In the mid-1990s, DOE  began a series of contracting reforms to improve its contractors’  performance. DOE Has Competed FFRDC Contracts for Three Main Reasons

DOE has had three main reasons for competing its FFRDC contracts  instead of extending the contracts noncompetitively: when the contractor  operating the laboratory is a for-profit entity, when mission changes  warrant a review of the capabilities of other potential contractors, or when  the incumbent contractor’s performance is unsatisfactory. DOE has considerable flexibility in deciding whether to compete a  management and operating contract for one of its FFRDC laboratories. This preference for  competition is an outcome of DOE’s contract reform initiative, which  concluded that DOE needed to expand the use of competition in awarding  or renewing contracts. Among other things, the 1996 guidance specifies  that, before a noncompetitive contract extension can occur, DOE must  provide    a certification that full and open competition is not in the best interest of    a detailed description of the incumbent contractor’s past performance,    an outline of the principal issues and/or significant changes to be  negotiated in the contract extension, and in the case of FFRDCs, a showing of the continued need for the research  and development center in accordance with criteria established in the  Federal Acquisition Regulation. For the 16 remaining FFRDC contracts that DOE sponsors, DOE has  competed 6 of them and is planning to compete two additional contracts  in 2004 and 2005. Congressional committees and others have called for DOE  to compete these contracts. In April 2003, the Secretary of Energy decided to open the Los Alamos  National Laboratory contract to competition when the current contract  expires in September 2005. DOE has also decided to restructure the FFRDC contracts supporting  work at the Idaho National Laboratory. DOE plans to restructure the two  contracts so that one focuses on the nuclear energy research mission and  the other focuses on the cleanup mission at the site. DOE also plans to  include the activities at Argonne West in the contract competition for the  site’s research mission and to remove the Argonne West scope of work  from DOE’s existing contract with the University of Chicago to operate  Argonne National Laboratory. Competing Its Contracts Is One of Several Mechanisms DOE Has to Address Contractor Performance, but Effective Oversight and Improved Outcome Measures Are Also Needed

Competing contracts is one of several mechanisms DOE can use to  address contractor performance problems or strengthen contract  management. However, competing a contract does not ensure that  contractor performance will improve. Other steps DOE has taken as part  of its contract reform initiative to address contractor performance issues  include changing the type of contract, such as from a cost-reimbursement  to a fixed-price contract, or establishing or strengthening performance- based incentives in the contract. Even these changes to DOE’s contracts do not by themselves ensure that  contractor performance will improve. We have reported that DOE must  also (1) effectively oversee its contractors’ activities in carrying out  projects and (2) use appropriate outcome measures to assess overall  results and apply lessons learned to continually improve its contracting  practices. DOE is still working to put a best-practices approach in  place. Therefore, the department has compelling reasons to ensure that it has in  place an effective set of contracting and management practices and  controls.
Why GAO Did This Study

DOE is the largest civilian-contracting agency in the federal government, and relies primarily on contractors to operate its sites and carry out its diverse missions. For fiscal year 2003, DOE will spend about 90 percent of its total annual budget, or $19.8 billion, on contracts, including $9.4 billion to operate 16 of its research laboratories (called federally funded research and development centers). Since 1990, GAO has identified DOE's contract management as high-risk for fraud, waste, abuse, and mismanagement. In 1994, DOE began reforming its contracting practices to, among other things, improve contractor performance and accountability. As part of that effort, DOE has at times used competition in awarding contracts to manage and operate its research laboratories. In September 2002, GAO reported on the status of contract reform efforts in DOE. (Contract Reform: DOE Has Made Progress, but Actions Needed to Ensure Initiatives Have Improved Results) (Sep. 2002, GAO-02-798) This testimony discusses some of the findings in that report. GAO was asked to testify on DOE's rationale for deciding whether to compete a laboratory research contract, the extent to which DOE has competed these contracts, and the role of competition and other mechanisms in improving contractor performance.

What GAO Found

DOE has competed its research laboratory contracts in three main situations--when the contractor operating the laboratory is a for-profit entity, when mission changes warrant a review of the capabilities of other potential contractors, or when the incumbent contractor's performance is unsatisfactory. DOE guidance requires that to extend a contract noncompetitively, the department must present a convincing case for doing so to the Secretary of Energy. Among other things, DOE must certify that competing the contract is not in the best interests of the government and must describe the incumbent contractor's past successful performance. Of the 16 research laboratory contracts currently in place, DOE has competed 6. The remaining 10 contracts have not been competed since the contractors began operating the sites--in some cases, since the 1940s. DOE recently decided to compete 2 of the 10 contracts that had never before been competed--contracts to operate the Los Alamos National Laboratory in New Mexico and the Argonne West Laboratory, located at the Idaho National Laboratory. DOE decided to compete the Los Alamos contract because of concerns about the contractor's performance, and to compete the Argonne West contract as part of an overall effort to separate the Idaho National Laboratory's nuclear energy research mission from the environmental cleanup mission at the Idaho site. Competing contracts is one of several mechanisms DOE can use to address contractor performance problems or strengthen contract management. However, just competing a contract does not ensure that contractor performance will improve. Other aspects of DOE's contract reform initiative intended to improve contractor performance included greater use of fixed-price contracts instead of cost-reimbursement contracts and establishing or strengthening performance-based incentives in existing contracts. In addition, GAO has reported that DOE must (1) effectively oversee its contractors' activities in carrying out projects and (2) use appropriate outcome measures to assess overall results and apply lessons learned to continually improve its contracting practices. GAO's recent evaluation of DOE's contract reform efforts indicates that DOE is still working to put these management practices and outcome measures in place.