Performance-Based Contracting at the National Laboratories Is an Evolving Process

DOE’s implementation of performance-based contracting for its laboratories is in a state of transition. The number of performance measures . Types of Fees Paid to Contractors Vary Widely

Although performance fees are a major feature of performance-based contracting, only 9 of the Department’s 18 laboratory contracts have them. Nine of the remaining laboratory contracts operate under DOE’s traditional fixed-fee arrangement, and one laboratory contract has no fee. DOE has not analyzed the impact of performance-based contracting on its laboratory contractors. As a result, it has not determined whether performance-based contracting is achieving the intended objectives of reducing costs and improving performance. Without such an overall analysis, however, it is difficult to determine the value to the government of the over $100 million spent on contractor fees for fiscal year 1998. DOE’s laboratories were not the focus of this review, however. However, since DOE has not evaluated the impact of performance-based contracting on its laboratories—owing in part to the wide variance in fee arrangements—there is limited evidence on how performance fees ensure a high level of performance by contractors at lower cost. Recommendation

Because DOE does not know whether performance-based contracting is improving performance at lower cost at its national laboratories and because our previous recommendation to develop criteria for measuring the costs and benefits of paying fees to contractors for incurring increased financial risk was not implemented, we recommend that the Secretary of Energy evaluate the costs and benefits from using performance-based contracting at the national laboratories. We also agree that DOE’s use of performance-based contracting is evolving and that the variability we found in laboratory contracts (principally in performance measures and fee arrangements) is in part due to an ongoing learning process associated with the transition to performance-based contracting. 1. 2. 3. 4. 5. 6. 7. DOE field officials told us that performance fees are used to encourage superior performance.
Why GAO Did This Study

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

What GAO Found

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