8 September 2003 – The recent award of a $17.8 million military contract that eventually went to a British ship scrapyard is under fire at home and abroad -- with environmentalists warning against leaky old ships trolling across the Atlantic Ocean and American companies charging that they were not given a fair chance to bid on the deal.

Yet those accusations -- denied by the U.S. Maritime Administration (Marad), the federal agency ultimately responsible for the contract -- are drawing renewed attention to the way the United States disposes of its ships and could in the long run help struggling domestic companies get more work, say U.S. industry advocates.

Much of that work has the potential to be done in Baltimore, they say -- provided that government agencies and local lawmakers work to get financing and avoid problems that have contributed to the recent bankruptcy of Baltimore Marine Industries Inc.

BMI, the Sparrows Point shipyard that filed for bankrupcty protection in June, was among four companies participating in a five-year U.S. Navy pilot program -- now winding down -- designed to help the government get rid of old ships.

While the company's financial problems were not a direct result of a lack of government work, observers say the situation may have been a contributing factor.

BMI officials did not return repeated telephone calls seeking comment.

"Part of the work they were counting on was doing scrapping of some of the Marad and U.S. Navy ships," said Ande Abbott, director of the of the International Brotherhood of Boilermakers' shipbuilding and marine division in Washington. The union, with welders and other members who worked at BMI, represents employees at 43 shipyards nationwide.

"The Maritime Administration just didn't want to pay anybody to do the scrapping," Abbott said. "The strange part of this is, they're willing to pay the Brits."

Democratic Rep. Solomon Ortiz of Texas said he has asked the General Accounting Office, the Congressional investigative agency, to audit the transaction. He said he also wanted the GAO to review Marad's ship-dismantling program in general and "let all of us know exactly how much money was wasted in this bad decision."

"The current deal the U.S. made with Great Britain was a bad deal for U.S. taxpayers," Ortiz said. "We are paying more for a job that needs to be done; we are paying people in another country to do it while our industry in the U.S. is deeply hurting -- and could have done it cheaper; and we are risking damage to the enviroment by dragging oily, leaky ships across the Atlantic."

Disposing of 'ghost fleet'

The Navy shares ship-scrapping responsibilities with the Maritime Administration. The Navy is responsible for disposing of old combat ships, while Marad oversees the dismantling of other vessels, such as merchant ships and supply tankers. The pilot program began in 1999.

According to a Navy spokesman, a warship can be completely dismantled in six to 12 months, at an average cost of $2 million to $3 million apiece, with the price declining as a shipyard gets more work. Between 70 and 120 people can work on a ship during various stages of the dismantling process, the spokesman said.

Marad currently has 108 ships available for disposal, while the Navy has 55, the Navy spokesman said. Known as the U.S. "ghost fleet," the ships are moored throughout the United States with about 70 of them in the James River in Newport News, Va.

The vessels generally are polluted with asbestos, toxic polychlorinated biphenyls (PCBs) -- banned in the 1970s -- and varying quantities of heavy marine diesel oil. Some of the ships served in the Korean War and have been rotting for years.

"We have over a million tons of ships to be scrapped right now, and over the next 10 years, another million tons," Abbott said.

'Offered the best value'

In July, Marad awarded the $17.8 million scrapping contract to Post-Service Remediation Partners, an affiliate of New York real estate firm Pyne Cos. Ltd., which is subcontracting the work to Able UK Ltd. The plan is to send 13 ships to a demolition dock in Teesside, England.

To get them abroad, they would have to be towed from Newport News and through the English Channel, one of the world's busiest shipping lanes. This has raised concerns among British politicians and environmentalists.

In addition, critics contend that two partly built oil ships were thrown in the deal at the last minute, adding $3 million to the value of the contract. The tankers, they say, should not have been included because they are not scrap ships, but potentially valuable vessels that could be completed and sold for a profit.

"The deal is about transferring two valuable Navy oilers to a private company," said Polly Parks, president of Washington-based consulting firm Ross & Parks. "What [Marad] failed to reconcile was there are companies here in the U.S. who are dependent upon ship-scrapping."

Christine Bridge, a consultant working with Post-Service Remediation Partners on the deal, said the company subcontracted with Able "because they specialize in environmentally safe recycling and remediation."

Marad said it backed the eventual award to Able after carefully considering a number of bids. "They offered the best value for the taxpayers' money," said Susan Clark, an agency spokeswoman.

Clark said she could not provide figures on how much money Marad is saving in the deal.

The uproar, Parks said, puts pressure on Congress to "fund this program, and fund it domestically."

Other contracts awarded

Congress allocates money each year for Marad to dispose of its reserve ships. In its budget request for the 2003 fiscal year, which begins in June, the agency asked for $11 million, saying 28 of its ships posed "serious environmental risks" and needed to be disposed of "immediately."

The Navy has said that it has $7.8 million budgeted for ship disposal and remediation in fiscal 2004.

"You've got enough ships ... to run an industry for about 20 years doing just federal ships," Parks said.

Marad, for its part, has not determined how many ships it will make available for dismantling, said Robyn Boerstling, another agency spokeswoman.

She noted, however, that the agency recently awarded contracts to two companies -- Esco Marine Inc. and Marine Metals Inc., both of Brownsville, Texas -- to dismantle a total of five ships from the James River fleet.

Marad also is in talks with a U.S. company Boerstling declined to identify about a contract to break down four more ships.

But that's still not good enough, some industry observers say.

"I would like to see the domestic industry more utilized," said Allan Roberts, executive director of the National Environmental Education and Training Center in Indiana, Pa. The group provides training, education and research for the hazardous-waste industry. "It's necessary for us to think about these economic-development opportunities rather than sending our tax dollars overseas."

Opposition in Britain

The 13 ships bound for Britain have been sitting in the James River for years, subjected to an export ban in effect since the early 1990s after The Sun wrote a series of Pulitzer Prize-winning articles that highlighted labor and environmental abuses at overseas shipyards.

Last week, an Able UK official said the ships would be towed through the English Channel en route to a special dock in Teesside. The route has yet to be approved by British authorities.

A member of the British Parliament, Liberal Democrat Norman Baker, is trying to stop the ships from heading to sea.

"I'm lobbying the Department of Transport and Marine and Coast Guard over here to make sure it's not a done deal," he said last week in a SunSpot telephone interview from East Sussex, England. "Developed countries should deal with their own waste. I can't believe a country like the U.S. hasn't the capacity to deal with it."

"I'm not convinced the ships are actually seaworthy," Baker added. "I certainly don't relish the prospect of decrepit hulks going through the English Channel."

Troubles at BMI

In its June bankruptcy filing in U.S. Bankruptcy Court in Baltimore, BMI blamed its troubles on "a combination of economic factors, including lower-than-anticipated revenues and increased offshore competition in a sluggish economy."

The company, which said it is putting together a plan to keep operating through Oct. 31, reported that more than 75 percent of its business came from government ship-repair contracts. BMI also said in the filing that it has hired an outside adviser to help seek a buyer or arrange a refinancing deal.

A longtime division of the former Bethlehem Steel Corp., BMI was sold in 1997 to Veritas Capital, a private investment firm based in New York, for $17 million. The 113-year-old shipyard filed for Chapter 11 protection after losing $4.8 million last year and $4.2 million more through May of this year, according to the court filing.

The yard no longer is performing ship repair, maintenance or scrapping work. More than 200 employees have been laid off since shortly before the bankruptcy filing.

Specific skills needed

BMI had the facilities and staff to run a scrapping business, said the boilermakers' Abbott.

"It's totally unlike new construction or repair; the types of skills, people, are totally different -- even the type of equipment," he said.

Lonnie Vick, business manager of District Lodge 4 of the International Association of Machinists in Baltimore, said the company's troubles stemmed from "a lack of available work" and "stiff competition" for what little is out there.

BMI lacked a steady stream of activity, Abbott said. The government "gave them a couple of ships, but there was never any guarantee they would receive any more," he said. "You just can't keep a trained workforce that way."

Most of the ships being taken apart today were built between the 1930s and 1960s and require trained workers, "not someone you just get off the street," Vick said.

The dismantling process itself, he said, also requires specific skills.

"Just like us burners, shipbuilders and welders put it together 35, 40 years ago," Vick said. "Those same skills." Once the materials are removed, he added, the ship has to be anchored so it does not topple over as it is dismantled.

"You can't just go there and start cutting pieces off," Vick said. "When we were dismantling ships at BMI, we prided ourselves on our safety record."

But trained workers cost more -- and to encourage a domestic industry, the government may need to increase support for ship-dismantling programs, industry observers say.

"You can't really tackle the problem with $11 million a year," said Parks, the consultant.

Vick added that, while BMI told the bankruptcy court that it is investigating other ways to remain afloat, "it looks kind of bleak right now. I'd hate to see the shipyard go down."

Besides the loss of jobs, Vick said, BMI is important to the region's reputation as a shipping hub. "I don't know how you can be a first-class port without some kind of ship-repair facility close by."