However, DOE could use  performance incentives more effectively for controlling costs and  schedules for its major projects if the department developed criteria for  using different performance incentives and assigned responsibility for  reviewing a contract’s project management provisions prior to award. Improved guidance could help DOE better control costs and maintain  schedules for its major projects. Problems Have Developed Because DOE Has Not Effectively Used Performance Incentives

For many of the 33 major projects we reviewed, DOE has used  performance incentives that limit its ability to effectively control cost and  schedule performance. DOE’s Implementation of Performance Incentive Provisions Does Not Enable DOE to Effectively Control Costs

For 15 of the 17 major projects that use a cost-plus-award-fee contract, the  contract contained a technical, schedule, or other performance incentive  without including an associated cost incentive or cost constraint (other  than the annual funding level for the contract). However, DOE has not certified the  reliability of contractors’ project management systems that generate the  target cost data for the 13 major projects. DOE has relied  on unvalidated contractor data to monitor contractors’ progress in  executing major projects and awarding fees for performance. Specifically, DOE’s self-assessments of its contract  administration in 1997 and 2002 both found that field personnel overly  relied on contractor accounting systems and contractor-collected project  data without significant validation of these data. However, unlike the 1997  self-assessment, the one in 2002 made no recommendation to fix this  problem, and no subsequent self-assessment has been initiated to  determine if the problem has continued. The Reliability of PARS Data Is Limited

The reliability of the project cost and schedule data that PARS provides to  senior DOE managers is limited by problems with the data’s accuracy,  completeness, and timeliness. To improve the reliability and usefulness of project performance data in  PARS, we recommend that the Secretary of Energy direct the appropriate  managers to take the following seven actions:  develop a schedule for assessing the reliability of the contractors’  project management systems, giving priority to major projects and those  projects with systems believed to be using incorrect methods to  generate PARS data;  revise DOE manual 413.3-1 to provide guidance that enhances the  accurate reporting of total cost and project performance data into PARS,  such as the reporting of life-of-project cost and schedule variances;  expedite training for major project directors in earned value   ensure that program office officials receive currently available project  management training so that they can better identify the elements of a  project, and apply the project management concepts necessary for them  to report performance data in PARS;  incorporate forward-looking trend data into PARS reports so that senior  managers can better identify negative trends and potentially take  corrective action;  explore options for ensuring that contractors provide cost and schedule  performance data to PARS on a monthly basis, such as making monthly  submissions a requirement in all applicable contracts; and  explore options for providing senior DOE managers with more timely  project performance data by, for example, electronically linking  contractors’ project management systems to PARS.
Why GAO Did This Study

The Department of Energy (DOE) pays its contractors billions of dollars each year to implement its major projects--those costing more than $400 million each. Many major projects have experienced substantial cost and schedule overruns, largely because of contract management problems. GAO was asked to assess, for major departmental projects, (1) DOE's use of performance incentives to effectively control costs and maintain schedules, (2) the reliability of the data DOE uses to monitor and assess contractor performance, and (3) the reliability of the Project Assessment and Reporting System (PARS) data that senior managers use for project oversight.

What GAO Found

DOE could use performance incentives more effectively for controlling costs and schedules if it developed performance incentive guidance and assigned responsibility for reviewing a contract's project management provisions prior to award. DOE has awarded contracts for 15 of 33 major projects that use a schedule or other performance incentive without an associated cost incentive or constraint; thus a contractor could receive full fees by meeting all schedule baselines while substantially overrunning costs. DOE has relied on unvalidated contractor data to monitor contractors' progress in executing major projects and to award fees for performance. In particular, DOE's self-assessment of contract administration in 2002 found that field personnel overly relied on contractors' accounting systems and contractor-collected data in assessing performance, without significant validation of those data. No subsequent self-assessment has been conducted to determine if this problem continues. Furthermore, DOE has not required that its contracting officers receive the training needed to assess the adequacy of contractors' project management systems that generate data used to monitor progress. A lthough development of PARS is a positive step, the reliability of the project performance data that PARS provides to senior DOE managers is limited by problems with accuracy, completeness, and timeliness. Regarding accuracy, DOE has not assessed the reliability of contractors' project management systems that feed data into PARS for 31 of 33 major projects, even though DOE believes that some systems are deficient. Regarding completeness, GAO identified 3 major projects that are not in PARS. As to timeliness, cost and schedule data for 6 major projects in the June 2004 PARS report were significantly out of date because DOE has not required contractors to submit timely performance data. These contract management problems limit DOE's ability to effectively manage its major projects and avoid further cost and schedule slippages.