Even though they may be  funded entirely, or nearly so, from the federal treasury, FFRDCs are  regarded as contractors not federal agencies. Nevertheless, it is the only  centrally reported information on federal funding for FFRDCs. Most Agencies Compete Cost- Reimbursement Contracts for Operating Their FFRDCs, but Some Do Not Have Specific Personal Conflict-of- Interest Requirements

The four agencies we reviewed use cost-reimbursement contracts with the  organizations that operate their FFRDCs, and three of these agencies  generally use full and open competition in awarding these contracts. While  the agencies require that their FFRDCs be free from organizational  conflicts of interest in accordance with federal regulations, only DOD and  DOE have agencywide requirements that prescribe specific areas that  FFRDC contractors must address to ensure their employees are free from  personal conflicts of interest. In contrast, DOD continues to award its FFRDC contracts on a sole-source  basis under statutory exemptions to competition. The agencies determine appropriateness of work  conducted by their FFRDCs; perform on-going and annual assessments of  performance, costs and internal controls; and conduct comprehensive  reviews prior to renewing sponsoring agreements. Agencies Approve Research Plans and Work Conducted at Their FFRDCs

To ensure work remains within each FFRDCs purpose, mission, scope of  effort, and special competency, sponsoring agencies develop and approve  annual research plans for the FFRDCs and review and approve FFRDC  work assigned on a project-by-project basis. In determining the proposed research plan, DOD must abide by  congressionally set workload caps. HHS and DOD also have work-for-others programs for the FFRDCs they  sponsor. DOE uses a performance-based contracting approach with its FFRDCs,  which includes several mechanisms to assess performance. During the reviews prior to agreement renewal, sponsoring agencies  should include the following five areas identified by the FAR examination of the continued need for FFRDC to address its sponsor’s  technical needs and mission requirements; consideration of alternative sources, if any, to meet those needs; assessment of the FFRDC’s efficiency and effectiveness in meeting the  sponsor’s needs, including objectivity, independence, quick response  capability, currency in its field(s) of expertise, and familiarity with the  sponsor; assessment of the adequacy of FFRDC management in ensuring a cost- determination that the original reason for establishing the FFRDC still  exists and that the sponsoring agreement is in compliance with FAR  requirements for such agreements. There is no formal mechanism,  however, for sharing of best practices and lessons learned among  sponsoring agencies. DHS mirrored most of DOD’s FFRDC Management Plan,  and officials have stated that the STE limitations for DOD could be a  potentially useful tool for focusing FFRDCs on the most strategic and  critical work for the agency. Also, DHS officials stated they have made use  of DOE’s experience in contracting for and overseeing the operation of its  laboratories, such as including a DOE official in the DHS process to select  a contractor to operate its laboratory FFRDC. Currently,  although DHS and HHS have policies that generally require their FFRDC  contractors to implement such safeguards, they lack the specificity needed  to ensure their FFRDC contractors will consistently address employees’  personal conflicts of interest. Recommendations for Executive Action

To ensure that FFRDC employees operate in the government’s best  interest, we recommend   that the Secretary of Homeland Security revise agency policies to  address specific areas for potential personal conflicts of interest  for FFRDC personnel in a position to make or materially influence  research findings or agency decision making; and  that the Secretary of Health and Human Services review agency  policy  regarding personal conflicts of interest for its sponsored  FFRDC and revise as appropriate to ensure that this policy  addresses all personnel in a position to make or materially  influence research findings or agency decision making.
Why GAO Did This Study

In 2006, the federal government spent $13 billion--14 percent of its research and development (R&D) expenditures--to enable 38 federally funded R&D centers (FFRDCs) to meet special research needs. FFRDCs--including laboratories, studies and analyses centers, and systems engineering centers--conduct research in military space programs, nanotechnology, microelectronics, nuclear warfare, and biodefense countermeasures, among other areas. GAO was asked to identify (1) how federal agencies contract with organizations operating FFRDCs and (2) agency oversight processes used to ensure that FFRDCs are well-managed. GAO's work is based on a review of documents and interviews with officials from eight FFRDCs sponsored by the departments of Defense (DOD), Energy (DOE), Health and Human Services (HHS), and Homeland Security (DHS). What GAO Recommends

What GAO Found

Federal agencies GAO reviewed use cost-reimbursement contracts with the organizations that operate FFRDCs, and three of the agencies generally use full and open competition to award the contracts. Only DOD consistently awards its FFRDC contracts on a sole-source basis, as permitted by law and regulation when properly justified. FFRDCs receive funding for individual projects from customers that require the FFRDCs' specialized research capabilities. Because FFRDCs have a special relationship with their sponsoring agencies and may be given access to sensitive or proprietary data, regulations require that FFRDCs be free from organizational conflicts of interest. DOD and DOE also have policies that prescribe specific areas that FFRDC contractors must address to ensure their employees are free from personal conflicts of interest. In a May 2008 report, GAO recognized the importance of implementing such safeguards for contractor employees. Currently, although DHS and HHS have policies that require their FFRDC contractors to implement conflicts-of-interest safeguards, these policies lack the specificity needed to ensure their FFRDC contractors will consistently address employees' personal conflicts of interest. Sponsoring agencies use various approaches in their oversight of FFRDC contractors, including: (1) Review and approval of work assigned to FFRDCs, or conducted for other agencies or entities, to determine consistency with the FFRDC's purpose, capacity, and special competency. In this process, only DOD must abide by congressionally imposed annual workload limits for its FFRDCs. (2) Conduct performance reviews and audits of contractor costs, finances, and internal controls. (3) Conduct a comprehensive review before a contract is renewed to assess the continuing need for the FFRDC and if the contractor can meet that need, based on annual assessments of contractor performance. Some agencies have adopted other agencies' FFRDC oversight and management practices. For example, DHS mirrored most of DOD's FFRDC Management Plan--an internal DOD guidance document--in developing an approach to FFRDC oversight, and DHS officials told us they learned from DOE's experience in selecting and overseeing contractors for laboratory FFRDCs. In addition, HHS plans to implement certain DOE practices, including rewarding innovation and excellence in performance through various contract incentives. While agency officials have acknowledged the potential benefits from sharing best practices, there is currently no formal cross-agency forum or other established mechanism for doing so.