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Report to Congressional Committees: 

United States Government Accountability Office: 
GAO: 

October 2008: 

Federal Research: 

Opportunities Exist to Improve the Management and Oversight of 
Federally Funded Research and Development Centers: 

Federal Research: 

GAO-09-15: 

GAO Highlights: 

Highlights of GAO-09-15, a report to congressional committees. 

Why GAO Did This Study: 

In 2006, the federal government spent $13 billion—14 percent of its 
research and development (R&D) expenditures—to enable 38 federally 
funded R&D centers (FFRDCs) to meet special research needs. 
FFRDCs—including laboratories, studies and analyses centers, and 
systems engineering centers—conduct research in military space 
programs, nanotechnology, microelectronics, nuclear warfare, and 
biodefense countermeasures, among other areas. GAO was asked to 
identify (1) how federal agencies contract with organizations operating 
FFRDCs and (2) agency oversight processes used to ensure that FFRDCs 
are well-managed. 

GAO’s work is based on a review of documents and interviews with 
officials from eight FFRDCs sponsored by the departments of Defense 
(DOD), Energy (DOE), Health and Human Services (HHS), and Homeland 
Security (DHS). 

What GAO Found: 

Federal agencies GAO reviewed use cost-reimbursement contracts with the 
organizations that operate FFRDCs, and three of the agencies generally 
use full and open competition to award the contracts. Only DOD 
consistently awards its FFRDC contracts on a sole-source basis, as 
permitted by law and regulation when properly justified. FFRDCs receive 
funding for individual projects from customers that require the FFRDCs’ 
specialized research capabilities. Because FFRDCs have a special 
relationship with their sponsoring agencies and may be given access to 
sensitive or proprietary data, regulations require that FFRDCs be free 
from organizational conflicts of interest. DOD and DOE also have 
policies that prescribe specific areas that FFRDC contractors must 
address to ensure their employees are free from personal conflicts of 
interest. In a May 2008 report, GAO recognized the importance of 
implementing such safeguards for contractor employees. Currently, 
although DHS and HHS have policies that require their FFRDC contractors 
to implement conflicts-of-interest safeguards, these policies lack the 
specificity needed to ensure their FFRDC contractors will consistently 
address employees’ personal conflicts of interest. 

Sponsoring agencies use various approaches in their oversight of FFRDC 
contractors, including: 

* Review and approval of work assigned to FFRDCs, or conducted for 
other agencies or entities, to determine consistency with the FFRDC’s 
purpose, capacity, and special competency. In this process, only DOD 
must abide by congressionally imposed annual workload limits for its 
FFRDCs. 

* Conduct performance reviews and audits of contractor costs, finances, 
and internal controls. 

* Conduct a comprehensive review before a contract is renewed to assess 
the continuing need for the FFRDC and if the contractor can meet that 
need, based on annual assessments of contractor performance. 

Some agencies have adopted other agencies’ FFRDC oversight and 
management practices. For example, DHS mirrored most of DOD’s FFRDC 
Management Plan—an internal DOD guidance document—in developing an 
approach to FFRDC oversight, and DHS officials told us they learned 
from DOE’s experience in selecting and overseeing contractors for 
laboratory FFRDCs. In addition, HHS plans to implement certain DOE 
practices, including rewarding innovation and excellence in performance 
through various contract incentives. While agency officials have 
acknowledged the potential benefits from sharing best practices, there 
is currently no formal cross-agency forum or other established 
mechanism for doing so. 

What GAO Recommends: 

To improve the effectiveness of FFRDCs, GAO recommends that (1) DHS and 
HHS revise their personal conflict-of-interest policies to specifically 
address FFRDC contractor employees in a position to influence research 
findings or agency decision making and (2) agencies create an ongoing 
forum to share best practices for FFRDC oversight. DHS, DOD, and DOE 
concurred with GAO’s recommendations, while HHS concurred with the need 
to revise its policies and is considering a best practices forum for 
FFRDCs. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-09-15]. For more 
information, contact William Woods, 202-512-4841 woodsw@gao.gov or 
Anu Mittal, 202-512-9846, mittala@gao.gov. 

Contents: 

Letter: 

Results in Brief: 

Background: 

Most Agencies Compete Cost-Reimbursement Contracts for Operating Their 
FFRDCs, but Some Do Not Have Specific Personal Conflict-of-Interest 
Requirements: 

Agencies Vary in FFRDC Oversight Approaches and Do Not Regularly Share 
Best Practices: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: List of 38 Federally Funded Research and Development 
Centers: 

Appendix III: Comments from the Department of Defense: 

Appendix IV: Comments from the Department of Energy: 

Appendix V: Comments from the Department of Health and Human Services: 

Appendix VI: GAO Contact and Staff Acknowledgments: 

Table: 

Table 1: Funding for FFRDC "Work for Others" (Fiscal Year 2001 to 
2005): 

Figure: 

Figure 1: Federal R&D Funding for FFRDCs: 

Abbreviations: 

C3I: command, control, communications, and intelligence: 

DCAA: Defense Contract Audit Agency: 

DHS: Department of Homeland Security: 

DOD: Departments of Defense: 

GAAP: generally accepted accounting principles: 

GAGAS: generally accepted government auditing standards: 

FAR: Federal Acquisition Regulation: 

FFRDC: federally funded research and development center: 

HHS: Department of Health and Human Services: 

HSI: Homeland Security Institute: 

IDA: Institute for Defense Analyses: 

MIT: Massachusetts Institute of Technology: 

M&O: management and operating: 

NBACC: National Biodefense Analysis and Countermeasures Center: 

NNSA: National Nuclear Security Administration: 

NSF: National Science Foundation: 

OMB: Office of Management and Budget: 

R&D: research and development: 

SEC: Securities and Exchange Commission: 

STE: Staff years of Technical Effort: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

October 8, 2008: 

The Honorable John D. Dingell:
Chairman:
The Honorable Joe Barton:
Ranking Member:
Committee on Energy and Commerce:
House of Representatives: 

The Honorable Bart T. Stupak:
Chairman:
The Honorable John M. Shimkus:
Ranking Member:
Subcommittee on Oversight and Investigations: 
Committee on Energy and Commerce: 

House of Representatives: 

In fiscal year 2006, the federal government spent $13 billion[Footnote 
1]--14 percent of all federal research and development expenditures-- 
funding work at its 38 federally funded research and development 
centers (FFRDCs). These centers are agency-sponsored[Footnote 2] 
entities that specialize in areas such as military space programs, 
nanotechnology, advanced microelectronics and semiconductors, nuclear 
warfare, biodefense countermeasures, and high-energy particle physics. 
Sponsoring agencies contract with nonprofit, university-affiliated, or 
private industry organizations to operate the FFRDCs. Based on your 
interest in how FFRDCs are managed, we identified (1) how federal 
agencies contract with organizations that operate FFRDCs and (2) the 
oversight processes agencies use to ensure that FFRDCs are effectively 
and efficiently managed. 

We used a case study methodology to conduct our review. We chose three 
agencies with a long history of sponsoring FFRDCs--the departments of 
Defense (DOD), Energy[Footnote 3] (DOE), and Health and Human Services 
(HHS)--as well as a fourth agency that has more recently established 
FFRDCs--the Department of Homeland Security (DHS). From the 29 FFRDCs 
that these four agencies sponsor, we selected a nongeneralizable sample 
of eight FFRDCs for in-depth review. We made our selections to achieve 
variation, both among the type of FFRDC (scientific laboratories versus 
other types) and the type of operating contractor (universities, 
nonprofits, and private industry). For each of the four federal 
agencies, we interviewed officials at the office that sponsors FFRDCs 
as well as those officials who have contract management or audit roles. 
We analyzed regulations, policies, guidance, contracts, sponsoring 
agreements, and other documentation. For the eight FFRDCs in our case 
study, we conducted site visits, interviewed key contractor personnel, 
and obtained information and documentation on how they met sponsoring 
agencies' research needs and adhere to requirements. For additional 
information on our scope and methodology, see appendix I. 

We conducted this performance audit from October 2007 to October 2008, 
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. 

Results in Brief: 

The federal agencies we reviewed use cost-reimbursement contracts with 
the organizations that operate their FFRDCs, and three of the four 
agencies generally use full and open competition to award these 
contracts. Only DOD has consistently awarded its FFRDC contracts on a 
sole-source basis, a practice that federal law and regulations permit 
if properly justified. The FFRDCs receive funding on a project-by- 
project basis from customers requiring the FFRDCs' research and 
development capabilities. In order to carry out these projects, FFRDCs 
frequently are provided with access to sensitive or proprietary data. 
For this reason, and because of the special relationship between 
sponsoring agencies and their FFRDCs, federal regulations require that 
FFRDC entities be free from organizational conflicts of interest. While 
the sponsoring agreements we reviewed address FFRDCs' organizational 
conflicts of interest, DOD and DOE also have policies that prescribe 
specific areas that FFRDC contractors must address to ensure their 
employees are free from personal conflicts of interest. In a May 2008 
report, we recognized the importance of implementing such safeguards 
for certain contractor employees. Currently, although DHS's FFRDC 
contractors have their own internal policies that address employees' 
potential conflicts of interest, DHS and HHS policies do not 
specifically prescribe areas that FFRDC contractors must include to 
address these conflicts. 

The four sponsoring agencies use various approaches in their oversight 
of FFRDC contractors. First, sponsors review and approve the work 
assigned to their FFRDCs to ensure it is within their purpose, mission, 
capacity, and special competency. In this process, DOD is the only 
agency that operates under congressionally imposed annual workload 
limits for its FFRDCs. In addition, agencies regularly assess the 
performance of their FFRDCs and contractors, including in some cases, 
performing audits of contractor costs, finances, and internal controls. 
Finally, in accordance with federal regulations, agencies conduct 
comprehensive reviews prior to renewing sponsoring agreements or 
contracts to assess the continued research need and the management and 
competencies of the FFRDCs. In conducting oversight, some agencies have 
adopted elements of the oversight practices used by other sponsoring 
agencies. For example, DHS mirrored most of DOD's FFRDC Management 
Plan--an internal DOD guidance document--and DHS officials told us they 
learned from DOE's experience in selecting and overseeing contractors 
for laboratory FFRDCs. In addition, HHS plans to implement certain DOE 
practices, including rewarding innovation and excellence in performance 
through incentive fees and award terms. While agency officials have 
noted potential benefits from sharing best practices, there is 
currently no formal cross-agency forum or other established mechanism 
for doing so. 

To improve the effectiveness of FFRDC management, we are recommending 
that (1) DHS and HHS review and revise personal conflict-of-interest 
policies to ensure they specifically address FFRDC employees in a 
position to make or influence research findings or agency decision 
making and (2) the four agencies we reviewed establish an ongoing forum 
to share best practices for FFRDC oversight. In commenting on a draft 
of this report, DHS and HHS concurred with our recommendation that they 
review and revise their conflict of interest policies. In addition, 
DOD, DOE, and DHS all concurred with our recommendation to establish a 
forum to share best practices, while HHS is considering participation 
in such a forum. 

Background: 

During World War II, the U.S. government partnered with academic 
scientists in ad-hoc laboratories and research groups to meet unique 
research and development (R&D) needs of the war effort. These efforts 
resulted in technologies such as the proximity fuse, advanced radar and 
sonar, and the atomic bomb. Those relationships were later re- 
structured into federal research centers to retain academic scientists 
in U.S. efforts to continue advancements in technology, and by the mid- 
1960's the term "federally funded research and development centers" was 
applied to these entities. Since that time, the U.S. government has 
continued to rely on FFRDCs to develop technologies in areas such as 
combating terrorism and cancer, addressing energy challenges, and 
tackling evolving challenges in air travel.[Footnote 4] For example, 
one of DOE's laboratories was used to invent and develop the cyclotron, 
which is a particle accelerator that produces high energy beams, 
critical to the field of nuclear physics for the past several decades. 

Today, FFRDCs support their sponsoring federal agencies in diverse 
fields of study. For example, DOE sponsors the most FFRDCs--16 in 
total--all of which are research laboratories that conduct work in such 
areas as nuclear weapons, renewable energy sources, and environmental 
management. DHS recently established two FFRDCs: one to develop 
countermeasures for biological warfare agents and the other to provide 
decision makers with advice and assistance in such areas as analysis of 
the vulnerabilities of the nation's critical infrastructures, standards 
for interoperability for field operators and first responders, and 
evaluating developing technologies for homeland security purposes. 

FFRDCs are privately owned but government-funded entities that have 
long-term relationships with one or more federal agencies to perform 
research and development and related tasks. Even though they may be 
funded entirely, or nearly so, from the federal treasury, FFRDCs are 
regarded as contractors not federal agencies. In some cases, Congress 
has specifically authorized agencies to establish FFRDCs. For example, 
the 1991 appropriation for the Internal Revenue Service authorized the 
IRS to spend up to $15 million to establish an FFRDC as part of its tax 
systems modernization program.[Footnote 5] 

According to the Federal Acquisition Regulation (FAR), FFRDCs are 
intended to meet special long-term research or development needs that 
cannot be met as effectively by existing in-house or contractor 
resources. In sponsoring an FFRDC, agencies draw on academic and 
private sector resources to accomplish tasks that are integral to the 
mission and operation of the sponsoring agency. In order to discharge 
responsibilities to their sponsoring agencies, the FAR notes that 
FFRDCs have special access, beyond that which is common for normal 
contractual relationships, to government and supplier data--including 
sensitive and proprietary data--and other government resources. 
Furthermore, the FAR requires FFRDCs to operate in the public interest 
with objectivity and independence, to be free of organizational 
conflicts of interest, and to fully disclose their affairs to the 
sponsoring agencies.[Footnote 6] FFRDCs may be operated by a university 
or consortium of universities; other nonprofit organizations; or a 
private industry contractor as an autonomous organization or a separate 
unit of a parent organization. 

Agencies develop sponsoring agreements with FFRDCs to establish their 
research and development missions and prescribe how they will interact 
with the agency; the agencies then contract with organizations to 
operate the FFRDCs to accomplish those missions. At some agencies the 
sponsoring agreement is a separate document that is incorporated into 
the contract, and at other agencies the contract itself constitutes the 
sponsoring agreement. The sponsoring agreement and contract together 
identify the scope, purpose, and mission of the FFRDC and the 
responsibilities of the contractor in ensuring they are accomplished by 
the FFRDC. 

Although the contract or sponsoring agreement may take various forms, 
the FAR requires FFRDC sponsoring agreements to contain certain key 
terms and conditions.[Footnote 7] For example, the agreement term may 
not exceed 5 years, but can be periodically renewed in increments not 
to exceed 5 years. Sponsoring agreements must also contain prohibitions 
against the FFRDCs competing with non-FFRDCs in response to a federal 
agency request for proposals for other than the operation of an FFRDC. 
The agreement also must delineate whether and under what circumstances 
the FFRDC may accept work from other agencies. In addition, these 
agreements may identify cost elements requiring advance agreement if 
cost-type contracts are used and include considerations affecting 
negotiation of fees where fees are determined appropriate by sponsors. 

The National Science Foundation (NSF), which keeps general statistics 
on FFRDCs, identifies the following types of FFRDCs: 

* Research and development (R&D) laboratories: fill voids where in- 
house and private sector R&D centers are unable to meet core agency 
needs. These FFRDCs are used to maintain long-term competency in 
sophisticated technology areas and develop and transfer important new 
technology to the private sector. 

* Study and analysis centers: used to provide independent analyses and 
advice in core areas important to their sponsors, including policy 
development, support for decision making, and identifying alternative 
approaches and new ideas on significant issues. 

* Systems engineering and integration centers: provide support for 
complex systems by assisting with the creation and choice of system 
concepts and architectures, the specification of technical system and 
subsystem requirements and interfaces, the development and acquisition 
of system hardware and software, the testing and verification of 
performance, the integration of new capabilities, and continuous 
improvement of system operations and logistics. 

The NSF maintains a master list[Footnote 8] of the current FFRDCs and 
collects funding data from their agency sponsors on an annual basis. 
According to NSF data, R&D funding for FFRDCs has risen steadily across 
the federal government, increasing 40 percent from fiscal year 1996 to 
2005, from $6.9 billion to $9.7 billion. (See fig. 1 below.) This does 
not represent the full amount of funding provided to FFRDCs by federal 
agencies, however, since it does not include non-R&D funding. 
Nevertheless, it is the only centrally reported information on federal 
funding for FFRDCs. 

Figure 1: Federal R&D Funding for FFRDCs: 

[See PDF for image] 

This figure is a vertical bar graph depicting the following data: 

Federal R&D Funding for FFRDCs (in fiscal year 2008 dollars in 
billions): 

Fiscal year: 1996; $6.92 billion; 
Fiscal year: 1997: $7.2 billion; 
Fiscal year: 1998; $7.16 billion; 
Fiscal year: 1999; $7.63 billion; 
Fiscal year: 2000; $7.78 billion; 
Fiscal year: 2001; $8.42 billion; 
Fiscal year: 2002; $8.64 billion; 
Fiscal year: 2003; $8.72 billion; 
Fiscal year: 2004; $9.36 billion; 
Fiscal year: 2005; $9.67 billion. 

Source: GAO analysis of National Science Foundation data. 

[End of figure] 

For a list of the 38 FFRDCs currently sponsored by the U.S. government, 
see appendix II. 

Most Agencies Compete Cost-Reimbursement Contracts for Operating Their 
FFRDCs, but Some Do Not Have Specific Personal Conflict-of-Interest 
Requirements: 

The four agencies we reviewed use cost-reimbursement contracts with the 
organizations that operate their FFRDCs, and three of these agencies 
generally use full and open competition in awarding these contracts. 
While the agencies require that their FFRDCs be free from 
organizational conflicts of interest in accordance with federal 
regulations, only DOD and DOE have agencywide requirements that 
prescribe specific areas that FFRDC contractors must address to ensure 
their employees are free from personal conflicts of interest. DHS and 
HHS policies do not specifically prescribe areas that contractors must 
include to address these conflicts. 

Three Agencies Generally Compete FFRDC Contracts, While DOD Does Not: 

Federal law and regulations require federal contracts to be competed 
unless they fall under specific exceptions to full and open 
competition. One such exception is awarding contracts to establish or 
maintain an essential engineering, research, or development capability 
to be provided by an FFRDC.[Footnote 9] While some agencies we reviewed 
awarded FFRDC contracts through other than full and open competition in 
the past, including sole-source contracts, three have generally used 
full and open competition in recent years. 

Starting in the mid-1990's, DOE took steps to improve FFRDC laboratory 
contractors' performance with a series of contracting reforms, 
including increasing the use of competition in selecting contractors 
for its labs. Subsequent legislation[Footnote 10] required DOE to 
compete the award and extension of contracts used at its labs, singling 
out the Ames Laboratory, Argonne National Laboratory, Lawrence Berkeley 
National Laboratory, Lawrence Livermore National Laboratory, and Los 
Alamos National Laboratory for mandatory competition because their 
contracts in effect at the time had been awarded more than 50 years 
ago. In addition, according to DOE officials, the Los Alamos contract 
was competed due to performance concerns with the contractor, and 
Argonne West's contract was competed to combine its research mission 
with that of the Idaho National Engineering and Environmental 
Laboratory to form the Idaho National Laboratory. DOE now routinely 
uses competitive procedures on contracts for its FFRDC laboratories 
unless a justification for the use of other than competitive procedures 
is approved by the Secretary of Energy. Of DOE's 16 FFRDCs, DOE has 
used full and open competition in the award of 13 contracts, is in the 
process of competing one contract, and plans to compete the remaining 
two contracts when their terms have been completed. For the 13 
contracts that have been competed, in 2 cases the incumbent contractor 
received the new contract award, in 8 cases a new consortium or limited 
liability corporation was formed that included the incumbent 
contractor, and in 3 cases a different contractor was awarded the 
contract. 

Other agencies also have used competitive procedures to award FFRDC 
contracts: 

* HHS has conducted full and open competition on the contract for its 
cancer research lab since its establishment in 1972,[Footnote 11] 
resulting in some change in contractors over the years. Recently, 
however, HHS noncompetitively renewed the contract with the incumbent 
contractor. The last time it was competed, in 2001, HHS received no 
offers other than SAIC-Frederick, which has performed the contract 
satisfactorily since then. HHS publicly posted in FedBizOpps its 
intention to noncompetitively renew the operations and technical 
support contract with SAIC-Frederick for a potential 10-year period. 
Interested parties were allowed to submit capability statements, but 
despite some initial interest none were submitted. 

* DHS competed the initial contract awards for the start up of its two 
FFRDCs, with the award of the first contract in 2004. DHS plans to 
compete the award of the next studies and analyses FFRDC contract this 
year. 

In contrast, DOD continues to award its FFRDC contracts on a sole- 
source basis under statutory exemptions to competition. In the early 
1990s, a report by a Senate subcommittee[Footnote 12] and a Defense 
Science Board task force both criticized DOD's management and use of 
its FFRDCs, including a lack of competition in contract award. This 
criticism mirrored an earlier GAO observation.[Footnote 13] GAO 
subsequently noted in a 1996 report, however, that DOD had begun to 
strengthen its process for justifying its use of FFRDCs under sole- 
source contracts for specific purposes.[Footnote 14] DOD plans to 
continue its sole-source contracting for the three FFRDC contracts that 
are due for renewal in 2008 and the six contracts to be renewed in 
2010. 

Agencies Use Cost-Reimbursement Contracts with Varying Types of Fee 
Structures, Primarily Funded through Program Offices: 

All of the FFRDC contracts we reviewed were cost-reimbursement 
contracts,[Footnote 15] most of which provided for payments of fixed, 
award, or incentive fees to the contractor in addition to reimbursement 
of incurred costs. Fixed fees often are used when, according to the 
agencies we reviewed, the FFRDC will need working capital or other 
miscellaneous expense requirements that cannot be covered through 
reimbursing direct and indirect costs. Fixed fees generally account for 
a small percentage of the overall contract costs; for fiscal year 2007 
fixed fees paid to the FFRDCs we reviewed vary from a low of about 0.1 
percent to a high of 3 percent. Award or incentive fees, on the other 
hand, are intended to motivate contractors toward such areas as 
excellent technical performance and cost effective management.[Footnote 
16] These types of performance-based fees ranged from 1 to 7 percent at 
the agencies we reviewed. 

Among agencies we reviewed, contract provisions on fees varied 
significantly: 

* Most DOD contracts are cost-plus-fixed-fee,[Footnote 17] and DOD, as 
a general rule, does not provide award or incentive fees to its FFRDCs. 
DOD's FFRDC management plan--its internal guidance document for DOD 
entities that sponsor FFRDCs--limits fees to amounts needed to fund 
ordinary and necessary business expenses that may not be otherwise 
recoverable under the reimbursement rules that apply to these types of 
contracts. For example, the FFRDC operator may incur a one-time expense 
to buy an expensive piece of needed equipment, but the government's 
reimbursement rules require that this expense be recovered over several 
future years in accordance with an amortization schedule. DOD's 
management plan indicates that fees are necessary in such instances to 
enable the contractor to service the debt incurred to buy the equipment 
and maintain the cash flow needed for the contractor's business 
operations. DOD officials told us they scrutinize these fees carefully 
and do not always pay them. For example, the contract between DOD and 
the Massachusetts Institute of Technology (MIT), which operates the 
Lincoln Laboratory FFRDC, specifies that MIT will not receive such 
fees. 

* DOE and DHS use fixed fees, performance-based fees, and award terms, 
which can extend the length of the contract as a reward for good 
performance. For example, Sandia Corporation, a private company that 
operates Sandia National Laboratories, receives both a fixed fee and an 
incentive fee, which for fiscal year 2007 together amounted to about 
$23.2 million, an additional 1 percent beyond its estimated contract 
cost. In addition, Sandia Corporation has received award terms that 
have lengthened its contract by 10 years. 

* HHS provides only performance-based fees to the private company that 
operates its one FFRDC. 

Rather than receiving direct appropriations, most FFRDCs are funded on 
a project-by-project basis by the customers, either within or outside 
of the sponsoring agency, that wish to use their services by using 
funds allocated to a program or office. FFRDC contracts generally 
specify a total estimated cost for work to be performed and provide for 
the issuance of modifications or orders for the performance of specific 
projects and tasks during the period of the contract. 

Congressional appropriations conferees sometimes directed specific 
funding for some DHS and DOD FFRDCs in conference reports accompanying 
sponsoring agencies' appropriations. For example, although according to 
DOD officials, 97 percent of its FFRDC funding comes from program or 
office allocations to fund specific projects, half of its FFRDCs 
receive some directed amounts specified in connection with DOD's annual 
appropriations process. Specifically, for fiscal year 2008, the 
following DOD FFRDCs received conferee-directed funding in the DOD 
appropriations conference report: MIT Lincoln Laboratory Research 
Program, $30 million; the Software Engineering Institute, $26 million; 
the Center for Naval Analyses, $49 million; the RAND Project Air Force, 
$31 million;[Footnote 18] and the Arroyo Center, $20 million. In 
addition, DOD officials noted that the congressional defense committees 
sometimes direct DOD's FFRDCs to perform specific studies for these 
committees through legislation or in committee reports. In fiscal year 
2008, two DOD FFRDCs conducted 16 congressionally requested studies. 

All Four Agencies Address Organizational Conflicts of Interest but Vary 
in Addressing Personal Conflicts of Interest of FFRDC Employees: 

As FFRDCs may have access to sensitive and proprietary information and 
because of the special relationship between sponsoring agencies and 
their FFRDCs, the FAR requires that FFRDC contractors be free from 
organizational conflicts of interest. In addition, we recently reported 
that, given the expanding roles that contractor employees play, 
government officials from the Office of Government Ethics and DOD 
believe that current requirements are inadequate to address potential 
personal conflicts of interest of contractor employees in positions to 
influence agency decisions.[Footnote 19] While each agency we reviewed 
requires FFRDC operators to be free of organizational conflicts of 
interest, DOD and DOE prescribe specific areas that FFRDC contractors 
must address to ensure their employees are free from personal conflicts 
of interest. 

The FAR states that an organizational conflict of interest exists when 
because of other interests or relationships, an entity is unable or 
potentially unable to render impartial assistance or advice to the 
government or the entity might have an unfair competitive advantage. 
Because sponsors rely on FFRDCs to give impartial, technically sound, 
objective assistance or advice, FFRDCs are required to conduct their 
business in a manner befitting their special relationship with the 
government, to operate in the public interest with objectivity and 
independence, to be free from organizational conflicts of interest, and 
to fully disclose their affairs to the sponsoring agency.[Footnote 20] 
Each sponsoring agency we reviewed included conflict-of-interest 
clauses in its sponsoring agreements with contractors operating their 
FFRDCs. For example, a DHS FFRDC contract includes a clause that 
specifically prohibits contractors that have developed specifications 
or statements of work for solicitations from performing the work as 
either a prime or first-tier subcontractor. 

In addition to organizational conflicts of interest requirements, DOD 
and DOE have specific requirements for their FFRDC contractors to guard 
against personal conflicts of interest of their employees. For purposes 
of this report, a personal conflict of interest may occur when an 
individual employed by an organization is in a position to materially 
influence an agency's recommendations and/or decisions and who--because 
of his or her personal activities, relationships, or financial 
interests--may either lack or appear to lack objectivity or appear to 
be unduly influenced by personal financial interests. In January 2007, 
the Under Secretary of Defense (Acquisition, Technology, and Logistics) 
implemented an updated standard conflict-of-interest policy for all of 
DOD's FFRDCs that requires FFRDC contractors to establish policies to 
address major areas of personal conflicts of interest such as gifts, 
outside activities, and financial interests. The updated policy and 
implementing procedures now are included in all DOD FFRDC sponsoring 
agreements and incorporated into the DOD FFRDC operating contracts. 
This action was prompted by public and congressional scrutiny of a 
perceived conflict of interest by the president of a DOD FFRDC who then 
voluntarily resigned.[Footnote 21] As a result, DOD's Deputy General 
Counsel (Acquisition and Logistics) reviewed the conflict of interest 
policies and procedures in place at each of its FFRDCs and determined 
that although sponsoring agreements, contracts, and internal policies 
were adequate, they should be revised to better protect DOD from 
employee-related conflicts. DOD's revised policy states that conflicts 
of interest could diminish an FFRDC's objectivity and capacity to give 
impartial, technically sound, objective assistance or advice, which is 
essential to the research, particularly with regard to FFRDCs' access 
to sensitive information. Therefore, the policy provides that FFRDC 
conflict of interest policies address such issues as gifts and outside 
activities and requires an annual submission of statements of financial 
interests from all FFRDC personnel in a position to make or materially 
influence research findings or recommendations that might affect 
outside interests. 

DOE's FFRDCs, which operate under management and operating (M&O) 
[Footnote 22] contracts--a special FAR designation for government- 
owned, contractor-operated facilities such as DOE's--have additional 
provisions for addressing personal conflicts of interest. The 
provisions address such areas as reporting any outside employment that 
may constitute a personal conflict of interest.[Footnote 23] In 
addition, the National Nuclear Security Administration (NNSA), which 
sponsors three of DOE's FFRDCs, is planning to implement additional 
requirements in its laboratory contracts later this year requiring 
contractors to disclose all employee personal conflict of interests, 
not just outside employment as is currently required. An NNSA 
procurement official noted that other personal conflict of interests 
may include any relationship of an employee, subcontractor employee, or 
consultant that may impair objectivity in performing contract work. 
NNSA officials stated that it plans to share the policy with the DOE 
policy office for potential application across the department. 

Currently, DHS and HHS policies do not specifically prescribe areas 
that contractors must include to address employees personal conflicts. 
However, DHS officials stated that they provided guidance to the two 
contractors that operate DHS's FFRDCs to implement requirements to 
address some of their employees' personal conflicts with DHS's 
interests. In addition, both DHS and HHS FFRDC contractors provide that 
their staff avoid or disclose financial interests or outside activities 
that may conflict with the interests of the company. For example, the 
contractor operating the FFRDC for HHS requires about 20 percent of its 
employees to report activities that may constitute a conflict with the 
company's interests, but allows the bulk of its staff to self-determine 
when they need to report. 

In May 2008, we reported that officials from the Office of Government 
Ethics expressed concerns that current federal requirements and 
policies are inadequate to prevent certain kinds of ethical violations 
on the part of contractor employees, particularly with regard to 
financial conflicts of interest, impaired impartiality, and misuse of 
information and authority. The acting director identified particular 
concerns with such conflicts of interest in the management and 
operations of large research facilities and laboratories. Our report 
noted that DOD ethics officials had generally the same concerns. 
Therefore, we recommended that DOD implement personal conflict-of- 
interest safeguards--similar to those for federal employees--for 
certain contractor employees.[Footnote 24] 

Agencies Vary in FFRDC Oversight Approaches and Do Not Regularly Share 
Best Practices: 

Sponsoring agencies take various approaches in exercising oversight of 
their FFRDCs. The agencies determine appropriateness of work conducted 
by their FFRDCs; perform on-going and annual assessments of 
performance, costs and internal controls; and conduct comprehensive 
reviews prior to renewing sponsoring agreements. Each agency develops 
its own processes in these areas, and no formal interagency mechanisms 
exist to facilitate the sharing of FFRDC oversight best practices. 

Agencies Approve Research Plans and Work Conducted at Their FFRDCs: 

To ensure work remains within each FFRDCs purpose, mission, scope of 
effort, and special competency, sponsoring agencies develop and approve 
annual research plans for the FFRDCs and review and approve FFRDC work 
assigned on a project-by-project basis. While the majority of each 
FFRDC's work is done for its sponsoring agency, FFRDCs may perform work 
for other institutions, subject to sponsoring agency approval.[Footnote 
25] 

Officials at DOD, DOE, and DHS identified the processes they use to 
develop annual research plans that describe each FFRDC's research 
agenda. For example, DHS designates an executive agent to ensure that 
its FFRDC is used for the agency's intended purposes.[Footnote 26] Each 
year DHS develops a research plan that is reviewed and approved by the 
executive agent, including any subsequent changes. DHS also uses an 
Advisory Group[Footnote 27] to ensure that its FFRDCs produce work 
consistent with the sponsoring agreement. DOD has a similar mechanism 
for approving the annual research plan for its Lincoln Laboratory 
FFRDC. This FFRDC has a Joint Advisory Committee that annually reviews 
and approves the proposed research plan. Members of this committee 
include representatives from the various DOD services--e.g., Air Force, 
Army, and Navy--who are the users of the laboratory's R&D capabilities. 
Of the four agencies included in our review, only HHS does not create a 
separate annual research plan for its FFRDC. Instead, the work at HHS' 
FFRDC is guided by the National Cancer Institute's overall mission, 
which is described in its annual budgetary and periodic strategic 
planning documents. 

In determining the proposed research plan, DOD must abide by 
congressionally set workload caps. These caps were imposed in the 
1990's in response to concerns that DOD was inefficiently using its 
FFRDCs, and therefore, each fiscal year Congress sets an annual 
limitation on the Staffyears of Technical Effort (STE) that DOD FFRDCs 
can use to conduct work for the agency. The STE limitations aim to 
ensure that (1) work is appropriate and (2) limited resources are used 
for DOD's highest priorities. Congress also sets an additional workload 
cap for DOD's FFRDCs for certain intelligence programs.[Footnote 28] 
Once DOD receives from Congress the annual total for STEs, then DOD's 
Office of the Undersecretary of Acquisition, Technology and Logistics 
allocates them across DOD's FFRDCs based on priorities set forth in the 
annual research plan developed by each FFRDC. DOD officials observed 
that while the overall DOD budget has increased about 40 percent since 
the early 1990s, the STE caps have remained steady, and therefore, DOD 
must turn aside or defer some FFRDC-appropriate work to subsequent 
years. Although the majority of work that DOD's FFRDCs conduct is 
subject to these limitations, the work that DOD FFRDCs conduct for non- 
DOD entities is not subject to these caps. 

Each sponsoring agency also reviews and approves tasks for individual 
FFRDC projects to make sure that those tasks (1) are consistent with 
the core statement of the FFRDC and (2) would not constitute a 
"personal service"[Footnote 29] or inherently governmental function. 
[Footnote 30] Listed below are examples of procedures used by agencies 
included in our review to approve tasks for individual projects: 

* DOD sponsors generally incorporate in their sponsoring agreement 
guidelines for performance of work by the FFRDC. The work is screened 
at various levels for appropriateness, beginning with FFRDC clients who 
request the work, then program and contract managers, and then it is 
reviewed and approved as well by the primary sponsor. In some cases, 
projects are entered into a computer-based tool, which the Air Force 
has developed to determine and develop its overall requirements for 
that year. The tool is intended to assist the Air Force in prioritizing 
requests for its FFRDC and in ensuring that work requested is in 
accordance with guidelines and that potential alternative sources have 
been considered. 

* DOE FFRDCs must document all DOE-funded projects using work 
authorizations[Footnote 31] to help ensure that the projects are 
consistent with DOE's budget execution and program evaluation 
requirements.[Footnote 32] In addition, DOE uses an independent 
scientific peer-review approach--including faculty members and 
executives from other laboratories--at several of its FFRDC 
laboratories to ensure the work performed is appropriate for the FFRDC 
and scientifically sound. In some cases, DOE's Office of Science holds 
scientific merit competitions between national laboratories (including 
FFRDCs), universities, and other research organizations for some R&D 
funding for specific projects. 

* HHS uses an automated "yellow task" system to determine if work is 
appropriate for its FFRDC, and several officials must approve requests 
for work, including the government contracting officer and overseeing 
project officer for the FFRDC, with reference to a set of criteria. 
This agency requires a concept review by advisory boards for the 
various HHS institutes to ensure the concept is appropriate for the 
FFRDC and meets its mission or special competency. 

* DHS requires certain officials at its sponsoring office to conduct a 
suitability review using established procedures for reviewing and 
approving DHS-sponsored tasks. This review is required under DHS's 
Management Directive for FFRDCs. 

FFRDCs are required to have their sponsors review and approve any work 
they conduct for others, and the four agencies included in our review 
have policies and procedures to do so. FFRDCs may conduct work for 
others when required capabilities are not otherwise available from the 
private sector. This work for others can be done for federal agencies, 
private sector companies,[Footnote 33] and local and state governments. 
The sponsoring agency of an FFRDC offers the work for others, with full 
costs charged to the requesting entity, to provide research and 
technical assistance to solve problems. At laboratory FFRDCs, work for 
others can include creating working models or prototypes. All work 
placed with the FFRDC must be within the purpose, mission, general 
scope of effort, or special competency of the FFRDC.[Footnote 34] 

Work for others is considered a technology transfer[Footnote 35] 
mechanism, which helps in sharing knowledge and skills between the 
government and the private sector. Under work for others, according to 
DOD officials and federal regulation, the title to intellectual 
property generally belongs to the FFRDC conducting the work, and the 
government may obtain a nonexclusive, royalty-free license to such 
intellectual property or may choose to obtain the exclusive rights. 
[Footnote 36] As required by FAR, sponsoring agreements or sponsoring 
agencies we reviewed identified the extent to which their FFRDCs may 
perform work for other than the sponsors (other federal agencies, state 
or local government, nonprofit or profit organizations, etc.) and the 
procedures that must be followed by the sponsoring agency and the 
FFRDC.[Footnote 37] In addition, according to agency officials FFRDCs 
have a responsibility to steer inquiries about potential research for 
other entities to their primary sponsor's attention for approval. 
Agency officials stated that they work with their FFRDCs when such 
situations arise. 

DOE's Office of Science established a "Work for Others Program" for all 
of its FFRDC laboratories. Under this program, the contractor of the 
FFRDC must draft, implement, and maintain formal policies, practices, 
and procedures, which must be submitted to the contracting officer for 
review and approval.[Footnote 38] In addition, DOE may conduct periodic 
appraisals of the contractor's compliance with its Work for Others 
Program policies, practices, and procedures.[Footnote 39] For DOE's 
National Nuclear Security Administration (NNSA), officials reported 
that the work for others process at the Sandia National Laboratories 
requires DOE approval before the Sandia Corporation develops the 
proposed statement of work, which is then sent to DOE's site office for 
review and approval. 

For DHS, each FFRDC includes the work for others policy in its 
management plan. For example, one management plan states that the FFRDC 
may perform work for others and that such work is subject to review by 
the sponsoring agency for compliance with criteria mutually agreed upon 
by the sponsor and the FFRDC contractor. The DHS FFRDC laboratory 
director said he routinely approves any work-for-others requests but 
gives first priority to the DHS-sponsored work. The sponsor for this 
FFRDC also periodically assesses whether its work for others impairs 
its ability to perform work for its sponsor. 

HHS and DOD also have work-for-others programs for the FFRDCs they 
sponsor. For example, at HHS's FFRDC the program is conducted under a 
bilateral contract between the entity that is requesting the work and 
the FFRDC to perform a defined scope of work for a defined cost. This 
agency developed a standard Work for Others Agreement for its FFRDC, 
the terms and conditions of which help ensure that the FFRDC complies 
with applicable laws, regulations, policies, and directives specified 
in its contract with the HHS. 

Some agency sponsors report that work for others at their FFRDCs has 
grown in the past few years. For example, DOE officials said work for 
others at the Sandia National Laboratories related to nanotechnologies 
and cognitive sciences has grown in the last 3 years. As shown in table 
1, the amount of work for others by FFRDCs since fiscal year 2001 has 
increased for many of the FFRDCs included in our review. 

Table 1: Funding for FFRDC "Work for Others" (Fiscal Year 2001 to 2005) 
(Dollars in thousands): 

Sponsoring agency and name of FFRDC: DOE, Office of Science; Ernest 
Orlando Lawrence Berkeley National Laboratory; 
FY 2001: $69,879; 
FY 2002: $67,053; 
FY 2003: $59,911; 
FY 2004: $76,360; 
FY 2005[A]: $71,879. 

Sponsoring agency and name of FFRDC: DOE, National Nuclear Security 
Administration; Sandia National Laboratories; 
FY 2001: $114,390; 
FY 2002: $143,798; 
FY 2003: $130,614; 
FY 2004: $171,492; 
FY 2005[A]: $270,438. 

Sponsoring agency and name of FFRDC: HHS, National Cancer Institute; 
National Cancer Institute at Frederick (NCI-F); 
FY 2001: $30,810; 
FY 2002: $52,122; 
FY 2003: $119,490; 
FY 2004: $144,184; 
FY 2005[A]: $105,559. 

Sponsoring agency and name of FFRDC: DOD, Office of the Secretary of 
Defense; C3I [Command, Control, Communications, and Intelligence] 
Center; 
FY 2001: $47,300; 
FY 2002: $69,800; 
FY 2003: $98,800; 
FY 2004: $134,000; 
FY 2005[A]: $163,700. 

Sponsoring agency and name of FFRDC: DOD, Office of the Secretary of 
Defense; Institute for Defense Analyses (IDA) Studies and Analyses 
Center; 
FY 2001: $2,602; 
FY 2002: $5,712; 
FY 2003: $7,825; 
FY 2004: $22,504[B]; 
FY 2005[A]: $6,547. 

Sponsoring agency and name of FFRDC: DOD, Department of the Air Force; 
MIT Lincoln Laboratory; 
FY 2001: $53,368; 
FY 2002: $51,604; 
FY 2003: $43,885; 
FY 2004: $65,161; 
FY 2005[A]: $64,408. 

Sponsoring agency and name of FFRDC: DHS, Office of Science and 
Technology; Homeland Security Institute[C]; 
FY 2001: [Empty]; 
FY 2002: [Empty]; 
FY 2003: [Empty]; 
FY 2004: $0; 
FY 2005[A]: $0. 

Sponsoring agency and name of FFRDC: DHS, Office of Science and 
Technology; National Biodefense Analysis and Countermeasures Center 
(NBACC)[D]; 
FY 2001: [Empty]; 
FY 2002: [Empty]; 
FY 2003: [Empty]; 
FY 2004: [Empty]; 
FY 2005[A]: [Empty]. 

Source: GAO Analysis of data provide by the National Science Foundation 
(NSF) and by listed agencies (where provided). 

[A] Most recently available complete data. 

[B] According to DOD, the fiscal year 2004 data for IDA includes $14.3 
million from DHS for work regarding implementation of the Support Anti- 
terrorism by Fostering Effective Technologies Act of 2002 (the Safety 
Act). 

[C] Homeland Security Institute (HSI), was funded as a new FFRDC in 
fiscal year 2004. 

[D] National Biodefense Analysis and Countermeasures Center (NBACC), 
was funded as a new FFRDC in fiscal year 2007. 

[End of table] 

While funding for work for others has increased, some agencies in our 
review reported limiting the amount of work for others their FFRDCs 
conduct. For example, DOE's Office of Science annually approves overall 
work-for-others funding levels at its laboratories based on a request 
from the laboratory and recommendation from the responsible site 
office. Any work-for-others program that is above 20 percent of the 
laboratory's operating budget, or any request that represents a 
significant change from previous year's work-for-others program will be 
reviewed in depth before the approval is provided. Similarly, DOE 
officials limit commitments to conduct work for others at the National 
Renewable Energy Laboratory's to about 10 percent of the laboratory's 
total workload. 

Agencies Assess FFRDCs' Performance, Costs, and Internal Controls: 

In addition to ensuring work is appropriate for their FFRDCs, the four 
sponsoring agencies in our case study regularly review the contractors' 
performance in operating the FFRDCs, including reviewing and approving 
costs incurred in operations and internal control mechanisms. Agency 
performance evaluations for FFRDC contractors vary, particularly 
between those that incorporate performance elements into their 
contracts and those that do not. Furthermore, contracting officers at 
each agency regularly review costs to ensure that they are appropriate, 
in some cases relying on audits of costs and internal controls to 
highlight any potential issues. 

Agencies Review Performance of FFRDC and Operating Contractor: 

All four agencies conduct at least annual reviews of the performance of 
their FFRDCs and contractors. At three agencies, the outcomes of these 
reviews provide the basis for contractors to earn performance-based 
incentives or awards. Specifically, DOE, HHS, and DHS provide for award 
fees[Footnote 40] to motivate contractors toward excellence in high 
performance, and contractors operating FFRDCs for DOE and DHS may earn 
additional contract extensions by exceeding performance expectations. 

DOE uses a performance-based contracting approach with its FFRDCs, 
which includes several mechanisms to assess performance. First, DOE 
requires contractors to conduct annual self-assessments of their 
management and operational performance. Also, contracting officers 
conduct annual assessments of the performance of the FFRDC contractor, 
relying in part on user satisfaction surveys. All of this input 
contributes to each lab's annual assessment rating. For example, Sandia 
National Laboratories, operated by Sandia Corporation (a subsidiary of 
Lockheed Martin) received an overall rating of "outstanding" for fiscal 
year 2007 and was awarded 91 percent of its available award fee ($7.6 
million of a possible total fee of $8.4 million). DOE noted that Sandia 
National Laboratories' scientific and engineering support of U.S. 
national security was an exceptional performance area. DOE publishes 
such "report cards" for its laboratories on the internet. DOE includes 
detailed performance requirements in each contract in a Performance 
Evaluation and Measurement Plan that is organized by goals, objectives, 
measures, and targets. The DOE Office of Science mandates that each of 
its ten FFRDC laboratories establish the same eight goals[Footnote 41] 
in each FFRDC's contractual plan. For example, the Ernest Orlando 
Lawrence Berkeley National Laboratory, operated by the University of 
California, received high ratings in providing efficient and effective 
mission accomplishment and science and technology program management. 
These ratings resulted in an award of 94 percent or $4.2 million of the 
total available fee of $4.5 million. 

HHS, which also uses performance-based contracting, has identified 
certain designated government personnel to be responsible for 
evaluation of the FFRDC contractor. This review process includes 
different levels of reviews, from coordinators who review performance 
evaluations to an FFRDC Performance Evaluation Board, which is 
responsible for assessing the contractor's overall performance. The 
board rates each area of evaluation based on an established Performance 
Rating System to determine the amount of the contractor's award fee. In 
fiscal year 2007, the National Cancer Institute at Frederick, operated 
by Science Applications International Corporation-Frederick (a 
subsidiary of Science Applications International Corporation), received 
92 percent of its available award fee or $6.9 million of a possible 
$7.4 million. 

Similar to the other agencies, DHS regularly conducts performance 
reviews throughout the life cycle of its FFRDC contract. This includes 
program reviews as described in the sponsoring agreement, midyear 
status reviews, technical progress reports, monthly and quarterly 
reports, and annual stakeholder surveys to ensure the FFRDC is meeting 
customer needs. DHS also drafts a multiyear improvement plan and 
collects performance metrics as evidence of the FFRDC's performance. 
For fiscal year 2007, Battelle National Biodefense Institute, operating 
the National Biodefense Analysis and Countermeasures Center, received 
82 percent of its performance-based award fee amounting to $1.4 
million. According to DHS officials, Analytic Services, Inc., which 
operates the Homeland Security Institute, received a fixed fee of about 
2 percent or approximately $.68 million for fiscal year 2007. 

DOD conducts annual performance reviews and other internal reviews, 
such as conducting periodic program management reviews and annual 
customer surveys to monitor the performance of its FFRDCs in meeting 
their customers' expectations. As part of this review process, major 
users are asked to provide their perspectives on such factors as the 
use and continuing need for the FFRDC, and how these users distinguish 
work to be performed by the FFRDC from work to be performed by others. 
According to DOD, these performance evaluations provide essential input 
to help it assess the effectiveness and efficiency of the FFRDC's 
operations. Typically the performance reviews obtain ratings from FFRDC 
users and sponsors on a variety of factors including the quality and 
value of the work conducted by the FFRDCs, as well as its ability to 
meet technical needs, provide timely and responsive service, and manage 
costs.[Footnote 42] 

Agencies Review Costs and Internal Controls: 

Federal regulations, policies, and contracts establish various cost, 
accounting, and auditing controls that agencies use to assess the 
adequacy of FFRDC management in ensuring cost-effective operations and 
ensure that costs of services being provided to the government are 
reasonable.[Footnote 43] Sponsors of the FFRDCs we reviewed employ a 
variety of financial and auditing oversight mechanisms to review 
contractors' management controls, including incurred cost audits, 
general financial and operational audits, annual organizational audits, 
and audited financial statements. These mechanisms differ, depending on 
the agencies involved and the type of organization operating the 
FFRDCs.[Footnote 44] 

Under cost-reimbursement contracts, the costs incurred are subject to 
cost principles applicable to the type of entity operating the FFRDC. 
[Footnote 45] Most FFRDC contracts we examined include a standard 
clause on allowable costs that limits contract costs to amounts that 
are reasonable and in compliance with applicable provisions of the FAR. 
[Footnote 46] Under the FAR, contracting officers are responsible for 
authorizing cost-reimbursement payments and may request audits at their 
discretion before a payment is made. In addition, when an allowable 
cost clause is included in a contract, the FAR requires that an 
indirect cost rate proposal be submitted annually for audit.[Footnote 
47] At DOD, the Defense Contract Audit Agency (DCAA) generally performs 
both annual incurred cost audits and close-out audits for completed 
contracts and task orders at the end of an FFRDC's 5-year contract 
term. The audit results are included in the comprehensive review of 
DOD's continued need for its FFRDCs. DCAA also performs these types of 
audits for DHS's FFRDCs. At DOE, the Office of the Inspector General is 
responsible for incurred cost audits for major facilities contractors. 
At HHS, officials stated that while the contracting officer for its 
FFRDC regularly reviews the incurred costs, no audits of these costs 
have been performed. 

Agencies and FFRDC contractors also conduct financial and operational 
audits[Footnote 48] in addition to incurred cost audits. DOE relies 
primarily upon FFRDC contractors' annual internal audits[Footnote 49] 
rather than on third-party monitoring through external audits. These 
internal audits are designed to implement DOE's Cooperative Audit 
Strategy--a program that partners DOE's Inspector General with 
contractors' internal audit groups to maximize the overall audit 
coverage of M&O contractors' operations and to fulfill the Inspector 
General's responsibility for auditing the costs incurred by major 
facilities contractors.[Footnote 50] This cooperative audit strategy 
permits the Inspector General to make use of the work of contractors' 
internal audit organizations to perform operational and financial 
audits, including incurred cost audits, and to assess the adequacy of 
contractors' management control systems. DHS and DOD generally rely on 
audits performed by those agencies, a designated audit agency, or an 
accounting firm, though their FFRDC contractors usually perform some 
degree of internal audit or review function as part of their overall 
management activity. 

In addition, all nonprofits and educational institutions that annually 
expend more than $500,000 in federal awards--including those that 
operate FFRDCs--are subject to the Single Audit Act[Footnote 51] which 
requires annual audits of: (1) financial statements, (2) internal 
controls, and (3) compliance with laws and regulations. We have 
previously reported these audits constitute a key accountability 
mechanism for federal awards and generally are performed by independent 
auditors.[Footnote 52] At DOD, for example, DCAA participates in single 
audits normally on a "coordinated basis"--at the election of the 
organization being audited--with the audited organization's independent 
public accountant. The financial statements, schedules, corrective 
action plan, and audit reports make up the single audit package, which 
the audited organization is responsible for submitting to a federal 
clearing house designated by OMB to receive, distribute, and retain. 
DOD's Office of Inspector General, for example, as a responsible 
federal agency, receives all single audit submissions for nonprofits 
and educational institutions that operate DOD's FFRDCs. These audit 
results are employed by DOD as partial evidence of its FFRDCs' cost-
effectiveness and incorporated in the 5-year comprehensive reviews. 
These annual single audits for nonprofit and educational FFRDC 
contractors are a useful adjunct to other cost, accounting, and 
auditing controls discussed previously, designed to help determine 
contractor effectiveness, efficiency, and accountability in the 
management and operation of their FFRDCs. 

Private contractors that publicly trade their securities on the 
exchanges--including those that operate FFRDCs[Footnote 53]--are 
registered with the Securities and Exchange Commission (SEC) and are 
required to file audited financial statements with the SEC. These 
audited statements must be prepared in conformity with generally 
accepted accounting principles (GAAP) and securities laws and 
regulations, including Sarbanes-Oxley, that address governance, 
auditing, and financial reporting.[Footnote 54] These financial 
statements are designed to disclose information for the benefit of the 
investing public, not to meet government agencies' information needs. 
Accordingly, SAIC and Lockheed--private contractors that manage 
National Cancer Institute at Frederick and Sandia National Laboratories 
respectively--prepare audited financial statements for their corporate 
entities, but do not separately report information on their individual 
FFRDCs' operations. 

Finally, even though financial statements are not required by 
university and nonprofit sponsored FFRDCs, some of the FFRDCs in 
agencies we reviewed have audited financial statements prepared solely 
for their own operations. DOD's Aerospace and DHS's HSI and NBACC are 
examples. Most others' financial operations, however, are included in 
the audited financial statements of their parent organizations or 
operating contractor. Some, like MITRE, which manages not only DOD's 
C3I FFRDC but also two others (one for the Federal Aviation 
Administration and one for the Internal Revenue Service), provides 
supplemental schedules, with balance sheets, revenues and expenses, and 
sources and uses of funds for all three FFRDCs.[Footnote 55] Others, 
like the Institute for Defense Analyses, which also operates two other 
FFRDCs in addition to the Studies and Analyses Center for DOD, provide 
only a consolidated corporate statement with no information on specific 
FFRDCs. 

Agencies Periodically Rejustify Their Sponsorship of FFRDCs: 

The FAR requires that a comprehensive review be undertaken prior to 
extending a sponsoring agreement for an FFRDC. We found that the four 
agencies in our case study were conducting and documenting these 
reviews, but noted that implementation of this requirement by each 
agency is based on its own distinct management policies, procedures, 
and practices. 

During the reviews prior to agreement renewal, sponsoring agencies 
should include the following five areas identified by the FAR: 

* examination of the continued need for FFRDC to address its sponsor's 
technical needs and mission requirements; 

* consideration of alternative sources, if any, to meet those needs; 

* assessment of the FFRDC's efficiency and effectiveness in meeting the 
sponsor's needs, including objectivity, independence, quick response 
capability, currency in its field(s) of expertise, and familiarity with 
the sponsor; 

* assessment of the adequacy of FFRDC management in ensuring a cost- 
effective operation; and: 

* determination that the original reason for establishing the FFRDC 
still exists and that the sponsoring agreement is in compliance with 
FAR requirements for such agreements.[Footnote 56] 

DOD sponsoring offices begin conducting detailed analyses for each of 
the five FAR review criteria approximately 1 to 2 years in advance of 
the renewal date. As DOD has received criticism in the past for its 
lack of competition in awarding FFRDC contracts, it now conducts 
detailed and lengthy comprehensive reviews prior to renewing FFRDC 
sponsoring agreements and contracts with incumbent providers. DOD's 
FFRDC Management Plan lays out procedures to help provide consistency 
and thoroughness in meeting FAR provisions for the comprehensive review 
process. DOD procedures require, and the comprehensive reviews we 
examined generally provided, detailed examinations of the mission and 
technical requirements for each FFRDC user, and explanations of why 
capabilities cannot be provided as effectively by other alternative 
sources. For example, DOD convened a high level, independent Technical 
Review Panel to review whether Lincoln Laboratory's research programs 
were within its mission as well as whether the research was effective, 
of high technical quality, and of critical importance to DOD. The 
panel--composed of a former Assistant Secretary of the Air Force, a 
former president of another FFRDC, former senior military officers, and 
a high level industry representative--found that no other organizations 
had the capacity to conduct a comparable research program. In addition, 
DOD sponsors use information from annual surveys of FFRDC users that 
address such performance areas as cost effectiveness and technical 
expertise. Determinations to continue or terminate the FFRDC agreement 
are made by the heads of sponsoring DOD components (e.g., the Secretary 
of the Army or Air Force) with review and concurrence by the Office of 
the Under Secretary of Defense for Acquisition, Technology, and 
Logistics. 

DOE has a documented comprehensive review process that explicitly 
requires DOE sponsors to assess the use and continued need for the 
FFRDC before the term of the agreement has expired. DOE's process 
requires that the review be conducted at the same time as the review 
regarding the decision to extend (by option) or compete its FFRDC 
operating contract. According to DOE's regulation,[Footnote 57] the 
option period for these contracts may not exceed 5 years and the total 
term of the contract, including any options exercised, may not exceed 
10 years. DOE relies on information developed as part of its annual 
performance review assessments as well as information developed through 
the contractor's internal audit process to make this determination. The 
comprehensive review conducted prior to the most recent award of the 
contract to operate Sandia National Laboratories concluded that the 
FFRDC's overall performance for the preceding 6 years had been 
outstanding. The Secretary of Energy determined that the criteria for 
establishing the FFRDC continued to be satisfied and that the 
sponsoring agreement was in compliance with FAR provisions. 

At DHS, we found that its guidance and process for the comprehensive 
review mirror many aspects of the DOD process. DHS has undertaken only 
one such review to date, which was completed in May 2008. As of the 
time we completed our work, DHS officials told us that the 
documentation supporting the agency's review had not yet been approved 
for release. 

HHS--in contrast to the structured review processes of the other 
agencies--relies on the judgment of the sponsoring office's senior 
management team, which reviews the need for the continued sponsorship 
of the FFRDC and determines whether it meets the FAR requirements. 
Agency officials stated that this review relies on a discussion of the 
FFRDC's ability to meet the agency's needs within the FAR criteria, but 
noted there are no formal procedures laid out for this process. The 
final determination is approved by the director of the National Cancer 
Institute and then the director of the National Institutes of Health. 

No Formal Interagency Mechanisms Exist for Sharing of Best Practices 
for Overseeing FFRDCs: 

Some agencies have used the experiences of other agencies as a model 
for their own oversight of their FFRDCs. There is no formal mechanism, 
however, for sharing of best practices and lessons learned among 
sponsoring agencies. 

DHS officials have adopted several of DOD's and DOE's policies and 
procedures for managing FFRDCs to help their newly created FFRDCs gain 
efficiencies. DHS mirrored most of DOD's FFRDC Management Plan, and 
officials have stated that the STE limitations for DOD could be a 
potentially useful tool for focusing FFRDCs on the most strategic and 
critical work for the agency. Also, DHS officials stated they have made 
use of DOE's experience in contracting for and overseeing the operation 
of its laboratories, such as including a DOE official in the DHS 
process to select a contractor to operate its laboratory FFRDC. In 
addition, HHS officials said they are incorporating the DOE Blue Ribbon 
Report recommendation to set aside a portion of the incentive fee paid 
on their FFRDC contract to reward scientific innovations or research. 
The idea for the new contract is to base 80 percent of the available 
award fee in a performance period on operations and use the final 20 
percent to reward innovation. HHS also may adopt the technique used by 
DOE of providing for contract extensions on the basis of demonstrated 
exceptional performance. 

To take advantage of others' experiences, some FFRDCs sponsored by 
particular agencies have formed informal groups to share information. 
For example, DOD's FFRDCs have formed informal groups at the functional 
level--Chief Financial Officers, Chief Technology Officers, and General 
Counsels--which meet periodically to share information on issues of 
common concern. In addition, the security personnel from the DOD FFRDC 
contractors meet once a year to discuss security and export control 
related issues. The contractor officials at Sandia National 
Laboratories said they share best practices for operating DOE's 
laboratory FFRDCs at forums such as the National Laboratory Improvement 
Council. This Council was also mentioned in a DOE review of management 
best practices for the national laboratories[Footnote 58] as one of the 
few groups that deliberate a broader and more integrated agenda among 
laboratories. 

Despite these instances of information sharing within agencies and the 
acknowledgment by some officials of potential benefits in such 
knowledge sharing, no formal mechanisms exist for sharing information 
across agencies that sponsor and oversee FFRDCs. We reported in 2005 
that federal agencies often carry out related programs in a fragmented, 
uncoordinated way, resulting in a patchwork of programs that can waste 
scarce funds, confuse and frustrate program customers, and limit the 
overall effectiveness of the federal effort.[Footnote 59] The report 
suggested frequent communication across agency boundaries can prevent 
misunderstandings, promote compatibility of standards, policies, and 
procedures, and enhance collaboration. For example, the Federal 
Laboratory Consortium for Technical Transfer was created to share 
information across national laboratories. This includes the FFRDC 
laboratories, but not the other types of FFRDCs. Some agency officials 
stated that there would be benefits to sharing such best practices. 

Conclusions: 

All federal agencies that sponsor FFRDCs are subject to the same 
federal regulations, and each agency included in our review has 
developed its own processes and procedures to ensure compliance and 
conduct oversight of its FFRDCs. For the most part the differences in 
approaches are not of great consequence. In at least one key area, 
however, the different approaches have the potential to produce 
significantly different results. Specifically, while all FFRDCs are 
required to address organizational conflicts of interest, only DOD and 
DOE have requirements that their FFRDC contractors address specific 
areas of personal conflicts of interest of their employees. In light of 
the special relationship that FFRDCs have with their sponsoring 
agencies, which often involves access to sensitive or confidential 
information, it is critical not only that the FFRDC as an entity but 
also that employees of the entity in positions to make or influence 
research findings or agency decision making be free from conflicts. 
Lacking such safeguards, the FFRDC's objectivity and ability to provide 
impartial, technically sound, objective assistance or advice may be 
diminished. The two agencies with the most experience sponsoring FFRDCs 
have recognized this gap and have taken steps to address personal 
conflicts of interest. These steps are consistent with our recent 
recommendation to DOD that highlighted the need for personal conflicts- 
of-interest safeguards for certain contractor employees. The other 
agencies included in our review of FFRDCs could benefit from additional 
protections in the area of personal conflicts of interest. Currently, 
although DHS and HHS have policies that generally require their FFRDC 
contractors to implement such safeguards, they lack the specificity 
needed to ensure their FFRDC contractors will consistently address 
employees' personal conflicts of interest. 

Conflict-of-interest requirements is only one of several areas where 
agencies that sponsor FFRDCs can learn from each other. Other areas 
include the use of effective and efficient oversight mechanisms such as 
incentive and award fees, obtaining competition, and conducting 
comprehensive reviews. In the absence of established knowledge-sharing 
mechanisms, however, agencies may be missing opportunities to enhance 
their management and oversight practices. Sharing knowledge among 
agencies that sponsor FFRDCs, as has been done informally in some 
instances, could help to ensure that agencies are aware of all the 
various tools available to enhance their ability to effectively oversee 
their FFRDCs. 

Recommendations for Executive Action: 

To ensure that FFRDC employees operate in the government's best 
interest, we recommend: 

* that the Secretary of Homeland Security revise agency policies to 
address specific areas for potential personal conflicts of interest for 
FFRDC personnel in a position to make or materially influence research 
findings or agency decision making; and: 

* that the Secretary of Health and Human Services review agency policy 
regarding personal conflicts of interest for its sponsored FFRDC and 
revise as appropriate to ensure that this policy addresses all 
personnel in a position to make or materially influence research 
findings or agency decision making. 

To improve the sharing of oversight best practices among agencies that 
sponsor FFRDCs, we recommend that the Secretaries of Energy, Defense, 
Homeland Security, and Health and Human Services, which together 
sponsor the vast majority of the government's FFRDCs, take the lead in 
establishing an ongoing forum for government personnel from these and 
other agencies that sponsor FFRDCs to discuss their agencies' FFRDC 
policies and practices. Areas for knowledge sharing could include, for 
example, implementing personal conflicts of interest safeguards and 
processes for completing the justification reviews prior to renewing 
sponsoring agreements, among others. 

Agency Comments and Our Evaluation: 

The Departments of Health and Human Services and Homeland Security 
concurred with our recommendation that they revise their conflict of 
interest policies. In addition, the departments of Defense, Energy, and 
Homeland Security all concurred with our recommendation to establish a 
forum to share best practices, while HHS is considering participation 
in such a forum. We received letters from Defense, Energy, and Health 
and Human Services, which are reprinted in appendixes III, IV, and V, 
respectively. In addition, the departments of Health and Human Services 
and Homeland Security provided technical comments, which we 
incorporated where appropriate. 

As agreed with your office, unless you publicly announce the contents 
of this report earlier, we plan no further distribution of it until 30 
days from the date of this report. We then will provide copies of this 
report to the Secretaries of Defense, Energy, Health and Human Services 
and Homeland Security and other interested parties. In addition, this 
report will be made available at no charge on the GAO Web site at 
[hyperlink, http://www.gao.gov]. 

If you or your staff have any questions about this report, please 
contact us at (202) 512-4841 or woodsw@gao.gov or (202) 512-9846 or 
mittala@gao.gov. Key contributors to this report are acknowledged in 
appendix VI. 

Signed by: 

William Woods: 
Director Acquisition and Sourcing Management: 

Anu Mittal: 
Director Natural Resources and Environment: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

To conduct this review, we chose a nongeneralizable sample of four of 
the nine federal agencies that sponsor FFRDCs: the departments of 
Energy (DOE) and Defense (DOD) have the longest histories in sponsoring 
federally funded research and development centers (FFRDCs) and sponsor 
the most--16 and 10, respectively; the Department of Homeland Security 
(DHS) has the 2 most recently established FFRDCs; the Department of 
Health and Human Services (HHS) has 1 FFRDC laboratory. From the 
collective 29 FFRDCs that those four agencies sponsor, we selected a 
nongeneralizable sample of 8 FFRDCs that represented variation among 
the type of operating contractor, including some operated by 
universities, some by nonprofits, and some by private industry. Within 
DOD and DHS, we chose FFRDCs that represent the variation among types 
these two agencies sponsor, while DOE and HHS only sponsor laboratory 
type FFRDCs. See appendix II for the FFRDCs included in our case study. 

To identify sponsors' contracting and oversight methods at the four 
agencies in our case study, we interviewed federal department officials 
at each office that sponsors FFRDCs as well as offices that have 
contractor management roles and audit roles: (1) DOE's Office of 
Science, National Nuclear Security Administration, Office of Energy 
Efficiency and Renewable Energy, Office of Environmental Management, 
Office of Nuclear Energy, and Office of Inspector General; (2) DOD's 
departments of the Navy, Air Force, and Army; Office of the Secretary 
of Defense; Office of Acquisition, Technology, and Logistics; Defense 
Contract Audit Agency; and the Defense Contract Management Agency; 
[Footnote 60] (3) HHS's National Institutes of Health, National Cancer 
Institute, and National Institute of Allergy and Infectious Diseases; 
and (4) DHS's Directorate for Science and Technology. In addition, we 
obtained and analyzed federal and agency policies and guidance, 
contracts for the FFRDCs in our case studies and other supporting 
documentation such as performance and award fee plans, sponsoring 
agreements (when separate from contracts), and a variety of audits and 
reviews. While we did not assess the effectiveness of or deficiencies 
in specific agencies' controls, we reviewed agency documentation on 
incurred cost audits, general auditing controls, single audits, and 
audited financial statements. We also obtained and analyzed funding 
data from sponsoring agencies as well as from the National Science 
Foundation (NSF), which periodically collects and reports statistical 
information regarding FFRDCs, such as their sponsors, category types, 
contractors, and funding. While we did not independently verify the 
data for reliability, we reviewed the NSF's methodology and noted that 
it reports a 100 percent response rate, no item nonresponse, and no 
associated sampling errors. 

For FFRDCs in our case study, we conducted on-site visits, interviewed 
key contractor administrative personnel, and obtained information and 
documentation on how they meet sponsoring agencies' research needs and 
adhere to policy guidance. We observed examples of the types of 
research the FFRDCs conduct for their sponsors and obtained and 
analyzed documentation such as contractor ethics guidance and policies, 
performance plans, and annual reports. 

To obtain the perspective of the government contracting community, we 
met with high-level representatives of the Professional Services 
Council, a membership association for companies that provide services 
to the U.S. federal government. 

[End of section] 

Appendix II: List of 38 Federally Funded Research and Development 
Centers: 

[Italics indicates the eight FFRDC case studies included in this 
review.] 

Agency/dept/office of primary sponsor: Defense: Department of the Air 
Force; 
Name of FFRDC/location: Aerospace Center; El Segundo, Calif.; 
Contractor/type of contractor: Aerospace Corporation; Nonprofit; 
Type of FFRDC: Systems engineering and integration center. 

Agency/dept/office of primary sponsor: Defense: Department of the Army; 
Name of FFRDC/location: Arroyo Center; Santa Monica, Calif.; 
Contractor/type of contractor: RAND Corp.; Nonprofit; 
Type of FFRDC: Studies and analyses center. 

Agency/dept/office of primary sponsor: Defense: Office of the Secretary 
of Defense [Case study included in this review]; 
Name of FFRDC/location: C3I [Command, Control, Communications, and 
Intelligence] Center; Bedford, Mass., and McLean, Va.; 
Contractor/type of contractor: MITRE Corp.; Nonprofit; 
Type of FFRDC: Systems engineering and integration center. 

Agency/dept/office of primary sponsor: Defense: Department of the Navy; 
Name of FFRDC/location: Center for Naval Analyses; Alexandria, Va.; 
Contractor/type of contractor: CNA Corporation; Nonprofit; 
Type of FFRDC: Studies and analyses center. 

Agency/dept/office of primary sponsor: Defense: Office of the Secretary 
of Defense [Case study included in this review]; 
Name of FFRDC/location: Institute for Defense Analyses Studies and 
Analyses Center; Alexandria, Va.; 
Contractor/type of contractor: Institute for Defense Analyses; 
Nonprofit; 
Type of FFRDC: Studies and analyses center. 

Agency/dept/office of primary sponsor: Defense: National Security 
Agency; 
Name of FFRDC/location: Institute for Defense Analyses Communications 
and Computing Center; Alexandria, Va.; 
Contractor/type of contractor: Institute for Defense Analyses; 
Nonprofit; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Defense: Department of the Air 
Force [Case study included in this review]; 
Name of FFRDC/location: Lincoln Laboratory; Lexington, Mass.; 
Contractor/type of contractor: Massachusetts Institute of Technology; 
University; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Defense: Office of the Secretary 
of Defense; 
Name of FFRDC/location: National Defense Research Institute; Santa 
Monica, Calif.; 
Contractor/type of contractor: RAND Corp.; Nonprofit; 
Type of FFRDC: Studies and analyses center. 

Agency/dept/office of primary sponsor: Defense: Department of the Air 
Force; 
Name of FFRDC/location: Project Air Force; Santa Monica, Calif.; 
Contractor/type of contractor: RAND Corp.; Nonprofit; 
Type of FFRDC: Studies and analyses center. 

Agency/dept/office of primary sponsor: Defense: Department of the Army; 
Name of FFRDC/location: Software Engineering Institute; Pittsburgh, 
Penn.; 
Contractor/type of contractor: Carnegie Mellon University; University; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Energy; Office of Science; 
Name of FFRDC/location: Ames Laboratory; Ames, Iowa; 
Contractor/type of contractor: Iowa State University of Science and 
Technology; University; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Energy; Office of Science; 
Name of FFRDC/location: Argonne National Laboratory; Argonne, Ill.; 
Contractor/type of contractor: University of Chicago; University; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Energy; Office of Science; 
Name of FFRDC/location: Brookhaven National Laboratory; Upton, N.Y.; 
Contractor/type of contractor: Brookhaven Science Associates, Inc.; 
Nonprofit; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Energy; Office of Science [Case 
study included in this review]; 
Name of FFRDC/location: Ernest Orlando Lawrence Berkeley National 
Laboratory; Berkeley, Calif.; 
Contractor/type of contractor: University of California; University; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Energy; Office of Science; 
Name of FFRDC/location: Fermi National Accelerator Laboratory; Batavia, 
Ill.; 
Contractor/type of contractor: Universities Research Association, Inc.; 
University; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Energy; Office of Nuclear 
Energy; 
Name of FFRDC/location: Idaho National Laboratory; Idaho Falls, Idaho; 
Contractor/type of contractor: Battelle Energy Alliance, LLC; 
Nonprofit; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Energy; National Nuclear 
Security Administration; 
Name of FFRDC/location: Lawrence Livermore National Laboratory; 
Livermore, Calif.; 
Contractor/type of contractor: University of California; University; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Energy; National Nuclear 
Security Administration; 
Name of FFRDC/location: Los Alamos National Laboratory; Los Alamos, NM; 
Contractor/type of contractor: Los Alamos National Security, LLC; 
Industry; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Energy; Office of Energy 
Efficiency and Renewable Energy; 
Name of FFRDC/location: National Renewable Energy Laboratory; Golden, 
Colo.; 
Contractor/type of contractor: Midwest Research Institute; Battelle 
Memorial Institute; Bechtel National, Inc.; Nonprofit; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Energy; Office of Science; 
Name of FFRDC/location: Oak Ridge National Laboratory; Oak Ridge, 
Tenn.; 
Contractor/type of contractor: UT-Battelle, LLC; Nonprofit; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Energy; Office of Science; 
Name of FFRDC/location: Pacific Northwest National Laboratory; 
Richland, Wash.; 
Contractor/type of contractor: Battelle Memorial Institute; Nonprofit; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Energy; Office of Science; 
Name of FFRDC/location: Princeton Plasma Physics Laboratory; Princeton, 
N.J.; 
Contractor type of contractor: Princeton University; University; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Energy; National Nuclear 
Security Administration [Case study included in this review]; 
Name of FFRDC/location: Sandia National Laboratories; Albuquerque, NM; 
Contractor/type of contractor: Sandia Corporation; (subsidiary of 
Lockheed Martin Corp.); Industry; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Energy; Office of Environmental 
Management; 
Name of FFRDC/location: Savannah River National Laboratory; Aiken, 
S.C.; 
Contractor/type of contractor: Westinghouse Savannah River Co.; 
Industry; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Energy; Office of Science; 
Name of FFRDC/location: Stanford Linear Accelerator Center; Stanford, 
Calif.; 
Contractor/type of contractor: Leland Stanford, Jr., University; 
University; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Energy; Office of Science; 
Name of FFRDC/location: Thomas Jefferson National Accelerator Facility; 
Newport News, Va.; 
Contractor/type of contractor: Jefferson Science Associates, LLC; 
University/Industry Partnership; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Health and Human Services; 
National Institutes of Health, National Cancer Institute [Case study 
included in this review]; 
Name of FFRDC/location: National Cancer Institute at Frederick; 
Frederick, Md.; 
Contractor/type of contractor: SAIC-Frederick; (wholly owned subsidiary 
of Science Applications International Corp); Industry; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Homeland Security; Under 
Secretary for Science & Technology [Case study included in this 
review]; 
Name of FFRDC/location: Homeland Security Institute; Arlington, Va.; 
Contractor/type of contractor: Analytic Services, Inc.; Nonprofit; 
Type of FFRDC: Studies and analyses center. 

Agency/dept/office of primary sponsor: Homeland Security; Under 
Secretary for Science & Technology [Case study included in this 
review]; 
Name of FFRDC/location: National Biodefense Analysis & Countermeasures 
Center; Frederick, Md.; 
Contractor/type of contractor: Battelle National Biodefense Institute; 
Nonprofit; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: National Aeronautics and Space 
Administration; 
Name of FFRDC/location: Jet Propulsion Laboratory; Pasadena, Calif.; 
Contractor/type of contractor: California Institute of Technology; 
University; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: National Science Foundation; 
Name of FFRDC/location: National Astronomy and Ionosphere Center; 
Arecibo, P.R.; 
Contractor/type of contractor: Cornell University; University; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: National Science Foundation; 
Name of FFRDC/location: National Center for Atmospheric Research; 
Boulder, Colo.; 
Contractor/type of contractor: University Corporation for Atmospheric 
Research; University; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: National Science Foundation; 
Name of FFRDC/location: National Optical Astronomy Observatories; 
Tucson, Ariz.; 
Contractor/type of contractor: Association of Universities for Research 
in Astronomy, Inc.; University; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: National Science Foundation; 
Name of FFRDC/location: National Radio Astronomy Observatory; 
Charlottesville, Va.; 
Contractor/type of contractor: Associated Universities, Inc.; 
University; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: National Science Foundation; 
Name of FFRDC/location: Science and Technology Policy Institute; 
Washington, D.C.; 
Contractor/type of contractor: Institute for Defense Analyses; 
Nonprofit; 
Type of FFRDC: Studies and analyses center. 

Agency/dept/office of primary sponsor: Nuclear Regulatory Commission.
Name of FFRDC/location: Center for Nuclear Waste Regulatory Analyses; 
San Antonio, Tex.; 
Contractor/type of contractor: Southwest Research Institute; Nonprofit; 
Type of FFRDC: Studies and analyses center. 

Agency/dept/office of primary sponsor: Transportation; Federal Aviation 
Administration; 
Name of FFRDC/location: Center for Advanced Aviation System 
Development; McLean, Va.; 
Contractor/type of contractor: MITRE Corp.; Nonprofit; 
Type of FFRDC: Research & development lab. 

Agency/dept/office of primary sponsor: Treasury; Internal Revenue 
Service; 
Name of FFRDC/location: Center for Enterprise Modernization; McLean, 
Va.; 
Contractor type of contractor: MITRE Corp.; Nonprofit; 
Type of FFRDC: Systems engineering and integration center. 

Source: GAO. 

[End of table] 

[End of section] 

Appendix III: Comments from the Department of Defense: 

Office Of The Under Secretary Of Defense: 
Acquisition Technology And Logistics: 
3000 Defense Pentagon: 
Washington, DC 20301-3000: 

September 29, 2008: 

Mr. William Woods: 
Director, Acquisition and Sourcing Management: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, DC 20548: 

Dear Mr. Woods: 

This is the Department of Defense (DOD) response to the GAO draft 
report, GAO-09-15, "Federal Research: Opportunities Exist to Improve 
the Management and Oversight of Federally Funded Research and 
Development Centers," dated September 9, 2008, (GAO Code 120687). 

The Department's comment to the report recommendation is enclosed. The 
Department appreciates the opportunity to comment on the draft report. 

Sincerely, 

Signed by: 

Nancy Spruill: 
Director, Acquisition Resources and Analysis: 

Enclosure: As stated: 

GAO Draft Report Dated September 9, 2008: 
GAO-09-15 (GAO Code 120687): 

"Federal Research: Opportunities Exist To Improve The Management And 
Oversight Of Federally Funded Research And Development Centers" 

Department Of Defense Comments To The GAO Recommendations: 

Recommendation: The GAO recommends that the Secretaries of Energy, 
Defense, Homeland Security, and Health and Human Services, take the 
lead in establishing an ongoing forum for government personnel from 
these and other agencies that sponsor Federally Funded Research and 
Development Centers (FFRDCs) to discuss their FFRDC policies and 
practices. (Page 33/GAO Draft Report) 

DOD Response: Concur. The Department of Defense will work with the 
other agencies to establish an ongoing forum for government personnel 
from all government agencies that sponsor Federally Funded Research and 
Development Centers (FFRDCs) to discuss their FFRDC policies and 
practices. 

[End of section] 

Appendix IV: Comments from the Department of Energy: 

Department of Energy: 
Washington, DC 20585: 

October 1, 2008: 

William Woods: 
Director, Acquisition and Sourcing Management: 
U.S. Government Accountability Office: 
441 G Street, N.W. 
Washington, DC 20548: 

Dear Mr. Woods: 

This is the Department of Energy (DOE) response to the Government 
Accountability Office (GAO) Draft Report, GAO-09-15, "Federal Research: 
Opportunities Exist to Improve the Management and Oversight of 
Federally Funded Research and Development Centers," dated October 2008 
(GAO-Code 120687). We appreciate the opportunity to comment. 

DOE concurs with the recommendation provided in this Draft Report as it 
relates to sharing best practices for Federally Funded Research and 
Development Center (FFRDC) oversight and the formation of a forum with 
the Department of Defense, Department of Homeland Security, and 
Department of Health and Human Services. The assembly of such a forum 
should be under the leadership of the Department of Defense, which 
represents the largest procuring agency and whose statutory exemption 
to competition is pivotal in any discussion on best practices and 
lessons learned. 

My point of contact for this issue is Sandra Cover, who is available at 
(202) 287-1344. 

Sincerely, 

Signed by: 

Edward R. Simpson: 
Director: 
Office of Procurement and Assistance Management: 

[End of section] 

Appendix V: Comments from the Department of Health and Human Services: 

Department Of Health & Human Services: 
Office Of The Secretary: 
Assistant Secretary for Legislation: 
Washington, DC 20201: 

October 2, 2008: 

William Woods, Director: 
Acquisition and Sourcing Management: 
Government Accountability Office: 
441 G Street NW: 
Washington, DC 20548: 

Dear Ms. Woods: 

Enclosed are the Department's comments on the U.S. Government 
Accountability Office's (GAO) draft report entitled: "Federal Research: 
Opportunities Exist to Improve the Management and Oversight of 
Federally Funded Research and Development Centers" (GAO-09-15). 

The Department appreciates the opportunity to review and comment on 
this report before its publication. 

Sincerely, 

Signed by: 
Vincent J. Ventimiglia, Jr. 
Assistant Secretary for Legislation: 

Attachment: 

Comments Of The National Institutes Of Health (NIH) On The Government 
Accountability Office Draft Report, Opportunities Exist To Improve The 
Management And Oversight Of Federally Funded Research And Development 
Centers (GAO-09-15): 

GAO Recommendation: 

The Secretary of Health and Human Services review its policy regarding 
personal conflicts of interest for its sponsored FFRDC and revise as 
appropriate to ensure that it addresses all personnel in a position to 
make or materially influence research findings or agency decision 
making. 

NIH Response: 

NIH concurs with the recommendation and is currently reviewing its 
options for revisions to its conflict of interest policy. Although the 
GAO report states that HHS does not require FFRDC contractors to 
implement personal conflict of interest policies, NIH R&D contracts 
fall under the tenet of 45 CFR Part 94. NIH recently promulgated a 
standard contract clause to reinforce compliance with 45 CFR Part 94, 
and the clause has been included in the new FFRDC contract.
This regulation requires objectivity in research by establishing 
standards to ensure that investigators (defined as the principal 
investigator and any other person who is responsible for the design, 
conduct, or reporting of research funded under NIH contracts and 
spouses and dependents of investigators) will not be biased by any 
conflicting financial interest. Prior to expenditure of funds, and on 
an ongoing basis, an Institution, including the FFRDC, must report to 
NIH the existence of any conflicting interests it has found and provide 
assurance that the conflict has been managed, reduced, or eliminated in 
accordance with the regulation. NIH is also drafting an Advance Notice 
of Proposed Rulemaking (ANPRM) to seek comments from the public on 
whether the regulations should be amended. 

GAO Recommendation: 

The Secretaries of Energy, Defense, Homeland Security, and Health and 
Human Services, which together sponsor the vast majority of the 
government's FFRDCs, take the lead in establishing an ongoing forum for 
government personnel from these and other agencies that sponsor FFRDCs 
to discuss their agencies' FFRDC policies and practices. 

NIH Response: 

NIH is considering this recommendation, including aspects associated 
with the creation of and participation in a forum to share best 
practices for FFRDC oversight. 

[End of section] 

Appendix VI: GAO Contact and Staff Acknowledgments: 

GAO Contacts: 

William Woods (202) 512-4841 or woodsw@gao.gov Anu Mittal (202) 512- 
9846 or mittala@gao.gov: 

Acknowledgments: 

In addition to the individuals named above, key contributors to this 
report were John Neumann, Assistant Director; Cheryl Williams, 
Assistant Director; Sharron Candon; Suzanne Sterling; Jacqueline Wade; 
and Peter Zwanzig. 

[End of section] 

Footnotes: 

[1] Data from the National Science Foundation, Science and Engineering 
Indicators (2008)--the latest available. 

[2] "Sponsor" means the executive agency that manages, administers, 
monitors, funds, and is responsible for the overall use of an FFRDC. 
Federal Acquisition Regulation (FAR) 35.017(b). 

[3] References to DOE in this report include the National Nuclear 
Security Administration, a separately organized agency within DOE that 
is responsible for the management and security of the nation's nuclear 
weapons, nuclear nonproliferation, and naval reactor programs. 

[4] For a brief overview of the evolution and legal framework 
applicable to FFRDCs, see GAO, Principles of Federal Appropriations 
Law, vol. 4, 2nd ed., GAO-01-179SP (Washington, D.C.: March 2001), pp. 
17-81 through 17-85. 

[5] Pub. L. No. 101-509 (1990). 

[6] FAR 35.017(a)(2). 

[7] FAR 35.017-1, Sponsoring Agreements. 

[8] [hyperlink, http://www.nsf.gov/statistics/ffrdc/] (last accessed 
Oct. 3, 2008). 

[9] See 10 U.S.C. § 2304(c)(3); 41 U.S.C. § 253(c)(3); FAR 6.302-3(a) 
(2)(ii). 

[10] The Energy and Water Development Appropriations Act, 2004 (Pub. L. 
No. 108-137, § 301), requires DOE to compete its management and 
operations (M&O) contracts, the contract type DOE uses at its labs, 
unless the Secretary of Energy waives the requirement and notifies the 
Energy and Water Subcommittees 60 days prior to contract award. 

[11] The lab was subsequently designated as an FFRDC in 1975. 

[12] Subcommittee on Oversight of Government Management, Committee on 
Governmental Affairs, U.S. Senate. Inadequate Federal Oversight of 
Federally Funded Research and Development Centers, July 1992. 

[13] GAO had reported in 1988, that full and open competition between 
FFRDCs and non-FFRDCs could provide some assurance that sponsors had 
selected the most effective source for the work. The report also 
stated, however, that exposing FFRDCs to marketplace competition could 
fundamentally alter the character of the special relationship between 
FFRDCs and their sponsors. GAO, Competition: Issues on Establishing and 
Using Federally Funded Research and Development Centers, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-88-22] (Washington, D.C.: 
March 1988). 

[14] GAO, Federally Funded R&D Centers: Issues Related to the 
Management of DOD-Sponsored Centers. [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO/NSIAD-96-112] (Washington, D.C.: Aug. 6, 1996). 

[15] Cost-reimbursement contracts--which the FAR generally considers to 
be the usually appropriate contract form for R&D--provide for payment 
of allowable direct and indirect incurred costs as prescribed in the 
contract. These contracts establish an estimate of total cost to 
obligate funds and establish a ceiling that the contractor may not 
exceed without contracting officer approval. 

[16] See FAR subparts 16.3 and 16.4. 

[17] According to FAR subpart 16.3, a cost-plus-fixed-fee contract is a 
cost-reimbursement contract that provides for payment to the contractor 
of a negotiated fee that is fixed at the inception of the contract. The 
fixed fee does not vary with actual cost, but may be adjusted as a 
result of changes in the work to be performed under the contract. 

[18] This accounts for about 75 percent of Project Air Force's annual 
funding. 

[19] GAO, Defense Contracting: Additional Personal Conflict of Interest 
Safeguards Needed for Certain DOD Contractor Employees, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-08-169] (Washington, D.C.: Mar. 
7, 2008). 

[20] FAR 35.017(a)(2); 35.017-2(h). 

[21] In September 2006, the president and trustee of the Institute for 
Defense Analyses resigned before it was determined by DOD's Inspector 
General that his position on two defense subcontractors' corporate 
boards violated the FFRDC's conflicts-of-interest policy. In July 2006, 
his dual roles as FFRDC president and as a member of one of the defense 
subcontractor's board of directors drew public and congressional 
scrutiny regarding a business case for the Air Force on a multiyear 
procurement of the F-22 Raptor aircraft. Because this subcontractor 
manufactures a missile launcher for the F-22 aircraft's prime 
contractor, conflict of interest concerns were raised that the FFRDC 
president stood to financially profit from a favorable multiyear 
procurement decision for the F-22. 

[22] FAR 17.601 states: "Management and operating contract" means an 
agreement 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. 

[23] Department of Energy Acquisition Regulation 970.0371, Conduct of 
employees of DOE management and operating contractors. 

[24] [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-169]. This 
report identified some examples of how DOD FFRDC contractors that were 
implementing the new policy. 

[25] FAR 35.017-3(a); 35.017(a)(2). An FFRDC may perform for other than 
the sponsoring agency (1) under the Economy Act, or other applicable 
legislation, when the work is not otherwise available from the private 
sector or (2) under a separate contract with the nonsponsoring agency, 
when permitted by the sponsor. 

[26] The Homeland Security Act of 2002 included a provision to 
establish the Homeland Security Institute. Section 312 of the Act 
identifies specific types of duties or capabilities that may be 
requested to provide to DHS and the homeland security community. 

[27] The Executive Agent designates membership and chairs the HSI 
Advisory Group, and designates replacements for HSI Advisory Group 
members. 

[28] The National Intelligence Program and the Military Intelligence 
Program. 

[29] As defined in the FAR 37.104, a personal services contract is 
characterized by the employer-employee relationship it creates between 
the government and the contractor's personnel. The government is 
normally required to obtain its employees by direct hire under 
competitive appointment or other procedures required by the civil 
service laws. Obtaining personal services by contract, rather than by 
direct hire, circumvents those laws unless Congress has specifically 
authorized acquisition of the services by contract. Agencies shall not 
award personal services contracts unless specifically authorized by 
statute (e.g., 5 U.S.C. 3109) to do so. 

[30] FAR Part 2 definition of "inherently governmental functions": An 
inherently governmental function is a function that is so intimately 
related to the public interest as to mandate performance by government 
employees. These functions include those activities that require either 
the exercise of discretion in applying Government authority or the 
making of value judgments in making decisions for the government. 
Governmental functions normally fall into two categories: (1) the act 
of governing, i.e., the discretionary exercise of government authority, 
and (2) monetary transactions and entitlements. 

[31] The decision to accept such work is to be in accordance with DOE's 
Work Authorization Order 412.1A. 

[32] DOE field organizations (contracting officers) must receive a work 
authorization signed by the appropriate primary DOE Organization-- 
organizations that direct work to be performed by site and facility 
management contractors and other contractors determined by the 
procurement executive. Primary DOE Organizations, including National 
Nuclear Security Administration (NNSA), must review and approve the 
work as acceptable for the contractor before obligating funds for the 
contract. 

[33] DOD and DHS officials said their FFRDCs do not do "work for 
others" for private sector companies, and DOE officials said their 
FFRDCs generally conduct work only for federal agencies. 

[34] FAR 17.504(e). 

[35] Technology transfer can mean many things--technical assistance to 
solve a specific problem; use of unique facilities; access to patents 
and software; exchange of personnel; and cooperative research. 
Technology transfer mechanisms can include Cooperative Agreements, 
Cooperative Research and Development Agreements (CRADAs), Cost-Shared 
Contracts/Subcontracts, Licensing, and Work for Others. 

[36] See generally FAR subparts 27.3 and 27.4. 

[37] FAR 35.017(a)(2); 37.017-3(b). 

[38] See DOE Order 481.1B, att. 1. 

[39] DOE officials said that DOE programs and work for others customers 
both are charged an indirect cost rate that includes a Laboratory 
Directed Research Development component. 

[40] In December 2005 and January 2007, we issued reports on the use of 
award and incentive fees at the Department of Defense and the National 
Aeronautics and Space Administration, respectively. GAO, Defense 
Acquisitions: DOD Has Paid Billions in Award and Incentive Fees 
Regardless of Acquisition Outcomes, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-06-66] (Washington, D.C.: Dec. 19, 2005) and NASA 
Procurement: Use of Award Fees for Achieving Program Outcomes Should Be 
Improved, [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-07-58] 
(Washington, D.C.: Jan. 17, 2007). 

[41] The performance-based approach focuses the evaluation of the 
contractor's performance against eight goals: (1) provide for efficient 
and effective mission accomplishment; (2) Provide for efficient and 
effective design, fabrication, construction and operations of research 
facilities; (3) provide effective and efficient science and technology 
program management; (4) provide competent leadership and stewardship; 
(5) sustain and enhance effectiveness of integrated safety, health, and 
environmental protection; (6) deliver efficient, effective, and 
responsive business systems and resources; (7) sustain excellence in 
operating, maintaining, and renewing the facility and infrastructure 
portfolio to meet laboratory needs; and (8) sustain and enhance the 
effectiveness of integrated safeguards, security, and emergency 
management systems. 

[42] DOD generally does not provide award or incentive fees to its 
FFRDCs, which for our case study included the Institute for Defense 
Analyses, operating the Studies and Analysis Center; MITRE, operating 
the C3I systems engineering and integration center; and Massachusetts 
Institute of Technology operating the Lincoln Laboratory. 

[43] FAR 35.017-2(e) requires that the FFRDC sponsor in establishing an 
FFRDC ensure that controls are established to ensure that the costs of 
the services being provided to the government are reasonable. FAR 
35.017-4 requires that the review conducted prior to extending the 
FFRDC contract or agreement include an assessment of the adequacy of 
the FFRDC management in ensuring a cost-effective operation. 

[44] Since this review of FFRDCs focuses only on broad processes 
employed in the management and operation of FFRDCs, we reviewed 
practices and procedures that agencies use but did not attempt to 
determine either the most effective agency cost, accounting, or 
auditing controls, or the effectiveness of or deficiencies in specific 
agencies' cost or internal controls at the agencies and FFRDCs we 
reviewed. 

[45] FAR Part 31 specifies different cost principles on the 
allowability of various kinds of costs for different types of 
contractors: FAR 31.2 specifies allowable cost principles for 
commercial organizations; FAR 31.3, which incorporates OMB Circular No. 
A-21, applies to educational institutions; and FAR 31.7, which 
incorporates OMB Circular No. A-122, applies to nonprofit 
organizations. FAR 31.201-2(a) governing contracts with commercial 
firms states, for example, that the factors to be considered in 
determining whether a cost is allowable include: (1) reasonableness; 
(2) allocability; (3) standards promulgated by the Cost Accounting 
Standards Board, if applicable; otherwise GAAP; (4) the terms of the 
contract; and (5) any limitations set fort in subpart 31.2. 

[46] FAR 52.216-7 "Allowable Cost and Payment" requires the government 
to pay a contractor, if requested, as work progresses, in amounts 
determined to be allowable by the contracting officer in accordance 
with the applicable cost principles identified above. 

[47] FAR 42.705-1(b)(4); 42.705-2(b)(2). 

[48] Financial audits address issues such as compliance with cost- 
accounting standards, compensation and labor cost reviews, and advance 
agreements on forward-pricing factors such as indirect cost rates and 
labor hour rates used in repetitive-pricing formulas, among many 
others. Operational audits include audits of accounting and information 
technology systems' internal controls; and reviews of integrated 
business processes, program administration, financial and business 
operations, and project execution. 

[49] DOE generally requires M&O contractors, including the contractors 
for Sandia National Laboratory and the Ernest Orlando Lawrence Berkeley 
National Laboratory, to perform annual internal audits, under 
Department of Energy Acquisition Regulation § 970.5232-3 and standard 
contract clause I.103 (Accounts, Record, and Inspection-June 2007). 

[50] The Cooperative Audit Strategy was first developed and implemented 
in 1992 and implemented in 2007 with respect to all M&O contractors, 
including FFRDCs. 

[51] 31 U.S.C. 7501-7507. Office of Management and Budget (OMB) 
Circular A-133, "Audits of States, Local Governments, and Non-profit 
Organizations," implements the Single Audit Act and is applicable to 
all FFRDCs operated by an educational institution or non-profit 
organization, but not to those operated by commercial contractors. 
Audits are commonly referred to as "single audits" and are performed in 
accordance with Generally Accepted Government Auditing Standards 
(GAGAS). The Single Audit Act is designed to help federal agencies meet 
the need for oversight and uniformly structured audits of non-profit 
recipients that expend annually a total of $500,000 or more in federal 
awards. Rather than being a detailed review of individual programs, the 
single audit is an organization-wide financial statement audit that 
includes the audit of the Schedule of Federal Awards, and also focuses 
on internal control and the recipient's compliance with laws and 
regulations governing the receipt of federal financial awards. The 
federal agency that makes an award is responsible for overseeing 
whether the single audits are completed in a timely manner, while the 
award recipient is responsible for ensuring that a single audit is 
performed and submitted when due and for following up and taking 
corrective action on any audit findings. 

[52] GAO, Single Audit Quality: Actions Needed to Address Persistent 
Audit Quality Problems, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-08-213T] (Washington, D.C.: Oct. 25, 2007). 

[53] According to the NSF Master List of FFRDCs, five FFRDCs (four at 
DOE and one at HHS) are operated by private companies. 

[54] The Securities Exchange Act of 1934 as amended, including 
implementing regulations, requires publicly traded companies to make 
periodic filings with the Securities and Exchange Commission that 
disclose their financial status and changes in financial condition. 
These publicly traded companies are also subject to the Sarbanes-Oxley 
Act of 2002 requirements that include provisions for governance, 
auditing, and financial reporting. 

[55] The supplemental information is prepared by MITRE's independent 
auditors and, while not formally audited, was subjected to the same 
auditing procedures as applied to the corporation's financial 
statements, and according to the auditor are "fairly stated in all 
material respects in relation to the financial statements taken as a 
whole." 

[56] FAR 35.017-4(c). 

[57] Department of Energy Acquisition Regulation § 970.1706-1. 

[58] Department of Energy, Report of the External Members Best 
Practices Working Group, The Laboratory Operations Board, Management 
Best Practices for the National Laboratories, September 9, 2003. 

[59] GAO, Results-Oriented Government: Practices That Can Help Enhance 
and Sustain Collaboration among Federal Agencies, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-06-15] (Washington, D.C.: Oct. 
21, 2005). 

[60] We did not meet with the National Security Agency since its 
FFRDC's work is classified, and it was not included in our case study. 

[End of section] 

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