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Exhibit: 1 From: The Deputy Secretary of Defense Memorandum for: Under Secretary of Defense for Acquisition Acting Secretary of the Navy Chairman of the Joint Chiefs of Staff Under Secretary of Defense for Policy Assistant Secretary of Defense for Program Analysis and Evaluation Acting Comptroller of the Department of Defense Subject: Strengthening the Sealift Capabilities of the Department of Defense proposal to set up this fund, main- taining that the funds should re - main in the Navy shipbuilding and conversion budget. House and Sen- ate conference action on the autho- rization and appropriations bills this Fall will decide the outcome of the sealift fund. Ship Conversion Contracts A solicitation is to be issued for engineering design to convert com- mercial ships to sealift ships. Sev- eral contracts are to be awarded. The ships are to be Panamax size, have between 225,000 to 300,000 sq. ft. of deck space, draw no more than 35 feet fully loaded and be capable of a 24 knot speed. The Navy is looking to buy and convert four to eight ships, using the 15 percent of avail- able sealift funds earmarked for con- version purposes. It is our under- standing that 23 containerships have been identified as candidates. Four ships (Selandia, Toyama, Nihon and Jutlandia) owned by E ast Asiatic Company are said to be top candidates for purchase/conversion. The Navy's decision to solicit pro- posals for conversion work marks a change in policy. Until now, higher priority had been accorded new con- struction. The decision to place conversion before new construction reflects the need to get work into the shipyards quickly to shore up the deteriorat- ing business base and to accelerate sealift ship acquisition. GAO Sealift Study The Mobility Requirements Study calls for ships capable of a 24 knot speed. In a recent analysis of Navy sealift plans the General Account- ing Office recommended that the Navy consider buying and convert- ing existing ships capable of speeds less than 24 knots. GAO argues that a slightly lower speed would have little impact on delivering cargo within the required time period. It is also GAO's position that limiting the pool of available ships to those capable of 24 knot speeds reduces the amount of competition. The Navy claims that 24 knots is the minimum acceptable speed and that there are a sufficient number of ships available worldwide to select four to eight for purchase/conversion. GAO also finds that ship conver- sion should be a more cost effective option for acquiring sealift capabil- ity. According to GAO, "converted ships could be available up to one to one and a half years earlier, and cost savings could possibly reach $50 million per ship." In response, DOD agrees that conversions would save time, but not necessarily save money over the life cycle of the ship. Sealift Advisory Service IMA publishes a memo series re- porting all major actions in the Navy sealift ship program. Policy devel- opments, funding actions, solicita- tion announcements and contract awards are reported on a continued basis. The 1992 series is available for $650. To order contact: IMA Associates, Inc., 600 New Hamp- shire Ave., NW, Suite 140, Wash- ington, D.C. 20037 USA. Telephone: (202) 333-8501; FAX: (202) 333-8504 The national security strategy de- pends heavily upon the ability of the Department of Defense to transport promptly military personnel and mate- rial wherever they are needed to defend American interests abroad. Because of the vital importance of sealift in moving sizable forces abroad, and the department's identified need to increase its sealift capabilities, I direct as follows: 1. Priority: Strengthening the department's sealift capabilities shall be one of the highest priorities within the Department and shall be accorded such priority in the department's plan- ning, programming and budgeting sys- tem and in the departments's acquisi- tion system. 2. Sealift Requirements: Consistent with the Mobility Requirements Study (Vol. 1) (MRS) transmitted by the Secre- tary of Defense to Congress on January 24,1992 and with the Deputy Secretary of Defense memorandum of February 14, 1992 entitled "Strengthening De- partment of Defense Transportation Functions," the Commander in Chief of the U.S. Transportation Command (CINCTRANS) shall: (a) determine pri-orities among sealift ship needs set forth in the MRS and submit those priorities to the Acting Secretary of the Navy within 30 days of the date of this memo- randum and (b) provide any necessary supplemental requirements consistent with the MRS for sealift ship opera- tional requirements matters not speci- fied in the MRS. 3. Sealift Program: The Acting Secre- tary of the Navy is designated the DOD Executive Agent for acquisition of sealift and shall establish a Sealift Program, consistent with sealift priorities estab- lished by CINCTRANS under paragraph two, to construct or convert ships and equip ships to provide sealift for the Department of Defense. DOD Directive 5000.1 shall apply to the sealift pro- gram. 4. Pilot Program Status: The Under Secretary of Defense for Acquisition, in coordination with the Acting Secretary of the Navy and the Acting General Counsel of the Department of Defense, shall take such actions as may be appro- priate to achieve the designation of the Sealift Program as a major defense ac- quisition pilot program pursuant to Sec- tion 809 of the National Defense Autho- rization Act for fiscal year 1991 (Public Law 101-510). The Under Secretary of Defense for Acquisition shall report to me within 30 days of the date of this memorandum on progress made toward designation of the Sealift Program as a major defense acquisition pilot program. 5. Assessment of Ready Reserve Force: CINCTRANS, in cooperation with the Department of Transportation, as appropriate, shall assess the readiness of the Ready Reserve Force to meet sealift needs of the Department of Defense and shall report thereon to me within 60 days of the date of this memorandum, together with such recommendations as he may deem appropriate. The Chairman of the Joint Chiefs of Staff shall communicate this memoran- dum to the Commander in Chief of the U.S. Transportation Command. D.J. 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