THURSDAY, SEPTEMBER 9, 1965.

COAST AND GEODETIC SURVEY

CONSTRUCTION OF SURVEYING SHIPS

WITNESSES

DAVID R. BALDWIN, ASSISTANT SECRETARY FOR ADMINISTRATION

LAWRENCE E. IMHOFF, DIRECTOR, OFFICE OF BUDGET AND FINANCE

REAR ADM. JAMES C. TISON, JR., DIRECTOR, COAST AND GEODETIC SURVEY

REAR ADM. H. ARNOLD KARO, FORMER DIRECTOR, COAST AND GEODETIC SURVEY

RAYMOND A. GIRARD, ACTING DIRECTOR, OFFICE OF ADMINISTRATION, ENVIRONMENTAL SCIENCE SERVICES ADMINISTRATION

JOHN M. AMSTADT, ACTING HEAD, BUDGET AND FINANCE DIVISION, ESSA

ALLEN L. POWELL, CHIEF, FACILITIES DIVISION, COAST AND GEODETIC SURVEY

ROBERT A. GARSKE, ATTORNEY ASSISTANT, MARITIME ADMINISTRATION

HARRY B. STOVER, PROJECT ENGINEER, MARITIME ADMINISTRATION

Mr. ROONEY. We are now to the third and last of these three items for the Department of Commerce appearing in House Document No. 278, the one which is entitled, "Coast and Geodetic Survey, construction of surveying ships."

For an additional amount for "Construction of surveying ships," $1,687,000, to remain available until expended.

We shall at this point insert in the record pages 2 through 9 of the justifications.

(The pages follow :)

PURPOSE AND NEED FOR SUPPLEMENTAL

The amount requested in this supplemental is required to replace funds reprogramed in the appropriation, "Construction of surveying ships," to enable the Coast and Geodetic Survey to cover accepted bids for the construction of two class II survey ships for which funds were appropriated during fiscal years 1962 and 1963.

The need for these additional funds is made mandatory only because the contractor to whom the original contract was awarded has defaulted and the remaining and available unexpended funds therefore, are not adequate to cover the estimated costs of constructing these ships under the lowest readvertised invitation to bid. Action on the contractor's bond should result in the return of all excess costs to the Government to miscellaneous receipts. The Justice Department has been alerted of possible action.

History of appropriated funds

The appropriation language governing this appropriation provides that all funds appropriated hereunder shall remain available until expended. This provision is necessary because the leadtime required in the construction of ships and procurement of instrumentation, therefore, varies from 12 to 36 months. Consequently, all funds appropriated under this appropriation title are merged

into a single account and funds are allocated and made available to finance the design, supervision, construction, equipping, and outfitting of all surveving vessels for which the Congress has previously appropriated funds. The Bureau exercises prudent discretion in utilizing savings effected in the coa struction of certain ships to apply against the increased costs of constructing others.

Funds totaling $4,760,000, were appropriated in fiscal year 1962 for the construction of a class II survey ship (Fairweather) to replace the obsolete ship Bowie, which was built in 1943. Funds totaling $4,675,000 were appropriated in fiscal year 1963 for the construction of a class II survey ship (Rainier) to replace the obsolete ship Hodgson, which was also built in 1943. This supplemental relates specifically to the defaulted contract for the construction of these two ships and the need for $1,687,000 of additional funds to award a new contract for their completion under readvertised bids.

Flexibility in the use of obligational authority

The estimated unobligated balance in this appropriation at the end of fiscal year 1965 ($12.2 million) as reflected in the fiscal year 1966 budget document is not sufficient to cover the increase in cost of the ships Fairweather and Rainier, resulting from the defaulted contract, and still fulfill the design, supervision, construction, equipping, and outfitting requirements for seven other authorized vessels. For example, $8.8 million pertains to the class I-A vessel on which construction will start early in fiscal year 1966. (This amount excludes $0.2 million which will be obligated in 1965 for design, model testing, and administration costs.) The remaining $3.4 million is required for completon of construction, equipping, and outfitting of the Oceanographer, Discoverer, Mount Mitchell, McArthur, Davidson, Rude, and Heck, and for equipment and outfit still to be purchased for the Fairweather and Rainier.

This supplemental will (1) provide for the new construction contract on the Fairweather and Rainier; and (2) provide for restoration of the amount borrowed from the funds currently reserved for the class I-A so that a construetion contract on it may be awarded as planned in fiscal year 1966.

History of the original contract

The Maritime Administration, on behalf of the Coast and Geodetic Survey, contracted for the construction of two hydrographic ships with the Marietta Manufacturing Co., of Point Pleasant, W. Va. The contract was awarded on November 19, 1962, for $6,822,458 for the two ships. The Travelers Indemnity Co., of Hartford, Conn., was the surety on the performance and payment bonds. The delivery dates on the ships were November 18, 1964, for the first ship (Fairweather) and March 18, 1965, for the second ship (Rainier).

On July 1, 1963, the financial condition of the Marietta Manufacturing Co. became critical. The company experienced difficulty with its labor force and as a consequence, construction efforts were stymied. Delivery dates of the ships were extended. On October 1, 1963, a strike started at the shipyard and continued until February 8, 1964. Because of the labor dispute, the Maritime Administration, on November 10, 1964, again extended the delivery dates to August 30 and October 28, 1965.

On November 18, 1964, the Marietta Manufacturing Co. and the Travelers Indemnity Co. were notified by the Maritime Administration that the contract was terminated because (1) the contractor had failed to prosecute the contract work with such diligence and in such a manner as would enable him to complete the contract work in accordance with the delivery dates, as extended; and (2) the contractor's financial condition and reduction in its labor force would make it impossible for the contractor to carry out its obligations under the contract. The contractor's progress on construction is outlined below in terms of (1) rate of expenditure under the contract; and (2) physical accomplishments on the construction of the ships.

(At the termination date of the contract, the contractor had expended approximately 1.5 percent on direct labor and 15 percent on material and the design agent's contract.)

Physical accomplishment

Twenty-four months after the award of the contract, the only visible accomplishments at the shipyard toward the construction of the two ships were two small sections of the inner bottom which had been placed on the ground. These sections had not even been placed on a building way. It was very apparent that physical progress accomplished was practically nil. No further accomplish

ments have been made.

New solicitation of bids after termination of original contract

On December 3, 1964, the Maritime Administration issued a readvertisement invitation to bid for the construction of the two ships. Bids were opened on March 3, 1965. The lowest bid for the two ships, $7,308,542, was submitted by the Aerojet General Shipyards, Inc., of Jacksonville, Fla. This is the same company which was awarded the contracts for construction of the Bureau's class II survey ship Mount Mitchell and the two class I oceanographic vessels the Oceanographer and Discoverer.

The Bureau has no information as to whether or not the bid by the Aerojet General Shipyards, Inc., was predicated on a "three-ship package" estimate. It appears that this bid was based on the fact that the construction of a second and third ship, using the same design and specifications of the first ship, could be accomplished at a cost far less than three times the cost of constructing a single ship. The only other bid received on these two ships was $10,264,144, which is $2,955,602 over the Aerojet bid.

Provision was made in the readvertised invitation for sealed bids (1) that each bidder to whom copies of the plans and specifications were furnished would receive a list of all material and equipment items purchased either by the Federal Government or by the contractor which were physically located at the Marietta shipyard; (2) that the successful bidder would receive the Government-furnished material and must secure its transportation to his shipyard at his own risk and expense; and (3) that the successful bidder would be furnished the contractor-procured material and equipment (for inclusion in the construction of the two ships) by the Maritime Administration on an "as is, where is" basis, without any warranty of any kind, and such bidder would secure the transportation of the material to his shipyard at his own risk and expense. Liability for excess costs incurred by the United States

In letters dated March 5, 1965, to the Marietta Manufacturing Co. and the Travelers Indemnity Co., the Maritime Administration notified the above companies:

(1) That the Maritime Administration elected to have the contract work completed on the two survey ships originally contracted for under the provisions of contract No. MA-3156,

(2) That they, jointly, will be held liable for any excess costs incurred by the United States of America as a result of the completion of the contract work. [Italics supplied.]

(3) That prior to proceeding with the contemplated reprocurement referred to above, the Maritime Administration desired to extend an opportunity to them to submit a proposal to complete or have completed the contract work contracted for under the original contract on terms and conditions not less advantageous to the United States of America than those applicable under the original contract,

(4) That if they were interested, they should advise the Maritime Administration, within 10 days, of any proposal they may have to complete or to have completed the contract as indicated above, and

(5) That failure to reply within 10 days will be considered by the Maritime Administration to indicate a respective refusal to make a requested bid.

(NOTE. Neither the Marietta Manufacturing Co. nor the Travelers Indemnity Co. made any proposal under the opportunity afforded them in Maritime Administration's letter of March 5.)

Urgency and plan to complete construction under readvertised bids

Under the term of the bid, the Bureau had until June 1, 1965, to make an award. On May 24, 1965, an award was made to the low bidder, Aerojet General Shipyards, Inc., of Jacksonville, Fla. It is in the best interests of the Federal Government to have these ships constructed and in operation at the earliest possible date. The missions to be performed by these ships are ex

54-434-65-pt. 3——11

tremely important to the total oceanographic and hydrographic efforts of the Federal Government. Two years have been lost as a result of the default by the original contractor. The planned delivery dates of the ships are April 1967 for the Fairweather and June 1967 for the Rainier.

DETAILS OF REQUIREMENTS

The additional funds required under this supplemental, $1,686,889, are detailed on the following exhibit which compares the original contract costs and available funds with the current requirements.

The major increases, $486,084 and $1,068,805, respectively, represent the difference between unexpended funds available from the defaulted contract and the Aerojet bid. The increase of $132,000 for contract administration and onsite supervision is required because these services by the Maritime Administration must be furnished 2 years longer by reason of the default and readvertisement. The sum of these amounts represents the minimum liability of the Marietta Manufacturing Co. and/or the Travelers Indemnity Co. for excess cost over contract price incurred by the United States in completing the vessels in question.

Comparison of construction costs, ships "Fairweather" and "Rainier"

1 Based on the availability of $800,000 worth of contractor-procured material.

Net additional costs to the Federal Government

The additional funds to be made available under this supplemental should not be construed as additional expenditures of the Federal Government. This amount should be considered as an interim loan pending final resolution of action which will be taken by the Federal Government to recover all losses by virtue of default and completion under the new contract. In such instance, funds recovered by the United States will revert to the Treasury.

1 Selected resources as of June 30 are as follows: Unpaid undelivered orders, 1963, $21,467,000; 1964, $14,719,000; 1965, $21,180,000; 1966, $21,045,000.

Mr. ROONEY. We have with us Rear Adm. James C. Tison, Jr., Director of the Coast and Geodetic Survey. I assume he has a prepared statement.

Admiral TISON. Yes, Mr. Chairman.

Mr. ROONEY. You will please proceed, Admiral.

GENERAL STATEMENT

Admiral TISON. Mr. Chairman and members of the committee, in my present capacity as the new Director of the Coast and Geodetic Survey of the Environmental Science Services Administration, it is a pleasure to appear before you for the first time as the principal witI do regret the necessity for having to request a supplemental appropriation in order to complete the construction of two vessels previously authorized and funded by your committee.

ness.