National Science Foundation: Need for Additional Icebreaking Research
Vessel Not Demonstrated (Letter Report, 05/12/95, GAO/RCED-95-77).
Pursuant to a congressional request, GAO reviewed the justification for
the National Science Foundation's (NSF) proposed procurement of an
icebreaking research vessel.
GAO found that: (1) NSF and the scientific community have not
demonstrated an increase in icebreaker requirements since 1990 to
sufficiently justify a fifth icebreaker vessel; (2) the three
icebreakers currently in operation are underutilized and no research
cruises in the Arctic region are planned for 1995 or 1996; (3) a fourth
icebreaker is being built for the Coast Guard to serve as an Arctic
research vessel; and (4) many Arctic scientists justify the acquisition
of the proposed vessel on the grounds that the Coast Guard is unwilling
and unable to provide reliable support to Arctic research activities,
although the Coast Guard's commitment to Arctic research has recently
improved.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-95-77
TITLE: National Science Foundation: Need for Additional
Icebreaking Research Vessel Not Demonstrated
DATE: 05/12/95
SUBJECT: Coast Guard
Ships
Oceanographic research
Agency missions
Interagency relations
Water transportation operations
Scientific research
Cost analysis
Budget cuts
IDENTIFIER: University National Oceanographic Laboratory System
Seattle (WA)
Coast Guard Polar Science Upgrade Project
Coast Guard Reliability Improvement Project
Arctic Ocean
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Cover
================================================================ COVER
Report to the Ranking Minority Member, Subcommittee on VA, HUD, and
Independent Agencies, Committee on Appropriations, U.S. Senate
May 1995
NATIONAL SCIENCE FOUNDATION - NEED
FOR ADDITIONAL ICEBREAKING
RESEARCH VESSEL NOT DEMONSTRATED
GAO/RCED-95-77
NSF's Justification for Icebreaking Research Vessel
Abbreviations
=============================================================== ABBREV
FOFCC - Federal Oceanographic Fleet Coordinating Committee
GAO - General Accounting Office
NAS - National Academy of Sciences
NSF - National Science Foundation
OMB - Office of Management and Budget
PIRS - 1990 Polar Icebreaker Requirements Study
UNOLS - University National Oceanographic Laboratory System
Letter
=============================================================== LETTER
B-259759
May 12, 1995
The Honorable Barbara Mikulski
Ranking Minority Member
Subcommittee on VA, HUD,
and Independent Agencies
Committee on Appropriations
United States Senate
Dear Senator Mikulski:
The Arctic Ocean is one of the least explored regions of the world.
Furthermore, this region is believed to play a key role in global
climate systems, world fishery production, and other natural
phenomena. The U.S. Coast Guard currently provides and operates
icebreakers in support of the nation's Arctic research program.
The National Science Foundation (NSF) received funds in fiscal year
1993 to begin design work on an icebreaking research ship (the
proposed vessel) and subsequently sought funds to acquire the vessel.
As agreed with your office, this report examines the justification
for the proposed vessel. Also, as requested, we are providing you
with information on NSF's analysis of the costs of buying versus
leasing the proposed vessel. (See app. I.)
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
NSF has not adequately justified the need for the proposed $120
million icebreaking vessel. A 1990 interagency study of national
icebreaker needs called for a fleet of four icebreakers, three of
which are currently in operation. The fourth icebreaker is being
built for the Coast Guard to serve primarily as an Arctic research
vessel and was designed with input from the scientific community.
Although research needs in the Arctic have evolved since 1990, NSF
and the scientific community have not demonstrated a net increase in
icebreaker requirements sufficient to justify a fifth icebreaker.
Currently, the existing icebreaker fleet is underutilized, and no
research cruises in the Arctic region are planned for 1995 or 1996,
primarily because of funding constraints. Recognizing the need to
update requirements for Arctic research and icebreaker support, NSF
contracted with the National Research Council of the National Academy
of Sciences to study this issue. A report on the study's findings is
expected during the summer of 1995.
Many Arctic scientists justify the acquisition of the proposed vessel
on the grounds that the Coast Guard is unwilling and unable to
provide efficient and reliable support to research activities in the
Arctic region. While these criticisms have merit, they are not
convincing, given recent improvements in the Coast Guard's commitment
and ability to support research in the region.
BACKGROUND
------------------------------------------------------------ Letter :2
Awareness of the environmental and economic importance of the Arctic
region is growing. The Arctic region is a very harsh operating
environment, making research expensive and risky. NSF is the largest
federal provider of funds for research in this region.\1 The U.S.
Coast Guard, part of the Department of Transportation, is charged
with providing and operating icebreakers to meet U.S. military,
logistic, and research needs in the Arctic and Antarctic regions.
From 1966 to 1991, the U.S. Coast Guard operated the nation's
icebreakers.\2 The mission of the Coast Guard's Ice Operations
Division, Office of Navigation Safety and Waterways Services,
includes assisting other governmental and scientific organizations in
scientific research and supporting national interests in the polar
regions. Investigators representing or sponsored by universities,
private institutions, and government agencies--including the Office
of Naval Research, the U.S. Geological Survey, and the National
Oceanic and Atmospheric Administration--conduct research aboard the
Coast Guard icebreakers.
The Arctic Research and Policy Act of 1984, as amended, calls for
coordination among agencies over the use of logistics resources,
including icebreakers, in the conduct of research. The act
established the Arctic Research Commission to promote research in the
Arctic region and to recommend Arctic research policy. Also under
the act, responsibility for promoting the coordination of all Arctic
research activities among agencies, including logistics (e.g.,
icebreaker support), rests with the Interagency Arctic Research
Policy Committee. The Committee is headed by NSF and includes the
Coast Guard among its members. Furthermore, in a 1987 agreement
aimed at minimizing conflict and serving national interests, NSF and
the Coast Guard pledged "to plan together, to the maximum extent
possible, for the use of U.S. [Coast Guard] icebreakers in the
support of polar research."
The Arctic research community has sought a vessel dedicated to Arctic
research for many years. The Arctic Research Commission recommended
that such a vessel be acquired. The Interagency Arctic Research
Policy Committee echoed this recommendation. Beginning in 1987, the
scientific community, through the University National Oceanographic
Laboratory System (UNOLS),\3 used funds from NSF to study the
requirements for, and possible designs of, an Arctic research vessel.
Comments from the Arctic scientific community from 1990 to 1992,
discussions in the Interagency Arctic Research Policy Committee, and
other forums were used to define the characteristics of the vessel.
From 1990 to the present, NSF and UNOLS, working with a private
engineering firm, developed preliminary designs for Arctic research
vessels of increasing size and icebreaking capability. The first
design called for a 200-foot vessel with modest icebreaking
capability whose estimated cost was about $40 million. After the
Arctic scientific community reviewed and commented on this design, it
was agreed that a larger vessel with greater icebreaking capacity was
needed. Accordingly, a 340-foot vessel was designed with significant
icebreaking capability and the capacity to perform 90-day missions in
the Arctic region. This vessel is expected to cost about $120
million.
--------------------
\1 NSF's mission is to promote and advance scientific progress.
\2 In 1991, NSF funds were used to lease the newly constructed
Antarctic icebreaking research vessel, the Nathaniel B. Palmer. The
vessel is operated for the oceanographic research community by a
private contractor under a long-term lease.
\3 An association of organizations with ocean science research
programs.
NEED FOR PROPOSED VESSEL NOT
DEMONSTRATED
------------------------------------------------------------ Letter :3
Acquisition of the proposed vessel is not supported by a quantified
analysis of the nation's requirements for icebreakers or by the
scientific community's criticism of the Coast Guard's support for
research. Moreover, records of actual and projections of future
icebreaker use suggest that a fifth icebreaking vessel may not be
needed.
PROPOSED VESSEL NOT
JUSTIFIED BY QUANTIFIED
ANALYSIS OF ICEBREAKER NEEDS
---------------------------------------------------------- Letter :3.1
A 1990 interagency study of national polar icebreaker requirements
(PIRS),\4 the most recent such quantified study, did not call for the
construction of the proposed vessel. NSF justifies the proposed
vessel on the grounds that (1) Arctic research needs are increasing
and (2) the United States does not have a vessel dedicated to Arctic
research. However, NSF has not demonstrated that another icebreaker
is required to meet research needs.
The study documented the nation's icebreaker requirements and
recommended a fleet of four icebreakers. These are the
Polar Sea and Polar Star (currently operating Coast Guard
icebreakers);
Nathaniel B. Palmer (an Antarctic icebreaking research vessel);
and
Michael A. Healy (a planned Coast Guard icebreaker).
The proposed vessel would be the fifth U.S. icebreaker, one more
than recommended by the 1990 study. Funds for the Healy have been
approved, and the vessel is scheduled to begin duty in 1998.
According to Coast Guard officials, the Healy will serve primarily as
an Arctic research vessel except when circumstances require its use
elsewhere.\5
To determine icebreaker requirements, the 1990 study quantified
operational and research mission needs. To quantify needs, the
number of days icebreakers were required to accomplish the missions
was totaled. Operational missions consisted of the annual resupply
of the Thule Air Force Base in Greenland\6 and the McMurdo Antarctic
research station (an NSF mission), as well as treaty inspection
duties in the Antarctic. Research requirements for icebreaker
support were also quantified and used in the study. However, these
requirements do not reflect subsequent changes in users' needs, such
as the military's reduced needs for icebreaker services resulting
from the end of the Cold War and other agencies' increased needs
attributed to higher priorities for Arctic research. Areas of
increased research emphasis include Arctic fisheries, because of
concern over fluctuating fish catches, and Arctic water quality,
because of concern over radionuclide and other contamination
originating in the former Soviet Union.
The scientific community has produced several reports recommending
the acquisition of an icebreaking vessel dedicated to Arctic
research. None of these reports attempts to justify the proposed
vessel by comparing the realistic demand for icebreakers to be used
for research with the availability of existing and planned Coast
Guard icebreakers. Reports of the Polar Research Board of the
National Academy of Sciences, the U.S. Arctic Research Commission,
and the Interagency Arctic Research Policy Committee justify an
additional vessel on the basis of (1) the increasing (although not
quantified) needs for research in the Arctic and (2) the observation
that the United States does not possess a vessel dedicated to Arctic
research. These reports do not balance the increased needs for
icebreakers to support research with the decreased needs for
icebreakers to support defense missions. Nor do the reports state
why existing and planned Coast Guard icebreakers, whose missions
include supporting Arctic research, cannot meet these needs.
Finally, the reports do not consider where the additional funding for
research will be obtained to fully employ a five-icebreaker fleet.
To address these shortcomings, NSF requested that the National
Research Council, which is affiliated with the National Academy of
Sciences, examine the scientific community's needs for icebreaker
support and how they can best be met. Neither the NSF program
manager nor the study's director is certain whether the study will
attempt to quantify the needs for icebreakers to support research in
the Arctic. Planning for the study began in November 1994, and the
final results are expected in the summer of 1995.
The potential for underutilizing existing and planned Coast Guard
icebreakers has led that agency to oppose the construction of the
proposed vessel. Both the actual use of Coast Guard vessels for
research in the Arctic over the past 4 years and the projected use in
1995 and 1996 are lower than estimated in the 1990 study. Coast
Guard records for 1994 show 83 days of icebreaker use for the Arctic
research of NSF and others, compared with the 143 days of use
projected for NSF's research in the 1990 PIRS. Furthermore, no use
of Coast Guard vessels for research in the Arctic region is
scheduled, or likely, for 1995. Prospects for a scientific mission
in 1996 are not good, according to Coast Guard and NSF officials,
because of funding constraints.
--------------------
\4 "Polar Icebreaker Requirements," October 1990. The study is a
collaborative effort by the Departments of Transportation and
Defense, NSF, and the Office of Management and Budget.
\5 For example, the Coast Guard told us that if its other icebreakers
were unexpectedly unavailable, it would send the Healy to resupply
McMurdo Station, Antarctica.
\6 The Coast Guard has arranged with the Canadian government to have
the Canadian Coast Guard provide support for resupplying the Thule
Air Force Base. However, the Coast Guard must be prepared to resume
this duty on 1 year's notice. In the meantime, this arrangement
makes an icebreaker available for about 60 days per year, potentially
for assignment to research missions.
COAST GUARD'S SHORTCOMINGS
NOT COMPELLING JUSTIFICATION
FOR VESSEL, GIVEN RECENT
IMPROVEMENTS
---------------------------------------------------------- Letter :3.2
Many in the Arctic scientific community justify the acquisition of
the proposed vessel on the grounds that the Coast Guard, because it
has multiple missions, does not possess the desire, skills, or
facilities to provide adequate support for Arctic science. However,
this justification is not convincing, given improvements in the Coast
Guard's commitment and ability to support research in the region.
Some Arctic scientists assert that the Coast Guard values its other
missions over supporting science. As a result, say these scientists,
the Coast Guard lacks the desire to ensure the successful completion
of scientific cruises to the Arctic. For example, supporting the
U.S. military is a significant and traditional Coast Guard mission.
The Coast Guard's adherence to this mission may result in approaches
and goals on cruises that differ from those of the scientists on
board. For instance, the strict chain of command on Coast Guard
vessels has made communication between the chief scientist and the
Captain of the vessel cumbersome, limiting flexibility in the
accomplishment of research. Scientists, on the other hand, are
generally not accustomed to seeking authorization for minor changes
in the conduct of research projects.
In recent years, the Coast Guard has placed greater emphasis on its
role in supporting science. This increased priority is evidenced by
an agreement between the Coast Guard and NSF on support for polar
research, Coast Guard directives concerning such research, and a
decline in the military mission for the Coast Guard's icebreaker
fleet. The Coast Guard's operating authority includes supporting
oceanographic research as a Coast Guard mission. In addition, in
1987, the Coast Guard pledged in an agreement with NSF to maintain
trained personnel and icebreakers with adequate facilities to support
polar research. Also, following an unsuccessful and contentious
scientific cruise in 1991, high-ranking Coast Guard officials,
including the Commandant, issued several directives stressing the
importance of supporting Arctic science as a Coast Guard mission.
Finally, Coast Guard officials in the Division of Ice Operations
observed that the scientific mission has taken on added importance
for the Coast Guard icebreaker fleet as emphasis on the military
mission for these vessels has declined. Arctic scientists who
participated in scientific cruises aboard Coast Guard icebreakers
have noted significant improvements in the willingness of Coast Guard
personnel to work with and support scientists.
However, many Arctic scientists have maintained that Coast Guard
personnel lack the skills necessary to adequately support research in
the Arctic. Furthermore, some of the scientists believe that
acquiring the proposed vessel would allow them to employ a crew that
is highly skilled in supporting research. Scientists also point to
Coast Guard rotation policies that prevent personnel from acquiring
and maintaining skills in planning scientific cruises, navigating and
maneuvering in ice, and maintaining and operating scientific
equipment, such as oceanographic winches.
The Coast Guard recognizes these shortcomings and has taken steps to
address them. First, to represent the needs of scientists before the
Coast Guard, the agency created a position for a liaison with the
civilian scientific community at the icebreakers' home port of
Seattle, Washington. This representation includes ensuring that
scientists' needs are met when the vessels are prepared for
scientific cruises. Second, the Coast Guard arranged with the
Canadian Coast Guard for an informal officer exchange/training
program to improve the officers' skills and began sending new
officers on trips aboard the icebreakers to familiarize them with
icebreaker operations. In addition, the liaison has arranged
training for Coast Guard technicians with equipment manufacturers on
the proper use of scientific equipment found aboard the icebreakers.
Some Arctic scientists believe that the two currently operating Coast
Guard icebreakers are unreliable and lack necessary scientific
facilities. The scientists cite mechanical failures that have
hindered or prevented the completion of research projects.
Scientists also cite poor laboratory facilities and research
equipment as limiting research opportunities.
The Coast Guard has taken steps to enhance the reliability of its two
icebreakers and boost their basic scientific capabilities. First,
the Coast Guard strengthened and rebuilt the faulty propeller hubs on
the icebreakers to improve their reliability.\7 From 1987 to 1992,
the two icebreakers underwent the Polar Science Upgrade Project to
improve the scientific capabilities of both vessels. This project
upgraded laboratory spaces, oceanographic instrumentation, and
communication equipment and provided new oceanographic and trawling
winches. These upgrades improved the vessels' ability to support
Arctic research. In addition, beginning in the spring of 1995, the
Coast Guard plans to conduct midlife refits of its two existing
icebreakers as part of the Reliability Improvement Project, which is
designed to correct original design flaws and replace deteriorated
and outdated equipment, although it will not result in further
significant upgrades of scientific equipment and facilities.
In addition to improving its two existing icebreakers, the Coast
Guard is acquiring another icebreaker with significant research
support capabilities. The Healy was justified and designed, in part,
to support polar research. Coast Guard officials told us that the
Healy will be used primarily as an Arctic research vessel. Compared
with the two existing Coast Guard icebreakers, this icebreaker will
provide significantly improved facilities for supporting science.
Although the Healy was justified largely as a research vessel, the
Coast Guard requires that it be capable of supporting other Coast
Guard missions, namely, annually breaking the channels to allow the
resupply of Thule Air Force Base, Greenland,\8 and McMurdo Station,
Antarctica. Accordingly, the Healy was designed with greater
icebreaking and seakeeping capabilities than the vessel proposed by
NSF.\9
The Arctic scientific community is largely dissatisfied with the
design compromises the Coast Guard made to the Healy. As a result,
some scientists believe that the vessel's overall design does not
adequately reflect the scientific community's needs and suggestions
for changing the vessel's design. The scientists point to factors
such as an outdated hull design, poor fuel efficiency (high costs),
and an inefficient deck layout resulting from the engines' placement
as areas that the scientists had rejected. The Coast Guard maintains
that the hull's design is not outdated and that, while it may not be
the most efficient icebreaking design, it is necessary to ensure the
Healy's open-ocean transit capability. The Coast Guard conferred
with leading Arctic scientists when designing the scientific
facilities for the Healy through a survey and during several
meetings. Some of the scientists' suggestions were incorporated into
the vessel's design. For example, the arrangement of laboratory
spaces was changed, and hatch sizes were increased to accommodate
scientific equipment. However, the scientific community was not
consulted on the vessel's basic design. According to Coast Guard
officials, the procurement of the Healy involved the use of
performance-based specifications that were defined in consultation
with the user community. The officials said that the shipbuilder
relied heavily on consultants who had designed and built the majority
of the world's icebreakers.
--------------------
\7 Despite the Coast Guard's efforts to redesign the propeller hubs,
a propeller failed during a research trip to the north pole over the
summer of 1994. This breakdown contributed to the failure to
complete one of the research projects planned for that trip. The
Coast Guard noted that such failures are not uncommon when propellers
are operating in the high Arctic in heavy ice.
\8 The Coast Guard has arranged with the Canadian Coast Guard to
perform this task in return for the United States' agreeing to help
protect Canadian shipping interests in the western Arctic.
\9 Seakeeping refers to the stability and motion of a vessel
traveling across open, and potentially rough, stretches of ocean.
This quality is important for the Healy because of the requirement
that it be capable of steaming to Antarctica--a roughly 35-day
open-ocean passage from Seattle, Washington.
CONCLUSIONS
------------------------------------------------------------ Letter :4
NSF and the Arctic scientific community have not demonstrated that
the proposed vessel is needed. The most recent (1990) quantified
assessment of national icebreaker requirements did not support a need
for the proposed vessel. Reports identified by NSF as justifying the
acquisition of the proposed vessel cite only increasing research
needs and the lack of a dedicated research icebreaker without
quantifying those needs and explaining why the current arrangement
with the Coast Guard is inadequate. NSF recognizes the deficiencies
in its justification for the proposed vessel, as evidenced by its
recently contracting with the National Research Council, affiliated
with the National Academy of Sciences, to study the need for
icebreakers to support polar research. Furthermore, the Coast Guard
improved its responsiveness to the needs of the scientific community,
enhanced the capabilities of existing vessels, and is building a
vessel whose primary mission is to support Arctic research. Further
cooperation between the Coast Guard and the scientific community
should facilitate more cost-effective research and the achievement of
other national goals in the Arctic region.
AGENCY COMMENTS AND OUR
EVALUATION
------------------------------------------------------------ Letter :5
NSF provided written comments on a draft of this report. (See app.
III for NSF's comments and our evaluation of them.) NSF had three
general comments: (1) the agency does not agree with our conclusion
that NSF and the scientific community have not demonstrated the need
for the proposed vessel; (2) the agency believes that final judgment
on the need for a dedicated Arctic research vessel should be deferred
until the National Academy of Sciences has completed its study of
this issue; and (3) the agency recognizes that interagency
communication must be improved.
We disagree with NSF's assessment that adequate need for the proposed
vessel has been demonstrated. In our view, though scientific needs
are important, fiscal constraints and the capacity of existing and
planned icebreakers with scientific capability have not been taken
into account when justifying an Arctic research vessel. We agree
with NSF that the National Academy of Sciences' study is important.
We note that our report is not, nor does it purport to be, the final
judgment on the acquisition of an Arctic research vessel. We also
support NSF's efforts to improve interagency cooperation in order to
increase the effective use of resources for Arctic research.
We discussed a draft of this report with Department of Transportation
officials, who generally agreed with our findings and conclusions.
On the basis of NSF's comments and our discussion with Transportation
officials, we have made changes to our report, where appropriate.
---------------------------------------------------------- Letter :5.1
In examining the justification for the proposed vessel, we reviewed
the Arctic Research Policy Act, as amended, and other relevant laws,
regulations, and publications. We also reviewed the 1984 and 1990
Polar Icebreaker Requirements studies; relevant congressional
testimony; correspondence from and for NSF and the Coast Guard; Coast
Guard policies and procedures; design reports for the proposed Arctic
research vessel and the planned Coast Guard icebreaker Healy; and
data on the use of icebreakers. We interviewed officials from the
Coast Guard, NSF, the U.S. Geological Survey, and the U.S. Navy's
Naval Sea Systems Command and Office of Naval Research. We also
interviewed officials from the University of Alaska and other
universities and research institutions. Finally, we interviewed
officials from the Arctic Research Commission, the University
National Oceanographic Laboratory System, and the Polar Research
Board of the National Academy of Sciences. Appendix II contains a
more detailed discussion of our objectives, scope, and methodology.
We conducted our review between June and December 1994 in accordance
with generally accepted government auditing standards.
We will send copies of this report to the Director, National Science
Foundation; the Secretary of Transportation; the Commandant of the
Coast Guard; the Director, Office of Management and Budget; and other
interested parties. We will also make copies available to others on
request.
If you have any questions or need additional information, please
contact me at (202) 512-3841. Major contributors to this report are
listed in appendix IV.
Sincerely yours,
Victor S. Rezendes
Director, Energy and
Science Issues
NSF'S LEASE-BUY ANALYSIS FOR THE
PROPOSED VESSEL
=========================================================== Appendix I
The Ranking Minority Member, Subcommittee on VA, HUD, and Independent
Agencies, Senate Committee on Appropriations, asked us to examine the
National Science Foundation's (NSF) analysis of options for buying
and leasing the proposed Arctic research vessel.\10 We found that
NSF's analysis closely follows the Office of Management and Budget's
(OMB) guidelines and shows buying as the best option. However,
because the analysis is necessarily preliminary, NSF plans to solicit
both purchase and lease proposals, should it proceed in acquiring the
proposed vessel.
As required by OMB Circular A-94, NSF compared the cost to the
federal government of two different methods of financing the proposed
vessel: (1) full purchase of the vessel and (2) long-term leasing
from a private builder/operator, covering its 20-year expected
life.\11 This analysis, which took into account both construction and
operating costs, found that the federal government would have the
least cost if it purchased the proposed vessel. However, because the
design phase is preliminary, the cost estimates represent only rough
approximations of the proposed vessel's costs. Moreover, in order to
compare the expected costs of leasing and buying, NSF needed to make
several simplifying assumptions.\12
While NSF's analysis conforms reasonably well to the OMB guidelines
for lease-purchase comparisons, the analysis is based on preliminary
cost estimates and relies on a variety of assumptions for which
alternative hypotheses might be reasonable as well. In addition,
assumptions also needed to be made for key variables, such as private
sector borrowing costs on maritime loans. Moreover, because of the
difficulty of determining a unique methodology for analyzing more
complex forms of financing, such as a lease with an option to buy, or
some cost sharing that might be offered by the state of Alaska, NSF's
analysis does not include all relevant options.
The cost advantage of government purchase over long-term leasing of
the vessel is related to two factors. First, under a lease
arrangement, the costs of private sector financing--which are higher
than the government's borrowing costs--are passed on to the federal
government in lease payments, thereby increasing the vessel's
financing costs over what they would be under outright government
purchase.\13 Second, NSF assumed that the cost of building the vessel
is the same under both the buy and the lease scenarios, but that
under the lease arrangement, an additional profit accrues to the
lessor for services related to its retained ownership of the vessel.
Under the base-case analysis, roughly half of the cost advantage of
purchasing over leasing is related to the gap in federal and private
sector borrowing costs, and the remainder is related to the
assumption of an additional profit stream to the lessor.
NSF's base-case estimates use a 5.8-percent government borrowing rate
because that was the federal Treasury rate on 20-year bonds (a time
horizon equal to the expected life of the vessel) as of early 1994.
The cost of private sector capital was assumed to be 8.5 percent.\14
In this case, NSF found the advantage of purchase over lease to be
$55.7 million in present-value terms. NSF also looked at the
sensitivity of the advantage of purchase over lease by using
alternative interest rates for both the government and private sector
borrowing costs. Throughout these analyses, government purchase was
favored over leasing, but the range by which purchase was
advantageous ranged from $22.9 million to $99.6 million, each in
terms of present value.\15
NSF's decision to delay choosing a method of financing the proposed
vessel until after bids are solicited from shipbuilders for any of
several financing options is appropriate. After bids are solicited,
NSF will need to perform a financial analysis similar to the one it
has performed, but it will then have the advantage of performing such
an analysis on more detailed data derived from the bid solicitation.
--------------------
\10 We reviewed the methodology NSF used to compare the relative
costs of the proposed vessel under the buy and lease options.
However, we did not independently verify or validate the cost
estimates NSF used in its analysis. Appendix II contains additional
details on our scope and methodology.
\11 Two other financing methods that have been considered but were
not included in NSF's cost analysis are (1) a lease with an option to
buy and (2) the procurement of the vessel with cost sharing by the
state of Alaska. NSF officials told us that these additional
financing methods could be structured in many different ways--for
example, different years in which the buy could be exercised in the
lease with an option to buy, or a variety of ways that the state
could share the costs of the vessel--and thus, a straightforward
methodology for comparing these financing options was not clear.
\12 These assumptions include, for example, that the building and
basic operating costs of the vessel are the same under both the lease
and the buy scenarios and that if the vessel is leased, the private
sector firm finances all of the building costs through debt and none
through raising equity.
\13 Because a shipbuilder/lessor will have a long-term lease
arrangement for the vessel with the federal government, it may be
able to obtain private sector borrowing at a rate not much higher
than the federal Treasury rate. Moreover, if some degree of
construction or ownership risk is transferred to the
shipbuilder/lessor and managed efficiently, the effective economic
cost of the lease to the government could fall below that of outright
purchase--even though private sector borrowing is more expensive than
public sector borrowing. While OMB's guidelines are sufficient for
budgetary purposes, the difficulty of valuing risk and of valuing it
under different sharing arrangements between the government and
private entities, makes the economic evaluation of lease-buy analyses
less certain.
\14 Both of these rates are as of early 1994. NSF officials told us
that they assumed the private sector borrowing costs to be the prime
rate plus 200 basis points. Although the prime rate has risen
considerably since NSF did this analysis, the government borrowing
cost has risen as well. Since the important conclusions derive
largely from the relationship of these two rates, the basic
conclusion of the analysis should generally not change as interest
rates rise or fall.
\15 While NSF's analysis uses three alternative private-sector
interest rates, its final results for the lease/purchase cost
comparison were based only on the midpoint of these rates. At the
same time, NSF used a range of government borrowing rates (3.8 to 7.8
percent) in producing its final results. The numbers presented here
are based on the full range of private sector interest rates NSF
examined (7.5 to 9.5 percent). As a result, the range by which
purchasing the proposed vessel was advantageous to the government was
broader.
OBJECTIVES, SCOPE, AND METHODOLOGY
========================================================== Appendix II
To determine whether the proposed vessel has been justified, we
reviewed the Arctic Research Policy Act, as amended; other relevant
laws and regulations; findings and recommendations of the Arctic
Research Commission and the Interagency Arctic Research Policy
Committee; the University National Oceanographic Laboratory System
(UNOLS) Fleet Improvement Plan Update; and several other
publications. We also reviewed the 1984 and 1990 Polar Icebreaker
Requirements studies; relevant congressional testimony;
correspondence from and for NSF, the Coast Guard, and UNOLS; Coast
Guard policies, procedures, and Arctic research cruise reports;
design reports for the proposed Arctic Research Vessel and the
planned Coast Guard icebreaker Healy; and icebreaker usage and
research cost data. We also obtained written statements from NSF and
the Coast Guard on the appropriateness of agencies other than the
Coast Guard acquiring and operating icebreakers.
In addition, we interviewed officials at Coast Guard headquarters in
Washington, D.C.; Seattle, Washington; and Alameda, California. We
also interviewed NSF officials from the Office of Polar Programs,
Oceanographic Centers and Facilities Section, Budget Division, and
officials from the U.S. Geological Survey, the U.S. Navy's Naval
Sea Systems Command, and Office of Naval Research.
We interviewed officials from the University of Alaska, the
University of Washington, Texas A&M University, the Lamont Dougherty
Earth Observatory, and companies that conduct Arctic research. In
addition, we interviewed officials from the Arctic Research
Commission, the University National Oceanographic Laboratory System,
and the Polar Research Board of the National Academy of Sciences.
In order to evaluate NSF's analyses of leasing versus buying the
proposed vessel, we reviewed OMB Circular A-94 and NSF's own analysis
of the lease-buy option. We did not independently verify and
validate the cost data that NSF used in the analyses, but rather,
given NSF's cost estimates for building and operating the vessel, we
reviewed the methodology NSF used to compare the costs of leasing
with the costs of buying. In addition, we talked with OMB officials.
(See figure in printed edition.)Appendix III
COMMENTS FROM THE NATIONAL SCIENCE
FOUNDATION
========================================================== Appendix II
(See figure in printed edition.)
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The following are GAO's comments on the National Science Foundation's
letter dated February 17, 1995, in addition to the comments discussed
on page 9 of this report.
1. We have reviewed many relevant studies, including those written
by the Interagency Arctic Research Policy Committee, the Arctic
Research Commission, the Polar Research Board, the University
National Oceanographic Laboratory System, and NSF. As we note on
pages 4-5 in the report, these studies do not take into consideration
the two existing and one planned icebreaker--each of which possesses
some research support capabilities. In fact, the planned Coast Guard
vessel Healy was partially justified as a research vessel. In
addition, according to the Coast Guard, the Healy will serve
primarily as an Arctic research vessel. The observation that the
United States does not possess a dedicated Arctic research vessel is
insufficient justification for spending $120 million to construct the
proposed vessel, as well as committing substantial funds to operate
and maintain it. NSF also needs to consider fiscal constraints and
the availability of existing and planned U.S. Coast Guard
icebreakers in assessing icebreaker needs.
2. We disagree with NSF's statement that "the report misinterprets
the roles of the U.S. Coast Guard and the National Science
Foundation with respect to the acquisition and operation of research
vessels for use in Arctic settings." We do not dispute NSF's
authority to acquire or lease icebreakers. In our view, the issue is
not whether NSF has the authority to acquire the proposed vessel but
whether NSF has demonstrated the need for an additional icebreaker.
3. The proposed vessel is an icebreaker. Special consideration was
given to the proposed vessel's icebreaking capabilities. For
example, the icebreaking requirements for the proposed vessel were
increased twice between 1990 and 1994. Our report does not imply
that any ship capable of breaking through ice can be considered a
research vessel. However, we do state that the two existing Coast
Guard icebreakers and the planned vessel Healy, while capable of
breaking ice, also have been upgraded or were specifically designed
to support research. We agree that none of the three Coast Guard
vessels represent the ideal research platform.
We disagree with NSF's view that we discuss the proposed vessel and
the existing Coast Guard icebreakers as if they were equal research
platforms. On page 7, we state that equipment and other facilities
necessary to support science have been added and improved. The
largely successful 1994 scientific mission to the Arctic confirms
that the existing Coast Guard vessels are capable of supporting the
accomplishment of a significant body of Arctic research.
4. We disagree that we imply a reduced need for scientific research
in the Arctic. Rather, on page 5 we state that funding constraints
have contributed to underutilization of existing Coast Guard vessels.
5. As we note on pages 4-5, neither the design of the Healy nor the
availability of Coast Guard vessels are explicitly put forth, with
supporting analysis, in the various studies NSF cites in this letter
as supporting acquisition of the proposed vessel.
6. The 1993 U.S. Arctic Research Plan mentions the Coast Guard role
of supporting Arctic research and describes an Arctic research vessel
(the proposed vessel) but does not demonstrate a need for the vessel.
NSF states in its comments that the planned vessel Healy is not
suited for year-round dedicated research. However, the Coast Guard
has stated its intent to make the Healy available for Arctic research
144 days a year. We also note that, according to the 1990 Polar
Icebreaker Requirements Study, NSF approved the design of the Healy
as a member of the Polar Icebreaker Users Council (an interagency
group of icebreaker users that includes NSF). With three Coast Guard
icebreakers available, it should be easier to schedule two vessels
for central Arctic missions. Again, while it might be ideal to have
a dedicated vessel available for research in the less hazardous
Arctic waters, the acquisition (about $120 million), maintenance, and
operations costs (at least $34,000 per day)--coupled with the costs
of maintaining underutilized Coast Guard icebreakers in a state of
readiness--raise doubts as to the net benefit to the nation of
acquiring the proposed vessel.
7. While it appears that NSF has concluded that the proposed vessel
is justified, NSF also states that final judgment should be withheld
pending the National Academy of Science's (NAS) study. We believe
that our report points to significant issues that must be addressed
before any final judgment is made. The report does identify
weaknesses in the justifications found in previous studies and will,
in our opinion, help to guide the current NAS effort. Accordingly,
we are encouraged that the NAS study commissioned by NSF will include
an assessment of the roles of NSF and other agencies and the
resources available to support Arctic research programs, including
evaluations of their operating costs and management options.
8. The 1990 Federal Oceanographic Fleet Coordinating Committee
(FOFCC) report that NSF cites is not a study of national icebreaker
requirements, of which research is a significant part, as is the 1990
PIRS study we refer to in this report. While NSF criticizes the 1990
Polar Icebreaker Requirements Study (PIRS), NSF, as well as the
Departments of Transportation and Defense and OMB, developed that
report. The 1990 PIRS study points to a broader scope of national
needs and research community needs and not specifically to the Coast
Guard vessel. We found the quantitative assessment of icebreaker
needs in the 1990 PIRS study persuasive while the 1990 FOFCC study
focuses on fleet requirements for a variety of vessel types.
9. Coast Guard officials told us that the agency is opposed to the
acquisition of the proposed vessel because of funding constraints
that would likely lead to underutilization of existing and planned
Coast Guard vessels.
10. We do not dispute the fact that the Coast Guard icebreakers have
experienced reliability problems. As we note on page 7, the Coast
Guard is continuing efforts to improve the reliability of its two
existing icebreakers.
11. As we note on pages 7-8, the Coast Guard surveyed the scientific
community and held meetings that included officials from NSF and
UNOLS. Although the Healy will primarily be used to support Arctic
research, it is a multipurpose vessel. So while significant
scientific capabilities were designed into the vessel, it is not
surprising that it does not meet every scientific requirement laid
out by the scientific community for the proposed vessel.
12. We agree that the ability of Coast Guard icebreakers to support
Arctic science is a serious issue and the report treats them as such.
Referring to the Healy as a military icebreaker is misleading given
the multiple missions for which the vessel was designed and the
research for which the Coast Guard states the Healy will be used.
The Coast Guard stated that the funding for the Healy is in place,
the contract for construction of the Healy has been let, and assembly
of component parts has begun in several locations. As noted on page
8, the Coast Guard solicited, and, in some cases, implemented input
from the scientific community.
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix IV
RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON,
D.C.
Robin M. Nazzaro, Assistant Director
Larkin K. Jennings, Evaluator-in-Charge
Jonathan M. Kusmik, Adviser
Amy D. Abramowitz, Senior Economist
OFFICE OF GENERAL COUNSEL
Mindi G. Weisenbloom, Senior Attorney