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Department of Energy: Additional Opportunities Exist for Reducing Laboratory Contractors' Support Costs

GAO-05-897 Published: Sep 09, 2005. Publicly Released: Oct 11, 2005.
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Highlights

In fiscal year 2004, about two-thirds of the Department of Energy's (DOE) $26.9 billion in spending went to 28 major facilities--laboratories, production and test facilities, and nuclear waste cleanup and storage facilities. DOE spent about $2.9 billion in fiscal year 2004 to support the mission of its five largest laboratories. GAO was asked to examine (1) recent trends in indirect and functional support cost rates for these five laboratories, noting key differences in how contractors classify costs, and (2) the efforts of DOE and its contractors to reduce indirect and other support costs and identify additional opportunities for savings.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Department of Energy To improve the quality and comparability of DOE facilities' support cost data, the Secretary of Energy should direct the Chief Financial Officer to work with the Financial Management Systems Improvement Council to clarify definitions of functional support cost categories.
Closed – Implemented
DOE has improved the quality and comparability of its facilities support cost data by revising functional support cost definitions in its Support Cost by Functional Activity Report Guidance for fiscal year 2006.
Department of Energy To determine whether the department receives benefits commensurate with awarding 1 or more extra years to the contract term, the Secretary of Energy should direct the National Nuclear Security Administration to evaluate the effectiveness of its pilot award-term program at Sandia National Laboratories, particularly the nature and extent of work quality improvements, prior to extending the program to other laboratories.
Closed – Implemented
To ensure that the National Nuclear Security Administration (NNSA) receives benefits commensurate with awarding 1 or more extra years to the term of a management and operating contract, NNSA officials told us that an additional year can be awarded only (1) by NNSA's Administrator and (2) if the contractor has received an award-fee performance score of at least 85 percent and then has met or exceeded performance standards for additional award-term criteria.
Department of Energy To provide competitive but economical employee benefits, the Secretary of Energy should complete the revision of DOE Order 350.1 and ensure that the order (1) extends the requirement to benchmark the value of employee benefits to all contractors; (2) requires prompt corrective action if the value of benefits exceeds the allowable range; and (3) extends the benchmarking requirements to include the costs, as well as the values, of the benefits.
Closed – Implemented
Beginning in May 2006, DOE has inserted language consistent with GAO's recommendation into new or extended contracts with seven facilities, including two of the three laboratories--Los Alamos and Lawrence Livermore National Laboratories--that we identified as having pension, medical, and other benefits exceeding allowable ranges. DOE plans to continue inserting such language in subsequent contract solicitations.
Department of Energy To reduce long-term maintenance costs at contractor-operated facilities, the Secretary of Energy should develop a long-term sustainable approach that meets day-to-day maintenance requirements, reduces the maintenance backlog, and minimizes its reaccumulation.
Closed – Implemented
In late 2006, DOE developed a multi-faceted approach for reducing its maintenance backlog that included (1) budget guidance that required facilities to include day-to-day and deferred maintenance in their budget planning, (2) models to project deferred maintenance growth or reduction based on multi-year finding scenarios, (3) more accurate and consistent deferred maintenance tracking and reporting by facilities, and (4) establishment of targets by facilities for deferred maintenance reduction. In March 2007, DOE formed a Mission Dependency Team, chaired by the Office of Engineering and Construction Management, to improve mission dependency definitions and guidance for the consistent designation of assets within DOE's Facilities Information Management System.
Department of Energy To facilitate the further reduction of support costs, the Secretary of Energy should require that each DOE management and operating contractor implement a process improvement program that routinely assesses the efficiency and effectiveness of business practices and other operations.
Closed – Implemented
As DOE moves forward with plans to implement performance-based contracting, all contractors will be required to implement disciplined methodologies to identify process improvements based on statistical analysis. DOE will require contractors, effective with FY 2006 reporting, to include a description of their formal statistically correct cost improvement process in their annual Support Cost by Functional Activity reports as well as a description of all the significant studies conducted that year and the results. In November 2007, DOE's National Nuclear Security Administration validated that Los Alamos National Laboratory's contractor had reduced annual operating costs by $102.5 million during fiscal year 2007 by using its process improvement programs to identify efficiencies.

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Contract administrationContractorsCost analysisCost controlFacility maintenanceFacility managementFederal facilitiesFinancial analysisInternal controlsLaboratoriesManagement and operating contracts