4
Acquisition and Contracting

Introduction

DOE is the largest civilian contracting agency in the federal government. In fiscal year 1997, DOE obligated approximately $16.2 billion, or almost 91 percent of its total obligations, to contractors (GAO, 1999a). DOE and its predecessor agencies have traditionally managed sites through large blanket M&O (management and operating) contracts, in which a single contractor was responsible for an entire site and was reimbursed for all costs, in addition to receiving a management fee. These contracting practices produced some remarkable accomplishments in the development of weapons and production of fissile material in an environment in which national defense, and not cost, was paramount. However, as DOE's mission has changed and concerns have been raised about DOE's control of its contractors, DOE contracting—and especially the M&O arrangement—has been called into question.

DOE's attempts to reform its acquisition and contracting methods have not produced lasting positive results. In fact, GAO continues to designate DOE contracting as a high-risk area vulnerable to waste, fraud, abuse, and mismanagement. GAO has repeatedly found that DOE enters into contracts with little or no competition, reimburses contractor costs uncritically, and is lax in overseeing contractors (see, for example, GAO, 1997a, 1997b). GAO found that contractors with M&O contracts often failed to control costs because the expenses were assumed by the government (GAO, 1997b).

In 1993, a Contract Reform Team was appointed directly by the secretary of energy to review DOE's contracting procedures. The team's report, Making



The National Academies | 500 Fifth St. N.W. | Washington, D.C. 20001
Copyright © National Academy of Sciences. All rights reserved.
Terms of Use and Privacy Statement



Below are the first 10 and last 10 pages of uncorrected machine-read text (when available) of this chapter, followed by the top 30 algorithmically extracted key phrases from the chapter as a whole.
Intended to provide our own search engines and external engines with highly rich, chapter-representative searchable text on the opening pages of each chapter. Because it is UNCORRECTED material, please consider the following text as a useful but insufficient proxy for the authoritative book pages.

Do not use for reproduction, copying, pasting, or reading; exclusively for search engines.

OCR for page 57
--> 4 Acquisition and Contracting Introduction DOE is the largest civilian contracting agency in the federal government. In fiscal year 1997, DOE obligated approximately $16.2 billion, or almost 91 percent of its total obligations, to contractors (GAO, 1999a). DOE and its predecessor agencies have traditionally managed sites through large blanket M&O (management and operating) contracts, in which a single contractor was responsible for an entire site and was reimbursed for all costs, in addition to receiving a management fee. These contracting practices produced some remarkable accomplishments in the development of weapons and production of fissile material in an environment in which national defense, and not cost, was paramount. However, as DOE's mission has changed and concerns have been raised about DOE's control of its contractors, DOE contracting—and especially the M&O arrangement—has been called into question. DOE's attempts to reform its acquisition and contracting methods have not produced lasting positive results. In fact, GAO continues to designate DOE contracting as a high-risk area vulnerable to waste, fraud, abuse, and mismanagement. GAO has repeatedly found that DOE enters into contracts with little or no competition, reimburses contractor costs uncritically, and is lax in overseeing contractors (see, for example, GAO, 1997a, 1997b). GAO found that contractors with M&O contracts often failed to control costs because the expenses were assumed by the government (GAO, 1997b). In 1993, a Contract Reform Team was appointed directly by the secretary of energy to review DOE's contracting procedures. The team's report, Making

OCR for page 57
--> Contracting Work Better and Cost Less, recommended nearly 50 reforms including: (1) using performance-based contracts; (2) increasing competition for contracts; (3) improving management and cost controls; and (4) making performance-based criteria and other incentives part of DOE contracts (DOE, 1994). The Contract Reform Team suggested specific measures for implementing these recommendations. As a result, DOE revised its policies and procedures to encourage competition and provide incentives to contractors to improve their performance and control costs. This chapter discusses the origins of DOE contracting practices, describes contracting structures and methods, assesses the current state of contract reform, and recommends changes in contracting practices that would improve DOE's project performance. Contracting Practices Wartime Origins of the Management and Operating Contract Many of DOE's contracting practices date from the Second World War when the national emergency, the development of new weapons, and secrecy were the highest priorities. Although the initial wartime effort was under the direction of the Manhattan Engineer District of the U.S. Army Corps of Engineers, President Truman personally called on the chief executives of companies such as DuPont and General Electric to help protect the nation's security by assigning their best technical experts to the nuclear weapons effort. Many of the wartime research, design, and construction contracts included, or eventually evolved into the management and operations of these facilities, and establishing a contracting system that has continued for over 50 years. During the Cold War, the M&O cost-plus-award-fee contract was extensively used for designing, building, and operating critical nuclear weapons facilities. The M&O contract was intended to ensure flexibility and rapid response, to exploit technological developments, and to respond to international crises. The M&O contract typically contained a very general work scope under which the government reimbursed essentially all contractor costs and paid an additional fee based either on a fixed fee schedule or an incentive fee based on achieving contract goals, such as production of a specified quantity of a specified product. The M&O contract approach provided flexibility in a rapidly changing technological and geopolitical environment. At Hanford and Savannah River, five nuclear reactors, two major chemical processing plants, five coal-fired power plants, railroads, and highways were built in less than five years for less than $5 billion. New cities were created in remote areas, such as Los Alamos, Hanford, Oak Ridge, Savannah River, Rocky Flats, and the Nevada Test Site.

OCR for page 57
--> Changing World Conditions Since the end of the Cold War, the emphasis has shifted from weapons production to environmental cleanup, from secrecy to openness, and DOE's expenditures and cost accounting have come under intensive scrutiny. The M&O cost-plus-award-fee contracting strategy has not always transferred successfully to the new missions of environmental remediation and cleanup. M&O contracts provided weak financial controls (because all costs were simply passed through to the government); emphasized process rather than results; lacked clear lines of authority, responsibility, and accountability; and contributed to cost growth (DOE, 1995a). These weaknesses, which had always existed, became more apparent in the post-Cold War era when much of DOE's spending was no longer shrouded in secrecy and national security was less of a concern. Finding. DOE' s long history of hiring contractors to manage and operate its sites on the basis of cost-plus-award-fee contracts has created a culture in which neither DOE nor its contractors is sufficiently accountable for cost and schedule performance. Contracting Structures In general, determining which contracting method to pursue for a project should be part of the acquisition strategy developed during the preconstruction planning phase. The criteria for choosing a contracting method are cost effectiveness for the government and meeting the technical requirements of the project. Although an analysis of the selection is required by Federal Acquisition Regulations (FAR 16.103(d)), DOE has not always conducted and documented its selection (Jupiter Corporation, 1998). Various contract methods are available to DOE, and the selection of the most suitable contracting approach is critical for effective and efficient project delivery. Some of these contracting methods are unique to DOE, while others are common federal acquisition practices. Selection of the best contract type for the job is very important because contractors respond differently to different contracts. But it may also be said that the most important decision is the selection of the right contractor. Cost-Plus-Fixed-Fee Contracts Cost-plus-fixed-fee contracts are structured so that almost all legitimate costs are reimbursable, with a predetermined fee added. These contracts are used when controlling costs is a lower priority than other factors, such as time. The open-ended reimbursement and fixed fee provide little incentive for the

OCR for page 57
--> contractor to focus on the cost effectiveness or efficiency of his performance, and costs may grow as a result. Cost-Plus-Award-Fee Contracts Cost-plus-award-fee contracts are similar to cost-plus-fixed-fee contracts except that the amount of fee payable (up to a limit specified in the contract) is subject to an assessment of contractor performance. Cost-plus-award-fee contracts are most suitable for projects with goals that are not clearly definable in measurable and objective terms. This includes ongoing work that does not have clearly defined end points, such as administrative support and research and development projects. Although the award fee offers flexibility to the contract manager by providing incentives for superior performance, the subjective nature of the award process makes it subject to charges of bias, favoritism, and abuse and may lead to disputes between the contractor and the awarding official. Performance-Based Contracts The performance-based contract is a variation of the cost-plus-award-fee contract. Fees depend on the contractor meeting well defined objectives of cost, schedule, and scope. Performance-based contracts are suited to a large variety of activities-including many DOE projects-for which performance objectives can be clearly stated and are measurable. The evaluation criteria and methods for measuring performance must be clearly defined and agreed to by DOE and the contractor before the contract is awarded; adjustments are made to reflect changing requirements (i.e., adverse events that are clearly beyond the contractor's control). Subjective performance evaluations and award fees should be used only when the nature of the work does not lend itself to objective measurement. Fixed-Price Contracts Some DOE contractors have successfully used fixed-price contracts in subcontracting routine services. The cost savings achieved in those limited cases, however, are not universally transferable to other activities. For example, fixed-price contracts are generally inappropriate for work involving major uncertainties, such as work involving a new technology, poorly characterized waste and site conditions, or open-ended work scopes. Fixed-price contracts may be more difficult to reconcile with accelerating project development through the use of design-build approaches. If a design-build contractor is brought on early in the project, as is often desirable, some form of cost-plus contract may be more appropriate, or a combination of cost-plus contracting that can be transitioned to a fixed-price contract as the design is defined. If appropriately used, fixed-price contracts can result in lower costs to the government; if inappropriately used,

OCR for page 57
--> they can result in cost overruns, project delays, and litigation. The use of fixed-price contracts can create incentives for the contractor to cut costs at the expense of quality and can be conducive to the development of adversarial relations between owner and contractor. The skills required to manage a fixed-price contract management are very different from those required for cost-plus-award-fee or cost-plus-fixed-fee contracts. DOE managers with experience exclusively in the latter contract forms require extensive reeducation before they can successfully manage fixed-price contracts. Fixed-price contracting can be successful if the project is well defined (sites conditions are well characterized and projects are at an advanced stage of engineering); significant risks have been identified; the contractor and DOE staff are knowledgeable about the project; DOE staff are capable of providing adequate oversight; uncertainties have been allocated equitably between the parties; and sufficient information is available to price the work realistically. However, DOE has sometimes executed fixed-price contracts that did not meet these conditions. Privatization Contracts In the privatization contract the contractor is responsible for financing and building the project at his own cost. Outside of DOE, privatization usually means an arm of government decides, for whatever reason, not to build a facility itself but to engage private industry to design, build, finance, own, and operate the facility, and sell services back to the agency or directly to the public. Situations in which this method has been used include such facilities as toll roads and bridges, prisons, and (nontoxic) waste disposal facilities. Under privatization, private industry assumes most or all of the financial risks. Because private firms are risk averse, in major privatization projects it is common for them to form consortia to spread the risks over several companies. In the case of DOE, "DOE's privatization strategy relies on the use of competitively awarded fixed-price performance contracts through which DOE purchases waste cleanup services from private contractors. Although under privatization DOE does not pay until these services are delivered, funds set aside each year to pay for these contracts are part of DOE's annual budget request" (GAO, 1999a). Note that here the "fixed price" is the price to be paid for the "waste cleanup services," not the cost of building the facility. DOE privatization may also apply to existing government facilities. The January 1997 report, Harnessing the Market: The Opportunities and Challenges of Privatization (DOE, 1997c), defines privatization as the transfer of ownership and control of a good or service currently provided by the government to a private (commercial) sector firm. The report states that DOE emphasizes three major types of privatization: (1) divestiture of functions; (2) contracting out or outsourcing; and (3) asset transfers (DOE, 1997c). The benefit of these types of privatization is that the private contractor can perform the same functions more

OCR for page 57
--> efficiently than DOE and still make a profit by using fewer employees or more effective methods. Presumably, this is because the private contractor does not have to operate under the same restrictions as DOE does. Otherwise, privatization may have no cost advantage. DOE also often uses the term "privatization" to apply to a variety of contracting methods. The EM Privatization Program Management Plan (DOE, 1998a) focused on contracting out or outsourcing to reach programmatic goals and selected as its method of privatization the purchase of an end product or service through an open fixed-price competition. Although privatization contracts can maximize the use of fixed-price arrangements, the types of work that EM must accomplish through privatization cover a wide range of technical difficulty and performance risk, and other types of contracts (such as fixed-price incentive, fixed-price redeterminable, and unit price contracts) should be considered. When DOE proposed using privatization for some projects in hopes of achieving cost savings, Congress appropriated $330 million in fiscal year 1997 to support five projects and an additional $200 million in fiscal year 1998 for one ongoing project and four new ones. In fiscal year 1999, DOE requested almost $517 million for work on existing projects and one new project, but Congress appropriated only $228 million because of DOE's problems in implementing the program and because of cost and schedule uncertainties. These concerns also prompted Congress to require that DOE provide detailed analyses of privatization contracts for congressional review before incurring any additional contractual obligations (GAO, 1998a). Recent developments at the Tank Waste Remediation System (TWRS) project at Hanford have underscored the complexity of trying to privatize highly risky ventures. Although a number of technical issues are still unresolved at Hanford, DOE has renegotiated the contract so that the government may be in a position to guarantee funding by private sources. In this case, DOE determined that the cost of private financing would be prohibitive unless DOE assumed the financial risks (DOE, 1998b). DOE's other recent experiences with privatization include the Idaho Advanced Mixed Waste Treatment Project, Oak Ridge Transuranic Waste Treatment, and Transuranic Waste Transportation in Carlsbad, New Mexico. Privatization may or may not lead to lower costs. The cost of private financing is substantially higher than that of government financing, but there may be offsetting cost savings elsewhere. Contract terms, especially with regard to roles and responsibilities, should be carefully defined to ensure that DOE is not responsible for cost and schedule overruns that are clearly the contractor's responsibility and that the contractor's interests are protected. Privatization can be advantageous to the government in appropriate situations, but it is not all-purpose contracting solution and should be used carefully.

OCR for page 57
--> Finding. DOE does not effectively match project requirements and contracting methods. Mismatching is likely to result in cost and schedule overruns. Contract Reform Following the report of the Contract Reform Team, the secretary of energy in 1994 initiated a broad program of contract reform that included the following elements: increased competition cost reduction increased use of fixed-price contracts increased contractor liability performance criteria and measures performance-based incentives results-oriented statements of work The contract reform placed great emphasis on the use of performance-based contracts, under which contractors would be evaluated against objective performance measures, and incentive fees would be used to reward excellent performance. To work effectively, these contracts would require clearly stated, results-oriented performance measures established prior to the start of work. Although the shift to a performance-based system of contracts was required by LCAM, Order 430.1 (DOE, 1995b), DOE has had difficulties in changing to this system at various sites (DOE, 1997a, 1997b, 1998c). Although the reforms incorporate lessons learned from the DOE inspector general's review and other DOE assessments, neither a consistent, effective method of setting and measuring project performance nor a database of activity-based costs has been developed. Without these tools, DOE cannot take full advantage of performance-based incentives (GAO, 1998b). Management and Integration Contracts Another contract reform initiative was the use of management and integration (M&I) contracts rather than M&O contracts. In M&I contracts, DOE selects a prime contractor with project integration skills to manage a site and oversee and integrate the work performed by a team of "best-in-class" specialized subcontractors. This differs from the M&O approach, in which the M&O contractor performs most of the work with its own forces. Operations and major projects are now managed under M&I contracts at the Hanford, Mound, Rocky Flats, and Oak Ridge sites, and some of the difficulties with implementing M&I contracts have been documented (DOE, 1997d).

OCR for page 57
--> Progress The stated objective of DOE's contract reform is to improve the efficiency and cost-effectiveness of its contracting system. However, widespread implementation of reforms has been slow. Cost savings have also been difficult to document because contract reforms have been combined with other initiatives, making it difficult to segregate their effects. It is apparent, however, that the implementation of contract reform has varied by location and program. An obstacle to contract reform has been that DOE and contractor personnel are not familiar with the new management and contracting approaches. An in-depth knowledge of procurement and contract-management techniques is essential to the successful implementation of reform measures, and the training of DOE and contractor employees, including source selection officials and members of the source evaluation board, should be a priority. Reform has also been slowed because competitions for contracts have had to be reopened or existing contracts modified. Finding. The traditional DOE contracting mechanisms, such as cost-plus-award-fee and M&O arrangements, are not always optimal for DOE's complex missions. These approaches are being replaced with approaches based on objective performance incentives, but change has been slow. Recommendation. DOE should strengthen its commitment to contract reform focusing on assessment and quantification of project risks and uncertainties, the selection of appropriate contract type and scope for each job, and increased use of performance-based incentive fees rather than award fees to meet defined project cost and duration goals. A comprehensive risk analysis should be conducted before deciding whether to issue fixed-price contracts for work that involves a high level of uncertainty (such as new technology or incomplete characterization). Project risks should be allocated to those most capable of controlling the risk. Performance incentives are an essential mechanism that should be used to encourage DOE contractors to accept project risks. Specific contract scopes and terms should be negotiated to define both DOE and contractor responsibilities to prevent cost overruns. Clear, written roles, authorities, and responsibilities should be established for DOE headquarters, field offices, contractors, and subcontractors relevant to each contract undertaken. Establishing Performance Measures One of the requirements for effective performance-based contracting is to define what needs to be done in objective, measurable terms. The contractor and DOE must both have a clear idea of what is expected and of how success will be rewarded. If milestones are unreasonable, they will act as disincentives. If they

OCR for page 57
--> are unclear, they will provide incentives for the wrong behavior. As the basis for its contracts, DOE should specify what must be done, allow contractors to decide how they will do it, provide effective oversight, user commitment to project scope, timely decision-making, and evaluate performance. DOE's success in establishing and managing performance-based contracts has been limited. In an assessment of DOE's implementation of the Government Results and Performance Act of 1993, GAO found that work was begun on many 1998 contracts before annual goals and incentive fees had been agreed upon. At the Nevada Operations Office, work began before measures had been established, and milestones were added after the work was completed. As a result of this and similar incidents, a requirement was established that all performance objectives and incentive fees be submitted to headquarters for approval before the start of negotiations with the contractor. This requirement increased the time needed to establish performance measures. Review and approval in 1998 took from 4 to 19 weeks, with an average of 10 weeks (GAO, 1998c). The M&I contract at Hanford was complicated by such a large number of performance measures (more than 200 have been used) that they had to be bundled into groups. Failure to meet just one performance item in a group could result in no fee being awarded for the whole bundle. Furthermore, a significant portion of the fee items at Hanford are for administrative tasks rather than physical work (Hatch, 1998). The draft EM Business Process Handbook requires that baselines, including performance metrics, be established for all EM projects. The field project manager or its operations manager, in partnership with the contractor, is required to define the major performance metrics for management and control of the project. The performance measures include scope attainment, schedule and milestone attainment, and cost profile attainment (DOE, 1998d). Although the committee recognizes that the establishment of performance goals in contracts is a significant step forward in contract reform, DOE does not have a complex-wide means or process to evaluate performance measures. So as long as each headquarters office, each site, and contractors within sites use different systems, evaluating the efficiency of performance measures throughout DOE is all but impossible. Performance-based incentives should be carefully designed to reward excellent performance and can be used to encourage DOE contractors to accept more risk, when contractor assumption of risk is advantageous to the government. The Department of Defense and the U.S. Army Corps of Engineers Civil Works Program have pursued government-contractor partnerships, but DOE has yet to embrace them. Based on the evidence presented to the committee, DOE does not have the necessary experience, knowledge, skills, procedures, or abilities to prepare good performance measures. Finding. DOE does not sufficiently use effective performance-based incentives and does not have standard methods for measuring project performance.

OCR for page 57
--> Recommendation. DOE should develop written guidelines for structuring and administering performance-based contracts. The guidelines should address, but need not be limited to, the following topics: the development of the statement of work; the allocation of risks to whomever would be most effective at controlling the risks (either DOE or the contractor); the development of performance measures and incentives; the selection of the contracting mechanism; the selection of the contractor; the administration of the contract; and the implications of federal and DOE acquisition regulations. DOE should train its employees in the roles and responsibilities of a performance-based culture and then hold both employees and contractors accountable for meeting these requirements. Appendix C includes a description of the characteristics of successful megaprojects or systems acquisitions and stresses the importance of the project owner being focused and committed to ensure success. The committee believes that DOE, as an owner, must demonstrate that objectively measured, excellent performance will be rewarded and favored over simple compliance with regulations. DOE should demonstrate its commitment to excellence by highlighting and rewarding productive work. Regulatory compliance should be a means towards achieving excellence, not an end in itself. Once a shift to performance-based contracting becomes part of the agency's culture, the committee believes that the requirements for general compliance audits and reviews should be reduced dramatically. Competition and Improved Project Performance DOE contracting reform has long been considered a potential source of considerable cost savings for two reasons: (1) DOE contracts for a tremendous amount of work; and (2) cost overruns by DOE contractors have been extensively documented. Recent DOE contracting has emphasized competition as the method most likely to achieve cost savings. The committee felt it necessary to question the premise that structuring contracts to improve competition would lead directly to savings. The objective of contracting is to get the job done properly at the best possible price. Ideally, qualified contractors capable of doing the job compete among themselves to perform the work on the expectation of earning a profit. This competition drives down the cost, thereby ensuring that the government gets the best possible price. If this simple model were valid, every DOE solicitation would attract a number of well qualified bidders. Experience has shown, however, that this has not happened. Declining Numbers of Bidders for DOE Projects Although DOE has increased its use of competition when awarding contracts for managing and operating its facilities (GAO, 1999b), recent solicitations for M&O, M&I, and other major contracts have attracted fewer bidders than in the

OCR for page 57
--> past. The recompetition of the M&O contract at the Savannah River Site is an example. Westinghouse Savannah River Corporation, the incumbent contractor, was the only bidder, having created a team that included most of its potential competitors-a practice that appears to be increasingly common among DOE bidders. DOE publicly expressed its general satisfaction with Westinghouse's performance before the contract was opened for competition, which might have discouraged others from submitting bids. This is not an isolated case. DOE announced its decision to extend the contracts with the University of California at both the Lawrence Livermore and Lawrence Berkeley National Laboratories before it had negotiated a new contract with the university. In these cases, the absence of competition limited DOE's ability to amend the existing contracts to its advantage. The Hanford TWRS privatization project is an example of a high-risk project with a limited number of qualified bidders and a complex contracting strategy. The TWRS cleanup project involves 177 underground storage tanks containing highly radioactive liquids and other waste materials. In 1994, DOE began to pursue a privatization strategy for the project in order to purchase waste-processing services from best-in-class companies instead of building its own facilities. In 1996, DOE selected two contractors for a two-part, first phase of the project (Part A to develop preliminary project and facility plans and Part B wherein the contractor would fully finance, design, construct, operate, and deactivate waste-treatment plants on a fixed-price basis). Following Phase I Part A (a 20-month contract with two bidders), a Part B contract was awarded to a single contractor, British Nuclear Fuels, Ltd. (BNFL). GAO reported that the structure of the project is substantially different from the initial privatization strategy, in that it does not shift most of the financial risk to the contractor. The contract calls for DOE to pay BNFL for most of the debt incurred in building and operating the facility if BNFL defaults on its loans. The design phase and the date to reach agreement on a final contract price have been extended, and the total cost has risen from $4.3 billion to $8.9 billion-including $2 billion in DOE support costs (GAO, 1998d). Incentives to Bidders Overall, it is expensive for a contractor to bid on a major DOE project, and the successful bidder has no guarantee that the work will be profitable. In considering whether to compete for a major DOE contract, prospective bidders must weigh the benefits and risks as well as proposal-related costs. Commercial contractors then balance the potential rewards and risks to determine how the project compares with other business opportunities. The committee noted several factors that could significantly deter a contractor from bidding on DOE projects: high proposal preparation costs and attendant risks to capital (Fluor Daniel Hanford reportedly spent about $10 million to win the Hanford M&I contract, and unsuccessful bidders spent similar amounts [Hatch, 1998]); the advantages of

OCR for page 57
--> incumbent contractors; the growing complexity of management and technical requirements; and DOE's history of making new regulations retroactive and otherwise altering agreements. In the current DOE contracting environment, contractors are not usually paid 100 percent of their potential fees, regardless of their performance. For example, the new DOE fee policy often requires that contractors propose a fee discount when bidding on contracts. Under this fee policy, field managers have greater discretion to withhold all or part of a contractor's fee, regardless of the agreed metrics. If these practices are continued, the committee believes they could preclude the success of performance-based contracts. The Federal Acquisition Regulations and the Department of Energy Acquisition Regulations govern DOE procurements but do not specify the minimum number of bidders to ensure adequate competition. The size of the bidder pool varies, of course, with the type and size of the contract. Generally, for straightforward work that is well defined and understood, the more qualified bidders the better. For routine waste cleanup projects using largely known technologies, innovative approaches to managing and executing the work should result in lower costs and possibly shortened schedules. Very large, complex projects, particularly those involving new technologies or high-risks, such as the Hanford TWRS, are likely to have a small pool of bidders primarily because few firms are qualified. DOE has a number of contracts that expire in the next two years that could be extended or reopened to competition, including Rocky Flats Environmental Test Site, Fernald Environmental Management Project, Y-12 Plant, Kansas City Plant, Waste Isolation Pilot Plant, and the Nevada Operations Office Support. If DOE conducts negotiations before deciding whether to extend or recompete the contracts, there would probably be more competition. However, it is not clear that more competition, in and of itself, will result in either lower costs or improved performance. Although DOE has taken steps towards reforming its contracting practices, major challenges remain. To improve contract performance, it is critical that DOE move from an adversarial to a collaborative relationship with its contractors. The committee believes that the key to improving contracting is a commitment to obtaining the most qualified contractor at the best price using the best acquisition strategy for the project at hand. This requires strong leadership, careful planning, and a flexible management structure committed to making decisions and implementing changes that encourage and enable improved contract performance. Finding. The number of bidders on major DOE contracts has been declining indicating that the disincentives to bid often outweigh the incentives. Recommendation. DOE should provide financial rewards for outstanding contractor performance to attract bids from the best contractors. A DOE-wide policy should be developed that provides fiscal rewards for contractors who meet or

OCR for page 57
--> exceed schedule, cost, and scope performance targets. Contractor fees should be based on contractor performance. Recommendation. DOE and contractor employees essential to projects should be trained in acquisition and contract reform. The training of source selection officials and members of source evaluation boards should be expedited; a minimum level of training should be a prerequisite. References DOE (U.S. Department of Energy). 1994. Making Contracting Work Better and Cost Less. Contract Reform Team Report to the Secretary. Washington, D.C.: U.S. Department of Energy. DOE. 1995a. Alternative Futures for the Department of Energy National Laboratories. Washington, D.C.: U.S. Department of Energy, Secretary of Energy Advisory Board. DOE. 1995b. Life Cycle Asset Management. DOE Order 430.1 (revised October 14, 1998). Washington, D.C.: Washington, D.C.: U.S. Department of Energy. DOE. 1997a. Audit of the Contractor Incentive Programs at the Rocky Flats Environmental Technology Site. DOE/IG-0411. Washington, D.C.: U.S. Department of Energy, Office of Inspector General. DOE. 1997b. Audit of the Contractor Incentive Program at the Nevada Operations Office. DOE/IG0412 Report. Washington, D.C.: U.S. Department of Energy, Office of Inspector General. DOE. 1997c. Harnessing the Market: The Opportunities and Challenges of Privatization. DOE/S0120. Report to the Secretary. Washington, D.C.: U.S. Department of Energy. DOE. 1997d. Assessment of the Use of Performance Incentives in Performance-Based Management and Management and Integration Contracts. Washington, D.C.: U.S. Department of Energy. DOE. 1998a. Office of Environmental Management Privatization Program Management Plan . Washington, D.C.: U.S. Department of Energy. DOE. 1998b. Report to Congress: Treatment and Immobilization of Hanford Radioactive Tank Waste. Phase I Privatization Project Description. Washington, D.C.: U.S. Department of Energy. DOE. 1998c. Audit of the Cost Reduction Incentive Program at the Savannah River Site. ER-B-9808. Washington, D.C.: U.S. Department of Energy, Office of Inspector General. DOE. 1998d. Environmental Management Business Process Handbook, Draft Revision 6.0. Washington, D.C.: U.S. Department of Energy, Office of Environmental Management. GAO (General Accounting Office). 1997a. Department of Energy Contract Management. GAO/HR97-13. Washington, D.C.: Government Printing Office. GAO. 1997b. Nuclear Waste: Department of Energy's Project to Clean Up Pit 9 at Idaho Falls Is Experiencing Problems. Report to the Committee on Commerce, U.S. House of Representatives. GAO/RCED-97-180. Washington, D.C.: Government Printing Office. GAO. 1998a. Department of Energy: Alternative Financing and Contracting Strategies for Cleanup Projects. GAO/RCED-98-169. Washington, D.C.: Government Printing Office. GAO. 1998b. Department of Energy: Lessons Learned Incorporated into Performance-Based Incentive Contracts. GAO/RCED-98-223. Washington, D.C.: Government Printing Office. GAO. 1998c. Results Act: DOE Can Improve Linkages among Plans and between Resources and Performance. GAO/RCED-98-94. Washington, D.C.: Government Printing Office. GAO. 1998d. Nuclear Waste: Department of Energy's Hanford Tank Waste Project: Schedule, Cost, and Management Issues. GAO/RCED-98-13. Washington, D.C.: Government Printing Office. GAO. 1999a. Nuclear Waste: DOE's Accelerated Cleanup Strategy Has Benefits But Faces Uncertainties. RCED-99-129. Available on line at http://www.gao.gov/new.items/rc99129.pdf.

OCR for page 57
--> GAO. 1999b. Major Management Challenges and Program Risks: Department of Energy. GAO/ OCG-99-6. Washington, D.C.: Government Printing Office. Hatch, H. 1998. Project management and project delivery: issues and concerns of DOE contractors, presentation by H. Hatch, former president of Fluor Daniel Hanford, to the Committee to Assess the Policies and Practices of the Department of Energy to Design, Manage, and Procure Environmental Remediation, Waste Management, and Other Construction Projects, August 3, 1998, National Research Council, Washington, D.C. Jupiter Corporation. 1998. External Independent Review: Dual Axis Radiographic Hydrotest Facility. Defense Programs Project No. 97-D-102. Final Report prepared for the Office of Field Management, U.S. Department of Energy.