Energy Management:

Inadequate DOE Monitoring of Contractors' Acquisitions From Affiliates

RCED-94-83: Published: Feb 11, 1994. Publicly Released: Mar 16, 1994.

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Pursuant to a congressional request, GAO reviewed two Department of Energy (DOE) Savannah River Site (SRS) contractors' acquisitions from affiliated entities, focusing on whether DOE: (1) monitoring of contractor compliance with procurement requirements is effective; and (2) requirements for acquisitions from affiliated entities sufficiently protect the government's interests.

GAO found that: (1) analysis of 60 of the contractors' acquisitions from affiliates, totalling about $48 million, indicated that DOE monitoring has not adequately controlled or minimized costs, ensured the receipt of acceptable goods or services, or maximized competition; (2) DOE monitoring and procurement problems include inadequate cost controls and performance problems, payment of unallowable and other questionable costs, and inappropriate contract approval and contract payments; (3) weaknesses in the contractors' management systems and internal reviews and DOE internal control limitations and staffing constraints contributed to monitoring deficiencies; (4) DOE evaluations have identified similar problems with affiliate acquisitions at other DOE sites; (5) DOE partial implementation of regulations concerning affiliate acquisitions has adversely affected DOE ability to protect the government's interests; and (6) DOE has not required affiliate acquisitions to comply with competition and conflict-of-interest requirements and has subjected such acquisitions to less scrutiny than nonaffiliated third-party acquisitions.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOE, through its Office of Contractor Management and Administration, is now providing close surveillance of contractor purchasing systems with management and operating contractor acquisitions from affiliated entities as an area of specific focus. Further, affiliate purchases are included as an emphasized review item in the Contractor Purchasing System Review Handbook. An accomplishment report will be prepared in the future to cover DOE's actions on this recommendation as well as others in the same report.

    Recommendation: To ensure that acquisitions made from affiliated entities of Westinghouse Savannah River Company (WSRC) and Bechtel Savannah River, Inc. (BSRI) at SRS are in the best interests of the federal government, the Secretary of Energy should provide for increased monitoring of the contractors' acquisitions from affiliated entities.

    Agency Affected: Department of Energy

  2. Status: Closed - Implemented

    Comments: The Savannah River Operations Office is now requiring both Westinghouse and Bechtel to provide a detailed Make-or-Buy analysis on all proposed acquisitions from its affiliates. The analyses will be reviewed for source justification and cost value. Both Westinghouse and Bechtel will be required to compete where proposed acquisitions from affiliates are not adequately documented. An accomplishment report will be prepared in the future to cover DOE's actions on this recommendation as well as others in the same report.

    Recommendation: To ensure that acquisitions made from affiliated entities of WSRC and BSRI at SRS are in the best interests of the federal government, the Secretary of Energy should, except for the purchases of technical services where the affiliate has special expertise and that expertise is documented, require that affiliate acquisitions comply with the DOE acquisition regulation's requirement that competition must be obtained and subject such acquisitions to the same standards that apply to nonaffiliated third-party transactions.

    Agency Affected: Department of Energy

  3. Status: Closed - Implemented

    Comments: The Savannah River Site Manager has required that virtually 100 percent of the proposed affiliate acquisitions for both Westinghouse and Bechtel be submitted for review. As the approved system is refined, threshold values will be determined and refined. Costs associated with any unapproved affiliate acquisitions will be subject to being disallowed. Ongoing and planned reviews to support the new approved system include Westinghouse self-inspections, Westinghouse internal audit reviews, Contractor Purchasing System reviews, and OIG reviews. An accomplishment report will be prepared in the future to cover DOE's actions on this recommendation as well as others in the same report.

    Recommendation: The Secretary of Energy should require the SRS Manager to develop and implement, on the basis of data from reliable management information systems, internal controls that can enhance DOE ability to use its limited resources to ensure that monitoring activities involving acquisitions from affiliates are effectively carried out.

    Agency Affected: Department of Energy

  4. Status: Closed - Implemented

    Comments: DOE agrees with the recommendation and reviewed all transactions included in GAO's report. Previously, the Westinghouse Savannah River Company voluntarily refunded $229,443.30 in costs associated with one example in the report. DOE's review of the other examples highlighted in GAO's report did not disclose any further substantive problems.

    Recommendation: The Secretary of Energy should require the SRS Manager to review the appropriateness of the charges that have been made or paid in the specific examples GAO highlighted in this report to ensure that the costs incurred have been and still are proper and, in any instances in which costs have been improperly charged or paid, obtain reimbursement from the appropriate parties.

    Agency Affected: Department of Energy

 

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