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II. Contracts
Throughout their existence, all three of the NNSA Laboratories have been operated as
Government-Owned/Contractor-Operated (GOCO) Federally Funded Research and
Development Centers (FFRDC). In this arrangement the government defines its needs, funds
the work, and owns the facilities; while the M&O contractor operates the facilities and works
in partnership with the government to create solutions to problems defined by the
government needs12. One of the reasons the government establishes GOCO relationships is
so government can take advantage of the management skills and knowledge of US industry
and universities. GOCO relationships have been used by several federal agencies.
Congress expects that NNSA will provide oversight of activities at each of the three
Laboratories, and will ensure that the work is done safely, in an environmentally sound
manner, and with high standards of security and fiscal integrity. To that end NNSA has Site
Offices at each of the Laboratories that oversee all aspects of Laboratory operations. The
Los Alamos Site Office (LASO), Livermore Site Office (LSO), and Sandia Site Office (SSO)
report to the Deputy NNSA Administrator for Defense Programs (NA-10).
Until the recent contract changes, the University of California had managed the Los
Alamos and Lawrence Livermore National Laboratories since they were formed. Since
1949, Sandia has had two contractors. The first contractor was AT&T. When AT&T gave
up the contract in 1993, Martin Marietta (later Lockheed Martin) was awarded the contract
and remains the contractor today.
Some of the concerns associated with the new contracts at LANL and LLNL are
about the much higher management fees contained in the current contracts. When the
University of California alone managed these Laboratories, the annual fee for each was less
than $10 million. NNSA related to the study committee that in order to attract industrial
bidders the management fee was significantly increased. As a result, the annual fee for
managing LANL and LLNL grew to about $60 million and $40 million, respectively.13
Moreover, in the case of LANL, private contractors in New Mexico are required to pay a
gross receipts tax which the University of California, as a public entity, was not required to
pay. These costs—and others associated with the contract changes, in particular the need for
the federal government to contribute $30 million to the employee pension funds at each of
these two Laboratories—had impacts on the budgets of both Laboratories, on the order of
$100 million per year. These pension costs are contained in separate DOE appropriations
accounts from Laboratory management costs. A summary of major costs is provided in
Section V of Appendix 7. However, it is difficult to create an apples-to-apples comparison
of costs before and after these contract changes. For example, then-LLNL Director George
Miller told the study committee that he estimated the change at LLNL increased overhead
costs by $130M, in contrast to the study committee’s estimate of $70M (see Appendix 7.
Section V, page 103). In addition, it is important to compare these changes to the total
operating budgets of the two Laboratories. In FY2010, LLNL received $1.153 billion and
12
The FFRDC arrangement is specified in the M&O contracts for each of the three laboratories.
13
The fee at each lab varies by year according to a schedule specified in each contract. The fee at SNL is about
$25 million per year, and has been roughly the same since 1993.
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LANL received $1.681 billion from DOE for activities involving S&E.1415 Each Lab also
received funds from other Federal agencies for Work for Others. In any case, the increase in
fee—about $35M additional in FY11, according to the Livermore Site Office manager, who
also said that 30% of the fee is fixed and 70% is linked to performance—is a small fraction
of the total operating budget of the Labs and not likely to be the dominant cause of financial
changes at the Laboratories, contrary to some narratives.
Following competition, the contracts for Los Alamos and Livermore were awarded to
two separate Limited Liability Corporations (LLCs). The parent corporations of Los Alamos
National Security are the University of California, Bechtel, Babcock and Wilcox, and URS
Corporation. The same four, plus Battelle Memorial Institute, are the parents of Lawrence
Livermore National Security.
At all three Laboratory site visits, and at other open study committee meetings, the
study committee heard presentations and discussions of management-related matters that
make the conduct of science and engineering more difficult, or at least have the potential to
do so. Some presenters (and others) attribute these problems at LANL and LLNL to the new
contract. The study committee noted that many of the most significant problems are
common to all three Laboratories, and for that and other reasons concluded that such
problems are not the result of the contract changes (see Chapter 4). In fact, the Livermore
Site Office reported to the study committee that at LLNL increased fees and pension costs
were offset significantly by reduced costs of government contributions to the U Cal pension
system under the new contract arrangements.16
Some Lab S&E staff, and former staff and managers have voiced strong concern that
the increased fees have and/or will influence management decisions in a way that may be
deleterious to the quality of S&E. However, when the study committee asked for details of
specific deleterious effects, it did not receive any. When the study committee examined the
M&O contracts, it found very little that prescribes the management of S&E. During its site
visits with dozens of scientists and engineers at all levels of the three Laboratories, the study
committee asked again for specific illustrations of such problems but did not receive any data
suggesting that the contractor fees are affecting management decisions with respect to S&E.
Because this is an important issue that merits continued vigilance, the study committee
discussed incentives at length with the three Laboratory directors. The study committee was
convinced that their primary objective remains to manage the Laboratories in the public
interest. This view was also asserted by NNSA senior management, who told the study
committee that the pursuit of incentive award fee was not a significant motivator for the
Laboratories.
The study committee concluded, though, that there are serious management issues. It
is concerned that the overall management relationship between NNSA and its National
Security Laboratories is becoming dysfunctional. In part, increasing government focus on
the details of both operations and technical work is a symptom of declining trust (by
government) of Laboratory managers and S&E staff, and contributes to increasing aversion
to risk in the conduct of S&E. An increasing amount of the available time of both
14
See FY2012 DOE Budget Justification; http://www.mbe.doe.gov/crorg/cf30.htm#Justifications
15
Funds were also received from DOE for environmental cleanup.
16
Private communication to the study director. The savings were to the government, and not shared by the
laboratory, because they were matters under the government contract with U Cal.
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Laboratory managers and S&E staff is spent on details of operational and administrative
matters – such as gathering approvals to work at home, to remove Lab computers from the
premises, to purchase office supplies and to bring uncleared visitors into the Lab - thus
reducing time available for mission science and engineering. If left unaddressed, this will
erode scientific initiative. The study committee also shares the concern, voiced by several
presenters at study committee meetings, that these trends and problems may lead to a decline
in experimental work. (See more discussion of these matters in Chapter IV.)
Despite hearing concerns about conditions at the Labs,17 the study committee did not
find increased turnover of the S&E staff apart from the reduction in force at LLNL after the
change in contract. A LANL Fellow told the study committee that the attrition rate in recent
years has been about 4% per year; a senior LLNL manager estimated that staff turnover
peaked at about 5% per year after the contract transition and layoffs, and has now dropped.
Meanwhile, the Laboratories still seem to be successful in recruiting. The study committee
was told that SNL hired on the order of 700 people in 2010 and that the LANL postdoctoral
program, which is a primary tool for recruiting new S&Es, is at its largest ever. A LANL
Fellow said that the quality of postdocs—as measured by publications and citations—has
been increasing in recent years. A senior SNL person who is involved in recruiting provided
an anecdote that, where the Laboratories might have in the past received 40 applicants in
response to a posting, now they might only hear from 10-12, many of who have some past
connection to a national Laboratory. But that staffer thinks part of the problem is the
shrinkage in the U.S.-citizen pipeline. An LLNL manager who recruits primarily for
computing expertise still has a success rate of about 80%, but it used to be 98% (although
80% is a more typical historical acceptance rate across the entire Laboratory). Some noted
competition in recent years from companies like Google, and others observed that the recent
pay freeze has made it a bit harder to recruit new people. The study committee also expects
that current economic conditions might discourage career changes, and that improving job
prospects elsewhere could put pressures on recruitment of new staff and retention of
experienced scientists and engineers.
Finding 2-1:
The study committee found that the current M&O contracts for LLNL and LANL
have significantly increased the cost of operating those Laboratories. Specifically, they have
added costs that have to be absorbed within the top-line Laboratory budgets, thereby
decreasing funds available to support science and engineering. However, the study
committee has not found evidence that the management of the scientific enterprise has been
biased in the pursuit of award fee. If the incentive fee becomes too high, or the criteria upon
17
This includes, but is by no means limited to, candid statements to the committee at laboratory visits and
elsewhere. There have been blogs (see “LLNL: The True Story” http://llnlthetruestory.blogspot.com/; “LANL:
The Real Story” http://www.parrot-farm.net/lanl-the-real-story/), press articles (see “The Assault on Los
Alamos National Laboratory: A drama in three acts,” The Bulletin of the Atomic Scientists, by Hugh Gusterson
http://bos.sagepub.com/content/67/6/9.full, and “Analyst Sees Lasting Damage to Los Alamos, Livermore,” The
Livermore Independent, by Jeff Garberson http://www.independentnews.com/news/article_dcc64e10-1c8b-
11e1-b5c0-001871e3ce6c.html), and statements to state and federal representatives and senators (see
presentation by UPTE Representative Jeff Colvin to the committee http://www.upte.org/NAStestimony.pdf).
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which the fee is measured discourage experimental science or innovation, however, the
scientific enterprise at the Laboratories could well deteriorate over time.
Changes associated with the new contracts at LANL and LLNL—including both
uncertainties associated with the competition and actual changes in employment conditions
and status (e.g., retirement and healthcare benefits) —have had negative effects on
Laboratory personnel, as has the LLNL reduction in force . While there is a widespread
national trend toward less generous pension and healthcare benefits, Lab personnel
underwent an abrupt change in status from employees of U Cal to employees of LANS or
LLNS, and the change in benefits was similarly abrupt. There is widespread perception
among Laboratory personnel that the new contracts are not to their benefit.18 On the other
hand, the study committee found that the staff at LANL and LLNL, as well as SNL, remains
highly motivated and enthusiastic about the S&E work at the Laboratories.
Staff and management at all three of the Laboratories expressed concern that, in their
view, the managerial relationship between NNSA and the Laboratories has lost the
FFRDC/GOCO partnership character. They assert that it is now primarily a contractor
relationship in which the government specifies tasks rather than making full use of the
Laboratories’ skills in directing and executing S&E. This is in contrast to NNSA’s statement
that they manage with “eyes on and hands off.”
Appendix 5 summarizes selected contract provisions related to the quality of
science and engineering. Each of the three contracts states that the performance of quality of
S&E is important to the Laboratory. However, typically 10% or less of the performance fee
is tied specifically to the quality of S&E.
18
Gusterson, Hugh, (2011). “The assault on Los Alamos National Laboratory: A drama in three acts” Bulletin
of the Atomic Scientists For pdf see: http://bos.sagepub.com/content/67/6/9
Garberson, Jeff, (2011). “Analyst Sees Lasting Damage To Los Alamos, Livermore Labs”
Testimony in meetings at Los Alamos and Lawrence Livermore by staff and presentation by Jeff Colvin
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