC will also review the issue of the contractor's internal controls.
Department of Defense	The Secretary of Defense should direct the Commander, MSC, to, when practical, require an MSC representative to verify, based upon physical observation, the satisfactory completion of work performed at various stages of overhauls of MSC contractor-operated ships.	Closed – Implemented MSC does not appear to have fully responded to the recommendation. It is continuing to explore ways of improving the oversight of subcontracted overhauls, including reliance on improved contractor internal controls. MSC prime contractors are responsible for the operation and maintenance of the ships, part of which includes overhaul of the vessels at subcontracted shipyards. MSC personnel review overhaul specification packages, and MSC consent is required before any overhaul is awarded.
Department of Defense	The Secretary of Defense should direct the Commander, MSC, to provide written guidance defining the roles, responsibilities, and authority of MSC representatives in protecting the government's interests during overhauls and other major repair work.	Closed – Implemented The responsibilities of government representatives during overhauls have been revised and incorporated in MSC's revised contract administration procedures.
Department of Defense	The Secretary of Defense should direct the Commander, MSC, to consider expanding the responsibilities of MSC Comptroller or creating a new position for a financial management expert to oversee the implementation of the above recommendations. If a new position is created, this person should report directly to the Commander, MSC. In addition to the existing duties of the Comptroller, this person would be responsible for setting minimal internal controls for all aspects of financial management throughout MSC and overseeing the implementation of these controls. The responsibilities of this person would be similar to those of a Chief Financial Officer established pursuant to the Chief Financial Officers Act of 1990.	Closed – Implemented MSC has created an executive level business manager position, which is over the Comptroller and will report directly to the Deputy Commander. This manager will provide guidance, training, and oversight to the MSC and all area commands.
Department of Defense	The Secretary of Defense should direct the Commander, MSC, to develop and require the use of standardized procedures by program managers and their staffs whenever possible to establish personnel requirements in their contracts.	Closed – Implemented MSC has strengthened its lines of responsibility along program manager lines.
Department of Defense	The Secretary of Defense should direct the Commander, MSC, to, as part of MSC upcoming reorganization, direct program managers to clarify accountability by: (1) assigning a specific individual responsibility for each contract requirement; and (2) periodically checking that contract provisions, such as those dealing with trustworthiness and security clearances, are correctly administered and met.	Closed – Implemented MSC has strengthened its lines of responsibility along program manager lines.
Department of Defense	The Secretary of Defense should direct the Commander, MSC, to instruct program managers and contracting personnel to meet to discuss and evaluate ways to identify and implement best practices into their contractor-operated ship programs.	Closed – Implemented MSC has strengthened its lines of responsibility along program manager lines.

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Topics

Justice and Law Enforcement

Best practicesContract administrationContract performanceContractor personnelDepartment of Defense contractorsEquipment maintenanceEquipment repairsInternal controlsMilitary vesselsOverpaymentsService contractsSurvey vessels