National Laboratories:

DOE Needs to Assess the Impact of Using Performance-Based Contracts

RCED-99-141: Published: May 7, 1999. Publicly Released: Jun 7, 1999.

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James E. Wells, Jr
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Pursuant to a congressional request, GAO reviewed the Department of Energy's (DOE) progress in implementing performance-based contracting at its national laboratories, focusing on: (1) the status of performance-based contracting in DOE's national laboratory contracts; and (2) DOE's efforts to determine the impact of performance-based contracting.

GAO noted that: (1) DOE's use of performance-based contracting for its laboratories is in a state of transition; (2) while all laboratory contracts GAO examined had some performance-based features, GAO found wide variance in the number of performance measures and the types of fees negotiated; (3) about half of the 18 laboratory contracts have performance fees to encourage superior performance--a major goal of performance-based contracting; (4) most of the remaining laboratory contracts are still based on DOE's traditional fixed-fee arrangement in which the fees are paid regardless of performance; (5) DOE has not evaluated the impact of performance-based contracting on its laboratory contractors and, as a result, does not know if this new form of contracting is achieving the intended results of improved performance and lower costs; (6) specifically, DOE has not determined whether giving higher fees to encourage superior performance by its laboratory contractors is advantageous to the government, although GAO recommended in 1994 that DOE develop criteria for measuring the costs and benefits to the government of using higher fees; (7) fees for the laboratories totalled over $100 million for fiscal year 1998; (8) while the contractors were unable to cite measurable benefits achieved by switching to performance-based contracting, they support its goals; and (9) the main benefits from performance-based contracting cited by laboratory contractors was that it has helped DOE clarify what it expects from the contractors and that it has improved communication.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: DOE disagrees with the recommendation on the need to conduct a cost benefit analysis of performance based contracting at its national laboratories. They believe they do this on an on-going basis, they have already decided to continue these contracts, and that any further comprehensive study would not be useful. They also said they will continue to consult with other organizations to find a model that would satisfy the recommendation. Since GAO's recommendation was made, DOE has made further revisions to its contracting practices, including adding a provision that allows the Secretary to withhold nearly all of a laboratory's fee for serious breaches of trust and/or violations of a serious nature.

    Recommendation: Because DOE does not know whether performance-based contracting is improving performance at lower cost at its national laboratories and because GAO's previous recommendation to develop criteria for measuring the costs and benefits of paying fees to contractors for incurring increased financial risk was not implemented, the Secretary of Energy should evaluate the costs and benefits from using performance-based contracting at the national laboratories. While GAO recognizes that each laboratory contract is individually negotiated, DOE should nevertheless ensure that the fees it provides to motivate contractors and to compensate them for increased financial risk is based on an analysis of costs and benefits. The need for this type of evaluation is consistent with the principles of the Government Performance and Results Act of 1993 that require agencies to measure outcomes against their goals.

    Agency Affected: Department of Energy


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