Selected Management Activities at the Naval Petroleum Reserve, California

RCED-85-7: Published: Apr 12, 1985. Publicly Released: May 13, 1985.

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In response to a congressional request, GAO reviewed certain aspects of the operations of the Department of Energy's (DOE) Naval Petroleum Reserve, California (NPRC), including: (1) the process used in establishing the fee for the contractor to operate NPRC in fiscal year 1984; (2) the adequacy of NPRC audit coverage; and (3) justification for the proposed construction of additional NPRC office space.

GAO found that the contractor's fee was not established in accordance with DOE regulations in 1984. In that year, the contractor accepted a base fee of zero, and thus qualified for an award fee of up to 200 percent of the fixed fee. Therefore, it received a much higher fee for its services than in any of the previous years. The DOE approval process for contractor purchases reduced the contractor's financial risks and made a maximum award fee for this factor unwarranted. Although the contractor did technical work, DOE and another contractor provided technical advice and experience. Furthermore, the contractor had limited responsibility for the administrative and technical management of field operations and had to seek operating committee approval for many minor routine actions. In addition, GAO found that: (1) the scope of independent audit coverage was too limited; (2) the contractor's internal review activity failed to meet GAO standards for independence; and (3) the DOE Inspector General had not covered key aspects of the operations. Finally, GAO questioned whether, in planning additional office space construction, the merits of leasing space had been fully considered.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: DOE provided documentation showing that all relevant factors were considered in negotiating the 1985 fee. DOE contends that the 1984 fee considered these factors, as evidenced by the subsequent typing and insertion in the files of the contracting officer's personal notes. Rebuttal of this contention would be time consuming and probably not cost-effective.

    Recommendation: The Secretary of Energy should verify and document the consistency of the fee-setting process with relevant DOE criteria prior to awarding the next contract to operate NPRC.

    Agency Affected: Department of Energy

  2. Status: Closed - Not Implemented

    Comments: Although GAO does not feel that the reporting level of the local audit staff has been elevated sufficiently high, the increased coverage being provided by the Inspector General effectively accomplishes the purpose of this recommendation.

    Recommendation: The Secretary of Energy should direct that the NPRC audit staff report to a management level that is independent of the officials who are directly responsible for the operations they review, such as the Inspector General, the Assistant Secretary for Fossil Energy, or the Under Secretary of Energy.

    Agency Affected: Department of Energy

  3. Status: Closed - Implemented

    Comments: DOE has technically complied with this recommendation and concluded that construction is still preferable to leasing. The primary objective was that GAO provide a basis for questioning the construction of the building. According to DOE, no construction will take place until 1988 at the soonest. DOE appropriations should be monitored for a possible accomplishment report.

    Recommendation: The Secretary of Energy should fully consider the leasing alternative before authorizing new construction due to the relatively high cost of constructing a new facility at NPRC compared to leasing space in Bakersfield.

    Agency Affected: Department of Energy


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