This is the accessible text file for GAO report number GAO-12-255
entitled 'Department of Energy: Additional Opportunities Exist to
Streamline Support Functions at NNSA and Office of Science Sites'
which was released on January 31, 2012.
This text file was formatted by the U.S. Government Accountability
Office (GAO) to be accessible to users with visual impairments, as
part of a longer term project to improve GAO products' accessibility.
Every attempt has been made to maintain the structural and data
integrity of the original printed product. Accessibility features,
such as text descriptions of tables, consecutively numbered footnotes
placed at the end of the file, and the text of agency comment letters,
are provided but may not exactly duplicate the presentation or format
of the printed version. The portable document format (PDF) file is an
exact electronic replica of the printed version. We welcome your
feedback. Please E-mail your comments regarding the contents or
accessibility features of this document to Webmaster@gao.gov.
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. Because this work
may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this
material separately.
United States Government Accountability Office:
GAO:
Report to Congressional Requesters:
January 2012:
Department of Energy:
Additional Opportunities Exist to Streamline Support Functions at NNSA
and Office of Science Sites:
GAO-12-255:
GAO Highlights:
Highlights of GAO-12-242, a report to congressional requesters.
Why GAO Did This Study:
All six species of sea turtles found in U.S. waters and nesting on
U.S. shores are listed as endangered under the Endangered Species Act.
Two federal agencies—-the National Marine Fisheries Service (NMFS) and
the Fish and Wildlife Service (FWS)-—are charged with protecting sea
turtles, NMFS when the turtles are at sea and FWS on land. The act
prohibits the “take,” including harassment or killing, of protected
species. The services (NMFS and FWS) can, however, authorize take
under certain circumstances. The act also requires recovery plans for
each listed species, which set forth broad goals and recovery
strategies. GAO was asked to determine the extent to which the
services (1) coordinate their sea turtle protection activities, (2)
collect and analyze take data, (3) clearly explain how they determine
if a proposed action will jeopardize sea turtles, and (4) have
developed operational plans to help realize recovery goals. To address
these issues, GAO reviewed documents and interviewed officials from
both services and experts, including state agency officials,
university researchers, and representatives of environmental and
industry groups.
What GAO Found:
What GAO Found
The services have coordinated some sea turtle protection efforts,
including jointly developing recovery plans, and they established a
memorandum of understanding in 1977 to define their roles in joint
administration of their efforts. Nevertheless, neither the memorandum
nor the services have clearly defined how and when the services are to
coordinate; also, the services do not consistently share information
about the majority of the take they authorize. According to sea turtle
experts GAO spoke with, each service may therefore be authorizing sea
turtle take without knowing how much its counterpart has authorized,
and the combined allowance may be harming threatened and endangered
sea turtles and delaying their recovery.
NMFS and FWS each use databases that collect information about
consultations involving take of sea turtles and other species, but
they do not use these databases to comprehensively collect and analyze
sea turtle take data. Specifically, not all of the databases require
entry of data on anticipated and actual take. The services also
maintain separate documents that collect information about anticipated
take, but these documents are not structured to easily allow analysis
of total anticipated take and do not track actual take. According to
some experts and NMFS officials GAO spoke with, total take should be
considered when the services determine whether proposed actions are
likely to jeopardize species or approve additional take authorizations.
Biological opinions prepared by NMFS and FWS do not clearly explain
how the services determine that an action anticipated to result in the
take of sea turtles will not jeopardize their continued existence.
Guidance developed by the services states that the opinions should be
written so the general public can trace the path of logic to the
conclusion. But some experts GAO spoke with said, and GAO’s review of
selected biological opinions found, that the opinions may not clearly
describe why the services conclude that a particular action, such as
commercial fishing anticipated to harm turtles, will not jeopardize
the species’ existence. If the analyses and decisions in the opinions
are not clear, neither Congress nor the public can be assured that the
services are adequately protecting vulnerable sea turtle populations
as required by the Endangered Species Act.
Neither NMFS nor FWS has developed its own service-specific
operational plans describing the actions it will perform to achieve
the goals in their jointly prepared sea turtle recovery plans. In the
absence of service-specific plans, the services rely on the jointly
developed recovery plans to guide their sea turtle protection and
recovery efforts. But GAO’s review of these recovery plans found that
they do not include key elements of effective planning, such as
performance measures to gauge progress toward goals. Without service-
specific plans and performance measures, neither service can ensure
that it is taking the steps needed to realize sea turtle recovery
goals.
What GAO Recommends:
GAO is making four recommendations to the Secretaries of Commerce and
the Interior to improve the services’ sea turtle coordination, data
collection, reporting, and planning efforts. Both NMFS and FWS
generally agreed with the recommendations.
View [hyperlink, http://www.gao.gov/products/GAO-12-242]. For more
information, contact Anu K. Mittal at (202) 512-3841 or
mittala@gao.gov.
[End of section]
Contents:
Letter:
Background:
Sites' Support Costs since 2007 Are Not Fully Known:
DOE and Site Contractors Have Been Streamlining Support Functions and
Identifying Additional Opportunities, as well as Challenges:
Difficulties Exist in Quantifying Cost Savings because Guidance for
Estimating Savings Is Unclear and Methods Used Vary:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendix I: Comments from the Department of Energy:
Appendix II: Contact and Staff Acknowledgments:
Figures:
Figure 1: NNSA's Laboratories and Nuclear Production and Testing Sites
and Science's Laboratories:
Figure 2: Example of the Effect of Using Different Cost Savings
Estimation Methods for a 2010 Software Purchase at Pacific Northwest
National Laboratory (PNNL):
Abbreviations:
DEAR: Department of Energy Acquisition Regulation:
DOE: Department of Energy:
GSA: General Services Administration:
M&O: management and operating:
NNSA: National Nuclear Security Administration:
OMB: Office of Management and Budget:
PNNL: Pacific Northwest National Laboratory:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
January 31, 2012:
The Honorable Fred Upton:
Chairman:
The Honorable Henry A. Waxman:
Ranking Member:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Cliff Stearns:
Chairman:
The Honorable Diana DeGette:
Ranking Member:
Subcommittee on Oversight and Investigations:
Committee on Energy and Commerce:
House of Representatives:
The Honorable John D. Dingell:
House of Representatives:
The Department of Energy (DOE) spends a major portion of its annual
budget--which totaled $27 billion in fiscal year 2011--to carry out
groundbreaking scientific research and technology development to
increase knowledge about fundamental physics, provide efficient and
secure energy, and ensure the safety and reliability of the nation's
nuclear weapons stockpile. This research and development work is
performed by contractors--corporations, universities, and others--that
manage and operate the 7 national laboratories and nuclear production
and testing sites overseen by the National Nuclear Security
Administration (NNSA),[Footnote 1] a separately organized agency
within DOE, and the 10 national laboratories overseen by DOE's Office
of Science. With DOE oversight, these management and operating (M&O)
contractors also organize and carry out the support functions at these
17 sites, such as procuring needed goods and services; recruiting and
hiring workers; managing health and retirement benefits; maintaining
facilities and infrastructure; and providing day-to-day accounting,
information technology, security, and other support functions.
[Footnote 2] Because each NNSA or Science site has historically had
its own unique M&O contractor--as part of DOE's long-standing model
for conducting research and nuclear production at multiple locations--
the sites have also differed in how support functions are organized
and carried out.[Footnote 3]
DOE reimburses its M&O contractors for costs incurred in carrying out
the department's missions and providing sites' support functions.
These include costs that can be directly identified with a specific
DOE program (direct costs) and costs that support multiple programs
(indirect costs). Federal Cost Accounting Standards and federal
regulations allow DOE's M&O contractors flexibility in how they
classify incurred costs as direct or indirect.[Footnote 4] Because
sites classify these costs differently, in the mid-1990s, DOE's Chief
Financial Officer began requiring M&O contractors at the sites to
report on 22 categories of these costs--known as functional support
costs--to provide more comparable data on the costs of sites' support
functions.
We have previously reported on DOE's support costs and related issues.
In September 2005, we reported that definitions for some of the
functional support costs were unclear and that M&O contractors'
reporting of these costs was inconsistent. We recommended that DOE
take further actions to improve the comparability of its data by
clarifying its definitions for its support costs.[Footnote 5] In 2010,
DOE replaced its functional support costs with a new system called
Institutional Cost Reporting, which was pilot-tested that year and
fully implemented in 2011. Also in the 2005 report, and an April 2004
report,[Footnote 6] we recommended that DOE take actions to manage the
long-term cost growth in certain support functions, such as facility
maintenance, as well as pension or other costs at sites. Since that
time, DOE has taken actions to control these costs, but some of them
have continued to grow. For example, in April 2011 we reported that
DOE reimbursed M&O contractors departmentwide for $750 million in
pension costs in fiscal year 2009--more than double the amount
reimbursed in fiscal year 2008--following financial market declines.
[Footnote 7]
Against the backdrop of growing federal deficits and uncertainty over
future federal budgets, DOE and its M&O contractors at NNSA and
Science sites have been evaluating areas that could be streamlined or
provide cost savings. In this context you asked us to examine support
functions at NNSA and Science sites. Our objectives for this report
were to examine (1) the costs of providing support functions at NNSA
and Science sites for fiscal years 2007 through 2011; (2) efforts
undertaken during that period to streamline sites' support functions
and additional streamlining opportunities and implementation
challenges, if any; and (3) the extent to which cost savings from
streamlining efforts can be quantified.
To address the first objective, we analyzed DOE's data on support
function costs at the 17 NNSA and Science sites for fiscal years 2007
through 2011 and interviewed DOE officials who oversee these cost data
for DOE's Office of the Chief Financial Officer. We took steps to
assess the reliability of the cost data, including interviewing
representatives from the chief financial officers' organizations in
DOE, NNSA, Science, and M&O contractors. We noted the limitations of
these data in our report but found the data sufficiently reliable for
our purposes. We reviewed federal Cost Accounting Standards and
federal and DOE acquisition regulations for requirements on reporting
support function costs. We spoke with M&O contractor officials
responsible for financial management at a nonprobability sample of 8
sites--the 4 largest (by budget) NNSA sites and 4 largest Science
sites--and discussed trends in the sites' support function costs since
2007.[Footnote 8] Because a nonprobability sample is not
generalizable, what we found at these 8 sites cannot be projected to
all 17 sites; however, the sites provide examples of issues related to
management of support functions.[Footnote 9] We visited 3 of these
sites--Los Alamos, Sandia, and Pacific Northwest national
laboratories--and contacted the others by phone.[Footnote 10] To
address the second and third objectives, we reviewed DOE's policies on
procurement, human resources, facility maintenance, and other support
functions. We also spoke with headquarters and field-based officials
who oversee support functions for DOE, NNSA, and Science about DOE's
policies and efforts to oversee M&O contractors' performance in
carrying out and streamlining support functions at sites, as well as
additional streamlining opportunities and challenges. We also reviewed
studies, cost reports, strategic plans, and other documentation on
recent or proposed efforts to streamline NNSA and Science sites'
support functions. We spoke with M&O contractor officials who plan and
oversee the 8 sites' support functions and discussed their sites'
streamlining efforts since 2007, as well as any cost savings from
those efforts. We reviewed documentation on sites' recent and planned
streamlining efforts and associated cost savings. We also discussed
additional streamlining opportunities and any related challenges.
Furthermore, we collected, through document requests and interviews
with DOE and contractor officials at sites in our sample, information
on how cost savings were estimated. The amount and level of detail of
this information varied greatly across streamlining efforts. Because
it was not the purpose of this report to assess the anticipated or
actual success of efficiency efforts and because the amount and
quality of data on how estimated and actual savings were determined
varied so much across efforts, we did not attempt to independently
verify the reliability of these data or estimates. As a result, data
on reported estimated or actual cost savings and efficiencies are of
undetermined reliability.
We conducted this performance audit from December 2010 through January
2012 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform the audit
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our audit objectives.
We believe that the evidence obtained provides a reasonable basis for
our findings and conclusions based on our audit objectives.
Background:
DOE is responsible for a diverse set of missions, including nuclear
security, energy research, and environmental cleanup. These missions
are managed by various organizations within DOE and largely carried
out by M&O contractors at DOE sites. NNSA and Science are among the
largest (by budget) of these DOE organizations, overseeing important
missions at 17 sites.[Footnote 11] Specifically:
* With a $10.5 billion budget in fiscal year 2011--nearly 40 percent
of DOE's total budget--NNSA is responsible for providing the United
States with safe, secure, and reliable nuclear weapons in the absence
of underground nuclear testing and maintaining core competencies in
nuclear weapons science, technology, and engineering. NNSA's 7 sites,
including 3 national laboratories and 4 nuclear and production and
testing sites support these activities (see figure 1).
* With a $4.9 billion budget in fiscal year 2011--18 percent of DOE's
total budget--Science has been the nation's single largest funding
source for basic research in the physical sciences, supporting
research in energy sciences, advanced scientific computing, and other
fields. Science funds research at its 10 national laboratories, which
also house cutting-edge scientific facilities and equipment, ranging
from high-performance computers to ultrabright X-ray sources for
investigating fundamental properties of materials. These resources are
often made available, on a temporary basis, to members of the broader
scientific community outside of DOE for their own research, sometimes
in collaboration with laboratory staff.
Figure 1: NNSA's Laboratories and Nuclear Production and Testing Sites
and Science's Laboratories:
[Refer to PDF for image: illustrated U.S. map]
NNSA nuclear production and testing site:
Nevada National Security Site, Nevada;
Pantex Plant, Texas;
Kansas City Plant, Missouri;
Y-12 National Security Complex, Tennessee;
NNSA laboratory:
Lawrence Livermore National Laboratory, California;
Los Alamos National Laboratory, New Mexico;
Sandia National Laboratory, New Mexico.
Science laboratory:
Ames Laboratory, Iowa;
Argonne National Laboratory, Illinois;
Brookhaven National Laboratory, New York;
Fermi National Accelerator Laboratory, Illinois;
Lawrence Berkeley National Laboratory, California;
Oak Ridge National Laboratory, Tennessee;
Pacific Northwest National Laboratory, Washington;
Princeton Plasma Physics Laboratory, New Jersey;
SLAC National Accelerator Laboratory, California;
Thomas Jefferson National Accelerator Facility.
Sources: DOE; Map Resources (map).
Note: Sandia National Laboratories has locations in New Mexico and
California. Only its primary location in New Mexico is depicted. Both
locations are considered to be part of a single site among the 7 NNSA
laboratory and nuclear production and testing sites.
[End of figure]
Under DOE's long-standing model of having unique M&O contractors at
each site, management of its sites has historically been decentralized
and, thus, fragmented. Since the Manhattan Project produced the first
atomic bomb during World War II, DOE and its predecessor agencies have
depended on the expertise of private firms, universities, and others
to carry out research and development work and efficiently operate the
facilities necessary for the nation's nuclear defense.[Footnote 12]
DOE's relationship with these entities has been formalized over the
years through its M&O contracts--contracts of a special type that give
DOE's contractors unique responsibility to carry out major portions of
DOE's missions and apply their scientific, technical, and management
expertise. Currently, DOE spends 90 percent of its annual budget on
M&O contracts, making it the largest non-Department of Defense
contracting agency in the government. The contractors at DOE's 17 NNSA
and Science sites have operated under DOE's direction and oversight
but largely independently of one another.[Footnote 13] Furthermore,
M&Os are set up as separate entities with their own missions, parent
organizations, and organizational structures. For example, the M&O
contractor at Science's Oak Ridge National Laboratory is a private,
not-for-profit company, established for the sole purpose of managing
and operating that laboratory for DOE. Formed in 2000 as a limited
liability partnership between the University of Tennessee and Battelle
Memorial Institute, the M&O contractor organization is uniquely set up
to provide that laboratory's scientific research and necessary support
functions. M&O contractors typically allocate the costs of support
functions across the site and charge research or other divisions that
benefit from those functions.
Requirements for providing support functions at sites are set out in
federal and DOE acquisition regulations, DOE policies, and M&O
contracts. In particular, M&O contracts define performance
requirements for the support functions provided at each site. These
range from requirements that apply to contractors at all 17 sites--
such as a requirement that M&O contractors' systems of accounts comply
with generally accepted accounting principles--to site-specific
requirements, such as those pertaining to security at sites that house
special nuclear material. Some M&O contracts also include provisions
encouraging contractors to reduce sites' support function costs. For
example, M&O contracts at some sites allow the contractors there to
redirect--to mission work or contractor-directed research--dollars
saved through reductions in support function costs. Also, contracts
may include annual performance goals for cost savings that are tied to
the contractors' annual performance fees, which are monies paid to
them based on their annual performance.
Various headquarters and field-based organizations within DOE, NNSA,
and Science develop policies or oversee M&O contractors' performance
in providing support functions at sites. DOE, NNSA, and Science chief
financial officers, for example, oversee requirements for contractor
reporting on sites' support function costs. Other offices oversee
particular support functions, such as procurement, facilities and
infrastructure, and human resources. DOE's Office of Procurement and
Assistance Management and NNSA's Office of Acquisition Management, for
example, establish policies and oversee procurement activities at NNSA
and Science sites. In addition, NNSA and Science site offices,
colocated with the 17 sites, conduct day-to-day oversight of the M&O
contractors and evaluate the contractors' performance in carrying out
the sites' missions and providing support functions.
Sites' Support Costs since 2007 Are Not Fully Known:
Support Cost Data for 2007 through 2011 Are Not Complete or Comparable
because DOE Changed Its Data Collection Approach:
The costs of support functions at NNSA and Science sites for fiscal
years 2007 through 2011 are not fully known because DOE changed its
data collection approach beginning in 2010 to provide improved data
and, as a result, does not have complete and comparable year-over-year
cost data for all 5 years. For fiscal years 2007 through 2009, total
support costs for 16 of the 17 NNSA and Science sites grew from $5
billion to about $5.5 billion (nominal dollars) and generally
accounted for about 40 percent of the sites' annual budgets for those
years, according to DOE's data.[Footnote 14] The proportion of total
costs that support costs represented, however, differed between NNSA
and Science sites in those years. For the NNSA sites, DOE's data show
that support costs made up from 43 to 45 percent of sites' annual
budgets for fiscal years 2007 through 2009. For the Science sites, the
data show that support costs made up from 32 to 33 percent of the
sites' annual budgets during those years. Differences in missions may
account in part for NNSA's somewhat higher support costs. In
particular, NNSA sites are more likely than Science sites to house
nuclear material and classified information, which can result in
higher security, training, or other costs. We did not, however,
attempt to analyze costs for specific support functions. According to
a DOE report on its sites' support function costs and previous GAO
work,[Footnote 15] the data are appropriate for understanding sites'
support function costs in aggregate but not for comparing costs of
sites' individual support functions.
In fiscal year 2010, DOE changed its data collection approach to
improve its ability to oversee sites' support function costs,
according to DOE officials, and, as a result, it does not have
complete and comparable data for all fiscal years from 2007 through
2011.[Footnote 16] DOE does not have complete data for 2010 because
DOE and some of its contractors were pilot-testing the new system, and
only 11 of the 17 NNSA and Science sites provided support cost data
for that year. The data for 2010 are also incomplete because--unlike
previous years' data--the sites only reported on the indirect costs of
their support functions, leaving out direct costs, which could account
for potentially large portions of their support costs. For example,
officials from Los Alamos National Laboratory in New Mexico told us
that because just 15 percent of that site's $145 million in annual
security costs are indirect, reporting only the indirect costs would
exclude $125 million in direct costs, or more than 85 percent, of the
site's total security costs.
The data were more complete for fiscal year 2011--DOE's first year for
implementing the new system after the pilot test; however, the 2010
and 2011 data for individual support functions are not comparable with
older data because the definitions for some support functions changed
from the old system to the new one. The new system retained many of
the support function categories of the old system, but it changed the
definitions for some categories and added new ones, such as cyber
security, technology transfer, and internal audit. For example, the
new system retained the safeguards and security category of the old
system; however, it changed the definition for that category to
exclude cyber security costs, which were made into a new cyber
security category. Furthermore, DOE's definition for the new cyber
security category identified specific activities, such as purchasing
and maintaining security software, that are not described under the
old system. DOE also added a technology transfer category to the new
reporting system, which includes costs from various categories under
the old system. Because the definitions changed in these and other
instances, costs that were in one category under the old system were
defined differently under the new system. As a result, costs of
individual support functions from the two systems cannot be readily
compared.
DOE Has Not Yet Taken All Planned Steps to Ensure Data Are Complete
and Comparable:
DOE has taken some steps to ensure the completeness of support cost
data under its new data collection approach, but officials and
documents described the need for additional steps to ensure that
support cost data collected under the new approach are comparable
across DOE sites. DOE has taken steps to ensure the completeness of
data under the new approach, which requires M&O contractors to verify
they are capturing all relevant costs by comparing their support costs
with cost information from DOE's central accounting system.[Footnote
17] DOE's Office of the Chief Financial Officer, however, plans to
take additional steps, such as peer reviews, to ensure that the new
data are comparable. Under the previous approach for collecting
support function costs, DOE used peer reviews to help ensure that
sites identified the relevant costs and assigned them to the correct
categories. Specifically, the accuracy of sites' reporting--including
whether the relevant costs were being included in the correct
categories--was reviewed every 3 years by representatives from other
M&O contractors. The reviews found instances of sites classifying
costs incorrectly, which were reported to DOE and corrected by the
contractor. In fiscal year 2011 guidance for the new system from the
Office of the Chief Financial Officer, DOE stated that it planned to
implement peer reviews by the end of fiscal year 2011. In September
2011, officials responsible for DOE's support cost data told us that
the peer reviews had not been implemented because of other priorities,
but more recently, the department said it plans to implement peer
reviews in fiscal year 2012. Until these reviews have been
implemented, it is difficult to know if the data collected under the
new system are reliable or useful for comparing sites' support costs.
Complete and comparable data on support costs at NNSA and Science
sites are not available for all years since 2007, but M&O contractor
officials at the 8 sites we reviewed discussed trends in support
function costs at each individual site. Because each site is different
and M&O contractors have discretion in how they classify costs,
contractors' own data systems may capture support costs differently
than DOE's reporting systems discussed earlier. Contractor officials
responsible for financial management at most of the 8 sites told us
that support function and other costs at their sites, including
pensions, had increased overall for fiscal years 2007 through 2011.
These overall costs increased during that period, but some types of
support costs generally decreased or remained stable relative to the
total costs of managing and operating the sites, according to these
officials. The costs that decreased generally included human resources
administration, financial management systems, and other support costs
that some officials said are easier to control. Contractor officials
at the 8 sites said they used reductions in some support costs to help
offset increases in support costs that can be more difficult to
control, such as pensions and facility costs. For example, on the
basis of information provided by Sandia National Laboratories, the
site expects to contribute nearly $2 billion to its pension plan over
the next 10 years, $400 million of which officials expect to fund
through reductions in that site's support function costs. M&O
contractor officials responsible for financial management at
Brookhaven National Laboratory told us they plan to leverage the funds
resulting from decreases in some support function costs in order to
help fund ongoing efforts to upgrade the site's aging facilities and
infrastructure, which had grown more costly to maintain. Specifically,
rather than lowering the rates charged for the support functions, the
M&O officials opted to continue charging the same rates and then use
the additional funds to help pay for the upgrades.
DOE and Site Contractors Have Been Streamlining Support Functions and
Identifying Additional Opportunities, as well as Challenges:
Streamlining since 2007 Has Mainly Focused on Procurement, Human
Resources, and Facilities and Infrastructure:
DOE and M&O contractors have undertaken various efforts since 2007 to
improve the efficiency of, or streamline, sites' support functions.
Streamlining efforts that officials reported were focused mainly on
three broad areas: (1) procurement; (2) human resources, including
employee benefits; and (3) facilities and infrastructure.[Footnote 18]
Some streamlining efforts were part of larger initiatives involving
multiple sites from among the 17 NNSA and Science sites, while others
were initiated at the site level.
To streamline procurement, DOE and M&O contractors at NNSA and Science
sites said that they have undertaken various efforts to obtain better
pricing on goods and services and make their procurement processes
more efficient. Some of the efforts were aimed at reducing
fragmentation among sites by using a more centralized approach. For
example:
* To better leverage its 7 sites' purchasing power, in 2007 NNSA began
operating its central Supply Chain Management Center. According to
NNSA, this center applies "strategic sourcing" techniques, coordinated
through a central organization, that private companies and, more
recently, government agencies have used to improve efficiency and
effectiveness of procurement.[Footnote 19] The center aggregates and
analyzes NNSA sites' procurement spending data to identify
opportunities to coordinate sites' purchases and negotiate better
prices for goods and services. For example, center officials conducted
one analysis that revealed that the 7 sites were purchasing most of
their laboratory supplies and equipment from the same set of 38
vendors through individual contracts negotiated by each site. The
center was able to negotiate a single contract for all the sites,
resulting in an estimated savings of $22 million over the contract's 3-
year term, according to the M&O contractor official who manages the
center. The official said the center has negotiated agreements for
other goods and services, such as electrical supplies and equipment.
Furthermore, NNSA's center supplements its own strategic sourcing
agreements with ones negotiated by DOE's Integrated Contractor
Purchasing Team for goods such as office supplies and personal
computers. These agreements are similar to agreements negotiated by
NNSA's center but, unlike the NNSA agreements, are available to M&O
contractors across DOE. In addition, NNSA's central Supply Chain
Management Center provides automated tools, including electronic
catalogs, to help sites streamline their purchasing activities and
carry out "reverse auctions," in which vendors competitively bid down
their prices for goods and services to win contracts at NNSA sites.
* Individual sites from the 8 we reviewed have undertaken efforts on
their own to streamline procurement and reduce costs. In addition to
agreements they negotiated on their own, M&O contractor officials at 7
of the sites said they purchased goods or services through agreements
negotiated by their M&Os' parent organizations to obtain better
pricing. For instance, contractor officials from Lawrence Berkeley
National Laboratory told us the site expanded its employees' access to
scientific journals significantly at no additional cost by using the
University of California's subscriptions to those journals. Officials
at Pacific Northwest National Laboratory said their site leverages its
M&O's parent organization's agreements with airlines, rental car
companies, and banks to obtain better pricing on airfares, rental
cars, and purchase cards. A senior official at that site also said,
however, the site uses agreements negotiated by DOE's Integrated
Contractor Purchasing Team for some purchases. In addition, contractor
officials at 6 of the sites told us they made their procurement
process more efficient by switching from paper-based procurement
transactions to electronic ones, including electronic catalogs, which
allow their sites' employees to make frequent small-value purchases
without involving the site's procurement organization.
To streamline human resources, sites from the 8 we reviewed merged
certain human resource functions to reduce administrative costs,
according to M&O contractor officials, as well as automated some human
resource services and reduced contractor employee benefits. For
example:
* M&O contractor officials at Los Alamos and Lawrence Livermore
national laboratories said they took steps to merge certain services,
mainly in human resources. For example, Los Alamos National Laboratory
provides employee benefits accounting and other services for both
sites, according to the officials. Similarly, contractor officials at
Y-12 National Security Complex--an NNSA site that manufactures uranium
and other components for nuclear weapons--told us they took steps to
merge their site's hiring, compensation, benefits administration, and
other services with NNSA's Pantex Plant. According to the officials
and documents describing the effort, the sites now use a common
approach to planning and providing the services.
* Contractor officials from the 8 NNSA and Science sites told us they
automated various human resource activities, such as hiring and
training of employees or managing employee records. Officials told us
that automation has helped their sites reduce the time needed to carry
out the activities and, in some cases, directly lowered their costs.
Contractor officials at the Y-12 National Security Complex told us
their site's automation of its employee records eliminated the time-
consuming management of paper records. Contractor officials at
Lawrence Livermore and Los Alamos national laboratories said they
moved more of their employee training online, reducing the travel or
other costs of providing in-person training. Contractor officials at
some sites told us that automation of such functions became necessary
after, or in anticipation of, significant cuts in the numbers of
support staff, including at one site where officials said over one-
third of staff for some support functions were cut to address a budget
shortfall. In other cases, contractor officials said that their sites
automated human resource activities after evaluating the efficiency
and effectiveness of existing policies and processes. Contractor
officials at Lawrence Berkeley National Laboratory reported they took
steps to standardize and automate the site's hiring, after an
evaluation revealed that the laboratory's 14 scientific and 6 support
divisions had widely varying policies and processes, requiring hiring
decision approval from one official or as many as seven different
officials. According to these officials, the laboratory's automated
tool helped standardize hiring processes and reduce the amount of time
for bringing on new staff.
* To reduce sites' costs for providing health and pension benefits to
contractor employees and retirees, all NNSA and Science sites we
reviewed reported making reductions in their benefit programs. In the
area of health benefits, contractor officials at the 8 sites told us
they increased the share of health benefit costs that contractor
employees or retirees pay, for instance, by narrowing the number of
health plan options and moving to plans with higher out-of-pocket
expenses. Contractor officials at 3 of the sites said they eliminated
postretirement medical benefits for newly hired contractor employees,
and at two sites began requiring such employees to obtain their
prescription medications from lower-cost mail-order pharmacies. In the
area of pensions, contractor officials at 6 of the 8 sites said they
made changes to their plans, reducing the overall amount of future
pension benefits current contractor employees may receive in
retirement. For instance, contractor officials from 3 of the sites
told us they closed their traditional defined-benefit pension plans to
newly hired contractor employees, and some sites made changes
affecting future benefits to current employees' pensions. According to
documents, Sandia National Laboratories changed its pension formula to
reduce the amount of the annual retirement benefit that current
contractor employees will be eligible to receive on future earnings.
Another site, Brookhaven National Laboratory, reduced, from 10 percent
to 9 percent of employee salaries, the amount it contributes to its
newly hired contractor employees' defined-contribution pensions,
according to documents.
To streamline facilities and infrastructure and reduce costs, DOE and
contractors have undertaken various efforts to reduce the number of
facilities and the amount of space they must maintain, lower the
maintenance and operating costs of existing buildings and space, and
improve how sites modernize and upgrade their facilities and
infrastructure. For example:
* In 2007, Science adopted a more centralized approach to upgrading
facilities and infrastructure at its laboratories to reduce costs and
improve the quality of the research facilities. According to documents
outlining this approach and Science officials, many facilities at
Science's sites are aging, have grown more costly to maintain, and
cannot easily support the equipment needed for modern scientific
research, which may require environments free from vibrations or other
special conditions. Until recently, Science's M&O contractors have
largely been responsible for prioritizing and funding major
improvements to sites' facilities and infrastructure, according to
Science officials. To better leverage these funds, however, Science
implemented a new approach, in which a centrally managed process is
used to prioritize funding for modernizing facilities and
infrastructure at all 10 Science sites, in many cases replacing the
fragmented approach used previously. According to Science officials,
the new approach has helped Science tie modernization efforts more
closely to mission needs while bringing down the costs and lead times
of these efforts. In one such effort, Oak Ridge National Laboratory
was able to replace two outdated research facilities with a modern
laboratory building at a lower cost and more quickly than would have
been feasible under the former approach. Construction of the new
building took about 2 years and was completed in 2011 for
approximately $96 million. This building was completed more quickly
and at less than half the cost of renovating the outdated facilities,
which, according to Science officials, was the most likely
modernization option under the previous funding approach. Also,
according to project documentation, estimated energy costs for the new
building are 40 percent less than for the renovated facilities.
* Individual sites also took various steps to streamline facilities
and infrastructure. Officials at the 8 NNSA and Science sites we
reviewed told us that they had consolidated staff and equipment into
less space, reducing the costs of maintaining and operating space at
their sites. In some cases, sites were able to repurpose the vacated
space or demolish buildings to reduce the sites' overall footprint. In
other cases, sites vacated inactive nuclear facilities--which can be
costly to maintain, even if not inhabited--to prepare for their
eventual cleanup and removal. Contractor officials at 3 of the 8 sites
also told us they made better use of existing work space by changing
how that space is allocated to staff and improved the quality of
facility and infrastructure services through improved strategic
planning for facilities and by changing how these services are
organized and carried out. For example, contractor officials from
Pacific Northwest National Laboratory reported that in 2011 they began
relocating infrequently used laboratory equipment to a central storage
facility, freeing up an additional 7,000 square feet of work space. In
addition, some sites took steps to lower their energy costs. Officials
at 3 of the sites we reviewed said they did so by negotiating with
their utilities for better rates. Through contract negotiations
between DOE and New York state, for instance, Brookhaven National
Laboratory significantly lowered its utility costs by purchasing
excess hydropower from New York state through a local utility,
according to documents describing the effort and laboratory officials.
Similarly, contractor officials at Oak Ridge National Laboratory said
DOE negotiated with the utility for a less expensive rate that applies
to manufacturing facilities, lowering electricity costs for the lab
and adjacent DOE facilities.
Streamlining efforts described by DOE and officials at the NNSA and
Science sites we reviewed appeared to incorporate many of the key
practices for streamlining and improving efficiency in federal
programs and functions identified in our September 2011
report.[Footnote 20] These key practices include examining the
efficiency and effectiveness of organizational structures and
processes, targeting both short-term and long-term efficiency gains,
and building capacity for further streamlining. Some of the efforts
implemented by DOE and M&O contractors at the 8 sites involved Lean
Six Sigma,[Footnote 21] or targeted short-term and long-term
efficiency gains. To build capacity for further streamlining, NNSA
created a Business Management Advisory Council in 2009 to improve
collaboration among its sites and encourage continuous streamlining of
sites' support functions. Likewise, contractor officials at individual
sites said processes are in place to promote continuous improvement at
their sites. For example, a contractor official at the Y-12 National
Security Complex said the site's productivity improvement initiative
encourages staff to identify streamlining and cost-savings
opportunities for mission activities and support functions. In fiscal
year 2010, the site identified 244 streamlining initiatives--ranging
from improvements to how the site's vehicle fleet is managed to the
creation of an apprenticeship program for training new facility
maintenance workers--which were tracked internally and shared with
NNSA.
Additional Streamlining Opportunities:
DOE and contractor officials identified opportunities to expand
existing streamlining efforts to additional sites and undertake new
efforts in procurement, human resources, facilities and
infrastructure, and other support functions, such as information
technology. The DOE and contractor officials also noted opportunities
in other support functions, including DOE-led opportunities involving
multiple sites and opportunities considered by individual sites from
among the 8 NNSA and Science sites we reviewed. For example:
* To further streamline procurement, the Deputy Secretary of Energy
called on DOE organizations and M&O contractors to expand strategic
sourcing to leverage DOE's buying power more effectively and achieve
significant cost savings. In an August 2010 memorandum, the Deputy
Secretary noted that successful expansion would require close
collaboration among DOE and its M&O contractors and cited NNSA's
central Supply Chain Management Center as a possible model for other
organizations in the department. Since this memorandum was issued,
other organizations in DOE, including Science, have been evaluating
options for expanding strategic sourcing at the sites they oversee. In
addition, individual sites among the 8 we reviewed identified further
opportunities to streamline procurement. For instance, according to
contractor officials, Oak Ridge National Laboratory plans to increase
its use of strategic sourcing agreements and, by 2014, reduce by half
the time needed to conduct its site's procurements.
* To further streamline human resources, NNSA's Business Management
Advisory Council is considering whether to consolidate human resources
and other services, such as payroll and finance, at all NNSA sites. In
a March 2011 white paper, NNSA concluded that a centralized approach
to providing these services is technically feasible and could lead to
cost savings, but it would require further study of potential
barriers, such as the need to standardize information systems and work
processes across NNSA's M&O contractors. Individual sites also
identified further streamlining opportunities. A contractor official
at 1 site said the site was considering outsourcing certain human
resource functions, such as employee counseling services. In the area
of retirement benefits, contractor officials at 2 of the 8 sites said
their sites were considering closing postretirement medical benefit
programs to new contractor employees, while officials at another site
said they were considering changing their defined-benefit pension plan
to reduce the amount of pension benefits new employees may be eligible
to receive.
* To further streamline facilities and infrastructure, both NNSA and
Science officials identified opportunities to improve facilities and
infrastructure planning and reduce infrastructure, energy, and other
costs at multiple sites. In December 2008, NNSA selected its preferred
approach for transforming its nuclear weapons sites--including sites'
facilities and infrastructures--which it outlined in an October 2008
Environmental Impact Statement.[Footnote 22] In particular, special
nuclear material, including plutonium and highly enriched uranium,
would be consolidated into fewer locations among NNSA sites, enabling
sites to reduce security, infrastructure, or other costs associated
with storing and safeguarding the nuclear material. At least one site,
Lawrence Livermore National Laboratory, plans to remove significant
stockpiles of special nuclear material from the site by the end of
fiscal year 2012 and, according to M&O contractor officials there,
reduce the size and cost of its security forces. Under a separate
effort, NNSA is considering adopting a more centralized and strategic
approach to modernizing its sites' facilities and infrastructure, as
well as removing unneeded buildings and reducing sites' footprints.
According to NNSA officials who oversee facilities and infrastructure,
a more centralized and strategic approach is needed to ensure that
improvement efforts are more closely tied to long-term mission needs.
To further streamline at Science's sites, Science and its contractors
determined that additional collaboration among sites could help DOE
achieve governmentwide energy efficiency requirements, set by the
President in Executive Order 13514.[Footnote 23] In a January 2011
proposal, Science and contractor officials identified various
approaches that Science's 10 laboratories could take on their own or
collaboratively to improve DOE's overall energy efficiency.
In addition, officials at NNSA and Science sites reported that there
were opportunities to streamline and reduce fragmentation in other
support functions, such as information technology, safety, and
security. Proposals for additional streamlining in these support
functions involved DOE-led efforts at multiple sites, as well as
opportunities identified by contractor officials at individual NNSA
and Science sites from the 8 we reviewed. For example, NNSA is in the
early planning stages of an organizationwide effort to upgrade its
sites' information technologies and improve the security of the sites'
networks, according to NNSA officials. Under a key component of this
effort, wireless technologies would be used to remotely monitor
potentially dangerous conditions in nuclear environments, helping
contractors improve safety and reduce costs by shortening the amount
of time workers need to spend in these environments, according to DOE
documents. NNSA is currently testing the feasibility of using wireless
technologies at Livermore and Los Alamos national laboratories;
another site, Sandia National Laboratories, has already been using
these technologies to improve the safety and efficiency of operations.
Under another key component, NNSA sites' current patchwork of network
technologies and architectures would be replaced with standardized
technologies and architectures, reducing the need for site support
personnel and improving NNSA's ability to secure its sites' networks,
according to NNSA officials.[Footnote 24] A related component would
reduce the need for technology and support personnel at sites by
relocating a number of site-supported computer applications to a
"cloud" computer--an emerging model in which computer services are
provided centrally through the Internet.[Footnote 25] The officials
also reported that providing wireless technologies and upgrading
sites' networks through a coordinated effort would allow NNSA to
leverage its purchasing power more effectively than through fragmented
efforts at sites. In addition, contractor officials at 3 of the
Science sites we reviewed also told us they were considering cloud
computing for their sites. Officials at the 4th Science site, Lawrence
Berkeley National Laboratory, said their site has been using cloud
computing since 2010 for certain tasks, such as employees' e-mail and
calendar, which an offsite vendor remotely manages for the laboratory.
Challenges Could Hinder Additional Streamlining Efforts:
DOE and contractor officials also cited a variety of challenges that
could hinder implementation of additional streamlining efforts. One
such challenge is the potential difficulty of getting M&O contractors
to coordinate and adopt a more centralized, and less fragmented,
approach. DOE and contractor officials told us that in some cases, the
sites were reluctant to adopt a centralized approach to providing
support functions because such an approach may not always be more
effective. For example, in response to the Deputy Secretary's August
2010 memo calling for an expansion of strategic sourcing, Science
expressed reluctance to implement a more centralized approach to
procurement, citing efficiencies of its sites' current procurement
approach. In July 2011, Science reported that after assessing options
for centralizing sites' procurement--including options for joining
NNSA's central Supply Chain Management Center or establishing a center
of its own--it concluded that the benefits of these options would not
exceed the costs. Despite its less centralized approach, Science
concluded that its sites already benefit from key aspects of strategic
sourcing--including analysis of sites' spending and leveraged buying
through contractors' parent organizations and DOE's Integrated
Contractor Purchasing Team--and have achieved significant and
potentially greater savings through their own procurement activities.
In a September 2011 study, an outside consultant hired by Science also
concluded that Science's laboratories would not achieve further cost
savings by joining NNSA's central Supply Chain Management Center but
could benefit from methods used there.[Footnote 26]
We did not evaluate Science sites' savings potential under a more
centralized approach to procurement, but procurement officials in DOE
told us that Science likely has additional opportunities to leverage
its laboratories' buying power, because Science has not
comprehensively analyzed its sites' spending. Moreover, DOE and
contractor officials said that barriers to adopting a more centralized
approach can potentially be overcome, despite DOE and sites' long-
standing fragmentation. For example, according to NNSA's procurement
director and a senior contractor official at NNSA's central Supply
Chain Management Center, NNSA's M&O contractors were initially
reluctant to participate in the supply chain center because they were
concerned about losing their autonomy over procurement activities. In
addition, because DOE competes its M&O contracts, they were reluctant
to release potentially sensitive information about those activities.
Officials said they were able to address these issues, in part by
securing the NNSA Administrator's support for the new center and by
requiring contractors to participate in the effort. Similarly,
contractor officials at Los Alamos National Laboratory and Y-12
National Security Complex told us that their respective efforts to
merge certain human resource activities with those of other NNSA sites
were helped by the fact that the contractors involved in the efforts
have common parent organizations.
In addition to the potential difficulty of getting contractors to
coordinate and adopt a more unified approach, DOE and contractor
officials cited other challenges to further streamlining, including
the long lead times or high up-front costs that can sometimes precede
cost savings or other streamlining benefits. Officials from Sandia
National Laboratories, for example, told us the anticipated cost
savings from eliminating new contractor employees' postretirement
health benefits in 2009 would not materialize for many years because
the affected employees are years from retirement. Similarly, in the
March 2011 white paper evaluating options to merge sites' human
resource support services, NNSA cited potentially long lead times and
high expected up-front costs, which it estimated could range from $500
million to $1 billion, before the anticipated cost savings and other
benefits would result. Also, according to contractor officials or
documentation from several sites, efforts to automate support
functions and improve facilities and infrastructure can require long
lead times or costly investments up front but can also save on costs
down the road, because they improve efficiency or require fewer staff.
In addition, according to DOE and contractor officials, while reducing
employee benefits or laying off staff can reduce costs, these steps
could also hinder contractors' ability to recruit and retain a high-
quality workforce. Officials said that such steps can affect morale at
the site and make it more difficult to recruit scientists, engineers,
and other highly trained staff. They can also exacerbate existing
challenges related to the geographic isolation of some NNSA and
Science sites and competition from other industries. Officials at
Sandia National Laboratories, for example, said that they had to
achieve dramatic reductions in the site's pension liability while
ensuring the site retained adequate numbers of experienced staff for
its highly technical and specialized nuclear weapons-related workload,
which they said would likely increase in the coming years. Other
officials told us, however, that reductions in employee benefits may
not always have adverse effects on sites' ability to recruit and
retain a high-quality workforce because some benefits offered at NNSA
and Science sites, such as defined-benefit pension plans, may be more
generous than those offered by competing industries.
Difficulties Exist in Quantifying Cost Savings because Guidance for
Estimating Savings Is Unclear and Methods Used Vary:
DOE and its M&O contractors at NNSA and Science sites have estimated
savings for some of the streamlining efforts undertaken since fiscal
year 2007. It is difficult, however, to compare savings or quantify
total savings across sites because DOE's guidance for estimating
savings is unclear and the methods used to estimate savings vary.
Several streamlining efforts for which DOE and M&O contractors
estimated cost savings were in the area of procurement. Examples of
estimated savings reported by DOE or its contractors included the
following:
* According to NNSA documentation, NNSA estimated that in fiscal year
2011 its seven sites saved $106.6 million on purchases using its
central Supply Chain Management Center.
* Individual sites also reported savings. For example, contractor
officials at Pacific Northwest National Laboratory estimated that in
fiscal year 2010 the lab saved about $35 million in procurement costs
through its direct negotiations with suppliers, purchases through
agreements negotiated by its parent organization, and other means.
DOE's guidance for how to estimate procurement savings, however, is
not consistent and clear in all cases. As a result, the methods used
to estimate these cost savings can vary widely across sites. For some
procurements, standardized methods for estimating cost savings are
used. For example, guidance by NNSA's central Supply Chain Management
Center specifies that NNSA's seven sites use the center's preferred
method for estimating cost savings from purchases made through the
center, in which the price paid for goods or services is subtracted
from the previous price paid. If no previous price is available or
would not provide a useful comparison, the guidance identifies two
other approved methods. Similarly, for purchases made through DOE's
Integrated Contractor Purchasing Team agreements, the team estimates
cost savings by subtracting the price paid through its agreements from
the General Services Administration (GSA) price,[Footnote 27] if
available, or the vendor's list price, according to the contractor
official who coordinates the team's activities.
For other procurements, DOE has not historically had guidance for
estimating cost savings. In September 2011, to help improve
consistency across the department, and comply with a governmentwide
effort to measure procurement cost savings, DOE issued guidance
outlining approved methods for calculating these savings. The guidance
was one part of DOE's efforts to revise the department's metrics for
evaluating the performance of its M&O contractors' procurement
functions, in response to recommendations from M&O
contractors.[Footnote 28] M&O contractor representatives from DOE's
newly formed Contractor Integrated Supply Chain Management Council
identified the need for greater consistency in reporting of sites'
procurement cost savings. Also, according to an official from DOE's
Office of Procurement and Assistance Management, DOE's effort to
develop guidance was responding to Office of Management and Budget
(OMB) direction that agencies governmentwide, including DOE, report on
their procurement cost savings. The council suggested various methods
for estimating procurement cost savings, which it recommended DOE
adopt as acceptable methods. These methods include determining
procurement cost savings by subtracting the price that a site paid for
goods and services from a comparison price, such as the previous price
paid at the site or an independent estimate. DOE incorporated these
methods into a new performance metric for evaluating M&O contractors'
procurement functions, which will require M&O contractors to report
their annual procurement cost savings to DOE starting in fiscal year
2012.
The guidance for the new metric, however, does not specify when it is
appropriate to use each method and consequently could lead to wide
variations in the cost savings reported by contractors. The guidance
also does not identify a preferred method for estimating cost savings;
rather, it allows contractors to use any one of the methods
recommended by the Contractor Integrated Supply Chain Management
Council as well as any other method approved by local DOE site
offices. A variety of methods may be appropriate for calculating
procurement cost savings, but we found that different methods could
lead to wide variations in estimated cost savings, making it difficult
for DOE to oversee contractors' performance in streamlining and
reducing the costs of site procurement functions. For example, the
official who oversees procurement at Pacific Northwest National
Laboratory said his division used the site's preferred method to
estimate the cost savings resulting from negotiations with a vendor
over the price of a new software package. Using this method--in which
the price paid was subtracted from the vendor's opening offer--the
official cited a savings of $9 million, which he considered to be an
accurate estimate of the savings. According to the official, however,
other, less conservative methods for estimating procurement cost
savings--including those used elsewhere in DOE--would have led to
higher savings estimates, including savings as high as $35 million
(see figure 2).
Figure 2: Example of the Effect of Using Different Cost Savings
Estimation Methods for a 2010 Software Purchase at Pacific Northwest
National Laboratory (PNNL):
[Refer to PDF for image: illustrated table]
Method for estimating procurement cost savings:
Method selected by the PNNL: Negotiated savings;
Comparison price: $15 million (Software company's opening offer);
minus:
Purchase price: $6 million;
equals:
Estimated savings: $9 million.
Most conservative method.
Other methods used in DOE: Comparison to a list price;
Comparison price: $20 million (GSA list price);
minus:
Purchase price: $6 million;
equals:
Estimated savings: $14 million.
Less conservative method.
Comparison price: $41 million (Software company's published list price);
minus:
Purchase price: $6 million;
equals:
Estimated savings: $35 million.
Less conservative method.
Least conservative method.
Source: GAO analysis of PNNL data.
[End of figure]
According to an official from DOE's Office of Procurement and
Assistance Management, the new guidance provides a first step to
addressing these inconsistencies, but DOE expects to further clarify
the guidance. He also noted that, despite the governmentwide
requirement to report procurement cost savings, DOE developed the
guidance with little specific instruction from OMB on the appropriate
methods for measuring procurement cost savings.[Footnote 29]
For cost savings estimates for support functions other than
procurement, we also found that there is considerable flexibility in
how savings may be calculated, which could lead to wide variations in
savings estimates. For example, a contractor official at Brookhaven
National Laboratory reported that the estimated savings during the
first few months of the site's agreement with its utility to purchase
hydropower varied, depending on the estimation method. The estimated
savings totaled either $1 million or $7 million, depending--
respectively--on whether the cost of hydropower was compared with the
site's previous price for electric power or the utility's market rate.
Similarly, contractor officials from Los Alamos National Laboratory
reported saving $200,000 annually in travel-related costs by
encouraging site employees to use video teleconferencing in lieu of
attending meetings or training sessions in person. The laboratory
officials told us that they could have included other cost savings in
their estimate--such as costs (productivity losses) avoided when staff
spend more time on their regular duties rather than travel offsite--
but wanted a more conservative savings estimate. In contrast, in their
savings estimate for another type of process improvement, contractor
officials at the Y-12 National Security Complex included savings from
needing fewer staff-hours to complete tasks. In this case, the site
automated its process for counting its inventory of personal property,
such as computers, which officials estimated saved $1 million in
fiscal year 2011.
DOE guidance relevant for cost savings in other support functions does
not clearly define appropriate methods for estimating cost savings.
DOE's acquisition regulations include provisions that give M&O
contractors an opportunity to earn a share of the cost savings, paid
out as fee, resulting from streamlining efforts.[Footnote 30] Guidance
in the regulations outlines the process for identifying and verifying
savings but does not clearly define appropriate methods for estimating
the savings in order to award additional fee. In May 2011, NNSA
revised these provisions and incorporated them into its sites' M&O
contracts. The revised version defines more clearly what types of
streamlining efforts may result in additional fee for contractors--
specifically, efforts that reduce sites' bottom-line operating costs--
but it does not define estimation methods for cost savings.[Footnote
31] Instead, both the original and revised versions of the guidance
allow the contractor to use any estimation methods approved by the
local site office, which could lead to wide variations in savings
estimates for similar efforts and make it more difficult to oversee
contractors' performance in streamlining and reducing support function
costs.
Absent clear DOE guidance, at least one site has developed its own
instructions to standardize savings estimates from its streamlining
efforts. The Y-12 National Security Complex identified specific
methods that site employees should use to estimate cost savings under
its sitewide productivity improvement initiative. The instructions
outline which elements should be used to estimate the cost savings
and, because some savings span multiple years, the time period for
recognizing efforts' cost savings. Furthermore, an online system is
used at the site to track streamlining efforts and includes a template
for estimating cost savings, used to help ensure that savings are
being calculated consistently. Savings estimates are reviewed at the
site and, for efforts resulting in significant savings, by local NNSA
officials. If applied consistently, this guidance would standardize
estimates within the Y-12 site but not other sites.
Given the uncertainty of measuring cost savings from streamlining, DOE
and site officials told us they do not always measure cost savings.
For example, contractor officials at Brookhaven National Laboratory
told us they took a number of steps to improve the efficiency of
processes at the site--including streamlining the process for
admitting visitors and guests to the laboratory--but did not attempt
to measure the cost savings because the process improvements did not
reduce the laboratory's bottom-line operating costs. Even when
streamlining efforts may result in reductions to bottom-line costs,
however, anticipated savings can be difficult to estimate accurately.
For example, some contractor officials told us that, in order to
estimate savings from changes to contractor employees' pension or
health care benefits, they often had to predict future events--such as
the long-term performance of financial markets or employees' expected
use of health care services. Sandia National Laboratories expects
recent changes to the site's pension plan will save approximately $380
million from 2011 to 2020, but the actual amount saved will depend, in
part, on the future performance of the plan's underlying financial
assets, which can be difficult to predict.
Conclusions:
DOE spends over $5 billion dollars each year on support functions
provided by M&O contractors at NNSA and Science sites. Growing federal
deficits and increasingly uncertain future federal budgets have
necessitated that M&O contractors evaluate areas that could be
streamlined or provide cost savings in support costs at these sites,
thereby maximizing funds available for the sites' national security,
research, and energy development missions. DOE also has actively
sought opportunities and implemented measures to more effectively use
federal funds.
Moving forward, DOE's ability to oversee and facilitate additional
streamlining of support functions provided by M&O contractors will
require complete and comparable data on support function costs. DOE
has implemented an improved reporting system for support costs.
Moreover, DOE has partially implemented a quality control process to
begin to ensure that data in the new cost reporting system are
complete and comparable. DOE has not yet completed implementing its
quality control process, however, and the completion date has now
slipped from the end of September 2011 to sometime in 2012. Key steps,
such as peer reviews, are not yet used. Until a quality control system
is completely implemented, DOE cannot have full confidence that the
support cost data it collects and uses to oversee contractor
performance are complete, accurate, and reliable.
In addition to improving support cost data, DOE and its contractors
have made substantial efforts to streamline support functions and
reduce costs. Also, they have identified additional opportunities to
expand these efforts and implement new approaches. Streamlining
efforts undertaken at some sites may be appropriate at other NNSA or
Science sites, and there may be other opportunities to streamline or
reduce fragmentation that could be pilot-tested and implemented at
sites. Some of these opportunities will require close collaboration
between DOE and its M&O contractors to reduce the effects of long-
standing fragmentation of site management. DOE has begun taking active
steps to reduce the effects of fragmentation, such as NNSA's creation
of its Business Management Advisory Council to improve collaboration
among its sites and encourage continuous streamlining of sites'
support functions. However, as DOE and contractor officials have
pointed out, barriers to collaboration and other challenges could
hinder further streamlining.
DOE has also undertaken efforts to better standardize its guidance on
the appropriate methods to use when estimating cost savings. Because
its guidance gives contractors considerable flexibility in choosing
the appropriate methods for estimating cost savings, its estimates
could still vary widely. Consequently, DOE's ability to determine
whether contractors' efforts to further streamline costs are effective
is limited.
Recommendations for Executive Action:
To help reduce support costs or make more effective use of DOE and
contractor resources, as well as to improve oversight of M&O
contractors' support functions at NNSA and Science sites, we recommend
the Secretary of Energy take--or, as appropriate, direct the
Administrator of NNSA and the Director of the Office of Science to
take--the following three actions:
* fully implement a quality control system for DOE's institutional
cost system, including steps such as peer reviews, to ensure that data
collected and used by DOE on support function costs are complete and
comparable for monitoring sites' support functions;
* assess whether all appropriate efforts to streamline DOE support
functions or reduce support function costs are being taken at NNSA and
the Science sites and ensure that necessary steps are taken to address
challenges limiting implementation of cost savings efforts; and:
* clarify DOE's guidance on the preferred methods to use for
estimating cost savings, including under what circumstances each
method should be used, to ensure more consistency in how cost savings
are estimated for various streamlining efforts and a more comparable
assessment of results.
Agency Comments and Our Evaluation:
We provided a draft of this report to DOE for its review and comment.
In written comments, NNSA's Associate Administrator for Management and
Budget, responding on behalf of DOE and NNSA, wrote that DOE agreed
with the report's findings and three recommendations. DOE provided
additional information about its planned actions for addressing the
recommendations that included implementing a peer review process to
ensure the quality of its support cost data, establishing an
organization in Science comparable to NNSA's Business Management
Advisory Council to verify that all appropriate streamlining
opportunities are taken and challenges addressed, and clarifying the
department's recent guidance on the methods for estimating cost
savings. DOE's written comments on our draft report are included in
appendix I. DOE also provided technical comments, which we
incorporated into the report as appropriate.
We are sending copies of this report to the appropriate congressional
committees, the Secretary of Energy, the Administrator of NNSA, and
other interested parties. The report also is available at no charge on
the GAO website at [hyperlink, http://www.gao.gov].
If you or your staff members have any questions about this report,
please contact me at (202) 512-3841 or aloisee@gao.gov. Contact points
for our Offices of Congressional Relations and Public Affairs may be
found on the last page of this report. GAO staff who made major
contributions to this report are listed in appendix II.
Signed by:
Gene Aloise:
Director, Natural Resources and Environment:
[End of section]
Appendix I: Comments from the Department of Energy:
Department of Energy:
National Nuclear Security Administration:
Washington, DC 2O585:
January 13, 2012:
Mr. Gene Aloise:
Director:
Natural Resources and Environment:
Government Accountability Office:
Washington, DC 20548:
Dear Mr. Aloise:
The National Nuclear Security Administration (NNSA) and the Department
of Energy {DOE) appreciate the opportunity to review the Government
Accountability Office's (GAO) draft report, GA0-12-255, Department of
Energy: Additional Opportunities Exist to Streamline Support Functions
at NNSA and (Vice of Science Sites. I am pleased to provide a
consolidated response to that report on behalf on both NNSA and DOE.
In general, we believe the GAO did a commendable job in tackling a
very broad and challenging area and appreciate the balanced
presentation of the many initiatives and accomplishments we have
achieved in pursuing cost savings and leveraging those savings where
appropriate across DOE and NNSA laboratories. To that end, we
generally agree with the findings and recommendations contained in the
report and will continue to develop and implement corrective actions
to further improve our ability to accurately estimate cost savings
from our initiatives and demonstrate our commitment to effective
stewardship of taxpayer dollars.
I have enclosed a summary of our planned actions to address the three
recommendations noted in the report. In addition, while the auditors
have done a thorough job, I have also included general comments to
further clarify certain salient points in the report and/or improve
the factual accuracy in selected areas.
If you have any questions related to this response, please contact
Dean Childs, Director, Office of Management Controls and Assurance, at
301-903-1341.
Sincerely,
Signed by:
Cynthia Forster, for:
Kenneth W. Powers:
Associate Administrator for Management and Budget:
Enclosure:
[End of letter]
National Nuclear Security Administration and Department of Energy:
Consolidated Comments on the GAO Draft Report "Department of Energy:
Additional Opportunities Exist to Streamline Support Functions at NNSA
and Office of Science Facilities," GAO-12-255:
Initial Response to Report Recommendations:
Recommendation 1:
"Fully implement a quality control system for DOE's institutional cost
system, including steps such as peer reviews, to ensure that data
collected and used by DOE on support function costs are complete and
comparable for monitoring sites' support functions."
Management Response: Agree. As noted in the report, the Department and
NNSA (lead by the DOE Office of Chief Financial Officer) plan to
implement a "Peer Review" process to ensure quality and consistency in
the support costs reported across all sites. This process is being
refined and is planned to be implemented in fiscal year 2012.
Recommendation 2L
"Assess whether all appropriate efforts to streamline DOE support
functions or reduce support function costs are being taken at NNSA and
the Office of Science sites and ensure that necessary steps are taken
to address challenges limiting implementation of costs-savings
efforts."
Management Response: Agree. NNSA and the DOE Office of Science (SC)
have and will continue to work with our laboratories to find practical
and cost-effective ways to streamline support functions, reduce costs,
and ensure that we're addressing challenges. In NNSA, the NNSA Chief
Financial Officer and the Office of Acquisition and Project Management
will be working with the Business Management Advisory Council (BMAC)
to help define corporate strategies to help ensure cost savings are
promoted and leveraged across sites where feasible. In addition, SC
recently established the Science Laboratory Operations Improvement
Committee (SLOIC), an organization comparable to NNSA's BMAC, that
brings together SC laboratory, site office, and headquarters personnel
to track and communicate cost avoidance and cost savings information
among the SC organization and for the DOE leadership, as well as to
organize SC and assure in an ongoing fashion that all the SC
contractors are continuing to take advantage of all appropriate
mechanisms for cost avoidance and savings.
Recommendation 3:
"Clarify DOE's guidance on preferred methods to use for estimating
cost savings, including under what circumstances each method should be
used, to ensure more consistency in how cost savings are estimated for
various streamlining efforts and a more comparable assessment of
results."
Management Response: Agree, While the Department has issued corporate
guidance to identify preferred and prioritized methods for calculating
cost savings, we recognize that it did not clearly specify that the
methods were presented in order of preference and that guidance may be
further clarified regarding the utilization of those methods.
Clarifying guidance will be drafted.
[End of section]
Appendix II: Contact and Staff Acknowledgments:
GAO Contact:
Gene Aloise, (202) 512-3841 or aloisee@gao.gov:
Staff Acknowledgments:
In addition to the individual named above, Janet Frisch, Assistant
Director; Eric Bachhuber; James Espinoza; Daniel Feehan; Allyson
Goldstein; Mehrzad Nadji; Alison O'Neill; Josie Ostrander; Cheryl
Peterson; Jeff Rueckhaus; Michael Silver; and Vasiliki Theodoropoulos
made key contributions to this report.
[End of section]
Footnotes:
[1] Congress created NNSA as a semiautonomous agency within the
Department of Energy in 1999 (Title 32 of the National Defense
Authorization Act for Fiscal Year 2000, Pub. L. No. 106-65, § 3201 et
seq.).
[2] DOE and its M&O contractors' relationships are defined in federal
and DOE acquisition regulations and in DOE's M&O contracts. M&O
contracts are agreements under which the government contracts for the
operation, maintenance, or support, on its behalf, of a government
owned or controlled research, development, special production, or
testing establishment wholly or principally devoted to one or more
major programs of the contracting federal agency. Federal Acquisition
Regulation, 48 C.F.R. § 17.601.
[3] In a July 2011 draft solicitation to industry, DOE and NNSA
proposed altering this long-standing approach by having a single
contractor manage and operate two of NNSA's nuclear production sites
that have historically had their own M&O contractors. DOE and NNSA
estimated that the new approach would save around $895 million
(nominal dollars), largely through efficiency gains and other
improvements to the sites' business systems and support functions. In
September 2011, however, we reported that the anticipated cost savings
were uncertain. See GAO, Modernizing the Nuclear Security Enterprise:
The National Nuclear Security Administration's Proposed Acquisition
Strategy Needs Further Clarification and Assessment, [hyperlink,
http://www.gao.gov/products/GAO-11-848] (Washington, D.C.: Sept. 20,
2011).
[4] Cost Accounting Standards are promulgated under chapter 99 of
Title 48, U.S. Code of Federal Regulations, by the U.S. Cost
Accounting Standards Board--a statutorily established board (41 U.S.C.
§ 1501) within the Office of Management and Budget's Office of Federal
Procurement Policy. The standards are mandatory for use by all
executive agencies and federal contractors in estimating,
accumulating, and reporting costs.
[5] GAO, Department of Energy: Additional Opportunities Exist for
Reducing Laboratory Contractors' Support Costs, [hyperlink,
http://www.gao.gov/products/GAO-05-897] (Washington, D.C.: Sept. 9,
2005).
[6] GAO, Department of Energy: Certain Postretirement Benefits for
Contractor Employees Are Unfunded and Program Oversight Could Be
Improved, [hyperlink, http://www.gao.gov/products/GAO-04-539]
(Washington, D.C.: Apr. 15, 2004).
[7] See GAO, Department of Energy: Progress Made Overseeing the Costs
of Contractor Postretirement Benefits, but Additional Actions Could
Help Address Challenges, [hyperlink,
http://www.gao.gov/products/GAO-11-378] (Washington, D.C.: Apr. 29,
2011).
[8] The four largest NNSA sites--Los Alamos, Lawrence Livermore, and
Sandia national laboratories and the Y-12 National Security Complex--
accounted for about 79 percent of the budget for NNSA's sites in
fiscal year 2010. The four largest Science sites--Oak Ridge,
Brookhaven, Pacific Northwest, and Lawrence Berkeley national
laboratories--accounted for about 66 percent of the budget for that
office's sites in that year.
[9] Furthermore, some of these issues may be relevant for sites
overseen by other DOE organizations, such as the Office of
Environmental Management. Our scope, however, did not include DOE
organizations other than NNSA and Science.
[10] We visited both NNSA and Science sites, as well as larger and
smaller sites among the 8 in our nonprobability sample. Furthermore,
Pacific Northwest National Laboratory was involved in developing DOE's
new Institutional Cost Reporting system and the associated pilot test.
[11] In addition, some of the work for NNSA and Science missions is
conducted by M&O contractors at sites overseen by other DOE
organizations. For example, NNSA funds nuclear production and
reprocessing work conducted by the M&O contractor at DOE's Savannah
River Site in South Carolina, a site that is primarily overseen by
DOE's Office of Environmental Management. Furthermore, some of the
work carried out at NNSA and Science sites is funded by non-DOE
entities, including other federal agencies or private firms. This
work, known as "work for others," can comprise very little of the work
at NNSA and Science sites, or in the case of Sandia National
Laboratories in New Mexico and California, over 40 percent of a site's
research budget in some years. In addition, NNSA and Science fund work
at non-DOE organizations, such as universities.
[12] The Manhattan Project, under the U.S. Army Corps of Engineers,
maintained control over American atomic weapons research and
production until the formation of the United States Atomic Energy
Commission in 1946. The commission became the Energy Research and
Development Administration in 1974, which in turn became DOE in 1977.
[13] M&O contractors in NNSA and Science interact regularly to share
best practices or coalesce around topics of mutual interest. Examples
include the National Laboratory Director's Council--in which
representatives from NNSA, Science, and other DOE laboratories meet
regularly to coordinate around issues and concerns of broad interest
to laboratory managers--and DOE's newly formed Contractor Integrated
Supply Chain Management Council, in which DOE and contractor officials
will discuss issues related to procurement. In addition, sites'
mission work is sometimes interrelated. For example, programs to
refurbish nuclear weapons typically rely on NNSA's laboratories to
design the refurbished weapon, which NNSA's production and testing
sites will manufacture. Similarly, experts from various NNSA and
Science laboratories have coordinated some of their sites' research in
areas such as materials science and high-performance computing.
[14] Over the same period, the sites' total annual support function
costs increased from about $5.0 billion to about $5.3 billion in
constant 2007 dollars. DOE's data did not include information for one
Science site, the Thomas Jefferson National Accelerator Laboratory.
Excluding that site, however, would likely have had little impact on
the total support costs for fiscal years 2007 through 2009 because the
site's budget ranged from about $94 million to about $130 million and
represented only about 1 percent of the total budget in those years
for all 17 sites.
[15] [hyperlink, http://www.gao.gov/products/GAO-11-848].
[16] According to DOE's Office of the Chief Financial Officer,
additional insight into sites' support function costs was needed in
order to improve comparability with DOE's Standard Accounting and
Reporting System, which came online after DOE initially started
collecting support cost data. Also, the support cost data under the
old reporting system did not differentiate between direct and indirect
support costs. Furthermore, costs were reported annually under the old
system, but are being reported quarterly under the new reporting
system.
[17] Support function costs are compared with data from DOE's Standard
Accounting and Reporting System. Specifically, sites check that their
combined direct and indirect costs are equal to the total costs in
that system.
[18] The discussion below provides examples of streamlining efforts
but is not meant to be comprehensive.
[19] For additional information on strategic sourcing, see GAO, Best
Practices: Using Spend Analysis to Help Agencies Take a More Strategic
Approach to Procurement, [hyperlink,
http://www.gao.gov/products/GAO-04-870] (Washington, D.C.: Sept. 16,
2004).
[20] GAO, Streamlining Government: Key Practices from Select
Efficiency Initiatives Should Be Shared Governmentwide, [hyperlink,
http://www.gao.gov/products/GAO-11-908] (Washington, D.C.: Sept. 30,
2011).
[21] Lean Six Sigma is a data-driven approach used in the private
sector and government for analyzing work processes based on the idea
of eliminating defects and errors that contribute to losses of time,
money, opportunities, or business. See [hyperlink,
http://www.gao.gov/products/GAO-11-908].
[22] See Record of Decision for the Complex Transformation
Supplemental Programmatic Environmental Impact Statement--Operations
Involving Plutonium, Uranium, and the Assembly and Disassembly of
Nuclear Weapons, Dec. 19, 2008 (73 FR 77644); Record of Decision for
the Complex Transformation Supplemental Programmatic Environmental
Impact Statement--Tritium Research and Development, Flight Test
Operations, and Major Environmental Test Facilities, Dec. 19, 2008 (73
FR 77656); and Complex Transformation Supplemental Programmatic
Environmental Impact Statement, Oct. 24, 2008 (DOE/EIS-0236-S4).
[23] Exec. Order No. 13514 (Oct. 5, 2009), 74 Fed. Reg. 52117, Federal
Leadership in Environmental, Energy, and Economic Performance, directs
federal agencies to set energy efficiency goals for their facilities
and operations, including specific targets for reducing their
production of greenhouse gases, such as carbon dioxide.
[24] For more information on network architecture, see GAO,
Organizational Transformation: A Framework for Assessing and Improving
Enterprise Architecture Management (Version 2.0), [hyperlink,
http://www.gao.gov/products/GAO-10-846G] (Washington, D.C.: Aug. 5,
2010).
[25] For more information, see GAO, Information Security: Additional
Guidance Needed to Address Cloud Computing Concerns, [hyperlink,
http://www.gao.gov/products/GAO-12-130T] (Washington, D.C.: Oct. 5,
2011).
[26] The study--"Use of Supply Chain Management Center by Department
of Energy Office of Science National Laboratories," McCallum-Turner,
Sept. 16, 2011--compared procurement cost savings in fiscal year 2010
between Science laboratories and NNSA's Supply Chain Management
Center. The report concluded that joining with NNSA's center would not
benefit Science, because "major" Science laboratories are achieving
greater savings on their own. Other Science laboratories, however,
which are achieving comparable or less savings, could benefit from
some of the tools used by NNSA's center. The report also, however,
identified potential limitations to its analysis, including difficulty
with comparing data from multiple sites that may not be comparable.
[27] This price is from GSA's Multiple Award Schedule program, in
which GSA negotiates contracts with a variety of vendors and allows
federal agencies and contractors, including DOE's M&O contractors, to
make purchases at the negotiated prices.
[28] Contractors report procurement performance to DOE annually using
the Contractor Purchasing System Balanced Scorecard. The balanced
scorecard requires contractors to report on a variety of procurement
metrics, which DOE then uses to oversee the contractors' procurement
functions.
[29] In November 2011, we reported that OMB guidance issued as part of
its effort to reduce procurement spending and increase agencies'
reporting of procurement cost savings was broad and led to
inconsistent interpretations by agencies as to what constituted
savings. We therefore recommended that OMB's Office of Federal
Procurement Policy clarify its guidance related to measuring
procurement cost savings. See GAO, Federal Contracting: OMB's
Acquisition Savings Initiative Had Results, but Improvements Needed,
[hyperlink, http://www.gao.gov/products/GAO-12-57] (Washington, D.C.:
Nov. 15, 2011).
[30] Department of Energy Acquisition Regulation (DEAR) 48 C.F.R. §
970.5215-4 Cost Reduction.
[31] NNSA Deviation to DEAR 48 C.F.R. § 970.5215-4 Cost Reduction,
authorized pursuant to the authority of FAR 48 C.F.R. § 1.404.
[End of section]
GAO’s Mission:
The Government Accountability Office, the audit, evaluation, and
investigative arm of Congress, exists to support Congress in meeting
its constitutional responsibilities and to help improve the
performance and accountability of the federal government for the
American people. GAO examines the use of public funds; evaluates
federal programs and policies; and provides analyses, recommendations,
and other assistance to help Congress make informed oversight, policy,
and funding decisions. GAO’s commitment to good government is
reflected in its core values of accountability, integrity, and
reliability.
Obtaining Copies of GAO Reports and Testimony:
The fastest and easiest way to obtain copies of GAO documents at no
cost is through GAO’s website [hyperlink, http://www.gao.gov]. Each
weekday afternoon, GAO posts on its website newly released reports,
testimony, and correspondence. To have GAO e mail you a list of newly
posted products, go to [hyperlink, http://www.gao.gov] and select “E-
mail Updates.”
Order by Phone:
The price of each GAO publication reflects GAO’s actual cost of
production and distribution and depends on the number of pages in the
publication and whether the publication is printed in color or black
and white. Pricing and ordering information is posted on GAO’s
website, [hyperlink, http://www.gao.gov/ordering.htm].
Place orders by calling (202) 512-6000, toll free (866) 801-7077, or
TDD (202) 512-2537.
Orders may be paid for using American Express, Discover Card,
MasterCard, Visa, check, or money order. Call for additional
information.
Connect with GAO:
Connect with GAO on facebook, flickr, twitter, and YouTube.
Subscribe to our RSS Feeds or E mail Updates. Listen to our Podcasts.
Visit GAO on the web at [hyperlink, http://www.gao.gov].
To Report Fraud, Waste, and Abuse in Federal Programs:
Contact:
Website: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm];
E-mail: fraudnet@gao.gov;
Automated answering system: (800) 424-5454 or (202) 512-7470.
Congressional Relations:
Katherine Siggerud, Managing Director, siggerudk@gao.gov, (202) 512-4400
U.S. Government Accountability Office, 441 G Street NW, Room 7125
Washington, DC 20548.
Public Affairs:
Chuck Young, Managing Director, youngc1@gao.gov, (202) 512-4800
U.S. Government Accountability Office, 441 G Street NW, Room 7149
Washington, DC 20548.