These DOE offices use M&O contracts to carry out their research and  development, nuclear weapons production, and other missions. Evaluation Reports Could Better Assess M&O Contractors’ Cost Performance

		DOE’s Fiscal Year 2016 M&O Contractor Performance Evaluation Reports Provided Less Information on Contractors’ Cost Performance than on Other Types of Performance

We found that DOE offices’ fiscal year 2016 PERs provided less  information on M&O contractors’ cost performance—evaluations of the  contractor’s spending, budgeting, strategic sourcing, and costs, including  the contractor’s cost-effectiveness—and provided more information  regarding technical and administrative areas of performance. Our analysis showed that the information on contractors’ cost  performance in the PERs did not permit such an assessment of  contractor cost performance for two primary reasons. We believe all of these contribute to why  the cost performance information that was included was often not useful  for acquisition decision-making:
DOE offices’ policies and PEMPs did not specifically require  PERs to include cost performance information and did not  discuss how to ensure that cost information is useful for  acquisition decision-making. DOE offices have policies on contractor performance evaluation, but  these do not specifically require that PERs include quality cost  performance information that can be used to make an overall assessment  of cost performance. DOE Generally Awarded M&O Contractors High Ratings and Most Available Performance Incentives, Except in Cases of Significant Safety or Security Incidents

In reviewing DOE’s M&O contractor performance evaluations for fiscal  years 2006 through 2016, we found the results of the evaluations to  generally include high performance ratings and most available  performance incentives, including a median of 94 percent of available  award and incentive fees. In fiscal years 2006 through 2016, three  contractors received 50 percent or less of available award fee due to two  significant incidents—a safety and security issue and a major accident. M&O Contractors Generally Received High Ratings in Fiscal Years 2006 through 2016 and more than 90 Percent of Available Performance Incentives

For the 239 annual M&O contractor evaluations from the 24 DOE contract  rating sites we reviewed, in fiscal years 2006 through 2016, DOE offices  provided award and incentive fees equivalent to the FAR rating  categories of Excellent or Very Good 94 percent of the time. By updating their policies  to require quality cost performance information in PERs to enable an  overall assessment of M&O contractor cost performance, the six DOE  offices with M&O contracts could strengthen their oversight of costs for  contracts worth about $20 billion a year and use this information to  improve acquisition decision-making. (Recommendation 7)

	Agency Comments and Our Evaluation

We provided a draft of this report to DOE for comment. Appendix I: Objectives, Scope, and Methodology

This report reviews the Department of Energy’s (DOE) performance  management of its management and operating (M&O) contracts. Specifically, it examines (1) how DOE offices evaluated M&O contractor  performance in fiscal years 2006 through 2016 and the extent to which  these offices have documented their evaluation approaches; (2) the  extent to which DOE’s fiscal year 2016 M&O contractor performance  evaluation reports provide information on contractors’ technical,  administrative, and cost performance; and (3) the results of DOE’s M&O  contractor performance evaluations from fiscal years 2006 through 2016.
Why GAO Did This Study

In fiscal years 2006 through 2016, the federal government spent almost $193 billion on DOE's M&O contracts—a form of contract that traces its origins to the Manhattan Project. Six DOE offices use M&O contracts to manage and operate federally owned sites that perform work to fulfill DOE's diverse missions, such as conducting scientific research and maintaining nuclear weapons.
GAO was asked to review DOE's performance management of its M&O contracts. This report examines, among other things, (1) how DOE offices evaluated M&O contractor performance in fiscal years 2006 through 2016; (2) the extent to which DOE's fiscal year 2016 M&O contractor PERs provide information on contractors' technical, administrative, and cost performance; and (3) the results of DOE's M&O contractor performance evaluations for fiscal years 2006 through 2016.
GAO reviewed performance evaluation documents for 21 of the 22 DOE M&O contracts; analyzed DOE policies, procedures, and guidelines, and federal regulations; analyzed technical, administrative, and cost aspects of M&O contracts' 2016 PERs; and interviewed DOE officials.

What GAO Found

In fiscal years 2006 through 2016, six offices within the Department of Energy (DOE) generally used one of three different approaches to evaluate management and operating (M&O) contractor performance. Although these approaches varied in the performance criteria and methodologies used for determining contractor ratings and incentives, all the offices annually set expectations for contractors and assessed performance.
In analyzing DOE's fiscal year 2016 Performance Evaluation Reports (PER), GAO found that these reports provided less information on M&O contractors' cost performance than on contractors' technical and administrative performance. The cost information provided in the PERs often was not detailed, did not indicate the significance of the performance being described, and applied only to specific activities. Further, the information is of limited use for acquisition decision-making, such as deciding whether to extend the length of a contract, because it does not permit an overall assessment of cost performance. A key reason PERs did not include more cost performance information is that the DOE offices' policies do not require specific assessments of cost performance or discuss how to ensure cost information is useful for future acquisition decision-making. By updating policies to require inclusion of quality cost performance information in PERs, DOE offices could better assess M&O contractors' costs, improve acquisition decision-making, and ensure performance evaluations fully address required elements.
Based on GAO's review of DOE M&O contractor performance evaluations from fiscal years 2006 through 2016, DOE generally provided high performance ratings and more than 90 percent of available performance incentives (see figure). Ratings for some areas of contractor performance, as well as ratings for contractor performance at specific DOE sites, varied from this trend. For example, three times during this period contractors received 50 percent or less of available award and incentive fees due to a major accident and safety and security issues.

What GAO Recommends

GAO is making seven recommendations to DOE, including to each of the six DOE offices to update their policies requiring that PERs include quality information to enable an overall assessment of M&O contractor cost performance. In commenting on a draft of this report, DOE generally agreed with these recommendations.