Department of Energy: Performance Evaluations Could Better Assess Management and Operating Contractor Costs
Fast Facts
The Department of Energy depends on the expertise of firms, universities, and others to do much of its work, including managing and operating nuclear weapons labs. In 10 years, it spent about $193 billion on management and operating contracts.
DOE generally gave these contractors high ratings and awarded over 90% of available performance incentives. However, we found DOE could do a better job reporting on how well contractors spend these federal funds.
We made 7 recommendations, including that DOE report more useful information on cost performance.
DOE remains on our High Risk List for inadequate contractor management and oversight.
Sites where the Department of Energy has contracts for management and operations of its facilities
This map of the United States shows 22 locations.
Highlights
What GAO Found
In fiscal years 2006 through 2016, six offices within the Department of Energy (DOE) generally used one of three different approaches to evaluate management and operating (M&O) contractor performance. Although these approaches varied in the performance criteria and methodologies used for determining contractor ratings and incentives, all the offices annually set expectations for contractors and assessed performance.
In analyzing DOE's fiscal year 2016 Performance Evaluation Reports (PER), GAO found that these reports provided less information on M&O contractors' cost performance than on contractors' technical and administrative performance. The cost information provided in the PERs often was not detailed, did not indicate the significance of the performance being described, and applied only to specific activities. Further, the information is of limited use for acquisition decision-making, such as deciding whether to extend the length of a contract, because it does not permit an overall assessment of cost performance. A key reason PERs did not include more cost performance information is that the DOE offices' policies do not require specific assessments of cost performance or discuss how to ensure cost information is useful for future acquisition decision-making. By updating policies to require inclusion of quality cost performance information in PERs, DOE offices could better assess M&O contractors' costs, improve acquisition decision-making, and ensure performance evaluations fully address required elements.
Based on GAO's review of DOE M&O contractor performance evaluations from fiscal years 2006 through 2016, DOE generally provided high performance ratings and more than 90 percent of available performance incentives (see figure). Ratings for some areas of contractor performance, as well as ratings for contractor performance at specific DOE sites, varied from this trend. For example, three times during this period contractors received 50 percent or less of available award and incentive fees due to a major accident and safety and security issues.
Median Annual Percentage of Available Award Fee Provided to Management and Operating Contractors, Fiscal Years 2006 through 2016
Why GAO Did This Study
In fiscal years 2006 through 2016, the federal government spent almost $193 billion on DOE's M&O contracts—a form of contract that traces its origins to the Manhattan Project. Six DOE offices use M&O contracts to manage and operate federally owned sites that perform work to fulfill DOE's diverse missions, such as conducting scientific research and maintaining nuclear weapons.
GAO was asked to review DOE's performance management of its M&O contracts. This report examines, among other things, (1) how DOE offices evaluated M&O contractor performance in fiscal years 2006 through 2016; (2) the extent to which DOE's fiscal year 2016 M&O contractor PERs provide information on contractors' technical, administrative, and cost performance; and (3) the results of DOE's M&O contractor performance evaluations for fiscal years 2006 through 2016.
GAO reviewed performance evaluation documents for 21 of the 22 DOE M&O contracts; analyzed DOE policies, procedures, and guidelines, and federal regulations; analyzed technical, administrative, and cost aspects of M&O contracts' 2016 PERs; and interviewed DOE officials.
Recommendations
GAO is making seven recommendations to DOE, including to each of the six DOE offices to update their policies requiring that PERs include quality information to enable an overall assessment of M&O contractor cost performance. In commenting on a draft of this report, DOE generally agreed with these recommendations.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| National Nuclear Security Administration | The Administrator for the National Nuclear Security Administration should develop and document clear procedures for implementing NAP-4C, specifying the process for collecting contractor performance information and describing how officials are to ensure this information can be traced to rating determinations. (Recommendation 1) |
The National Nuclear Security Administration (NNSA) concurred with the recommendation. In February 2021, NNSA issued its fiscal year 2021 Corporate Performance Evaluation Process Annual Implementation Guidance. This guidance included a section specifying the process for collecting contractor performance information and further details regarding the preparation of interim feedback reports and final performance evaluation reports. However, the guidance is unclear regarding how this information can be traced to rating determinations. In order to provide more transparency and ensure this traceability, NNSA guidance and the Performance Evaluation Reports themselves should more clearly link how collected performance information tracks to rating determinations. No significant changes have been made to NNSA's annual implementation guidance for fiscal years 2022 - 2024. As of February 2024, NNSA officials stated that they envision developing a performance evaluation software tool with the capability to trace performance feedback to originating data sources and could bring more objectivity and transparency to the process. We will continue to monitor NNSA's actions to address this recommendation.
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| Office of Energy Efficiency and Renewable Energy | The Assistant Secretary for the Office of Energy Efficiency and Renewable Energy should update its policy to require that Performance Evaluation Reports include quality information on cost performance to enable an overall assessment of Management and Operating contractor cost performance. (Recommendation 2) |
The Office of Energy Efficiency and Renewable Energy (EERE) partially concurred with the recommendation. EERE officials revised a Performance Objective in the fiscal year 2022 Performance Evaluation Measurement Plan (PEMP) to directly address lab-wide cost management and cost performance and provided more detail on specific cost performance elements to be considered as part of the Performance Objective. Officials included the same Performance Objective in the fiscal 2023 PEMP and stated their intention to continue including it in future PEMPs. In June 2022, officials stated that EERE had not revised its policy to require this type of cost performance assessment in future PEMPs because their process guidance does not get into the specific objectives. Rather, the content of performance objectives are addressed in the PEMP and are designed to have staying power and not change much from year to year. They stated the cost Performance Objective would roll over to future year PEMPs unless there was specific cause to change, which they thought to be rare and unlikely. As such, the revised cost related Performance Objective in the fiscal year 2022 and 2023 PEMPs meets the intent of the recommendation.
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| Office of Environmental Management | The Assistant Secretary for the Office of Environmental Management should update its policy to require that Performance Evaluation Reports include quality information on cost performance to enable an overall assessment of Management and Operating contractor cost performance. (Recommendation 3) |
The Office of Environmental Management (EM) concurred with the recommendation. DOE's Acquisition Guide includes a requirement for award fee contracts to include cost control evaluation criteria or a cost incentive. While the relevant chapter in the Acquisition Guide has an exemption for Management and Operating (M&O) contracts, according to EM officials, EM's M&O contracts follow this requirement. At the time of our report, EM had two M&O contracts-one for the Waste Isolation Pilot Plant (WIPP) and one for the Savannah River Site (SRS). As of October 1, 2024 landlord duties for the Savannah River Site shifted to the National Nuclear Security Administration (NNSA). Further, according to the fiscal year 2024 Performance Evaluation and Measurement Plan (PEMP), 66% of award fee for the SRS contract came from NNSA. Thus, for purposes of this recommendation, we now consider the contract for WIPP to be the only M&O contract under EM's purview. EM's PEMP for WIPP contains a cost control performance criterion that receives its own adjectival rating and has designated award fee. This PEMP criterion states that evaluation should consider the overall cost performance on a semi-annual basis as measured against the final contract value and Contract Performance Baseline. This cost control criterion applies the DOE Acquisition Guide requirement and EM has included this criterion in each of the PEMPs of the current WIPP contract, as well as in the prior contract's PEMPs since fiscal year 2021. As EM's only current M&O contract site, WIPP's on-going implementation of the DOE Acquisition Guide cost control evaluation criteria requirement meets the intent of our recommendation.
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| Office of Fossil Energy | The Assistant Secretary for the Office of Fossil Energy should update its policy to require that Performance Evaluation Reports include quality information on cost performance to enable an overall assessment of Management and Operating contractor cost performance. (Recommendation 4) |
The Office of Fossil Energy (FE) concurred with the recommendation. Starting in fiscal year 2020 FE has revised and executed Performance Evaluation and Measurement Plans (PEMP) to add a new PEMP measure that addresses monitoring cost growth, additional activities in internal audit, and data quality. In fiscal year 2021, FE added two new PEMP measures: Cost Control Index and Schedule Control Index to help assess the Management and Operating contractor's overall cost performance. In June 2022, FE revised its Performance Management Order to require PEMPs to include quality information on cost performance to enable an overall assessment of Management and Operating contractor cost performance, meeting the intent of this recommendation.
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| National Nuclear Security Administration | The Administrator for the National Nuclear Security Administration should update its policy to require that Performance Evaluation Reports include quality information on cost performance to enable an overall assessment of Management and Operating contractor cost performance. (Recommendation 5) |
The National Nuclear Security Administration (NNSA) concurred with the recommendation. In February 2021, NNSA issued its fiscal year 2021 Corporate Performance Evaluation Process Annual Implementation Guidance. This guidance provides instructions regarding the evaluation of cost performance, including examples of the types of cost information that should be collected and how cost data should be analyzed and described. However, the guidance's template for Performance Evaluation and Measurement Plans does not include any explicit cost performance Objectives or Key Outcomes and it is unclear how the cost performance information discussed in the guidance would enable an overall assessment of Management and Operating contractor cost performance. In order to provide quality cost information that does enable such an overall assessment, NNSA should clarify its guidance regarding cost performance information and how this information links to overall Management and Operating contractor performance. As of February 2024, no significant changes in regard to cost performance have been made to NNSA's annual implementation guidance for fiscal years 2022 - 2024. We will continue to monitor NNSA's actions to address this recommendation.
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| Office of Nuclear Energy | The Assistant Secretary for the Office of Nuclear Energy should update its policy to require that Performance Evaluation Reports include quality information on cost performance to enable an overall assessment of Management and Operating contractor cost performance. (Recommendation 6) |
The Office of Nuclear Energy (NE) partially concurred with the recommendation. NE included criteria in its fiscal year 2020 Performance Evaluation and Measurement Plan (PEMP) that assesses laboratory cost performance annually, including cost effectiveness. In January 2021, NE revised its policy to require that future PEMPs include a cost performance criterion going forward, meeting the intent of our recomendation.
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| Office of Science | The Director of the Office of Science should update its policy to require that Performance Evaluation Reports include quality information on cost performance to enable an overall assessment of Management and Operating contractor cost performance. (Recommendation 7) |
The Office of Science (SC) partially concurred with the recommendation. In a May 2022 status update, officials stated that SC does not expect to take any additional specific action related to the recommendation. SC officials reiterated their initial response to the recommendation, stating that SC evaluates cost performance at the laboratories in multiple other ways; that cost performance is addressed in day-to-day management and oversight; and that if there are issues with cost performance, programs will take actions to correct them in real time. SC also noted that DOE is currently revising its procedures to enhance incurred cost audits by the Office of the Inspector General. As of October 2024, SC had not taken additional actions related to this recommendation. In the report, we noted that SC conducts some cost performance evaluation activities outside of the annual performance evaluation process, although we did not assess these efforts. While there may be adequate information available, SC does not commonly document this information or assessments from such activities in the Performance Evaluation Reports (PERs). We continue to believe that the PERs are important sources of information for contract management--particularly for acquisition decisions and oversight of spending on cost-reimbursement contracts--and that action is needed to improve these formal records of contractor performance. By not including quality information on overall cost performance and assessments in PERs, SC is missing a valuable opportunity to better document contractors' cost performance, improve acquisition decision-making, and strengthen oversight of billions of dollars in contracting. We continue to believe that it is important for SC to implement the recommendation and that by doing so, the office would have better assurance that Management and Operating contractor performance evaluations fully address required elements.
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