Energy Management:

Problems With Martin Marietta Energy Systems' Affiliate Relationships

RCED-87-70: Published: Mar 5, 1987. Publicly Released: Apr 15, 1987.

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Pursuant to a congressional request, GAO evaluated a Department of Energy (DOE) contractor's actions in operating the DOE Oak Ridge National Laboratory to determine whether: (1) the contractor's relationship with an affiliate violated DOE conflict-of-interest regulations; and (2) DOE maintained adequate control over the contractor's procedure for acquiring personal services from its parent company.

GAO found that the contractor: (1) helped to set up an affiliated venture capital firm for the purpose of transferring technology developed at Oak Ridge to the private sector; (2) failed to follow DOE conflict-of-interest procedures when dealing with the affiliate; (3) failed to advise DOE of its relationship with the affiliate; (4) twice released technology-related information to the affiliate before obtaining DOE approval to do so; and (5) allowed the affiliate an unfair competitive advantage over a firm that was attempting to acquire certain Oak Ridge-developed technology. GAO also found that: (1) DOE does not review the contractor's compliance with the contract's conflict-of-interest provisions; and (2) in order to mitigate concerns over the apparent conflict of interest, DOE and the contractor negotiated an agreement limiting the contractor's parent company's gain from DOE technologies commercialized through the affiliate. In addition, GAO found that: (1) DOE and the contractor did not follow established procedures for approving the noncompetitive acquisition of services from the contractor's parent company; (2) the procedures that DOE and the contractor established for such acquisitions required neither written justifications for noncompetitive procurement nor documentation of labor costs; and (3) the contractor sometimes failed to submit required documentation of other costs.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In a May 13, 1987, letter, DOE requested Energy Systems to provide it a list of affiliates and to periodically update the list in the future.

    Recommendation: To strengthen DOE oversight of Martin Marietta Energy Systems' compliance with conflict-of-interest requirements, the Secretary of Energy should direct the Oak Ridge Operations Office Manager to require Energy Systems to identify all of its current affiliates and report them to the DOE contracting officer. This could be accomplished through a one-time review, then updated by determining whether any new business contact is an affiliate and periodically reporting such contacts to DOE.

    Agency Affected: Department of Energy

  2. Status: Closed - Implemented

    Comments: DOE concurred with this recommendation and scheduled the first review to be performed with the next Energy Systems' performance appraisal period. DOE provided evidence that a review was performed on July 28, 1987. DOE also stated that follow-on reviews will be performed annually. An accomplishment report will be prepared.

    Recommendation: To strengthen DOE oversight of Energy Systems' compliance with conflict-of-interest requirements, the Secretary of Energy should direct the Oak Ridge Operations Manager to carry out periodic reviews of Energy Systems to ensure that business contacts with affiliates and potential conflict-of-interest situations are identified and reported to DOE.

    Agency Affected: Department of Energy

  3. Status: Closed - Implemented

    Comments: DOE strengthened controls over IDOD by directing Energy Systems to require that IDOD be approved by DOE prior to beginning work and that audit verification of IDOD be performed. DOE did not believe sole-source justifications were needed, but will obtain additional information on why IDOD are being used instead of purchasing procedures.

    Recommendation: The Secretary of Energy should direct the Manager of the Oak Ridge Operations Office to strengthen controls governing the use of Interdivisional/Intercompany Operating Directives (IDOD), including: (1) directing that Energy Systems amend its IDOD procedure to require specifically that advance DOE approval be obtained before work may begin on IDOD, and ensure that IDOD have been approved by DOE before performance begins; (2) requiring that sole-source justifications, as defined in Energy Systems' procurement manual, be included in the submission of IDOD involving substantial dollar amounts; (3) requiring supporting documents on costs incurred, including labor charges, to be submitted to Energy Systems for review and verifications before payment is made; and (4) directing that audits of IDOD be included in regularly scheduled DOE audits of Energy Systems' activities.

    Agency Affected: Department of Energy


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