oversight

High-Risk Series: Department of Energy Contract Management

Published by the Government Accountability Office on 1997-02-01.

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

                United States General Accounting Office

GAO             High-Risk Series




February 1997
                Department of Energy
                Contract Management




GAO/HR-97-13
GAO   United States
      General Accounting Office
      Washington, D.C. 20548

      Comptroller General
      of the United States



      February 1997
      The President of the Senate
      The Speaker of the House of Representatives

      In 1990, the General Accounting Office began a special
      effort to review and report on the federal program areas
      its work identified as high risk because of vulnerabilities
      to waste, fraud, abuse, and mismanagement. This effort,
      which was supported by the Senate Committee on
      Governmental Affairs and the House Committee on
      Government Reform and Oversight, brought a
      much-needed focus on problems that were costing the
      government billions of dollars.

      In December 1992, GAO issued a series of reports on the
      fundamental causes of problems in high-risk areas, and in
      a second series in February 1995, it reported on the status
      of efforts to improve those areas. This, GAO’s third series
      of reports, provides the current status of designated
      high-risk areas.

      This report describes our concerns about the Department
      of Energy’s implementation of its contract reform
      initiative. It focuses on the Department’s continued use of
      noncompetitively awarded contracts to operate its major
      facilities. The report also identifies some implementation
      problems that can affect the accomplishment of the
      Department’s missions, compromise its authority, and
      result in cost inefficiencies.
Copies of this report series are being sent to the
President, the congressional leadership, all other
Members of the Congress, the Director of the Office of
Management and Budget, and the heads of major
departments and agencies.




James F. Hinchman
Acting Comptroller General
of the United States




            Page 2        GAO/HR-97-13 DOE Contract Management
Page 3   GAO/HR-97-13 DOE Contract Management
Contents



Overview                                                     6

Background                                                  12

DOE’s Reform                                                15
Actions Are
Under Way
DOE Continues                                               17
to Miss the
Benefits of
Competing
Contracts
Some Problems                                               21
Emerge in Early
Implementation
DOE’s Recent                                                24
Privatization
Approach Raises
Some Concerns
Further Action                                              29
Needed
Related GAO                                                 31
Products




                  Page 4   GAO/HR-97-13 DOE Contract Management
                 Contents




1997 High-Risk                                               33
Series




                 Page 5     GAO/HR-97-13 DOE Contract Management
Overview



              As the largest civilian contracting agency in
              the federal government, the Department of
              Energy (DOE) generally fulfills its multiple
              missions with contractors who manage and
              operate its federally owned facilities. In fact,
              some of DOE’s current contracts date back to
              the 1940s. Since then, DOE has continued a
              policy of “least interference,” which left it
              unaware of many of its contractors’
              activities. Moreover, DOE paid nearly every
              cost that these contractors incurred. In fiscal
              year 1995, DOE contracted out about 91
              percent of its $19.2 billion in obligations (or
              about $17.5 billion) to, among other things,
              maintain its weapons complex, fund its
              national laboratories, and clean up its legacy
              of environmental contamination.


The Problem   DOE’s  contracting practices and problems
              stem from the time of the Manhattan
              Project’s development of the atomic bomb
              during World War II. This undertaking
              involved special contracting arrangements,
              such as least interference in the contractor’s
              work and indemnification of a contractor’s
              liability. Decades later, DOE continued to
              enter into contracts in which competition
              was the exception, reimbursement of
              virtually any cost to the contractor was the



              Page 6        GAO/HR-97-13 DOE Contract Management
                   Overview




                   practice, and lax oversight of contractors
                   was the norm.

                   In 1990, we designated DOE contracting as a
                   high-risk area vulnerable to waste, fraud,
                   abuse, and mismanagement. This
                   designation was precipitated by DOE’s history
                   of weak oversight of contractors coupled
                   with heavy reliance on contractors to fulfill
                   DOE’s missions. We subsequently issued a
                   series of reports and testimonies, identifying
                   some of the costly effects of DOE’s practices.
                   These products have contributed to the
                   Congress’s budget deliberations and
                   provided an impetus for DOE to reform its
                   contracting.

                   Although past Secretaries of Energy have
                   instituted various remedies and have moved
                   in the direction of improved contracting,
                   changing the way DOE does business has not
                   come easily or quickly.


Progress to Date   A major contract reform effort now under
                   way and receiving high priority and visibility
                   at DOE raises expectations for improvement.
                   Responding to continued criticism of DOE’s
                   contract management, in 1993 the Secretary
                   of Energy established a Contract Reform
                   Team. The Reform Team evaluated the


                   Page 7        GAO/HR-97-13 DOE Contract Management
    Overview




    Department’s contracting practices and, in
    its February 1994 report, recommended
    nearly 50 actions to fundamentally change
    DOE’s contracting practices.


    Often in direct opposition to DOE’s historical
    contracting patterns, the recommendations
    included, among other things,

•   increasing competition for contracts;
•   using alternatives, such as
    performance-based contracts, to typical
    management and operating contracts;
•   improving DOE’s management and control of
    certain costs; and
•   putting performance criteria and incentives
    into DOE’s contracts.

    The recommendations identified specific DOE
    actions to guide the agency’s contracting. In
    response, DOE has made progress in
    developing an array of policies and
    procedures. For example, it has published a
    new regulation adopting a standard of full
    and open competition for the award of its
    management and operating contracts. In
    addition, DOE is including incentives to
    improve performance and control costs in its
    contracts. DOE also has initiated a new
    approach for some environmental cleanup



    Page 8        GAO/HR-97-13 DOE Contract Management
                 Overview




                 work in an attempt to shift much of the risk
                 and responsibility onto the contractor.

                 Although DOE has made headway, most of
                 the completed actions were delayed, which
                 will push back the implementation of the
                 final reforms accordingly. The new policies
                 and guidance provide a framework for
                 improved contracting.


Further Action   The changes proposed in DOE’s current
Needed           reforms, which are unprecedented in scope
                 within DOE, provide a comprehensive plan to
                 address the problems resulting from the
                 Department’s past contracting practices.
                 However, the real test of DOE’s success will
                 occur as DOE implements, monitors, corrects
                 where needed, and standardizes “best
                 practices” for a totally new way of doing
                 business. This effort will require time as the
                 current contracts are either competitively
                 awarded or noncompetitively renewed with
                 the reform provisions incorporated into the
                 contracts.

                 When we recently completed a review of the
                 status of all of DOE’s contract reform actions,1
                  we noted that competition now may be the

                 1
                  Department of Energy: Contract Reform Is Progressing, but Full
                 Implementation Will Take Years (GAO/RCED-97-18, Dec. 10, 1996).

                 Page 9             GAO/HR-97-13 DOE Contract Management
Overview




rule but that DOE has a long way to go before
it realizes the benefits of competition. Most
of DOE’s contract decisions continue to be
noncompetitive. In addition, we found that
problems are emerging in early
implementation. For example, the contracts’
goals are not always linked to those of the
Department. Given the magnitude of these
reforms, implementation problems are to be
expected. However, they must be identified
and corrected for contract reform to
succeed.

Also, it is critical that DOE not lose its
momentum and priority in implementing
contract reform. Therefore, continued
high-level monitoring and oversight by DOE
will be needed to identify problems,
standardize the best practices, and make
needed corrections as DOE makes its way
through these changes.

DOE also needs to make the specific changes
we identified in our recent review of its early
implementation of contract reform. For
example, DOE should competitively award its
management and operating contracts to the
greatest extent possible and link the
contractors’ goals to DOE’s strategic goals.




Page 10       GAO/HR-97-13 DOE Contract Management
Overview




Finally, when the new contracts and
regulations produce the desired results, the
high-risk designation can be lifted.




Page 11       GAO/HR-97-13 DOE Contract Management
Background



             Over the last 50 years, DOE and its
             predecessor agencies have spent billions of
             dollars for its management and operating
             contractors using contracting policies that
             were developed during the crisis of World
             War II. In fact, some of DOE’s current
             contracts date back to the 1940s. DOE
             continued a policy of “least interference,”
             which left it unaware of many of its
             contractors’ activities. Moreover, DOE paid
             nearly every cost that these contractors
             incurred. Contracting in DOE accounted for
             $17.5 billion, or 91 percent of its fiscal year
             1995 obligations, employing about 120,000
             contractor staff, compared to 19,600 federal
             staff.

             Almost all of DOE’s contract obligations (82
             percent, or $14.35 billion worth) are with its
             management and operating contractors and
             are generally extended every 5 years. DOE’s
             own unique procurement regulations cover
             many of the activities performed under these
             contracts, which are for operating,
             maintaining, or supporting
             government-owned research, development,
             production, or testing facilities, both nuclear
             and nonnuclear. These regulations differ
             from those applicable to typical government
             contracts and other DOE contracts, which are
             primarily governed by the Federal


             Page 12       GAO/HR-97-13 DOE Contract Management
Background




Acquisition Regulation. For example,
noncompetitive procurement has been the
normal practice for DOE’s management and
operating contracts, while competitive
contracting is the normal practice for other
contracts.

We have issued numerous reports relating
the effects—unnecessary costs and
contractors’ poor performance—of DOE’s
practices. Similarly, we reported how DOE’s
most significant projects, called major
system acquisitions, have had limited
success under DOE’s management.2 Of the 80
projects initiated in the last 16 years, only 15
have been completed—most of which were
behind schedule and over cost; after billions
of dollars had been invested, 31 were
terminated before completion.

For example, a project to solidify high-level
radioactive waste for long-term storage had
grown from a cost of about $446 million to
over $1 billion and was more than 7 years
behind schedule. Another project, the
Superconducting Super Collider, had an
original cost estimate of $5.9 billion, but as
we reported, the project’s expected costs
had ballooned to more than $11 billion.

2
 Department of Energy: DOE Has Had Limited Success With Major
System Acquisitions (GAO/RCED-97-17, Nov. 26, 1996).

Page 13            GAO/HR-97-13 DOE Contract Management
Background




Concerned about the cost increases and the
federal budget deficit, the Congress finally
terminated this high-energy physics project.

We believe that four key factors underlie the
problems with these projects. Two are
contract related—a flawed system of
incentives for contractors and insufficient
DOE personnel with the appropriate skills to
effectively oversee the contractors’
operations. The other two factors relate to
DOE’s unclear or changing missions and to
the incremental funding of projects.

Although DOE began to take action to
improve it contracting practices in l990,
reform has been an elusive goal. In
May 1993, the Secretary of Energy told the
Congress that DOE was not adequately in
control of its contractors and, as a result,
was not “in a position to ensure effective and
efficient expenditures of taxpayer
dollars. . . .” As a result, the Secretary
initiated a complete review of DOE’s
contracting practices by a Contract Reform
Team.




Page 14       GAO/HR-97-13 DOE Contract Management
DOE’s Reform Actions Are Under Way



                   After reviewing the agency’s contracting
                   practices, the Secretary’s Contract Reform
                   Team issued, in February 1994, its report
                   entitled Making Contracting Work Better and
                   Cost Less. The Team focused its efforts on
                   management and operating contracts and
                   identified numerous problems that needed
                   correcting. The 48 recommendations (47 in
                   the report and 1 directed by the Secretary)
                   for specific actions sought to make sweeping
                   changes in DOE’s policies and practices, often
                   completely contrary to the way DOE has done
                   business.


DOE Is             DOE is making headway in developing
Developing a       policies, procedures, and guidelines in
Contracting        response to the Reform Team’s
Policy             recommendations. Along with the
Framework          recommendations, the Reform Team
                   assigned to a specific DOE office the
                   responsibility for completing each action
                   and established deadlines for them. As of
                   August 1996, DOE reported completing 47 of
                   the 48 recommended actions; the last one is
                   nearing completion. Specifically, DOE has

               •   published a policy adopting a standard of full
                   and open competition,
               •   developed guidance for contract
                   performance criteria and measures,


                   Page 15       GAO/HR-97-13 DOE Contract Management
                      DOE’s Reform Actions Are Under Way




                  •   created incentive mechanisms for
                      contractors, and
                  •   developed training in performance-based
                      contracting for DOE personnel.

                      These steps, as well as others, are crucial to
                      improving DOE’s contracting and represent a
                      framework upon which the actual
                      implementation of reforms will take place in
                      contracts.


Delayed Actions       Although DOE’s efforts are significant, most
Postpone              of the actions were completed later than
Implementation        expected and consequently delayed the
                      implementation of the final reforms. DOE
                      missed the deadlines for 45 of 47 completed
                      reforms by an average of 11 months.
                      Moreover, nearly one-half of the reform
                      actions have just been completed in the last
                      fiscal year. The recency of the contracting
                      policies and guidance will subsequently push
                      implementation further into the future. Thus,
                      DOE’s contract reform may not realize all of
                      its expected benefits for some time.




                      Page 16         GAO/HR-97-13 DOE Contract Management
DOE Continues to Miss the Benefits of
Competing Contracts


                 Possibly DOE’s most important reform
                 initiative—to open its management and
                 operating contracts to competition—has
                 become policy. However, DOE continues to
                 award the majority of its contracts
                 noncompetitively.

                 DOE’s new policy adopts a standard of full
                 and open competition and directs that DOE
                 competitively award its contracts to the
                 fullest extent possible. Also, the Contract
                 Reform Team’s report recommended that
                 the terms of the contract be negotiated
                 before existing contracts were extended.
                 The recommendation is intended to improve
                 DOE’s bargaining position with respect to
                 contract costs and deliverables and
                 encourage new contractors to submit bids.


DOE Continues    DOE continues to award most of its contracts
Noncompetitive   noncompetitively. Of the 24 decisions made
Awards           from July 5, 1994, to the end of August 1996,
                 DOE decided to extend 16 contracts on a
                 noncompetitive basis and to competitively
                 award the other eight.3 DOE had had
                 long-term relationships with many of the
                 contractors whose contracts it decided not
                 to compete. The average age of the 16

                 3
                  According to DOE’s Procurement and Assistance Data System,
                 DOE had 42 active management and operating contracts as of
                 July 1, 1996.

                 Page 17            GAO/HR-97-13 DOE Contract Management
                  DOE Continues to Miss the Benefits of
                  Competing Contracts




                  contracts was about 35 years, and 12 of them
                  had never been competitively awarded.

                  Second, although contrary to a
                  recommendation by the Contract Reform
                  Team, DOE may have weakened its
                  bargaining position when it conditionally
                  decided to extend the contracts for three of
                  its laboratories before negotiating with the
                  contractor. As a result, DOE placed itself in
                  the same weak negotiating position it has
                  maintained for years.

                  DOE officials maintain that they are
                  improving existing contracts without the
                  benefit of competition. However, DOE is still
                  negotiating in a noncompetitive environment
                  and will not gain the full benefits of
                  competition.


DOE’s             DOE  adopted in 1996 the provisions of the
Implementation    Competition in Contracting Act that provide
of the New        for specific exceptions to full and open
Competition       competition.4 One of the exceptions
Policy Could Be   authorizes noncompetitive procurements for
                  federally funded research and development
Beneficial
                  centers that maintain an essential
                  engineering, research, or development

                  4
                   Because DOE did not adopt these provisions until 1996, they did
                  not apply to DOE’s earlier decisions to extend the 16 contracts.

                  Page 18             GAO/HR-97-13 DOE Contract Management
DOE Continues to Miss the Benefits of
Competing Contracts




capability. DOE has 18 research centers;
under this exception, it could justify its
noncompetitive procurements with the
management and operating contractors
operating the centers.

In the past, DOE has successfully competed
contracts to operate research centers at two
national laboratories and within the last few
months has decided to competitively award
another similar contract. We believe that DOE
needs to continue to compete its research
center contracts to the greatest extent
possible.

In the event that DOE does need to use this
exception to justify a noncompetitive
procurement, it should do so only for the
research work, which should be segregated
from the other activities of its management
and operating contractors. For example, in a
recent review of DOE’s contracts with
research centers, we reported that only
about half of the funds the contractors spent
was for research and development activities.5
 The remainder was spent on such activities
as the environmental restoration of facilities
contaminated with hazardous and nuclear
waste and did not involve research and

5
 Federal Research: Information on Fees for Selected Federally
Funded Research and Development Centers (GAO/RCED-96-31FS,
Dec. 8, 1995).

Page 19            GAO/HR-97-13 DOE Contract Management
DOE Continues to Miss the Benefits of
Competing Contracts




development. Therefore, DOE could get the
most value from its competitive awards by
separating and competitively awarding the
portion of the work that is not
research-related.




Page 20           GAO/HR-97-13 DOE Contract Management
Some Problems Emerge in Early
Implementation


                   As DOE begins to implement the contract
                   reforms, some implementation problems are
                   occurring. The contracts’ goals are not
                   always clearly linked to those of the
                   Department; some contract language could
                   affect DOE’s authority to determine the total
                   amount of available incentives; and DOE does
                   not have guidance for its contracting officers
                   to reach reasonable prices on its incentive
                   contracts. These problems, which relate to
                   the use of the new performance-based
                   management contracts, can affect the
                   accomplishment of DOE’s missions,
                   compromise DOE’s authority, and result in
                   cost inefficiencies. In trying to put contract
                   reforms in place quickly, DOE officials said
                   that some inconsistencies occurred and that
                   they see these early implementation stages
                   as a learning process.


Contracts’ Goals   First, the goals in the management and
Are Not Always     operating contracts are not always clearly
Consistent With    linked to those of the Department. A strong
DOE’s              linkage is important because most of DOE’s
                   missions are performed under such
                   contracts. DOE’s contract reform guidance
                   stated that a top-down approach should be
                   used to link DOE’s strategic plan to
                   subordinate plans and ultimately to specific
                   goals in a contract.


                   Page 21       GAO/HR-97-13 DOE Contract Management
                  Some Problems Emerge in Early
                  Implementation




                  In a review of several contracts awarded
                  after DOE’s strategic plan was published, we
                  had difficulty linking the contracts’ goals to
                  the Department’s goals. For example, DOE’s
                  strategic plan lists five business lines and
                  four key success factors. One contract we
                  reviewed contained goals listed under seven
                  different categories. However, the seven
                  categories were not related to the nine DOE
                  goals. As a result, it was difficult to match
                  the contracts’ goals to those of the
                  Department. Clear linkage would help DOE in
                  directing the performance of its missions
                  and the results of its contracts.


Some Contract     In addition, some DOE contracts authorized
Language May      the contractors to dispute DOE’s
Compromise        determination of the total amount of
DOE’s Authority   available contract incentives or the available
                  incentive amounts that can be applied to
                  specific goals in the contracts. For example,
                  in two contracts we reviewed, the
                  contractors could legally dispute the
                  available amount of an incentive. By
                  providing contractors with the authority to
                  question its decisions, the language in these
                  contracts could hinder DOE’s ability to
                  determine the priority of its work, motivate
                  the contractors, and fulfill its mission.



                  Page 22          GAO/HR-97-13 DOE Contract Management
                 Some Problems Emerge in Early
                 Implementation




DOE’s            Finally, as DOE attempts to use incentive
Regulations Do   contracts to control costs, it is apparent that
Not Address      its management and operating procurement
Cost-Control     regulations do not provide the necessary
Incentives       direction for its contracting officers. For
                 these incentive to be effective, the
                 contracting officer must price the contract to
                 motivate the contractor to effectively
                 manage costs. The Federal Acquisition
                 Regulation provides guidance and
                 procedures for pricing contracts, but DOE’s
                 procurement regulations do not. However,
                 for management and operating contracts,
                 DOE’s contracting offices are not required to
                 follow the governmentwide procurement
                 regulation.

                 In the absence of procedures, two DOE
                 contracting officers obtained different
                 results from the cost incentives they
                 developed for their contracts. One
                 contracting officer used aspects of the
                 governmentwide regulation, while the other
                 did not. When the governmentwide
                 regulation was applied, DOE was able to
                 favorably affect the contractor’s
                 performance.




                 Page 23          GAO/HR-97-13 DOE Contract Management
DOE’s Recent Privatization Approach
Raises Some Concerns


             In another move away from its traditional
             contracting, DOE has recently initiated a
             “privatization” approach for some of its
             environmental cleanup work. However, it is
             important to note that DOE’s privatization is
             not a divestiture, which involves the sale of
             government-owned assets or functions. (For
             all practical purposes, DOE’s activities are
             already privatized—contractors conduct
             DOE’s programs at its major sites.) What sets
             this initiative apart from DOE’s traditional
             approach is its attempt to shift the
             responsibility for financing and much of the
             risk onto the contractor. It requires DOE’s
             management and operating contractors to
             competitively award portions of the work
             that they would normally have done
             themselves and make the subcontractors
             bear the risks.

             DOE has begun several projects this year
             under the new approach and has more
             planned. Although it is too early to assess
             the success of this approach, we have
             questioned the accuracy of DOE’s
             cost-savings estimates and ability to provide
             the necessary oversight.6 Instead of DOE’s
             historical approach—awarding

             6
              Environmental Protection: Issues Facing the Energy and Defense
             Environmental Management Programs
             (GAO/T-RCED/NSIAD-96-127, Mar. 21, 1996) and Hanford Waste
             Privatization (GAO/RCED-96-213R, Aug. 2, 1996).

             Page 24             GAO/HR-97-13 DOE Contract Management
                DOE’s Recent Privatization Approach
                Raises Some Concerns




                cost-plus-award-fee contracts, owning the
                facility that the contractors operate, and
                paying the contractors’ costs regardless of
                what was accomplished—DOE’s privatization
                approach uses a fixed-price, competitive
                contract; requires the contractors to finance,
                design, build, and operate the facilities; and
                pays the contractors only for successful
                results. DOE expects this approach to save
                billions of dollars because of the potential
                for greater efficiencies and improved
                performance in the marketplace.


Uncertainties   Because DOE’s cost-savings estimates have a
Exist in        wide margin of error and limited technical
Cost-Savings    data to support them, we believe that the
Estimates       estimates should be viewed with caution.
                DOE’s cost-savings estimates for privatization
                are based on a comparison of the estimated
                cost of the privatization approach compared
                to DOE’s historical noncompetitive approach
                for projects. DOE’s recent cost-savings
                estimates are listed in its 1997 budget
                submission, identifying six projects it
                considered highly successful in reducing
                costs. DOE reported that savings from these
                projects would range from about 45 to
                95 percent.




                Page 25          GAO/HR-97-13 DOE Contract Management
DOE’s Recent Privatization Approach
Raises Some Concerns




However, in reviewing an earlier cost
estimate, we identified several weaknesses
in DOE’s calculation. DOE estimated that it
could save 30 percent to treat the highly
radioactive tank wastes at DOE’s Hanford
site. However, the estimate is actually based
on a range of values with a margin of error of
plus or minus 40 percent. That is, the
privatized approach could range from
$5.8 billion to $13.4 billion, and the
noncompetitive, from $8 billion to
$18.6 billion. Because of the large margin of
error in the cost estimates, the privatization
approach could be more costly. Such broad
estimates occur because little is known
about the technical process to be used, and
little data are available from feasibility or
engineering studies.

DOE acknowledges that the estimates are
subject to a wide margin of error and that
actual savings will be affected by such
factors as the extent to which competition is
achieved. In fact, DOE may not be obtaining
the degree of competition that it expected.
For example, although DOE expected three or
more bids for the first phase of work to be
conducted at Hanford, it had received two
bids as of August 1996.




Page 26          GAO/HR-97-13 DOE Contract Management
                 DOE’s Recent Privatization Approach
                 Raises Some Concerns




                 Other uncertainties exist, as our previous
                 work has demonstrated. The contents of the
                 tanks and the effectiveness of many of the
                 technologies needed to be successful are
                 uncertain. Therefore, the compensation that
                 a private contractor may require to cover
                 such uncertainties, called the “risk
                 premium,” could offset the efficiencies that
                 might be gained by privatization.
                 Furthermore, the actual savings will not be
                 known until the projects, which are either in
                 the planning phase or only recently under
                 way, are completed.


Approach         Under privatization, oversight could become
Requires a       more complex and demanding. For example,
Different        in the past, DOE has not regulated the nuclear
Oversight Role   waste-processing facilities that are owned
for DOE          and operated by private companies.
                 Consequently, DOE does not have the
                 procedures or the staff in place to carry out
                 this role. DOE will also have to oversee the
                 competitive contracting process as well as
                 the contractors’ activities.

                 DOE  acknowledges that even under its
                 traditional contracting approach, it has had
                 difficulty overseeing contractors. DOE
                 officials emphasized that they are taking
                 steps to assume this new role but recognize


                 Page 27          GAO/HR-97-13 DOE Contract Management
DOE’s Recent Privatization Approach
Raises Some Concerns




that DOE is not fully prepared. It remains to
be seen whether DOE can effectively deal
with this expanded role.

Because privatization is in its very early
stages, these and other aspects of this
approach will bear watching. One such
aspect is liability. Has DOE adequately
defined what liability the private firms
should assume? Given the substantial risk
involved, indemnification bears close
scrutiny to ensure that the government does
not assume so much of the risk that the
effort becomes privatized in name only.




Page 28          GAO/HR-97-13 DOE Contract Management
Further Action Needed



            Because DOE’s contract reform and related
            “privatization” initiative are in such early
            stages, it is too soon to assess their overall
            effectiveness. DOE’s contract reform thus far
            has established the parameters in the form
            of policies, guidance, and plans. The real
            test—the implementation of these reforms in
            contracts—will occur in future years. With
            the magnitude of policy changes such as
            these, implementation problems are to be
            expected. However, they must be identified
            and corrected during implementation for
            contract reform to succeed.

            To ensure success, adequate oversight and
            prompt responses to problems that occur
            during this important phase are needed. In
            addition, it is important that the Secretary of
            Energy keep contract reform as a high-level
            priority within the Department. Otherwise,
            DOE’s contract reform could lose its
            momentum during this critical stage.

            DOE’s privatization approach also consists of
            many uncertainties at this point.
            Furthermore, this approach will require a
            different oversight role for DOE, for which
            DOE has neither the procedures nor the staff
            in place.




            Page 29       GAO/HR-97-13 DOE Contract Management
Further Action Needed




Because DOE’s missions heavily depend on
contractors, successful contracting is critical
to the success of DOE as a federal
department. Once DOE has identified and
corrected the problems that occur in these
early stages of contracting changes—and
subsequently shown that it can work within
the contracting framework that it has set up
we can remove DOE’s contracting from the
high-risk area.




Page 30          GAO/HR-97-13 DOE Contract Management
Related GAO Products



            Department of Energy: Contract Reform Is
            Progressing, but Full Implementation Will
            Take Years (GAO/RCED-97-18, Dec. 10, 1996).

            Department of Energy: DOE Has Had Limited
            Success With Major System Acquisitions
            (GAO/RCED-97-17, Nov. 26, 1996).

            Hanford Waste Privatization
            (GAO/RCED-96-213R, Aug. 2, 1996).

            Environmental Protection: Issues Facing the
            Energy and Defense Environmental
            Management Programs
            (GAO/T-RCED/NSIAD-96-127, Mar. 21, 1996).

            Federal Research: Information on Fees for
            Selected Federally Funded Research and
            Development Centers (GAO/RCED-96-31FS,
            Dec. 8, 1995).

            Nuclear Facility Cleanup: Centralized
            Contracting of Laboratory Analysis Would
            Produce Budgetary Savings (GAO/RCED-95-118,
            May 8, 1995).

            DOE Management: Contract Provisions Do
            Not Protect DOE From Unnecessary Pension
            Costs (GAO/RCED-94-201 Aug. 26, 1994).




            Page 31        GAO/HR-97-13 DOE Contract Management
Related GAO Products




Energy Management: Modest Reforms Made
in University of California Contracts, but
Fees Are Substantially Higher
(GAO/RCED-94-202, Aug. 25, 1994).

High-Risk Series: Department of Energy
Contract Management (GAO/HR-93-9,
Dec. 1992).

Energy Management: Vulnerability of DOE’s
Contracting to Waste, Fraud, Abuse, and
Mismanagement (GAO/RCED-92-244, Apr. 14,
1992).




Page 32         GAO/HR-97-13 DOE Contract Management
1997 High-Risk Series



             An Overview (GAO/HR-97-1)

             Quick Reference Guide (GAO/HR-97-2)

             Defense Financial Management (GAO/HR-97-3)

             Defense Contract Management (GAO/HR-97-4)

             Defense Inventory Management (GAO/HR-97-5)

             Defense Weapon Systems Acquisition
             (GAO/HR-97-6)

             Defense Infrastructure (GAO/HR-97-7)

             IRS Management (GAO/HR-97-8)

             Information Management and Technology
             (GAO/HR-97-9)

             Medicare (GAO/HR-97-10)

             Student Financial Aid (GAO/HR-97-11)

             Department of Housing and Urban
             Development (GAO/HR-97-12)

             Department of Energy Contract Management
             (GAO/HR-97-13)




             Page 33       GAO/HR-97-13 DOE Contract Management
1997 High-Risk Series




Superfund Program Management
(GAO/HR-97-14)




The entire series of 14 high-risk reports
can be ordered by using the order
number GAO/HR-97-20SET.


Page 34           GAO/HR-97-13 DOE Contract Management
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