Energy Management:

Modest Reforms Made in University of California Contracts, but Fees Are Substantially Higher

RCED-94-202: Published: Aug 25, 1994. Publicly Released: Oct 19, 1994.

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Pursuant to a congressional request, GAO provided information on the Department of Energy's (DOE) management and operation (M&O) contracts with the University of California, focusing on: (1) DOE efforts to add standard clauses typical of other DOE contracts and eliminate requirements that weaken DOE authority; (2) the compensation that DOE negotiated for the current contracts; and (3) proposed changes in DOE contracting policy.

GAO found that: (1) for its current contracts, DOE negotiated standard clauses for property management, procurement systems, and internal audits and included standard criteria for cost allowability that improved DOE authority and clarified performance expectations; (2) the special dispute resolution clause could minimize contract improvements because of limits to DOE authority to control the University's actions; (3) deviations from standard clauses should provide DOE with authority at least equivalent to that provided by standard clauses; (4) DOE has more than doubled the University's contract fees because it has accepted increased financial risks; (5) this approach is not cost-effective and does not improve accountability because contractor risk is still too limited and DOE lacks criteria for measuring the benefits of contractor risks; (6) DOE has waived its fee policy for educational institutions and has not followed procedures to promote fee consistency and uniformity; (7) proposed changes to DOE contracting policy would give DOE increased leverage in negotiating contracts by applying more stringent reimbursement policies, changing its fee policy for nonprofit educational contractors, and opening the contracts to competition; and (8) provisions to waive the new contracting policy create uncertainty as to whether DOE will require the University to comply with the new policy.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In late 1997, DOE issued its revised contract with the University of California to eliminate many of the nonstandard clauses.

    Recommendation: The Secretary of Energy should require the Department's Chief Financial Officer and Deputy Assistant Secretary for Procurement and Assistance Management to review the instances in which DOE has less authority under the University of California contracts than is provided in the standard clauses. The officials should determine whether the bases for allowing the deviations are sound and whether DOE should use its authority to propose contract modifications at any time to make the changes needed to better protect the government's interests.

    Agency Affected: Department of Energy

  2. Status: Closed - Implemented

    Comments: DOE partially agreed with the recommendation, and negotiated a change in the University of California's contract, effective May 30, 1995, that requires the University to provide information to DOE on any projects that the University sponsors at the Laboratory. While acknowledging that the University-directed research and development must be performed on a non-interference basis with any DOE directed and funded work, the contract provision specifically states that the work does not require DOE approval.

    Recommendation: To ensure that DOE maintains adequate controls over the work conducted at the laboratories, the Secretary of Energy should require the University of California to obtain DOE advance approval for any research projects the University sponsors at the laboratory.

    Agency Affected: Department of Energy

  3. Status: Closed - Implemented

    Comments: DOE, as part of its contract reform initiatives, has begun awarding performance-based operating contracts which tie fees to the achievement of specified, measurable goals. While award/incentive fees have traditionally been used with for-profit contractors, DOE has included performance and award provisions in the recent renewal of its contract with the education/non-profit contractor that manages the Argonne National Laboratory. DOE has not yet evaluated the effectiveness of the use of performance-based contracts.

    Recommendation: The Secretary of Energy should require the Deputy Assistant Secretary for Procurement and Assistance Management to ensure that the fees paid to contractors for incurring increased financial risks are cost-effective by developing criteria for measuring the costs and benefits to the government of this approach.

    Agency Affected: Department of Energy

  4. Status: Closed - Implemented

    Comments: DOE's new fee policy has been developed and was issued in March 1999.

    Recommendation: The Secretary of Energy should require the Deputy Assistant Secretary for Procurement and Assistance Management to ensure that the new policies for nonprofit M&O contractors apply to the largest DOE nonprofit contractors, such as the University of California.

    Agency Affected: Department of Energy

 

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