oversight

DEPARTMENT OF ENERGY: Additional Opportunities Exist to Streamline Support Functions at NNSA and Office of Science Sites

Published by the Government Accountability Office on 2012-01-31.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

               United States Government Accountability Office

GAO            Report to Congressional Requesters




January 2012
               DEPARTMENT OF
               ENERGY
               Additional
               Opportunities Exist to
               Streamline Support
               Functions at NNSA
               and Office of Science
               Sites




GAO-12-255
                                            January 2012

                                            DEPARTMENT OF ENERGY
                                            Additional Opportunities Exist to Streamline
                                            Support Functions at NNSA and Office of Science
                                            Sites
Highlights of GAO-12-255, a report to
congressional requesters




Why GAO Did This Study                      What GAO Found
The Department of Energy (DOE)              Support function costs at NNSA and Science sites for fiscal years 2007 through
spends 90 percent of its annual             2011 are not fully known because DOE changed its data collection approach
budget—which totaled $27 billion in         beginning in 2010 to improve its data and, as a result, does not have complete
fiscal year 2011—on the contractors         and comparable cost data for all years. In fiscal years 2007 through 2009, total
that carry out its diverse missions and     support costs for NNSA and Science sites grew from $5 billion to about $5.5
manage its sites. These management          billion (nominal dollars). Costs for fiscal year 2010 are unknown because DOE
and operating contractors also provide      was pilot-testing its new reporting system and only collected data from some
sites’ support functions, such as           sites. For fiscal year 2011, the data are more complete, but changes to DOE’s
procuring goods, managing human
                                            definitions for support functions make it difficult to compare costs across all
resources, and maintaining facilities.
                                            years. DOE has taken some steps to ensure the quality of the data in its new
With a unique contractor at each site,
support functions have traditionally
                                            system and plans to fully implement a quality control process, such as peer
been managed in a decentralized, or         reviews, to ensure data can be compared across sites, but has not yet done so.
fragmented, manner. In light of today’s     DOE and contractors have undertaken various efforts since 2007 to streamline
pressures to trim budgets and find          and improve the efficiency of sites’ support functions. Streamlining efforts
efficiencies, GAO was asked to review       reported by officials from DOE and the eight NNSA and Science sites GAO
support functions at the 17 National        reviewed focused mainly on procurement; human resources, including employee
Nuclear Security Administration             benefits; and facilities and infrastructure. Some efforts were part of larger
(NNSA) and Office of Science sites
                                            initiatives involving multiple sites, while others were initiated at the site level. To
and determine (1) the costs of
                                            streamline procurement and leverage the buying power of multiple sites, for
providing support functions for fiscal
years 2007 through 2011; (2) efforts        example, NNSA began operating a central Supply Chain Management Center to
undertaken during that period to            negotiate with vendors for lower prices on goods and services, such as
streamline sites’ support functions, as     laboratory supplies and equipment. To streamline human resources, contractor
well as additional opportunities and        officials from the eight NNSA and Science sites reported automating various
challenges, if any; and (3) the extent to   processes, such as for hiring and training employees. Furthermore, DOE and
which cost savings from streamlining        contractors identified opportunities to expand these efforts and undertake new
efforts can be quantified. GAO              ones but also identified challenges to further streamlining. In August 2010, for
reviewed data and documents and             example, the Deputy Secretary of Energy cited further opportunities to leverage
spoke with DOE, NNSA, and Science           DOE and sites’ buying power through a more centralized, and less fragmented,
officials and with contractors at eight     approach. Similarly, NNSA is considering centralizing certain human resource
sites—the four largest by budget from       tasks at its sites, currently provided by individual contractors. DOE and contractor
NNSA and Science.                           officials, however, said that centralizing functions can be challenging.
What GAO Recommends                         DOE and its contractors have estimated savings for some streamlining efforts,
                                            particularly in procurement, but it is difficult to compare or quantify total savings
GAO recommends that DOE (1) fully
                                            across sites because DOE’s guidance for estimating savings is unclear and the
implement a quality control system for
cost data on sites’ support functions,
                                            methods used to estimate savings vary. For example, one laboratory estimated a
(2) ensure that all appropriate             $9 million savings from a software purchase in 2010 using its preferred
streamlining steps are being taken at       estimation method. By other methods used elsewhere in DOE, however, the site
the 17 sites and that challenges are        estimated that its savings could have been as high as $35 million. DOE recently
addressed, and (3) clarify guidance on      issued guidance on acceptable methods for estimating procurement cost
estimating cost savings from                savings, but the guidance is unclear and could lead to widely varying savings
streamlining efforts. DOE agreed with       estimates. The guidance identifies some estimation methods that sites can use—
the recommendations.                        such as comparing the price paid for goods or services with a previous price—
                                            but does not specify which methods are preferred when multiple options are
                                            available. Furthermore, the guidance allows sites to use any other methods
View GAO-12-255. For more information,
contact Gene Aloise at (202) 512-3841 or    approved by DOE officials. For support functions other than procurement, sites
aloisee@gao.gov.                            also have flexibility in cost savings estimation methods, potentially leading to
                                            widely varying estimates for similar efforts to streamline these functions.
                                                                                      United States Government Accountability Office
Contents


Letter                                                                                      1
              Background                                                                    5
              Sites’ Support Costs since 2007 Are Not Fully Known                           9
              DOE and Site Contractors Have Been Streamlining Support
                 Functions and Identifying Additional Opportunities, as well as
                 Challenges                                                               13
              Difficulties Exist in Quantifying Cost Savings because Guidance for
                 Estimating Savings Is Unclear and Methods Used Vary                      24
              Conclusions                                                                 29
              Recommendations for Executive Action                                        31
              Agency Comments and Our Evaluation                                          31

Appendix I    Comments from the Department of Energy                                      33



Appendix II   Contact and Staff Acknowledgments                                           36



Figures
              Figure 1: NNSA’s Laboratories and Nuclear Production and Testing
                       Sites and Science’s Laboratories                                     7
              Figure 2: Example of the Effect of Using Different Cost Savings
                       Estimation Methods for a 2010 Software Purchase at
                       Pacific Northwest National Laboratory (PNNL)                       27




              Page i                                 GAO-12-255 Support Functions at DOE Sites
Abbreviations

DEAR              Department of Energy Acquisition Regulation
DOE               Department of Energy
GSA               General Services Administration
M&O               management and operating
NNSA              National Nuclear Security Administration
OMB               Office of Management and Budget
PNNL              Pacific Northwest National Laboratory



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Page ii                                        GAO-12-255 Support Functions at DOE Sites
United States Government Accountability Office
Washington, DC 20548




                                   January 31, 2012

                                   The Honorable Fred Upton
                                   Chairman
                                   The Honorable Henry A. Waxman
                                   Ranking Member
                                   Committee on Energy and Commerce
                                   House of Representatives

                                   The Honorable Cliff Stearns
                                   Chairman
                                   The Honorable Diana DeGette
                                   Ranking Member
                                   Subcommittee on Oversight and Investigations
                                   Committee on Energy and Commerce
                                   House of Representatives

                                   The Honorable John D. Dingell
                                   House of Representatives

                                   The Department of Energy (DOE) spends a major portion of its annual
                                   budget—which totaled $27 billion in fiscal year 2011—to carry out
                                   groundbreaking scientific research and technology development to
                                   increase knowledge about fundamental physics, provide efficient and
                                   secure energy, and ensure the safety and reliability of the nation’s nuclear
                                   weapons stockpile. This research and development work is performed by
                                   contractors—corporations, universities, and others—that manage and
                                   operate the 7 national laboratories and nuclear production and testing
                                   sites overseen by the National Nuclear Security Administration (NNSA), 1
                                   a separately organized agency within DOE, and the 10 national
                                   laboratories overseen by DOE’s Office of Science. With DOE oversight,
                                   these management and operating (M&O) contractors also organize and
                                   carry out the support functions at these 17 sites, such as procuring
                                   needed goods and services; recruiting and hiring workers; managing
                                   health and retirement benefits; maintaining facilities and infrastructure;
                                   and providing day-to-day accounting, information technology, security,


                                   1
                                    Congress created NNSA as a semiautonomous agency within the Department of Energy
                                   in 1999 (Title 32 of the National Defense Authorization Act for Fiscal Year 2000, Pub. L.
                                   No. 106-65, § 3201 et seq.).




                                   Page 1                                         GAO-12-255 Support Functions at DOE Sites
and other support functions. 2 Because each NNSA or Science site has
historically had its own unique M&O contractor—as part of DOE’s long-
standing model for conducting research and nuclear production at
multiple locations—the sites have also differed in how support functions
are organized and carried out. 3

DOE reimburses its M&O contractors for costs incurred in carrying out the
department’s missions and providing sites’ support functions. These
include costs that can be directly identified with a specific DOE program
(direct costs) and costs that support multiple programs (indirect costs).
Federal Cost Accounting Standards and federal regulations allow DOE’s
M&O contractors flexibility in how they classify incurred costs as direct or
indirect. 4 Because sites classify these costs differently, in the mid-1990s,
DOE’s Chief Financial Officer began requiring M&O contractors at the
sites to report on 22 categories of these costs—known as functional
support costs—to provide more comparable data on the costs of sites’
support functions.

We have previously reported on DOE’s support costs and related issues.
In September 2005, we reported that definitions for some of the functional
support costs were unclear and that M&O contractors’ reporting of these



2
 DOE and its M&O contractors’ relationships are defined in federal and DOE acquisition
regulations and in DOE’s M&O contracts. M&O contracts are agreements under which the
government contracts for the operation, maintenance, or support, on its behalf, of a
government owned or controlled research, development, special production, or testing
establishment wholly or principally devoted to one or more major programs of the
contracting federal agency. Federal Acquisition Regulation, 48 C.F.R. § 17.601.
3
 In a July 2011 draft solicitation to industry, DOE and NNSA proposed altering this long-
standing approach by having a single contractor manage and operate two of NNSA’s
nuclear production sites that have historically had their own M&O contractors. DOE and
NNSA estimated that the new approach would save around $895 million (nominal dollars),
largely through efficiency gains and other improvements to the sites’ business systems
and support functions. In September 2011, however, we reported that the anticipated cost
savings were uncertain. See GAO, Modernizing the Nuclear Security Enterprise: The
National Nuclear Security Administration’s Proposed Acquisition Strategy Needs Further
Clarification and Assessment, GAO-11-848 (Washington, D.C.: Sept. 20, 2011).
4
 Cost Accounting Standards are promulgated under chapter 99 of Title 48, U.S. Code of
Federal Regulations, by the U.S. Cost Accounting Standards Board—a statutorily
established board (41 U.S.C. § 1501) within the Office of Management and Budget’s
Office of Federal Procurement Policy. The standards are mandatory for use by all
executive agencies and federal contractors in estimating, accumulating, and reporting
costs.




Page 2                                        GAO-12-255 Support Functions at DOE Sites
costs was inconsistent. We recommended that DOE take further actions
to improve the comparability of its data by clarifying its definitions for its
support costs. 5 In 2010, DOE replaced its functional support costs with a
new system called Institutional Cost Reporting, which was pilot-tested
that year and fully implemented in 2011. Also in the 2005 report, and an
April 2004 report, 6 we recommended that DOE take actions to manage
the long-term cost growth in certain support functions, such as facility
maintenance, as well as pension or other costs at sites. Since that time,
DOE has taken actions to control these costs, but some of them have
continued to grow. For example, in April 2011 we reported that DOE
reimbursed M&O contractors departmentwide for $750 million in pension
costs in fiscal year 2009—more than double the amount reimbursed in
fiscal year 2008—following financial market declines. 7

Against the backdrop of growing federal deficits and uncertainty over
future federal budgets, DOE and its M&O contractors at NNSA and
Science sites have been evaluating areas that could be streamlined or
provide cost savings. In this context you asked us to examine support
functions at NNSA and Science sites. Our objectives for this report were
to examine (1) the costs of providing support functions at NNSA and
Science sites for fiscal years 2007 through 2011; (2) efforts undertaken
during that period to streamline sites’ support functions and additional
streamlining opportunities and implementation challenges, if any; and (3)
the extent to which cost savings from streamlining efforts can be
quantified.

To address the first objective, we analyzed DOE’s data on support
function costs at the 17 NNSA and Science sites for fiscal years 2007
through 2011 and interviewed DOE officials who oversee these cost data
for DOE’s Office of the Chief Financial Officer. We took steps to assess
the reliability of the cost data, including interviewing representatives from



5
 GAO, Department of Energy: Additional Opportunities Exist for Reducing Laboratory
Contractors’ Support Costs, GAO-05-897 (Washington, D.C.: Sept. 9, 2005).
6
 GAO, Department of Energy: Certain Postretirement Benefits for Contractor Employees
Are Unfunded and Program Oversight Could Be Improved, GAO-04-539 (Washington,
D.C.: Apr. 15, 2004).
7
 See GAO, Department of Energy: Progress Made Overseeing the Costs of Contractor
Postretirement Benefits, but Additional Actions Could Help Address Challenges,
GAO-11-378 (Washington, D.C.: Apr. 29, 2011).




Page 3                                       GAO-12-255 Support Functions at DOE Sites
the chief financial officers’ organizations in DOE, NNSA, Science, and
M&O contractors. We noted the limitations of these data in our report but
found the data sufficiently reliable for our purposes. We reviewed federal
Cost Accounting Standards and federal and DOE acquisition regulations
for requirements on reporting support function costs. We spoke with M&O
contractor officials responsible for financial management at a
nonprobability sample of 8 sites—the 4 largest (by budget) NNSA sites
and 4 largest Science sites—and discussed trends in the sites’ support
function costs since 2007. 8 Because a nonprobability sample is not
generalizable, what we found at these 8 sites cannot be projected to all
17 sites; however, the sites provide examples of issues related to
management of support functions. 9 We visited 3 of these sites—Los
Alamos, Sandia, and Pacific Northwest national laboratories—and
contacted the others by phone. 10 To address the second and third
objectives, we reviewed DOE’s policies on procurement, human
resources, facility maintenance, and other support functions. We also
spoke with headquarters and field-based officials who oversee support
functions for DOE, NNSA, and Science about DOE’s policies and efforts
to oversee M&O contractors’ performance in carrying out and
streamlining support functions at sites, as well as additional streamlining
opportunities and challenges. We also reviewed studies, cost reports,
strategic plans, and other documentation on recent or proposed efforts to
streamline NNSA and Science sites’ support functions. We spoke with
M&O contractor officials who plan and oversee the 8 sites’ support
functions and discussed their sites’ streamlining efforts since 2007, as
well as any cost savings from those efforts. We reviewed documentation
on sites’ recent and planned streamlining efforts and associated cost
savings. We also discussed additional streamlining opportunities and any



8
 The four largest NNSA sites—Los Alamos, Lawrence Livermore, and Sandia national
laboratories and the Y-12 National Security Complex—accounted for about 79 percent of
the budget for NNSA’s sites in fiscal year 2010. The four largest Science sites—Oak
Ridge, Brookhaven, Pacific Northwest, and Lawrence Berkeley national laboratories—
accounted for about 66 percent of the budget for that office’s sites in that year.
9
 Furthermore, some of these issues may be relevant for sites overseen by other DOE
organizations, such as the Office of Environmental Management. Our scope, however, did
not include DOE organizations other than NNSA and Science.
10
  We visited both NNSA and Science sites, as well as larger and smaller sites among the
8 in our nonprobability sample. Furthermore, Pacific Northwest National Laboratory was
involved in developing DOE’s new Institutional Cost Reporting system and the associated
pilot test.




Page 4                                        GAO-12-255 Support Functions at DOE Sites
             related challenges. Furthermore, we collected, through document
             requests and interviews with DOE and contractor officials at sites in our
             sample, information on how cost savings were estimated. The amount
             and level of detail of this information varied greatly across streamlining
             efforts. Because it was not the purpose of this report to assess the
             anticipated or actual success of efficiency efforts and because the
             amount and quality of data on how estimated and actual savings were
             determined varied so much across efforts, we did not attempt to
             independently verify the reliability of these data or estimates. As a result,
             data on reported estimated or actual cost savings and efficiencies are of
             undetermined reliability.

             We conducted this performance audit from December 2010 through
             January 2012 in accordance with generally accepted government auditing
             standards. Those standards require that we plan and perform the audit to
             obtain sufficient, appropriate evidence to provide a reasonable basis for
             our findings and conclusions based on our audit objectives. We believe
             that the evidence obtained provides a reasonable basis for our findings
             and conclusions based on our audit objectives.


             DOE is responsible for a diverse set of missions, including nuclear
Background   security, energy research, and environmental cleanup. These missions
             are managed by various organizations within DOE and largely carried out
             by M&O contractors at DOE sites. NNSA and Science are among the
             largest (by budget) of these DOE organizations, overseeing important
             missions at 17 sites. 11 Specifically:


             •    With a $10.5 billion budget in fiscal year 2011—nearly 40 percent of
                  DOE’s total budget—NNSA is responsible for providing the United



             11
                In addition, some of the work for NNSA and Science missions is conducted by M&O
             contractors at sites overseen by other DOE organizations. For example, NNSA funds
             nuclear production and reprocessing work conducted by the M&O contractor at DOE’s
             Savannah River Site in South Carolina, a site that is primarily overseen by DOE’s Office of
             Environmental Management. Furthermore, some of the work carried out at NNSA and
             Science sites is funded by non-DOE entities, including other federal agencies or private
             firms. This work, known as “work for others,” can comprise very little of the work at NNSA
             and Science sites, or in the case of Sandia National Laboratories in New Mexico and
             California, over 40 percent of a site’s research budget in some years. In addition, NNSA
             and Science fund work at non-DOE organizations, such as universities.




             Page 5                                         GAO-12-255 Support Functions at DOE Sites
    States with safe, secure, and reliable nuclear weapons in the absence
    of underground nuclear testing and maintaining core competencies in
    nuclear weapons science, technology, and engineering. NNSA’s 7
    sites, including 3 national laboratories and 4 nuclear and production
    and testing sites support these activities (see fig. 1).

•   With a $4.9 billion budget in fiscal year 2011—18 percent of DOE’s
    total budget—Science has been the nation’s single largest funding
    source for basic research in the physical sciences, supporting
    research in energy sciences, advanced scientific computing, and
    other fields. Science funds research at its 10 national laboratories,
    which also house cutting-edge scientific facilities and equipment,
    ranging from high-performance computers to ultrabright X-ray sources
    for investigating fundamental properties of materials. These resources
    are often made available, on a temporary basis, to members of the
    broader scientific community outside of DOE for their own research,
    sometimes in collaboration with laboratory staff.




Page 6                                 GAO-12-255 Support Functions at DOE Sites
Figure 1: NNSA’s Laboratories and Nuclear Production and Testing Sites and Science’s Laboratories




                                        Note: Sandia National Laboratories has locations in New Mexico and California. Only its primary
                                        location in New Mexico is depicted. Both locations are considered to be part of a single site among
                                        the 7 NNSA laboratory and nuclear production and testing sites.


                                        Under DOE’s long-standing model of having unique M&O contractors at
                                        each site, management of its sites has historically been decentralized
                                        and, thus, fragmented. Since the Manhattan Project produced the first
                                        atomic bomb during World War II, DOE and its predecessor agencies
                                        have depended on the expertise of private firms, universities, and others




                                        Page 7                                               GAO-12-255 Support Functions at DOE Sites
to carry out research and development work and efficiently operate the
facilities necessary for the nation’s nuclear defense. 12 DOE’s relationship
with these entities has been formalized over the years through its M&O
contracts—contracts of a special type that give DOE’s contractors unique
responsibility to carry out major portions of DOE’s missions and apply
their scientific, technical, and management expertise. Currently, DOE
spends 90 percent of its annual budget on M&O contracts, making it the
largest non-Department of Defense contracting agency in the
government. The contractors at DOE’s 17 NNSA and Science sites have
operated under DOE’s direction and oversight but largely independently
of one another. 13 Furthermore, M&Os are set up as separate entities with
their own missions, parent organizations, and organizational structures.
For example, the M&O contractor at Science’s Oak Ridge National
Laboratory is a private, not-for-profit company, established for the sole
purpose of managing and operating that laboratory for DOE. Formed in
2000 as a limited liability partnership between the University of
Tennessee and Battelle Memorial Institute, the M&O contractor
organization is uniquely set up to provide that laboratory’s scientific
research and necessary support functions. M&O contractors typically
allocate the costs of support functions across the site and charge
research or other divisions that benefit from those functions.

Requirements for providing support functions at sites are set out in
federal and DOE acquisition regulations, DOE policies, and M&O
contracts. In particular, M&O contracts define performance requirements
for the support functions provided at each site. These range from
requirements that apply to contractors at all 17 sites—such as a


12
  The Manhattan Project, under the U.S. Army Corps of Engineers, maintained control
over American atomic weapons research and production until the formation of the United
States Atomic Energy Commission in 1946. The commission became the Energy
Research and Development Administration in 1974, which in turn became DOE in 1977.
13
  M&O contractors in NNSA and Science interact regularly to share best practices or
coalesce around topics of mutual interest. Examples include the National Laboratory
Director’s Council—in which representatives from NNSA, Science, and other DOE
laboratories meet regularly to coordinate around issues and concerns of broad interest to
laboratory managers—and DOE’s newly formed Contractor Integrated Supply Chain
Management Council, in which DOE and contractor officials will discuss issues related to
procurement. In addition, sites’ mission work is sometimes interrelated. For example,
programs to refurbish nuclear weapons typically rely on NNSA’s laboratories to design the
refurbished weapon, which NNSA’s production and testing sites will manufacture.
Similarly, experts from various NNSA and Science laboratories have coordinated some of
their sites’ research in areas such as materials science and high-performance computing.




Page 8                                        GAO-12-255 Support Functions at DOE Sites
                             requirement that M&O contractors’ systems of accounts comply with
                             generally accepted accounting principles—to site-specific requirements,
                             such as those pertaining to security at sites that house special nuclear
                             material. Some M&O contracts also include provisions encouraging
                             contractors to reduce sites’ support function costs. For example, M&O
                             contracts at some sites allow the contractors there to redirect—to mission
                             work or contractor-directed research—dollars saved through reductions in
                             support function costs. Also, contracts may include annual performance
                             goals for cost savings that are tied to the contractors’ annual performance
                             fees, which are monies paid to them based on their annual performance.

                             Various headquarters and field-based organizations within DOE, NNSA,
                             and Science develop policies or oversee M&O contractors’ performance
                             in providing support functions at sites. DOE, NNSA, and Science chief
                             financial officers, for example, oversee requirements for contractor
                             reporting on sites’ support function costs. Other offices oversee particular
                             support functions, such as procurement, facilities and infrastructure, and
                             human resources. DOE’s Office of Procurement and Assistance
                             Management and NNSA’s Office of Acquisition Management, for
                             example, establish policies and oversee procurement activities at NNSA
                             and Science sites. In addition, NNSA and Science site offices, colocated
                             with the 17 sites, conduct day-to-day oversight of the M&O contractors
                             and evaluate the contractors’ performance in carrying out the sites’
                             missions and providing support functions.



Sites’ Support Costs
since 2007 Are Not
Fully Known
Support Cost Data for 2007   The costs of support functions at NNSA and Science sites for fiscal years
through 2011 Are Not         2007 through 2011 are not fully known because DOE changed its data
Complete or Comparable       collection approach beginning in 2010 to provide improved data and, as a
                             result, does not have complete and comparable year-over-year cost data
because DOE Changed Its      for all 5 years. For fiscal years 2007 through 2009, total support costs for
Data Collection Approach     16 of the 17 NNSA and Science sites grew from $5 billion to about $5.5
                             billion (nominal dollars) and generally accounted for about 40 percent of




                             Page 9                                  GAO-12-255 Support Functions at DOE Sites
the sites’ annual budgets for those years, according to DOE’s data. 14 The
proportion of total costs that support costs represented, however, differed
between NNSA and Science sites in those years. For the NNSA sites,
DOE’s data show that support costs made up from 43 to 45 percent of
sites’ annual budgets for fiscal years 2007 through 2009. For the Science
sites, the data show that support costs made up from 32 to 33 percent of
the sites’ annual budgets during those years. Differences in missions may
account in part for NNSA’s somewhat higher support costs. In particular,
NNSA sites are more likely than Science sites to house nuclear material
and classified information, which can result in higher security, training, or
other costs. We did not, however, attempt to analyze costs for specific
support functions. According to a DOE report on its sites’ support function
costs and previous GAO work, 15 the data are appropriate for
understanding sites’ support function costs in aggregate but not for
comparing costs of sites’ individual support functions.

In fiscal year 2010, DOE changed its data collection approach to improve
its ability to oversee sites’ support function costs, according to DOE
officials, and, as a result, it does not have complete and comparable data
for all fiscal years from 2007 through 2011. 16 DOE does not have
complete data for 2010 because DOE and some of its contractors were
pilot-testing the new system, and only 11 of the 17 NNSA and Science
sites provided support cost data for that year. The data for 2010 are also
incomplete because—unlike previous years’ data—the sites only reported
on the indirect costs of their support functions, leaving out direct costs,
which could account for potentially large portions of their support costs.



14
  Over the same period, the sites’ total annual support function costs increased from
about $5.0 billion to about $5.3 billion in constant 2007 dollars. DOE’s data did not include
information for one Science site, the Thomas Jefferson National Accelerator Laboratory.
Excluding that site, however, would likely have had little impact on the total support costs
for fiscal years 2007 through 2009 because the site’s budget ranged from about $94
million to about $130 million and represented only about 1 percent of the total budget in
those years for all 17 sites.
15
 GAO-11-848.
16
  According to DOE’s Office of the Chief Financial Officer, additional insight into sites’
support function costs was needed in order to improve comparability with DOE’s Standard
Accounting and Reporting System, which came online after DOE initially started collecting
support cost data. Also, the support cost data under the old reporting system did not
differentiate between direct and indirect support costs. Furthermore, costs were reported
annually under the old system, but are being reported quarterly under the new reporting
system.




Page 10                                         GAO-12-255 Support Functions at DOE Sites
                            For example, officials from Los Alamos National Laboratory in New
                            Mexico told us that because just 15 percent of that site’s $145 million in
                            annual security costs are indirect, reporting only the indirect costs would
                            exclude $125 million in direct costs, or more than 85 percent, of the site’s
                            total security costs.

                            The data were more complete for fiscal year 2011—DOE’s first year for
                            implementing the new system after the pilot test; however, the 2010 and
                            2011 data for individual support functions are not comparable with older
                            data because the definitions for some support functions changed from the
                            old system to the new one. The new system retained many of the support
                            function categories of the old system, but it changed the definitions for
                            some categories and added new ones, such as cyber security,
                            technology transfer, and internal audit. For example, the new system
                            retained the safeguards and security category of the old system;
                            however, it changed the definition for that category to exclude cyber
                            security costs, which were made into a new cyber security category.
                            Furthermore, DOE’s definition for the new cyber security category
                            identified specific activities, such as purchasing and maintaining security
                            software, that are not described under the old system. DOE also added a
                            technology transfer category to the new reporting system, which includes
                            costs from various categories under the old system. Because the
                            definitions changed in these and other instances, costs that were in one
                            category under the old system were defined differently under the new
                            system. As a result, costs of individual support functions from the two
                            systems cannot be readily compared.


DOE Has Not Yet Taken All   DOE has taken some steps to ensure the completeness of support cost
Planned Steps to Ensure     data under its new data collection approach, but officials and documents
Data Are Complete and       described the need for additional steps to ensure that support cost data
                            collected under the new approach are comparable across DOE sites.
Comparable                  DOE has taken steps to ensure the completeness of data under the new
                            approach, which requires M&O contractors to verify they are capturing all
                            relevant costs by comparing their support costs with cost information from
                            DOE’s central accounting system. 17 DOE’s Office of the Chief Financial
                            Officer, however, plans to take additional steps, such as peer reviews, to


                            17
                              Support function costs are compared with data from DOE’s Standard Accounting and
                            Reporting System. Specifically, sites check that their combined direct and indirect costs
                            are equal to the total costs in that system.




                            Page 11                                         GAO-12-255 Support Functions at DOE Sites
ensure that the new data are comparable. Under the previous approach
for collecting support function costs, DOE used peer reviews to help
ensure that sites identified the relevant costs and assigned them to the
correct categories. Specifically, the accuracy of sites’ reporting—including
whether the relevant costs were being included in the correct
categories—was reviewed every 3 years by representatives from other
M&O contractors. The reviews found instances of sites classifying costs
incorrectly, which were reported to DOE and corrected by the contractor.
In fiscal year 2011 guidance for the new system from the Office of the
Chief Financial Officer, DOE stated that it planned to implement peer
reviews by the end of fiscal year 2011. In September 2011, officials
responsible for DOE’s support cost data told us that the peer reviews had
not been implemented because of other priorities, but more recently, the
department said it plans to implement peer reviews in fiscal year 2012.
Until these reviews have been implemented, it is difficult to know if the
data collected under the new system are reliable or useful for comparing
sites’ support costs.

Complete and comparable data on support costs at NNSA and Science
sites are not available for all years since 2007, but M&O contractor
officials at the 8 sites we reviewed discussed trends in support function
costs at each individual site. Because each site is different and M&O
contractors have discretion in how they classify costs, contractors’ own
data systems may capture support costs differently than DOE’s reporting
systems discussed earlier. Contractor officials responsible for financial
management at most of the 8 sites told us that support function and other
costs at their sites, including pensions, had increased overall for fiscal
years 2007 through 2011. These overall costs increased during that
period, but some types of support costs generally decreased or remained
stable relative to the total costs of managing and operating the sites,
according to these officials. The costs that decreased generally included
human resources administration, financial management systems, and
other support costs that some officials said are easier to control.
Contractor officials at the 8 sites said they used reductions in some
support costs to help offset increases in support costs that can be more
difficult to control, such as pensions and facility costs. For example, on
the basis of information provided by Sandia National Laboratories, the
site expects to contribute nearly $2 billion to its pension plan over the next
10 years, $400 million of which officials expect to fund through reductions
in that site’s support function costs. M&O contractor officials responsible
for financial management at Brookhaven National Laboratory told us they
plan to leverage the funds resulting from decreases in some support
function costs in order to help fund ongoing efforts to upgrade the site’s


Page 12                                 GAO-12-255 Support Functions at DOE Sites
                            aging facilities and infrastructure, which had grown more costly to
                            maintain. Specifically, rather than lowering the rates charged for the
                            support functions, the M&O officials opted to continue charging the same
                            rates and then use the additional funds to help pay for the upgrades.



DOE and Site
Contractors Have
Been Streamlining
Support Functions
and Identifying
Additional
Opportunities, as well
as Challenges

Streamlining since 2007     DOE and M&O contractors have undertaken various efforts since 2007 to
Has Mainly Focused on       improve the efficiency of, or streamline, sites’ support functions.
Procurement, Human          Streamlining efforts that officials reported were focused mainly on three
                            broad areas: (1) procurement; (2) human resources, including employee
Resources, and Facilities   benefits; and (3) facilities and infrastructure. 18 Some streamlining efforts
and Infrastructure          were part of larger initiatives involving multiple sites from among the 17
                            NNSA and Science sites, while others were initiated at the site level.

                            To streamline procurement, DOE and M&O contractors at NNSA and
                            Science sites said that they have undertaken various efforts to obtain
                            better pricing on goods and services and make their procurement
                            processes more efficient. Some of the efforts were aimed at reducing
                            fragmentation among sites by using a more centralized approach. For
                            example:

                            •    To better leverage its 7 sites’ purchasing power, in 2007 NNSA began
                                 operating its central Supply Chain Management Center. According to
                                 NNSA, this center applies “strategic sourcing” techniques, coordinated


                            18
                              The discussion below provides examples of streamlining efforts but is not meant to be
                            comprehensive.




                            Page 13                                       GAO-12-255 Support Functions at DOE Sites
     through a central organization, that private companies and, more
     recently, government agencies have used to improve efficiency and
     effectiveness of procurement. 19 The center aggregates and analyzes
     NNSA sites’ procurement spending data to identify opportunities to
     coordinate sites’ purchases and negotiate better prices for goods and
     services. For example, center officials conducted one analysis that
     revealed that the 7 sites were purchasing most of their laboratory
     supplies and equipment from the same set of 38 vendors through
     individual contracts negotiated by each site. The center was able to
     negotiate a single contract for all the sites, resulting in an estimated
     savings of $22 million over the contract’s 3-year term, according to the
     M&O contractor official who manages the center. The official said the
     center has negotiated agreements for other goods and services, such
     as electrical supplies and equipment. Furthermore, NNSA’s center
     supplements its own strategic sourcing agreements with ones
     negotiated by DOE’s Integrated Contractor Purchasing Team for
     goods such as office supplies and personal computers. These
     agreements are similar to agreements negotiated by NNSA’s center
     but, unlike the NNSA agreements, are available to M&O contractors
     across DOE. In addition, NNSA’s central Supply Chain Management
     Center provides automated tools, including electronic catalogs, to help
     sites streamline their purchasing activities and carry out “reverse
     auctions,” in which vendors competitively bid down their prices for
     goods and services to win contracts at NNSA sites.

•    Individual sites from the 8 we reviewed have undertaken efforts on
     their own to streamline procurement and reduce costs. In addition to
     agreements they negotiated on their own, M&O contractor officials at
     7 of the sites said they purchased goods or services through
     agreements negotiated by their M&Os’ parent organizations to obtain
     better pricing. For instance, contractor officials from Lawrence
     Berkeley National Laboratory told us the site expanded its employees’
     access to scientific journals significantly at no additional cost by using
     the University of California’s subscriptions to those journals. Officials
     at Pacific Northwest National Laboratory said their site leverages its
     M&O’s parent organization’s agreements with airlines, rental car
     companies, and banks to obtain better pricing on airfares, rental cars,
     and purchase cards. A senior official at that site also said, however,


19
  For additional information on strategic sourcing, see GAO, Best Practices: Using Spend
Analysis to Help Agencies Take a More Strategic Approach to Procurement, GAO-04-870
(Washington, D.C.: Sept. 16, 2004).




Page 14                                       GAO-12-255 Support Functions at DOE Sites
    the site uses agreements negotiated by DOE’s Integrated Contractor
    Purchasing Team for some purchases. In addition, contractor officials
    at 6 of the sites told us they made their procurement process more
    efficient by switching from paper-based procurement transactions to
    electronic ones, including electronic catalogs, which allow their sites’
    employees to make frequent small-value purchases without involving
    the site’s procurement organization.

To streamline human resources, sites from the 8 we reviewed merged
certain human resource functions to reduce administrative costs,
according to M&O contractor officials, as well as automated some human
resource services and reduced contractor employee benefits. For
example:

•   M&O contractor officials at Los Alamos and Lawrence Livermore
    national laboratories said they took steps to merge certain services,
    mainly in human resources. For example, Los Alamos National
    Laboratory provides employee benefits accounting and other services
    for both sites, according to the officials. Similarly, contractor officials at
    Y-12 National Security Complex—an NNSA site that manufactures
    uranium and other components for nuclear weapons—told us they
    took steps to merge their site’s hiring, compensation, benefits
    administration, and other services with NNSA’s Pantex Plant.
    According to the officials and documents describing the effort, the
    sites now use a common approach to planning and providing the
    services.

•   Contractor officials from the 8 NNSA and Science sites told us they
    automated various human resource activities, such as hiring and
    training of employees or managing employee records. Officials told us
    that automation has helped their sites reduce the time needed to carry
    out the activities and, in some cases, directly lowered their costs.
    Contractor officials at the Y-12 National Security Complex told us their
    site’s automation of its employee records eliminated the time-
    consuming management of paper records. Contractor officials at
    Lawrence Livermore and Los Alamos national laboratories said they
    moved more of their employee training online, reducing the travel or
    other costs of providing in-person training. Contractor officials at some
    sites told us that automation of such functions became necessary
    after, or in anticipation of, significant cuts in the numbers of support
    staff, including at one site where officials said over one-third of staff
    for some support functions were cut to address a budget shortfall. In
    other cases, contractor officials said that their sites automated human



Page 15                                   GAO-12-255 Support Functions at DOE Sites
    resource activities after evaluating the efficiency and effectiveness of
    existing policies and processes. Contractor officials at Lawrence
    Berkeley National Laboratory reported they took steps to standardize
    and automate the site’s hiring, after an evaluation revealed that the
    laboratory’s 14 scientific and 6 support divisions had widely varying
    policies and processes, requiring hiring decision approval from one
    official or as many as seven different officials. According to these
    officials, the laboratory’s automated tool helped standardize hiring
    processes and reduce the amount of time for bringing on new staff.

•   To reduce sites’ costs for providing health and pension benefits to
    contractor employees and retirees, all NNSA and Science sites we
    reviewed reported making reductions in their benefit programs. In the
    area of health benefits, contractor officials at the 8 sites told us they
    increased the share of health benefit costs that contractor employees
    or retirees pay, for instance, by narrowing the number of health plan
    options and moving to plans with higher out-of-pocket expenses.
    Contractor officials at 3 of the sites said they eliminated
    postretirement medical benefits for newly hired contractor employees,
    and at two sites began requiring such employees to obtain their
    prescription medications from lower-cost mail-order pharmacies. In
    the area of pensions, contractor officials at 6 of the 8 sites said they
    made changes to their plans, reducing the overall amount of future
    pension benefits current contractor employees may receive in
    retirement. For instance, contractor officials from 3 of the sites told us
    they closed their traditional defined-benefit pension plans to newly
    hired contractor employees, and some sites made changes affecting
    future benefits to current employees’ pensions. According to
    documents, Sandia National Laboratories changed its pension
    formula to reduce the amount of the annual retirement benefit that
    current contractor employees will be eligible to receive on future
    earnings. Another site, Brookhaven National Laboratory, reduced,
    from 10 percent to 9 percent of employee salaries, the amount it
    contributes to its newly hired contractor employees’ defined-
    contribution pensions, according to documents.

To streamline facilities and infrastructure and reduce costs, DOE and
contractors have undertaken various efforts to reduce the number of
facilities and the amount of space they must maintain, lower the
maintenance and operating costs of existing buildings and space, and
improve how sites modernize and upgrade their facilities and
infrastructure. For example:




Page 16                                  GAO-12-255 Support Functions at DOE Sites
•   In 2007, Science adopted a more centralized approach to upgrading
    facilities and infrastructure at its laboratories to reduce costs and
    improve the quality of the research facilities. According to documents
    outlining this approach and Science officials, many facilities at
    Science’s sites are aging, have grown more costly to maintain, and
    cannot easily support the equipment needed for modern scientific
    research, which may require environments free from vibrations or
    other special conditions. Until recently, Science’s M&O contractors
    have largely been responsible for prioritizing and funding major
    improvements to sites’ facilities and infrastructure, according to
    Science officials. To better leverage these funds, however, Science
    implemented a new approach, in which a centrally managed process
    is used to prioritize funding for modernizing facilities and infrastructure
    at all 10 Science sites, in many cases replacing the fragmented
    approach used previously. According to Science officials, the new
    approach has helped Science tie modernization efforts more closely
    to mission needs while bringing down the costs and lead times of
    these efforts. In one such effort, Oak Ridge National Laboratory was
    able to replace two outdated research facilities with a modern
    laboratory building at a lower cost and more quickly than would have
    been feasible under the former approach. Construction of the new
    building took about 2 years and was completed in 2011 for
    approximately $96 million. This building was completed more quickly
    and at less than half the cost of renovating the outdated facilities,
    which, according to Science officials, was the most likely
    modernization option under the previous funding approach. Also,
    according to project documentation, estimated energy costs for the
    new building are 40 percent less than for the renovated facilities.

•   Individual sites also took various steps to streamline facilities and
    infrastructure. Officials at the 8 NNSA and Science sites we reviewed
    told us that they had consolidated staff and equipment into less
    space, reducing the costs of maintaining and operating space at their
    sites. In some cases, sites were able to repurpose the vacated space
    or demolish buildings to reduce the sites’ overall footprint. In other
    cases, sites vacated inactive nuclear facilities—which can be costly to
    maintain, even if not inhabited—to prepare for their eventual cleanup
    and removal. Contractor officials at 3 of the 8 sites also told us they
    made better use of existing work space by changing how that space is
    allocated to staff and improved the quality of facility and infrastructure
    services through improved strategic planning for facilities and by
    changing how these services are organized and carried out. For
    example, contractor officials from Pacific Northwest National
    Laboratory reported that in 2011 they began relocating infrequently


Page 17                                  GAO-12-255 Support Functions at DOE Sites
     used laboratory equipment to a central storage facility, freeing up an
     additional 7,000 square feet of work space. In addition, some sites
     took steps to lower their energy costs. Officials at 3 of the sites we
     reviewed said they did so by negotiating with their utilities for better
     rates. Through contract negotiations between DOE and New York
     state, for instance, Brookhaven National Laboratory significantly
     lowered its utility costs by purchasing excess hydropower from New
     York state through a local utility, according to documents describing
     the effort and laboratory officials. Similarly, contractor officials at Oak
     Ridge National Laboratory said DOE negotiated with the utility for a
     less expensive rate that applies to manufacturing facilities, lowering
     electricity costs for the lab and adjacent DOE facilities.

Streamlining efforts described by DOE and officials at the NNSA and
Science sites we reviewed appeared to incorporate many of the key
practices for streamlining and improving efficiency in federal programs
and functions identified in our September 2011 report. 20 These key
practices include examining the efficiency and effectiveness of
organizational structures and processes, targeting both short-term and
long-term efficiency gains, and building capacity for further streamlining.
Some of the efforts implemented by DOE and M&O contractors at the 8
sites involved Lean Six Sigma, 21 or targeted short-term and long-term
efficiency gains. To build capacity for further streamlining, NNSA created
a Business Management Advisory Council in 2009 to improve
collaboration among its sites and encourage continuous streamlining of
sites’ support functions. Likewise, contractor officials at individual sites
said processes are in place to promote continuous improvement at their
sites. For example, a contractor official at the Y-12 National Security
Complex said the site’s productivity improvement initiative encourages
staff to identify streamlining and cost-savings opportunities for mission
activities and support functions. In fiscal year 2010, the site identified 244
streamlining initiatives—ranging from improvements to how the site’s
vehicle fleet is managed to the creation of an apprenticeship program for




20
 GAO, Streamlining Government: Key Practices from Select Efficiency Initiatives Should
Be Shared Governmentwide, GAO-11-908 (Washington, D.C.: Sept. 30, 2011).
21
  Lean Six Sigma is a data-driven approach used in the private sector and government for
analyzing work processes based on the idea of eliminating defects and errors that
contribute to losses of time, money, opportunities, or business. See GAO-11-908.




Page 18                                       GAO-12-255 Support Functions at DOE Sites
                          training new facility maintenance workers—which were tracked internally
                          and shared with NNSA.


Additional Streamlining   DOE and contractor officials identified opportunities to expand existing
Opportunities             streamlining efforts to additional sites and undertake new efforts in
                          procurement, human resources, facilities and infrastructure, and other
                          support functions, such as information technology. The DOE and
                          contractor officials also noted opportunities in other support functions,
                          including DOE-led opportunities involving multiple sites and opportunities
                          considered by individual sites from among the 8 NNSA and Science sites
                          we reviewed. For example:

                          •   To further streamline procurement, the Deputy Secretary of Energy
                              called on DOE organizations and M&O contractors to expand
                              strategic sourcing to leverage DOE’s buying power more effectively
                              and achieve significant cost savings. In an August 2010
                              memorandum, the Deputy Secretary noted that successful expansion
                              would require close collaboration among DOE and its M&O
                              contractors and cited NNSA’s central Supply Chain Management
                              Center as a possible model for other organizations in the department.
                              Since this memorandum was issued, other organizations in DOE,
                              including Science, have been evaluating options for expanding
                              strategic sourcing at the sites they oversee. In addition, individual
                              sites among the 8 we reviewed identified further opportunities to
                              streamline procurement. For instance, according to contractor
                              officials, Oak Ridge National Laboratory plans to increase its use of
                              strategic sourcing agreements and, by 2014, reduce by half the time
                              needed to conduct its site’s procurements.

                          •   To further streamline human resources, NNSA’s Business
                              Management Advisory Council is considering whether to consolidate
                              human resources and other services, such as payroll and finance, at
                              all NNSA sites. In a March 2011 white paper, NNSA concluded that a
                              centralized approach to providing these services is technically feasible
                              and could lead to cost savings, but it would require further study of
                              potential barriers, such as the need to standardize information
                              systems and work processes across NNSA’s M&O contractors.
                              Individual sites also identified further streamlining opportunities. A
                              contractor official at 1 site said the site was considering outsourcing
                              certain human resource functions, such as employee counseling
                              services. In the area of retirement benefits, contractor officials at 2 of
                              the 8 sites said their sites were considering closing postretirement



                          Page 19                                 GAO-12-255 Support Functions at DOE Sites
     medical benefit programs to new contractor employees, while officials
     at another site said they were considering changing their defined-
     benefit pension plan to reduce the amount of pension benefits new
     employees may be eligible to receive.

•    To further streamline facilities and infrastructure, both NNSA and
     Science officials identified opportunities to improve facilities and
     infrastructure planning and reduce infrastructure, energy, and other
     costs at multiple sites. In December 2008, NNSA selected its
     preferred approach for transforming its nuclear weapons sites—
     including sites’ facilities and infrastructures—which it outlined in an
     October 2008 Environmental Impact Statement. 22 In particular, special
     nuclear material, including plutonium and highly enriched uranium,
     would be consolidated into fewer locations among NNSA sites,
     enabling sites to reduce security, infrastructure, or other costs
     associated with storing and safeguarding the nuclear material. At least
     one site, Lawrence Livermore National Laboratory, plans to remove
     significant stockpiles of special nuclear material from the site by the
     end of fiscal year 2012 and, according to M&O contractor officials
     there, reduce the size and cost of its security forces. Under a separate
     effort, NNSA is considering adopting a more centralized and strategic
     approach to modernizing its sites’ facilities and infrastructure, as well
     as removing unneeded buildings and reducing sites’ footprints.
     According to NNSA officials who oversee facilities and infrastructure,
     a more centralized and strategic approach is needed to ensure that
     improvement efforts are more closely tied to long-term mission needs.
     To further streamline at Science’s sites, Science and its contractors
     determined that additional collaboration among sites could help DOE
     achieve governmentwide energy efficiency requirements, set by the
     President in Executive Order 13514. 23 In a January 2011 proposal,



22
  See Record of Decision for the Complex Transformation Supplemental Programmatic
Environmental Impact Statement—Operations Involving Plutonium, Uranium, and the
Assembly and Disassembly of Nuclear Weapons, Dec. 19, 2008 (73 FR 77644); Record of
Decision for the Complex Transformation Supplemental Programmatic Environmental
Impact Statement—Tritium Research and Development, Flight Test Operations, and Major
Environmental Test Facilities, Dec. 19, 2008 (73 FR 77656); and Complex Transformation
Supplemental Programmatic Environmental Impact Statement, Oct. 24, 2008 (DOE/EIS-
0236-S4).
23
  Exec. Order No. 13514 (Oct. 5, 2009), 74 Fed. Reg. 52117, Federal Leadership in
Environmental, Energy, and Economic Performance, directs federal agencies to set
energy efficiency goals for their facilities and operations, including specific targets for
reducing their production of greenhouse gases, such as carbon dioxide.




Page 20                                           GAO-12-255 Support Functions at DOE Sites
     Science and contractor officials identified various approaches that
     Science’s 10 laboratories could take on their own or collaboratively to
     improve DOE’s overall energy efficiency.

In addition, officials at NNSA and Science sites reported that there were
opportunities to streamline and reduce fragmentation in other support
functions, such as information technology, safety, and security. Proposals
for additional streamlining in these support functions involved DOE-led
efforts at multiple sites, as well as opportunities identified by contractor
officials at individual NNSA and Science sites from the 8 we reviewed.
For example, NNSA is in the early planning stages of an organizationwide
effort to upgrade its sites’ information technologies and improve the
security of the sites’ networks, according to NNSA officials. Under a key
component of this effort, wireless technologies would be used to remotely
monitor potentially dangerous conditions in nuclear environments, helping
contractors improve safety and reduce costs by shortening the amount of
time workers need to spend in these environments, according to DOE
documents. NNSA is currently testing the feasibility of using wireless
technologies at Livermore and Los Alamos national laboratories; another
site, Sandia National Laboratories, has already been using these
technologies to improve the safety and efficiency of operations. Under
another key component, NNSA sites’ current patchwork of network
technologies and architectures would be replaced with standardized
technologies and architectures, reducing the need for site support
personnel and improving NNSA’s ability to secure its sites’ networks,
according to NNSA officials. 24 A related component would reduce the
need for technology and support personnel at sites by relocating a
number of site-supported computer applications to a “cloud” computer—
an emerging model in which computer services are provided centrally
through the Internet. 25 The officials also reported that providing wireless
technologies and upgrading sites’ networks through a coordinated effort
would allow NNSA to leverage its purchasing power more effectively than
through fragmented efforts at sites. In addition, contractor officials at 3 of
the Science sites we reviewed also told us they were considering cloud



24
  For more information on network architecture, see GAO, Organizational Transformation:
A Framework for Assessing and Improving Enterprise Architecture Management (Version
2.0), GAO-10-846G (Washington, D.C.: Aug. 5, 2010).
25
 For more information, see GAO, Information Security: Additional Guidance Needed to
Address Cloud Computing Concerns, GAO-12-130T (Washington, D.C.: Oct. 5, 2011).




Page 21                                      GAO-12-255 Support Functions at DOE Sites
                          computing for their sites. Officials at the 4th Science site, Lawrence
                          Berkeley National Laboratory, said their site has been using cloud
                          computing since 2010 for certain tasks, such as employees’ e-mail and
                          calendar, which an offsite vendor remotely manages for the laboratory.


Challenges Could Hinder   DOE and contractor officials also cited a variety of challenges that could
Additional Streamlining   hinder implementation of additional streamlining efforts. One such
Efforts                   challenge is the potential difficulty of getting M&O contractors to
                          coordinate and adopt a more centralized, and less fragmented, approach.
                          DOE and contractor officials told us that in some cases, the sites were
                          reluctant to adopt a centralized approach to providing support functions
                          because such an approach may not always be more effective. For
                          example, in response to the Deputy Secretary’s August 2010 memo
                          calling for an expansion of strategic sourcing, Science expressed
                          reluctance to implement a more centralized approach to procurement,
                          citing efficiencies of its sites’ current procurement approach. In July 2011,
                          Science reported that after assessing options for centralizing sites’
                          procurement—including options for joining NNSA’s central Supply Chain
                          Management Center or establishing a center of its own—it concluded that
                          the benefits of these options would not exceed the costs. Despite its less
                          centralized approach, Science concluded that its sites already benefit
                          from key aspects of strategic sourcing—including analysis of sites’
                          spending and leveraged buying through contractors’ parent organizations
                          and DOE’s Integrated Contractor Purchasing Team—and have achieved
                          significant and potentially greater savings through their own procurement
                          activities. In a September 2011 study, an outside consultant hired by
                          Science also concluded that Science’s laboratories would not achieve
                          further cost savings by joining NNSA’s central Supply Chain Management
                          Center but could benefit from methods used there. 26




                          26
                            The study—“Use of Supply Chain Management Center by Department of Energy Office
                          of Science National Laboratories,” McCallum-Turner, Sept. 16, 2011—compared
                          procurement cost savings in fiscal year 2010 between Science laboratories and NNSA’s
                          Supply Chain Management Center. The report concluded that joining with NNSA’s center
                          would not benefit Science, because “major” Science laboratories are achieving greater
                          savings on their own. Other Science laboratories, however, which are achieving
                          comparable or less savings, could benefit from some of the tools used by NNSA’s center.
                          The report also, however, identified potential limitations to its analysis, including difficulty
                          with comparing data from multiple sites that may not be comparable.




                          Page 22                                           GAO-12-255 Support Functions at DOE Sites
We did not evaluate Science sites’ savings potential under a more
centralized approach to procurement, but procurement officials in DOE
told us that Science likely has additional opportunities to leverage its
laboratories’ buying power, because Science has not comprehensively
analyzed its sites’ spending. Moreover, DOE and contractor officials said
that barriers to adopting a more centralized approach can potentially be
overcome, despite DOE and sites’ long-standing fragmentation. For
example, according to NNSA’s procurement director and a senior
contractor official at NNSA’s central Supply Chain Management Center,
NNSA’s M&O contractors were initially reluctant to participate in the
supply chain center because they were concerned about losing their
autonomy over procurement activities. In addition, because DOE
competes its M&O contracts, they were reluctant to release potentially
sensitive information about those activities. Officials said they were able
to address these issues, in part by securing the NNSA Administrator’s
support for the new center and by requiring contractors to participate in
the effort. Similarly, contractor officials at Los Alamos National Laboratory
and Y-12 National Security Complex told us that their respective efforts to
merge certain human resource activities with those of other NNSA sites
were helped by the fact that the contractors involved in the efforts have
common parent organizations.

In addition to the potential difficulty of getting contractors to coordinate
and adopt a more unified approach, DOE and contractor officials cited
other challenges to further streamlining, including the long lead times or
high up-front costs that can sometimes precede cost savings or other
streamlining benefits. Officials from Sandia National Laboratories, for
example, told us the anticipated cost savings from eliminating new
contractor employees’ postretirement health benefits in 2009 would not
materialize for many years because the affected employees are years
from retirement. Similarly, in the March 2011 white paper evaluating
options to merge sites’ human resource support services, NNSA cited
potentially long lead times and high expected up-front costs, which it
estimated could range from $500 million to $1 billion, before the
anticipated cost savings and other benefits would result. Also, according
to contractor officials or documentation from several sites, efforts to
automate support functions and improve facilities and infrastructure can
require long lead times or costly investments up front but can also save
on costs down the road, because they improve efficiency or require fewer
staff.

In addition, according to DOE and contractor officials, while reducing
employee benefits or laying off staff can reduce costs, these steps could


Page 23                                 GAO-12-255 Support Functions at DOE Sites
                        also hinder contractors’ ability to recruit and retain a high-quality
                        workforce. Officials said that such steps can affect morale at the site and
                        make it more difficult to recruit scientists, engineers, and other highly
                        trained staff. They can also exacerbate existing challenges related to the
                        geographic isolation of some NNSA and Science sites and competition
                        from other industries. Officials at Sandia National Laboratories, for
                        example, said that they had to achieve dramatic reductions in the site’s
                        pension liability while ensuring the site retained adequate numbers of
                        experienced staff for its highly technical and specialized nuclear
                        weapons-related workload, which they said would likely increase in the
                        coming years. Other officials told us, however, that reductions in
                        employee benefits may not always have adverse effects on sites’ ability to
                        recruit and retain a high-quality workforce because some benefits offered
                        at NNSA and Science sites, such as defined-benefit pension plans, may
                        be more generous than those offered by competing industries.


                        DOE and its M&O contractors at NNSA and Science sites have estimated
Difficulties Exist in   savings for some of the streamlining efforts undertaken since fiscal year
Quantifying Cost        2007. It is difficult, however, to compare savings or quantify total savings
                        across sites because DOE’s guidance for estimating savings is unclear
Savings because         and the methods used to estimate savings vary. Several streamlining
Guidance for            efforts for which DOE and M&O contractors estimated cost savings were
Estimating Savings Is   in the area of procurement. Examples of estimated savings reported by
                        DOE or its contractors included the following:
Unclear and Methods
Used Vary               •   According to NNSA documentation, NNSA estimated that in fiscal
                            year 2011 its seven sites saved $106.6 million on purchases using its
                            central Supply Chain Management Center.

                        •   Individual sites also reported savings. For example, contractor officials
                            at Pacific Northwest National Laboratory estimated that in fiscal year
                            2010 the lab saved about $35 million in procurement costs through its
                            direct negotiations with suppliers, purchases through agreements
                            negotiated by its parent organization, and other means.

                        DOE’s guidance for how to estimate procurement savings, however, is
                        not consistent and clear in all cases. As a result, the methods used to
                        estimate these cost savings can vary widely across sites. For some
                        procurements, standardized methods for estimating cost savings are
                        used. For example, guidance by NNSA’s central Supply Chain
                        Management Center specifies that NNSA’s seven sites use the center’s



                        Page 24                                 GAO-12-255 Support Functions at DOE Sites
preferred method for estimating cost savings from purchases made
through the center, in which the price paid for goods or services is
subtracted from the previous price paid. If no previous price is available or
would not provide a useful comparison, the guidance identifies two other
approved methods. Similarly, for purchases made through DOE’s
Integrated Contractor Purchasing Team agreements, the team estimates
cost savings by subtracting the price paid through its agreements from
the General Services Administration (GSA) price, 27 if available, or the
vendor’s list price, according to the contractor official who coordinates the
team’s activities.

For other procurements, DOE has not historically had guidance for
estimating cost savings. In September 2011, to help improve consistency
across the department, and comply with a governmentwide effort to
measure procurement cost savings, DOE issued guidance outlining
approved methods for calculating these savings. The guidance was one
part of DOE’s efforts to revise the department’s metrics for evaluating the
performance of its M&O contractors’ procurement functions, in response
to recommendations from M&O contractors. 28 M&O contractor
representatives from DOE’s newly formed Contractor Integrated Supply
Chain Management Council identified the need for greater consistency in
reporting of sites’ procurement cost savings. Also, according to an official
from DOE’s Office of Procurement and Assistance Management, DOE’s
effort to develop guidance was responding to Office of Management and
Budget (OMB) direction that agencies governmentwide, including DOE,
report on their procurement cost savings. The council suggested various
methods for estimating procurement cost savings, which it recommended
DOE adopt as acceptable methods. These methods include determining
procurement cost savings by subtracting the price that a site paid for
goods and services from a comparison price, such as the previous price
paid at the site or an independent estimate. DOE incorporated these
methods into a new performance metric for evaluating M&O contractors’



27
  This price is from GSA’s Multiple Award Schedule program, in which GSA negotiates
contracts with a variety of vendors and allows federal agencies and contractors, including
DOE’s M&O contractors, to make purchases at the negotiated prices.
28
  Contractors report procurement performance to DOE annually using the Contractor
Purchasing System Balanced Scorecard. The balanced scorecard requires contractors to
report on a variety of procurement metrics, which DOE then uses to oversee the
contractors’ procurement functions.




Page 25                                        GAO-12-255 Support Functions at DOE Sites
procurement functions, which will require M&O contractors to report their
annual procurement cost savings to DOE starting in fiscal year 2012.

The guidance for the new metric, however, does not specify when it is
appropriate to use each method and consequently could lead to wide
variations in the cost savings reported by contractors. The guidance also
does not identify a preferred method for estimating cost savings; rather, it
allows contractors to use any one of the methods recommended by the
Contractor Integrated Supply Chain Management Council as well as any
other method approved by local DOE site offices. A variety of methods
may be appropriate for calculating procurement cost savings, but we
found that different methods could lead to wide variations in estimated
cost savings, making it difficult for DOE to oversee contractors’
performance in streamlining and reducing the costs of site procurement
functions. For example, the official who oversees procurement at Pacific
Northwest National Laboratory said his division used the site’s preferred
method to estimate the cost savings resulting from negotiations with a
vendor over the price of a new software package. Using this method—in
which the price paid was subtracted from the vendor’s opening offer—the
official cited a savings of $9 million, which he considered to be an
accurate estimate of the savings. According to the official, however, other,
less conservative methods for estimating procurement cost savings—
including those used elsewhere in DOE—would have led to higher
savings estimates, including savings as high as $35 million (see fig. 2).




Page 26                                GAO-12-255 Support Functions at DOE Sites
Figure 2: Example of the Effect of Using Different Cost Savings Estimation Methods for a 2010 Software Purchase at Pacific
Northwest National Laboratory (PNNL)




                                         According to an official from DOE’s Office of Procurement and Assistance
                                         Management, the new guidance provides a first step to addressing these
                                         inconsistencies, but DOE expects to further clarify the guidance. He also
                                         noted that, despite the governmentwide requirement to report
                                         procurement cost savings, DOE developed the guidance with little
                                         specific instruction from OMB on the appropriate methods for measuring
                                         procurement cost savings. 29

                                         For cost savings estimates for support functions other than procurement,
                                         we also found that there is considerable flexibility in how savings may be
                                         calculated, which could lead to wide variations in savings estimates. For
                                         example, a contractor official at Brookhaven National Laboratory reported
                                         that the estimated savings during the first few months of the site’s
                                         agreement with its utility to purchase hydropower varied, depending on
                                         the estimation method. The estimated savings totaled either $1 million or



                                         29
                                           In November 2011, we reported that OMB guidance issued as part of its effort to reduce
                                         procurement spending and increase agencies’ reporting of procurement cost savings was
                                         broad and led to inconsistent interpretations by agencies as to what constituted savings.
                                         We therefore recommended that OMB’s Office of Federal Procurement Policy clarify its
                                         guidance related to measuring procurement cost savings. See GAO, Federal Contracting:
                                         OMB’s Acquisition Savings Initiative Had Results, but Improvements Needed, GAO-12-57
                                         (Washington, D.C.: Nov. 15, 2011).




                                         Page 27                                       GAO-12-255 Support Functions at DOE Sites
$7 million, depending—respectively—on whether the cost of hydropower
was compared with the site’s previous price for electric power or the
utility’s market rate. Similarly, contractor officials from Los Alamos
National Laboratory reported saving $200,000 annually in travel-related
costs by encouraging site employees to use video teleconferencing in lieu
of attending meetings or training sessions in person. The laboratory
officials told us that they could have included other cost savings in their
estimate—such as costs (productivity losses) avoided when staff spend
more time on their regular duties rather than travel offsite—but wanted a
more conservative savings estimate. In contrast, in their savings estimate
for another type of process improvement, contractor officials at the Y-12
National Security Complex included savings from needing fewer staff-
hours to complete tasks. In this case, the site automated its process for
counting its inventory of personal property, such as computers, which
officials estimated saved $1 million in fiscal year 2011.

DOE guidance relevant for cost savings in other support functions does
not clearly define appropriate methods for estimating cost savings. DOE’s
acquisition regulations include provisions that give M&O contractors an
opportunity to earn a share of the cost savings, paid out as fee, resulting
from streamlining efforts. 30 Guidance in the regulations outlines the
process for identifying and verifying savings but does not clearly define
appropriate methods for estimating the savings in order to award
additional fee. In May 2011, NNSA revised these provisions and
incorporated them into its sites’ M&O contracts. The revised version
defines more clearly what types of streamlining efforts may result in
additional fee for contractors—specifically, efforts that reduce sites’
bottom-line operating costs—but it does not define estimation methods for
cost savings. 31 Instead, both the original and revised versions of the
guidance allow the contractor to use any estimation methods approved by
the local site office, which could lead to wide variations in savings
estimates for similar efforts and make it more difficult to oversee
contractors’ performance in streamlining and reducing support function
costs.




30
 Department of Energy Acquisition Regulation (DEAR) 48 C.F.R. § 970.5215-4 Cost
Reduction.
31
  NNSA Deviation to DEAR 48 C.F.R. § 970.5215-4 Cost Reduction, authorized pursuant
to the authority of FAR 48 C.F.R. § 1.404.




Page 28                                     GAO-12-255 Support Functions at DOE Sites
              Absent clear DOE guidance, at least one site has developed its own
              instructions to standardize savings estimates from its streamlining efforts.
              The Y-12 National Security Complex identified specific methods that site
              employees should use to estimate cost savings under its sitewide
              productivity improvement initiative. The instructions outline which
              elements should be used to estimate the cost savings and, because
              some savings span multiple years, the time period for recognizing efforts’
              cost savings. Furthermore, an online system is used at the site to track
              streamlining efforts and includes a template for estimating cost savings,
              used to help ensure that savings are being calculated consistently.
              Savings estimates are reviewed at the site and, for efforts resulting in
              significant savings, by local NNSA officials. If applied consistently, this
              guidance would standardize estimates within the Y-12 site but not other
              sites.

              Given the uncertainty of measuring cost savings from streamlining, DOE
              and site officials told us they do not always measure cost savings. For
              example, contractor officials at Brookhaven National Laboratory told us
              they took a number of steps to improve the efficiency of processes at the
              site—including streamlining the process for admitting visitors and guests
              to the laboratory—but did not attempt to measure the cost savings
              because the process improvements did not reduce the laboratory’s
              bottom-line operating costs. Even when streamlining efforts may result in
              reductions to bottom-line costs, however, anticipated savings can be
              difficult to estimate accurately. For example, some contractor officials told
              us that, in order to estimate savings from changes to contractor
              employees’ pension or health care benefits, they often had to predict
              future events—such as the long-term performance of financial markets or
              employees’ expected use of health care services. Sandia National
              Laboratories expects recent changes to the site’s pension plan will save
              approximately $380 million from 2011 to 2020, but the actual amount
              saved will depend, in part, on the future performance of the plan’s
              underlying financial assets, which can be difficult to predict.


              DOE spends over $5 billion dollars each year on support functions
Conclusions   provided by M&O contractors at NNSA and Science sites. Growing
              federal deficits and increasingly uncertain future federal budgets have
              necessitated that M&O contractors evaluate areas that could be
              streamlined or provide cost savings in support costs at these sites,
              thereby maximizing funds available for the sites’ national security,
              research, and energy development missions. DOE also has actively



              Page 29                                 GAO-12-255 Support Functions at DOE Sites
sought opportunities and implemented measures to more effectively use
federal funds.

Moving forward, DOE’s ability to oversee and facilitate additional
streamlining of support functions provided by M&O contractors will require
complete and comparable data on support function costs. DOE has
implemented an improved reporting system for support costs. Moreover,
DOE has partially implemented a quality control process to begin to
ensure that data in the new cost reporting system are complete and
comparable. DOE has not yet completed implementing its quality control
process, however, and the completion date has now slipped from the end
of September 2011 to sometime in 2012. Key steps, such as peer
reviews, are not yet used. Until a quality control system is completely
implemented, DOE cannot have full confidence that the support cost data
it collects and uses to oversee contractor performance are complete,
accurate, and reliable.

In addition to improving support cost data, DOE and its contractors have
made substantial efforts to streamline support functions and reduce costs.
Also, they have identified additional opportunities to expand these efforts
and implement new approaches. Streamlining efforts undertaken at some
sites may be appropriate at other NNSA or Science sites, and there may
be other opportunities to streamline or reduce fragmentation that could be
pilot-tested and implemented at sites. Some of these opportunities will
require close collaboration between DOE and its M&O contractors to
reduce the effects of long-standing fragmentation of site management.
DOE has begun taking active steps to reduce the effects of
fragmentation, such as NNSA’s creation of its Business Management
Advisory Council to improve collaboration among its sites and encourage
continuous streamlining of sites’ support functions. However, as DOE and
contractor officials have pointed out, barriers to collaboration and other
challenges could hinder further streamlining.

DOE has also undertaken efforts to better standardize its guidance on the
appropriate methods to use when estimating cost savings. Because its
guidance gives contractors considerable flexibility in choosing the
appropriate methods for estimating cost savings, its estimates could still
vary widely. Consequently, DOE’s ability to determine whether
contractors’ efforts to further streamline costs are effective is limited.




Page 30                                GAO-12-255 Support Functions at DOE Sites
                      To help reduce support costs or make more effective use of DOE and
Recommendations for   contractor resources, as well as to improve oversight of M&O contractors’
Executive Action      support functions at NNSA and Science sites, we recommend the
                      Secretary of Energy take—or, as appropriate, direct the Administrator of
                      NNSA and the Director of the Office of Science to take—the following
                      three actions:

                      •   fully implement a quality control system for DOE’s institutional cost
                          system, including steps such as peer reviews, to ensure that data
                          collected and used by DOE on support function costs are complete
                          and comparable for monitoring sites’ support functions;

                      •   assess whether all appropriate efforts to streamline DOE support
                          functions or reduce support function costs are being taken at NNSA
                          and the Science sites and ensure that necessary steps are taken to
                          address challenges limiting implementation of cost savings efforts;
                          and

                      •   clarify DOE’s guidance on the preferred methods to use for estimating
                          cost savings, including under what circumstances each method
                          should be used, to ensure more consistency in how cost savings are
                          estimated for various streamlining efforts and a more comparable
                          assessment of results.



                      We provided a draft of this report to DOE for its review and comment. In
Agency Comments       written comments, NNSA’s Associate Administrator for Management and
and Our Evaluation    Budget, responding on behalf of DOE and NNSA, wrote that DOE agreed
                      with the report’s findings and three recommendations. DOE provided
                      additional information about its planned actions for addressing the
                      recommendations that included implementing a peer review process to
                      ensure the quality of its support cost data, establishing an organization in
                      Science comparable to NNSA’s Business Management Advisory Council
                      to verify that all appropriate streamlining opportunities are taken and
                      challenges addressed, and clarifying the department’s recent guidance on
                      the methods for estimating cost savings. DOE’s written comments on our
                      draft report are included in appendix I. DOE also provided technical
                      comments, which we incorporated into the report as appropriate.




                      Page 31                                 GAO-12-255 Support Functions at DOE Sites
We are sending copies of this report to the appropriate congressional
committees, the Secretary of Energy, the Administrator of NNSA, and
other interested parties. The report also is available at no charge on the
GAO website at http://www.gao.gov.

If you or your staff members have any questions about this report, please
contact me at (202) 512-3841 or aloisee@gao.gov. Contact points for our
Offices of Congressional Relations and Public Affairs may be found on
the last page of this report. GAO staff who made major contributions to
this report are listed in appendix II.




Gene Aloise
Director, Natural Resources
  and Environment




Page 32                                 GAO-12-255 Support Functions at DOE Sites
Appendix I: Comments from the Department
             Appendix I: Comments from the Department of
             Energy



of Energy




             Page 33                                       GAO-12-255 Support Functions at DOE Sites
Appendix I: Comments from the Department of
Energy




Page 34                                       GAO-12-255 Support Functions at DOE Sites
Appendix I: Comments from the Department of
Energy




Page 35                                       GAO-12-255 Support Functions at DOE Sites
Appendix II: Contact and Staff
              Appendix II: Contact and Staff Acknowledgments




Acknowledgments

                          Gene Aloise, (202) 512-3841 or aloisee@gao.gov
GAO Contact
                          In addition to the individual named above, Janet Frisch, Assistant Director;
Staff                     Eric Bachhuber; James Espinoza; Daniel Feehan; Allyson Goldstein;
Acknowledgments           Mehrzad Nadji; Alison O’Neill; Josie Ostrander; Cheryl Peterson; Jeff
                          Rueckhaus; Michael Silver; and Vasiliki Theodoropoulos made key
                          contributions to this report.




(361245)
                           Page 36                                GAO-12-255 Support Functions at DOE Sites
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