Department of Energy: Improved Oversight Could Better Ensure	 
Opportunities for Small Business Subcontracting (13-MAY-05,	 
GAO-05-459).							 
                                                                 
Federal policy requires that small businesses receive the maximum
practicable subcontracting opportunity for providing goods and	 
services to large businesses that contract directly with federal 
agencies. The Department of Energy (DOE) annually directs almost 
$20 billion to the 34 "facility management contractors" of which 
$3.3 billion was redirected to small business subcontractors in  
fiscal year 2004. DOE negotiates annual small business		 
subcontracting goals with individual contractors and monitors	 
their achievements. GAO was asked to (1) determine the usefulness
of the data that DOE uses to monitor subcontracting performance  
and (2) discuss the actions that DOE has taken to address any	 
problems with the contractors' subcontracting efforts.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-05-459 					        
    ACCNO:   A24059						        
  TITLE:     Department of Energy: Improved Oversight Could Better    
Ensure Opportunities for Small Business Subcontracting		 
     DATE:   05/13/2005 
  SUBJECT:   Contract administration				 
	     Contract oversight 				 
	     Contract performance				 
	     Data collection					 
	     Data integrity					 
	     Facility management				 
	     Federal procurement				 
	     Monitoring 					 
	     Reporting requirements				 
	     Small business					 
	     Small business contractors 			 
	     Subcontracts					 

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GAO-05-459

United States Government Accountability Office

GAO

                       Report to Congressional Committees

May 2005

DEPARTMENT OF ENERGY

    Improved Oversight Could Better Ensure Opportunities for Small Business
                                 Subcontracting

GAO-05-459

[IMG]

May 2005

DEPARTMENT OF ENERGY

Improved Oversight Could Better Ensure Opportunities for Small Business
Subcontracting

                                 What GAO Found

DOE's facility management contractors' small business subcontracting
achievements-reported as a percentage of their total subcontracted
dollars-are not useful for monitoring purposes because the reported data
overstates subcontracting achievements in two ways: (1) All of the
contractor-reported data incorrectly excluded some large-business
subcontracts, beyond what federal reporting guidelines allow. Excluding
these subcontracts made the percentage of subcontracted dollars going to
small businesses appear larger than it would have, if such subcontracts
were not incorrectly excluded. If these subcontracts had been included,
some contractors said it was likely they would have requested lower goals.
(2) Even when all relevant subcontracts are included, the
contractor-reported data can still overstate contractors' subcontracting
achievements. Because a contractor could decide to subcontract only a
small amount of its total federal contract, the portion of subcontracted
dollars going to small businesses could, by comparison, appear
misleadingly large. As a result, contractor-reported data is not useful to
DOE in determining its contractors' actual small business subcontracting
achievements or adequately assessing whether small businesses are
receiving maximum practicable subcontracting opportunities.

DOE has not taken adequate steps to address known problems with the
contractor-reported data. Because the data showed that the department was
meeting its subcontracting goals, DOE officials were not inclined to
closely monitor contractors' practices for calculating their
subcontracting goals and achievements. DOE officials were aware in 2002
that the contractors were not following federal guidelines on which
subcontracts to include when developing goals. DOE's Small Business Office
did provide clarifying information on the requirements, but DOE officials
failed to ensure that the guidelines were being followed, and problems
continued. In March 2005, DOE issued additional guidance, but it is
uncertain whether DOE will ensure that the guidance is followed. These
oversight problems occurred, in part, because DOE has not clearly defined
the roles, responsibilities, and needed interaction of the various
headquarters and field organizations that collectively oversee the
contractors' small business subcontracting efforts.

Data on 13 facility management contractors' reported fiscal year 2004
small business subcontracting achievements, which incorrectly excluded
certain subcontracts

Number of contractors that Number of contractors achieving

Number of reported achieving their their goals if all appropriate

contractors subcontracting goals subcontracts were included

13 (100%) 12 (92%) 4 (31%)

Source: GAO analysis of facility management contractor data.

Note: Details on selection of these 13 facility management contractors can
be found in appendix II of the report.

United States Government Accountability Office

Contents

  Letter

Results in Brief
Background
Data Reported by Facility Management Contractors Is Not Useful

for DOE's Monitoring of Their Small Business Subcontracting Performance

DOE Oversight of Small Business Subcontracting by Facility Management
Contractors Was Not Adequate to Address Identified Problems with
Contractor-Reported Data

Conclusions
Recommendations for Executive Action
Agency Comments

                                       1

                                      3 5

                                       8

21 26 27 27

  Appendix I	DOE Facility Management Contractors' Annual Small Business
  Subcontracting Goals and Achievements

    Appendix II                    Scope and Methodology                   38 
                   Determining the Usefulness of the Facility Management  
                                 Contractor-Reported Data                  38 
                  Determining Actions Taken by DOE to Address Problems     43 
    Appendix III          Comments from the Department of Energy           45 
                                       GAO Comments                        51 
    Appendix IV            GAO Contacts and Staff Acknowledgment          

  Tables

Table 1: Subcontracting Dollars that DOE Facility Management Contractors
Reported Directing to Small Businesses in Fiscal Years 2001 through 2004 9

Table 2: Types of Subcontracts Incorrectly Excluded from the 34 Facility
Management Contractors' Calculations of Fiscal Year 2004 Small Business
Subcontracting Achievements 11

Table 3: Fiscal Year 2004 Small Business Subcontracting Goals, Reported
Achievements, and Recalculated Achievements for 13 Facility Management
Contractors 13

Table 4: Comparison of Fiscal Year 2004 Reported Small Business
Subcontracting Achievements with Achievements Recalculated as a Percent of
Annual Amount Funded on the Facility Management Contract 15

Abbreviations

DOE Department of Energy
NASA National Aeronautics and Space Administration
NNSA National Nuclear Security Administration
SBA Small Business Administration

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separately.

United States Government Accountability Office Washington, DC 20548

May 13, 2005

The Honorable Pete V. Domenici
Chairman
The Honorable Jeff Bingaman
Ranking Member
Committee on Energy and Natural Resources
United States Senate

The Honorable Olympia J. Snowe
Chair
The Honorable John F. Kerry
Ranking Member
Committee on Small Business and Entrepreneurship
United States Senate

The Small Business Act, as amended by the Small Business
Reauthorization Act of 1997, established a federal policy that small
businesses shall have the maximum practicable opportunity to participate
in providing goods and services to the federal government and its direct
contractors, consistent with efficient contract performance. Directing
federal dollars to small businesses can produce cost savings, increase
competition, encourage greater innovation, and enhance small business
capacity. The policy of the federal government is to encourage contracting
with small businesses-both prime contracts, which would be contracts
directly between small businesses and federal agencies, and subcontracts,
which would be between federal prime contractors and small businesses.

The Department of Energy (DOE), the largest civilian contracting agency
in the federal government, spent $22.4 billion on contracts in fiscal year
2004. The majority of this amount-$18.9 billion-was spent on large
contracts for managing DOE's laboratories, production facilities, and
environmental restoration sites located in various states across the
nation.
Under these "facility management contracts," a contractor is responsible
for performing, managing, and integrating work at a DOE site, often
subcontracting specific portions of the work to other businesses. In
fiscal
year 2004, DOE's 34 facility management contractors subcontracted out
about $6.5 billion, of which about $3.3 billion went to small businesses.

Federal regulations require that DOE's facility management contractors
develop small business subcontracting plans that set forth a strategy for

providing the maximum practicable opportunities for small businesses to
participate as subcontractors in the work that the facility management
contractors oversee at DOE sites. The Small Business Administration (SBA)
provides guidelines for how contractors should develop small business
subcontracting plans and goals. These guidelines describe the procedures
that contractors should use to officially report their small business
subcontracting goals and achievements. In reporting, contractors must
express the dollars going to their small business subcontractors as a
percentage of the total dollars going to all of their subcontractors-
including both large and small businesses as well as government agencies
and nonprofit organizations. Contractors generally must report on all of
their subcontracts, although SBA guidelines allow two exclusions: (1)
subcontracts performed outside of the U.S. or its territories and (2)
subcontracts with an affiliate organization, such as a subsidiary company
or a parent company.

To meet government-wide small business subcontracting goals, SBA
negotiates annual subcontracting goals with each federal agency. The goal
that DOE's Office of Small and Disadvantaged Business Utilization
(referred to in this report as DOE's Small Business Office) has negotiated
with SBA is for 50 percent of its total subcontracting dollars to be
directed to small businesses each year. To meet this goal, DOE contracting
officers located at the various agency sites negotiate annual goals with
individual facility management contractors and, with the assistance of
small business program managers, monitor contractors' compliance with
subcontracting plans as well as progress toward achieving annual small
business subcontracting goals.

Despite the efforts of SBA to meet government-wide annual subcontracting
goals, there have been continuing concerns that small businesses were not
being provided the maximum practicable opportunity to provide goods and
services to the federal government and its contractors. In March of 2002,
the President announced a Small Business Agenda that proposed steps toward
creating a more dynamic environment where small businesses could flourish,
including ways to improve the access of small businesses to federal
contracting opportunities. One of the strategies was to strengthen federal
agency oversight of its contractors' efforts to comply with small business
subcontracting plans.

In this context, you asked us to review the small business subcontracting
achievements of DOE's facility management contractors. This report
discusses (1) the usefulness of the data reported by DOE facility
management contractors for monitoring contractor performance in small

business subcontracting and (2) the actions that DOE has taken to address
any problems identified with its facility management contractors' small
business subcontracting efforts.

To determine the usefulness of the data reported by DOE facility
management contractors on their small business subcontracting goals and
achievements, we received and analyzed data on fiscal year 2001 through
2004 subcontracting goals and achievements from DOE's 34 facility
management contractors, as well as information on how the contractors
developed their goals and calculated their achievements. To assess the
reliability of the data that the contractors provided about their
achievements, we obtained and analyzed information from all 34 contractors
about their methods for compiling subcontracting achievement data and
steps they took to ensure the accuracy and completeness of these data. We
also visited 13 of the 34 facility management contractors, which we
selected based on the contractors' association with the department's three
largest component organizations-Environmental Management, Science, and
National Nuclear Security Administration (NNSA)-and on the geographic
location of DOE sites. During these site visits, we obtained and analyzed
supporting documents for small business subcontracts reported in the
contractors' fiscal year 2004 achievements, and we obtained documentation
on the dollar value of any subcontracts that the contractors excluded from
their reported achievements for that year. A more detailed description of
our scope and methodology is presented in appendix II. We performed our
work from June 2004 to April 2005 in accordance with generally accepted
government auditing standards.

The subcontracting data reported by DOE's facility management contractors
is not useful for monitoring whether they are meeting small business
subcontracting goals. All contractor-reported data incorrectly excluded
some subcontracts, beyond what SBA guidelines allow, thereby overstating
contractors' reported small business subcontracting achievements.
Excluding these subcontracts reduced the facility management contractors'
total reported subcontracting dollars without reducing the reported amount
that went to small businesses. As a result, the reported percentage of
subcontracting dollars that went to small business appeared larger than it
would have if such subcontracts were not incorrectly excluded. When we
added the incorrectly excluded subcontracts (about $887 million) back into
selected contractors' reported achievements, 9 out of the 13 selected
contractors would have fallen short of their subcontracting goals,
although 12 had reported achieving their

  Results in Brief

goals. However, if these subcontracts had been included, some contractors
said it was likely they would have requested lower goals. In addition,
even when all relevant subcontracts are included, the contractor-reported
data are misleading because they can make the small business
subcontracting results appear higher than they actually are. This happens
because the contractors calculate their small business subcontracting
achievements as a percentage of the total amount of their subcontracted
dollars. Because the total amount of their subcontracted dollars could be
very small, the portion going to small businesses could appear as a
misleadingly large percentage. As a result, the contractor-reported data
do not provide a true picture of the contractors' performance. Therefore,
the department cannot meaningfully use the data to monitor performance and
determine whether the contractors are affording small business
subcontractors the maximum practicable opportunity to provide goods and
services to the facility management contractors, as required by the policy
set out by the Small Business Act.

DOE has not taken adequate steps to address the problems with the small
business subcontracting data reported by its facility management
contractors, resulting in a lack of assurance that facility management
contractors are providing maximum practicable opportunities for small
business subcontracting. Because achievement data reported by the facility
management contractors showed that DOE was meeting the small business
subcontracting goal it established with SBA, DOE officials were not
inclined to closely monitor facility management contractors'
subcontracting practices or take adequate steps to address even known
problems with the achievement data. In some cases, DOE's contracting
officers approved facility management contractors' small business
subcontracting plans, even though those plans specified practices for
calculating goals and achievements that were not consistent with SBA
guidelines. In other cases, officials in DOE's Small Business Office knew
of, but did not adequately address, problems with subcontracting
achievement data until we raised concerns about the data. Further, DOE
officials were aware in 2002 that the facility management contractors were
not consistently following SBA guidelines concerning which subcontracts to
include when developing small business subcontracting goals. Although
DOE's Small Business Office then provided clarifying information on the
requirements, these problems continued. In March 2005, DOE issued
additional guidance, but it is uncertain whether DOE will ensure that the
guidance is followed. As a result of these oversight problems, DOE had not
ensured that its facility management contractors were providing maximum
practicable opportunities for small businesses. These problems occurred,
in part, because DOE has not clearly defined the roles, responsibilities,

and needed interaction of the various headquarters and field organizations
that must work together to provide oversight of the small business
subcontracting program.

To improve the overall effectiveness of DOE's small business
subcontracting program, we are recommending that the Secretary of Energy
take steps to (1) ensure that DOE has useful data for managing the small
business subcontracting program and (2) improve oversight of the
subcontracting program by ensuring that roles and responsibilities are
clearly defined.

DOE agreed with our recommendations that the department strengthen
oversight of its small business subcontracting program by clarifying
oversight roles and responsibilities and by ensuring that facility
management contractors follow a consistent practice for calculating and
reporting their small business subcontracting goals and achievements.
However, DOE disagreed with our recommendation that, for internal program
management purposes, the department use data on its contractors'
subcontracting achievements, calculated as a percentage of the dollars
obligated to their prime contract. DOE maintained that it should continue
to use subcontracting data, calculated as a percentage of the total
dollars subcontracted, as reported to SBA. While we agree that DOE's
contractors should continue to report their subcontracting achievements as
SBA requires, we continue to believe that, for internal management
purposes, the data do not provide a true picture of contractor
performance. Without a true picture of performance, DOE cannot effectively
oversee that performance to determine whether its facility management
contractors are providing the maximum practicable subcontracting
opportunities to small businesses.

DOE has major sites and facilities around the country where the department
carries out its missions, including developing, maintaining, and securing
the nation's nuclear weapons capability; cleaning up the nuclear and
hazardous wastes resulting from more than 50 years of weapons production;
and conducting basic energy and scientific research, such as mapping the
human genome. DOE relies on facility management contractors to operate its
facilities and accomplish its missions. This mission work is carried out
under the direction of the National Nuclear Security Administration (NNSA)
and DOE's program offices, including the offices of Environmental
Management and Science.

  Background

SBA develops regulations and provides guidance for federal agencies and
their contractors to follow in carrying out the federal policy to provide
maximum practicable contracting opportunities for small businesses,
consistent with efficient contract performance.1 Under the Small Business
Act and federal regulations, any large business with a federal prime
contract that has a value over $500,000 (or $1 million for construction
contracts) and that has subcontracting possibilities, must have a small
business subcontracting plan, including annual goals for directing
subcontracting dollars to small businesses. SBA has also issued specific
guidance for developing annual subcontracting goals and reporting
achievements to SBA.2 Although there is no specified percentage goal for
small business subcontracting in law or regulations, SBA's governmentwide
goal is that 40 percent of federal subcontracted dollars be directed to
small businesses.3

DOE's facility management contractors carry out the SBA requirements by
developing subcontracting plans and annual goals, and reporting their
achievements to DOE and SBA.4 Facility management contractors use the
following process:

o  	Develop small business subcontracting plans. Facility management
contractors generally develop small business subcontracting plans as part
of the overall proposal submitted in response to a DOE request for

1Federal subcontracting requirements pertain to small businesses both as
an overall category and in terms of the various subcategories of small
businesses that are defined in federal law, such as small disadvantaged
businesses, women-or veteran-owned small businesses, and small businesses
located in historically underutilized business zones. For this report, we
examined DOE facility management contractors' activities in subcontracting
with small businesses, as an overall category. We did not examine their
subcontracting activities with respect to any of the subcategories of
small businesses.

2Small Business Administration, Office of Government Contracting, Goaling
Guidelines for the Small Business Preference Programs: For Prime and
Subcontract Federal Procurement Goals and Achievements (Washington, D.C.:
July 3, 2003).

3To meet this 40 percent government-wide goal, SBA negotiates annual
subcontracting goals with each federal agency. The goal that SBA
negotiated with DOE for fiscal years 2004 and 2005 is that 50 percent of
subcontracted dollars be directed to small businesses.

4For the 10 years prior to fiscal year 2000, the Office of Federal
Procurement Policy within the Office of Management and Budget had allowed
DOE to include in its small business prime contracting achievements, the
subcontracting dollars awarded to small businesses by its facility
management contractors. For a discussion of the change in policy starting
with fiscal year 2000, see Department of Energy: Achieving Small Business
Prime Contracting Goals Involves Both Potential Benefits and Risks,
GAO-04-738T (Washington, D.C.: May 18, 2004).

proposals on a new contract or upon extension or renewal of an existing
contract. The subcontracting plan includes information on the types of
work to be subcontracted and how, and to what extent, the contractor would
provide subcontracting opportunities for small businesses. The proposed
subcontracting plans are reviewed as part of the overall proposal and are
then incorporated into the contract when it is awarded.

o  	Develop annual small business subcontracting goals. Generally, the
facility management contractors perform "make-or-buy" analyses to
determine how much of their work will be subcontracted rather than
performed by the contractors' own employees. For the portion of the work
the facility management contractor intends to subcontract, the facility
management contractors develop small business subcontracting goals each
year, after considering the proposed funding for the contracts, upcoming
subcontracting opportunities, and the potential for small businesses to
perform the subcontracting work. After an agreement is reached on the
proposed goals, the goals are incorporated into the contract.

o  	Report small business subcontracting achievements. Facility management
contractors are required to report their small business subcontracting
achievements to SBA twice each fiscal year-as of the ends of March and
September. SBA guidelines specify that small business subcontracting
achievements should be calculated as a percentage of total dollars
subcontracted. Facility management contractors also report this
achievement information to DOE.5

DOE's Small Business Office negotiates the department's annual small
business subcontracting goals with SBA, coordinates outreach efforts with
the small business community, and works with NNSA and DOE's program
offices to establish and monitor annual goals. DOE's Office of Procurement
and Assistance Management and NNSA's Office of Acquisition and Supply
Management establish policies and guidance for conducting procurements
according to federal and departmental regulations, and they maintain the
information systems on the department's prime contracts, including annual
dollars provided to each

5Large business subcontractors of DOE's facility management contractors
are subject to the same requirements for small business subcontracting
plans and annual goals. Although the facility management contractors are
not allowed to include the small business subcontracting achievements of
these "lower-tier" subcontractors in their reported achievements, SBA
guidelines allow DOE to include these lower-tier subcontracting
achievements toward the department's small business subcontracting goals.

  Data Reported by Facility Management Contractors Is Not Useful for DOE's
  Monitoring of Their Small Business Subcontracting Performance

facility management contractor. NNSA and DOE's program offices, such as
Environmental Management and Science, are responsible for providing
program oversight and direction to the contractors.

In addition to the oversight responsibilities shared among DOE's various
headquarters and field organizations, SBA has a role in the oversight of
facility management contractors' small business subcontracting efforts.
SBA officials in regional offices generally review proposed subcontracting
plans and proposed annual small business goals. Regional SBA officials
also review the reports on small business subcontracting achievements
submitted by facility management contractors, and they may review large
proposed subcontracts to determine if there are potential opportunities
for small businesses. SBA regional offices also perform periodic
compliance reviews of individual contractor's small business
subcontracting efforts, including validating the data reported by the
contractors to ensure that the contractor is following SBA guidelines.6

The data that DOE uses to monitor its facility management contractors'
performance in small business subcontracting generally shows that the
contractors have exceeded their annual subcontracting goals. However,
these data are not useful for monitoring purposes for two reasons. First,
the data reported by the facility management contractors frequently
overstated their subcontracting achievements, by failing to account for
all of their subcontracts, as required by SBA reporting guidelines. As a
result, the percent of total subcontracting dollars going to small
businesses appeared larger than if the contractors had been following
SBA's reporting guidelines. Second, even if the facility management
contractors were correctly reporting their small business subcontracting
achievements, the method for calculating those achievements does not
provide a true picture of contractors' performance. The method can make a
contractor appear to be performing well-for example, by directing 80
percent of subcontracting dollars annually to small businesses-when, in
fact, that percentage is based on a small amount of dollars. When small
business subcontracting dollars are recalculated as a percent of the
annual funding on the facility management contract, the contractor's
actual achievement can turn out to be relatively low. Because
contractor-reported data does

6GAO has reported on SBA compliance reviews in the past. See Small
Business Subcontracting Report Validation Can Be Improved, GAO-02-166R
(Washington, D.C.: Dec. 13, 2001).

not provide a true picture of the contractors' performance, the department
cannot meaningfully use the data to monitor performance and determine
whether the contractors are providing small business subcontractors with
the maximum practicable opportunity to provide goods and services to the
facility management contractors, as required by the policy set out by the
Small Business Act.

    Contractor-Reported Data on Small Business Subcontracting Achievements
    Frequently Overstated Performance

The contractor-reported data that DOE uses to monitor facility management
contractors' performance in small business subcontracting generally showed
that contractors exceeded their annual small business subcontracting goals
in fiscal years 2001 through 2004. In fiscal year 2004, for example, 29 of
the 34 facility management contractors reported exceeding their annual
goals when they directed 33 to 88 percent of their subcontracting dollars
to small businesses. These contractors reported exceeding their goals by
as much as 28 percent, whereas the contractors that reported falling short
of their goals for that year did so by as much as 26 percent. Whether or
not individual contractors achieved their goals, the 34 contractors
collectively reported directing nearly $3.3 billion7 to small business
subcontractors in fiscal year 2004, representing a 27 percent increase
over the amount they had directed to small businesses in fiscal year 2001
(see table 1). Additional information on the facility management
contractors' subcontracting goals and achievements for fiscal years 2001
through 2004 is presented in appendix I.

Table 1: Subcontracting Dollars that DOE Facility Management Contractors
Reported Directing to Small Businesses in Fiscal Years 2001 through 2004

               Fiscal year Small business subcontracting dollars

                              2001 $2,574,701,477

                               2002 3,076,546,419

                               2003 3,071,831,243

                               2004 3,281,485,994

Source: GAO analysis of DOE and facility management contractor data.

7The $3.3 billion includes only dollars directed by the facility
management contractors to small businesses with which they had a direct
contractual relationship. The figure does not account for the dollars
directed to small businesses by the approximately 592 large business
subcontractors of DOE's facility management contractors that also had
their own small business subcontracting plans in fiscal year 2004. These
dollars were not within the scope of our review because we focused on the
achievements of the 34 facility management contractors.

Although facility management contractors generally reported exceeding
their subcontracting goals, the data are not useful for monitoring the
contractors' performance, because the contractors' achievements were
frequently overstated. When calculating subcontracting achievements, SBA
guidelines allow contractors to exclude from their calculations only those
subcontracts performed outside of the U.S. or its territories and
subcontracts with affiliate organizations, such as a subsidiary or parent
company.8 However, in fiscal year 2004, all 34 of the contractors'
reported achievements incorrectly excluded other types of subcontracts,
beyond what SBA guidelines allow (see table 2). The facility management
contractors we visited generally told us it was their normal practice to
make these types of exclusions. In making these types of exclusions, the
contractors said they were following their past practices or that DOE
contracting officers had approved the additional exclusions. For example,
officials representing one of these contractors pointed out that, in
excluding subcontracts from the calculation of their subcontracting
achievements beyond what SBA guidance allows, their company was following
the subcontracting plan approved by DOE. The contractor officials said
that they would not have made these exclusions, if DOE had not permitted
them, nor would they have negotiated as high a subcontracting goal under
those circumstances.

8Except for these types of subcontracts, SBA guidelines for contractor
reporting of small business subcontracting achievements require that
reports include all subcontracts awarded by the prime contractor. Section
19.701 of the Federal Acquisition Regulation (FAR) defines "subcontract"
to mean "any agreement (other than one involving an employer-employee
relationship) entered into by a Government prime contractor or
subcontractor calling for supplies and/or services required for
performance of the contract, contract modification, or subcontract."
According to a contracting program manager in SBA's Office of Government
Contracting, electricity and other utilities, whether or not they are
obtained through a formal procurement process, would be considered a
subcontract under the FAR.

Table 2: Types of Subcontracts Incorrectly Excluded from the 34 Facility
Management Contractors' Calculations of Fiscal Year 2004 Small Business
Subcontracting Achievements

Type of subcontracts incorrectly excluded from calculations of small
business subcontracting achievements

Number of facility management contractorsa

  Purchases from other government agencies, nonprofit organizations, or other
                        facility management contractors

Utility purchases

Credit card transactions

Purchases from sources directed by DOE or mandated by law

                                       b

Selected blanket purchasing agreements

Lease agreements

Source: GAO analysis of facility management contractor data.

aFor a given type of subcontract, the remainder of the 34 contractors not
reflected in this column had either included the subcontract type in their
reported achievements or did not have any subcontracts of that type in
fiscal year 2004.

bBlanket purchasing agreements reflect purchases made through DOE's
integrated contractor purchasing team or through the General Services
Administration's federal supply schedule.

Facility management contractors' practice of incorrectly excluding certain
subcontracts from achievement calculations resulted in overstating their
reported subcontracting achievements by making the achievements appear
larger than they would have appeared, if only the appropriate exclusions
had been made in the calculation. For SBA-reporting purposes, contractors
calculate their subcontracting achievements by expressing the dollars that
they directed to small business subcontracts as a percentage of the total
amount they subcontracted. However, because they incorrectly excluded
subcontracts that generally did not go to small businesses-such as
subcontracts with other facility management contractors-the facility
management contractors incorrectly reduced the total amount that was
subcontracted (the denominator), without affecting the total amount going
to small businesses (the numerator). As a result, the percentage of total
subcontracted dollars going to small businesses appeared larger than it
actually was.

The effect of making incorrect exclusions on achievement calculations is
significant. At the 13 facility management contractors we visited, we
analyzed the fiscal year 2004 dollar amounts associated with the
subcontracts that were incorrectly excluded from the calculation of their
reported subcontracting achievements. These excluded subcontracts

totaled about $887 million. For these 13 contractors, the practice of
incorrectly excluding subcontracts from their reported achievements
resulted in overstating the percentage achievements by as much as 27
percent. Moreover, although 12 of the 13 contractors had appeared, from
their reported achievements, to be meeting or exceeding their
subcontracting goals, when the achievements were recalculated by adding
the incorrectly excluded subcontracts back into the calculation, only 4
contractors would have achieved their goals. The remaining 9 contractors
would have fallen short of their subcontracting goals, by as much as $31.1
million, or about 19 percent. According to contractor officials, it is
also likely that these contractors would not have agreed to as high of a
subcontracting goal, if they had to include these subcontracts (see table
3).9

9The facility management contractors at the 13 sites we visited provided
us with the dollar amounts associated with subcontracts excluded from
their fiscal year 2004 small business subcontracting goal and achievement
calculations. After the facility management contractors reviewed a
statement of facts that we provided to them to ensure the accuracy of the
information, several of the contractors responded that they would have
negotiated lower goals if they had included all of the appropriate
subcontracts in their calculations.

Table 3: Fiscal Year 2004 Small Business Subcontracting Goals, Reported
Achievements, and Recalculated Achievements for 13 Facility Management
Contractors

Fiscal year 2004 (percent)

                                                              Extent to which 
                                                                          the 
                                                                 recalculated 
                                        Reported                  achievement 
      Facility                                                  differed from 
     management                                  Recalculated             the 
     contractor    Subcontracting subcontracting              
    and location             goal  achievement   achievementa  subcontracting 
                                                                        goalb 
      Battelle                                                
      Memorial,                                               
       Pacific                                                
      Northwest                                               
      National                                                                
     Laboratory,             55.0           60.8         42.9          (12.1)
        Wash.                                                 
       Bechtel                                                
      Hanford,               50.0           65.0         64.7 
    Hanford Site,                                             
        Wash.                                                 
Bechtel Jacobs,                                            
Oak Ridge Site,           28.0           38.9         36.4 
        Tenn.                                                 
       Bechtel                                                
National, Waste                                            
      Treatment                                               
    Plant, Wash.             46.0           65.2         38.1           (7.9) 
Bechtel Nevada,                                            
     Nevada Test                                              
        Site,                                                 
        Nev.                 62.0           70.6         58.1           (3.9) 
    Bechtel SAIC,                                             
Yucca Mountain                                             
      Project,                                                
        Nev.                 55.0           57.0         36.4          (18.6) 
BWXT Y-12, Y-12                                            
      National                                                
      Security                                                
Complex, Tenn.            63.0           66.7         56.5           (6.5) 
      CH2M Hill                                                               
      Hanford,               48.0           59.9         42.6           (5.4)
    Hanford Site,                                             
        Wash.                                                 
Fluor Hanford,                                             
    Hanford Site,            40.0           52.1         44.6 
        Wash.                                                 
      Lockheed                                                
Martin, Sandia                                             
      National                                                
    Laboratories,            50.0          49.9c         46.0           (4.0) 
       N. Mex.                                                
    University of                                             
     California,                                              
      Lawrence                                                
      Livermore                                                               
      National               35.0           39.2         31.6           (3.4)
     Laboratory,                                              
       Calif.                                                 
    University of                                             
California, Los                                            
       Alamos                                                 
      National                                                                
Laboratory, N.            42.0           44.0         39.3           (2.7)
        Mex.                                                  
    UT Battelle,                                              
      Oak Ridge                                               
      National                                                
     Laboratory,             48.0           62.7         50.3 
        Tenn.                                                 

Source: GAO analysis of facility management contractor data.

Note: Details on selection of these 13 facility management contractors can
be found in appendix II.

aRecalculated achievements include the subcontracts that had been
incorrectly excluded from the reported achievements.

bNumbers in parentheses are negative and represent the percentage by which
the contractor would have fallen short of subcontracting goals.

cAlthough the fiscal year 2004 small business subcontracting achievement
reported by the facility management contractor at the Sandia National
Laboratories fell short of that contractor's subcontracting goal by less
than 0.1 percent of total subcontracted dollars (or approximately
$591,000), the contractor directed the largest subcontracting dollar
amounts to small businesses of the 34 facility management contractors in 3
of the 4 years of our study, including fiscal year 2004. That year, for
example, the contractor directed about $486 million to small businesses
out of the $974 million it subcontracted-$115 million more in subcontract
dollars to small businesses than the second highest facility management
contractor.

The fiscal year 2004 small business subcontracting achievements reported
by many of the remaining 21 contractors that we did not visit during our
study also are likely overstated, although we did not document the extent
of the overstatement. Based on information these contractors reported to
us, all 21 contractors had incorrectly excluded subcontracts from the
calculations of fiscal year 2004 subcontracting achievements. This
practice will almost always result in overstating actual achievements,
because the subcontracts excluded from the calculations are generally not
awarded to small businesses.

    Small Business Subcontracting Reporting Method Does Not Provide a True
    Picture of Facility Management Contractors' Performance

The method that facility management contractors use to calculate their
small business subcontracting achievements for SBA reporting purposes does
not present a true picture of a contractor's small business subcontracting
because achievements are not calculated in relation to the total value of
the facility management contract. Rather, the method for calculating small
business subcontracting achievements is based on a quantity determined by
the facility management contractors-namely, the portion of total work
under their DOE contract that they intend to subcontract out. Thus, a
contractor can appear to be performing well-i.e., directing 80 percent of
its subcontracting dollars to small businesses-but that percentage is not
very informative about the actual amount of subcontracting occurring with
small businesses.

In our view, calculating small business subcontracting achievements in
this manner invariably presents a misleading picture. For example, in
fiscal year 2004, contractors at two of DOE's weapons production
facilities reported substantially different small business subcontracting
achievements-one reported directing 80 percent of its subcontracting
dollars to small businesses (or $92.6 million) while the other reported 57
percent (or $109.9 million). However, these percentages hide the fact that
the first contractor subcontracted out proportionally less of the work of
the facility management contract than the second contractor, despite the
fact that both facility management contracts were similar in size.
Recalculating the subcontracting achievements as a percentage of the
amount of funding directed by DOE to each facility management contract for
the year reveals that the actual subcontracting achievements were quite
similar-21 and 23 percent respectively of the contracts' annual funding.
Thus, the contractor that appeared, from the data that DOE uses, to be
significantly outperforming the other was actually devoting a slightly
smaller portion of its facility management contract dollars to small
business subcontracting.

Recalculating the subcontracting achievement data as a percent of the
annual amount funded by DOE for each facility management contract provides
a very different picture of the contractors' performance. Some contractors
that appeared to be outperforming most other contractors were ranked near
the bottom of the list when their achievements were measured as a percent
of the annual funding on their contract. For example, the reported
subcontracting achievement in fiscal year 2004 of the contractor at the
Princeton Plasma Physics Laboratory appeared to be the second highest
among the 34 contractors. However, after we recalculated the achievements
as a percentage of annual contract funding, the contractor's performance
dropped significantly to 28th out of 34 contractors (see table 4).
Conversely, 6 of the 17 contractors that were in the bottom half of the
rankings of reported subcontracting achievements moved to the top half,
after we recalculated the achievements as a percent of the annual amount
funded on each facility management contract.

Table 4: Comparison of Fiscal Year 2004 Reported Small Business
Subcontracting Achievements with Achievements Recalculated as a Percent of
Annual Amount Funded on the Facility Management Contract

                                                   Recalculated 
                           Reported              subcontracting 
                     subcontracting      Rank of achievements         Rank of 
                                        reported (percent        recalculated 
                   achievements     achievements      of annual  achievements 
                   (percent         from                 amount          from 
      Facility     of total dollars highest (1)  funded on the        highest 
     management                     to lowest    facility         achievement 
contractor and    subcontracted)         (34) management     (1) to lowest 
      location                                   contract)               (34) 
Washington TRU                                               
     Solutions,                                                 
Waste Isolation                                              
Pilot Plant, N.             88.0            1           27.9 
        Mex.                                                    
      Princeton                                                 
     University,                                                
      Princeton                                                 
Plasma Physics                                               
     Laboratory,               83.2            2           12.8 
        N.J.                                                    
    BWXT Pantex,                                                
       Pantex                                                   
Facility, Tex.              80.3            3           21.2 
Bechtel Nevada,                                              
       Nevada                                                   
Test Site, Nev.             70.6            4           20.5 
BWXT Y-12, Y-12                                              
      National                                                  
      Security                                                  
Complex, Tenn.              66.7            5           17.0            16 

Midwest Research
Institute, National
Renewable Energy
Laboratory, Colo. 66.6 6 22.7 7

West Valley Nuclear
Services Company, West
Valley Demonstration
Project, N.Y. 66.5 7 28.6 4

                                                   Recalculated 
                         Reported                subcontracting 
                   subcontracting        Rank of achievements         Rank of 
                                        reported (percent        recalculated 
                 achievements     achievements        of annual  achievements 
                 (percent         from                   amount          from 
     Facility    of total dollars highest (1) to funded on the        highest 
    management                    lowest         facility         achievement 
    contractor     subcontracted)           (34) management     (1) to lowest 
and location                                  contract)               (34) 
      Bechtel                                                   
     National,                                                  
       Waste                                                    
     Treatment               65.2              8           29.1 
Plant, Wash.                                                 
      Bechtel                                                   
     Hanford,                                                   
      Hanford                                                   
    Site, Wash.              65.0              9           29.2 

Universities Research
Association, Fermi
National Accelerator
Laboratory, Ill. 63.5 10 14.3

         UT Battelle, Oak Ridge                                  
          National Laboratory,                                   
                  Tenn.                    62.7          11          17.0     
       Battelle Memorial, Pacific                                
           Northwest National                                    
            Laboratory, Wash.              60.8          12          14.8     
           CH2M Hill Hanford,                                    
           Hanford Site, Wash.             59.9          13          30.3     
          Stanford University,                                   
             Stanford Linear                                     
       Accelerator Center, Calif.          59.3          14          15.7     
           Bechtel BWXT Idaho,                                   
             Idaho National                                      
            Laboratory, Idaho              58.2          15          12.7     
          Westinghouse Savannah                                  
          River, Savannah River                                  
               Site, S.C.                  58.0          16          7.5      
           Brookhaven Science                                    
         Associates, Brookhaven                                  
        National Laboratory, N.Y.          57.5          17          13.8     
           Bechtel SAIC, Yucca                                   
         Mountain Project, Nev.            57.0          18          20.3     

Honeywell Federal
Manufacturing &
Technologies, Kansas
City Plant, Mo. 56.8 19 23.2 6

       Iowa State University,                                       
       Ames Laboratory, Iowa         56.7        20         9.5            33 
       Fluor Hanford, Hanford                                       
            Site, Wash.              52.1        21        13.9            25 

                                                   Recalculated 
                         Reported                subcontracting 
                   subcontracting        Rank of achievements         Rank of 
                                        reported (percent        recalculated 
                 achievements     achievements        of annual  achievements 
                 (percent         from                   amount          from 
     Facility    of total dollars highest (1) to funded on the        highest 
    management                    lowest         facility         achievement 
    contractor                                   management     (1) to lowest 
and location    subcontracted)           (34) contract)               (34) 

Southeastern Universities
Research Association,
Thomas Jefferson
National Accelerator
Facility, Va. 50.1 22 16.4

        Lockheed Martin, Sandia                                      
       National Laboratories, N.                                     
                  Mex.                   49.9       23       21.5    
         University of Chicago,                                      
            Argonne National                                         
            Laboratory, Ill.             46.0       24       12.0    
       University of California,                                     
          Los Alamos National                                        
          Laboratory, N. Mex.            44.0       25       19.8    
         Bechtel Bettis, Bettis                                      
        Atomic Power Laboratory,                                     
                  Pa.                    39.4       26       16.5    
       University of California,                                     
           Lawrence Livermore                                        
      National Laboratory, Calif.        39.2       27       12.9    
          Bechtel Jacobs, Oak                                        
           Ridge Site, Tenn.             38.9       28       17.8    
         DynMcDermott Petroleum                                      
         Operations, Strategic                                       
         Petroleum Reserve, La.          38.8       29       16.1    
       University of California,                                     
           Lawrence Berkeley                                         
      National Laboratory, Calif.        37.4       30       16.0    
       KAPL, Inc., Knolls Atomic                                     
         Power Laboratory, N.Y.          36.4       31       11.2    
         CH2M Hill Mound, Mound                                      
               Site, Ohio                36.1       32       12.0    
         Fluor Fernald, Fernald                                      
         Closure Project, Ohio           33.5       33       17.7          15 
        Kaiser-Hill, Rocky Flats                                     
         Closure Project, Colo.          33.3       34       17.8          13 

Source: GAO analysis of DOE and facility management contractor data.

Note: Any apparent tie situations are due to rounding of the achievement
data. Ranks in the table reflect the actual rank-order. Both the reported
and the recalculated subcontracting achievements presented in this table
have not been adjusted to include any subcontracts that the facility
management contractors incorrectly excluded from their calculations,
because we did not have information on the dollar value of the incorrectly
excluded subcontracts for all 34 contractors.

While a contractor may be subcontracting a smaller percentage of its
facility management contract to small businesses than other facility
management contractors, there can be several reasons for differences in
contractors' small business subcontracting achievements, which should be
examined before concluding that a particular contractor is
underperforming. For example, DOE and contractor officials told us that
the type of work contractors perform at DOE sites is an important factor
in determining the potential for small business subcontracting. Our
analysis of the 34 facility management contractors' fiscal year 2004 small
business subcontracting achievements suggests that this may be true. We
found that the 16 contractors primarily involved in environmental cleanup
or weapons production at DOE sites generally directed a greater percentage
of their contracts' annual funding to small business subcontracting than
the 16 contractors at DOE research laboratories.10 Contractor and DOE
officials said that opportunities for small business subcontractors tend
to be more limited at research laboratories than other types of DOE
facilities, because research activities are often integrated, and
fragmenting those activities among several contractors could negatively
impact the work. Officials said that other types of work, such as facility
construction or cleanup projects, generally have more subcontracting
potential and can often be structured at such a scale that small
businesses could perform the work.

Contract performance goals can also affect opportunities for small
business subcontracting. For example, small business subcontracting
opportunities diminished somewhat at an environmental cleanup site in Oak
Ridge, Tennessee, after DOE and the facility management contractor,
Bechtel Jacobs, renegotiated the contract to include more aggressive time
lines and cost limitations for completing the work. In response to the
changes in its contract, Bechtel Jacobs began subcontracting less of the
work, including work that small business subcontractors had previously
performed. DOE and contractor officials told us that the company wanted
more control over the work to better ensure meeting the new time lines

10On average, facility management contractors at the DOE Environmental
Management program's cleanup sites and at the NNSA's weapons production
facilities directed to small businesses 20.4 percent of their contracts'
annual funding. In contrast, contractors managing and operating research
laboratories for NNSA and DOE directed to small businesses an average of
15.4 percent of their facility management contracts' annual funding. These
calculations do not include the achievements of facility management
contractors at the Yucca Mountain Project or the Strategic Petroleum
Reserve, because their missions and the type of work performed there do
not coincide with the two categories of DOE and NNSA facilities identified
above.

and cost limitations. Officials from local small businesses that
subcontract with Bechtel Jacobs said that while they did not disagree with
Bechtel Jacobs's strategy for dealing with the changes to its contract,
the small businesses had to adapt to a new business environment in which
less subcontracting work would be available under that facility management
contract.

Although differences in the type of work and contract performance goals
may account for some of the differences in facility management
contractors' performance in small business subcontracting, there may be
other reasons for those differences. For example, contractor officials
said that the timing of projects or changes in the annual funding for a
facility management contract could affect opportunities for small
businesses to participate in work that is generally conducive to small
business subcontracting. In addition, contractors at sites with similar
missions and similar types of work can vary substantially in the amount of
funding that they direct to small business subcontractors. For example,
contractors at the Sandia and Los Alamos National Laboratories in New
Mexico ranked highly among the 34 facility management contractors-8th and
12th, respectively-in the percentage of their contracts' annual funding
that they directed to small businesses in fiscal year 2004. In contrast,
the contractor at the Lawrence Livermore National Laboratory in
California, which conducts work similar to that of the two New Mexico
laboratories, ranked much lower-27th among the 34 contractors. Contractor
and DOE officials with whom we met suggested reasons for such differences
in performances, for example, differences in the availability of small
businesses that are capable of providing the needed goods and services or
differences in the facility management contractors' commitment to
providing small businesses with the maximum practicable opportunity to
participate in the work.

Furthermore, actions by DOE to increase its direct, or prime, contracting
with small businesses may reduce the subcontracting opportunities
available for small businesses. For example, in an effort to increase the
amount of prime contract dollars going to small businesses, in 2003, DOE
redirected around $30 million of work from the facility management
contract for managing and operating the Strategic Petroleum Reserve in
Louisiana and awarded it as a separate prime contract to a small business.
Before DOE redirected the work, a contractor official said that the
facility management contractor responsible for performing the work had
been subcontracting most of it to small businesses. The official further
stated that, as a result, DOE and the facility management contractor
negotiated a lower small business subcontracting goal for fiscal year 2004
of 27.7

percent of the total dollars subcontracted, representing a 21.3 percent
drop from the 49 percent goal at the end of fiscal year 2003. Although the
facility management contractor exceeded its subcontracting goal in fiscal
year 2004, the total dollars available for subcontracting decreased by
around 12 percent ($6.1 million), and the portion going to small
businesses decreased by 9.3 percent ($1.8 million).

Because the subcontracting achievement data that DOE relies on does not
provide a true picture of the facility management contractors' performance
in small business subcontracting, the department cannot meaningfully use
those data to monitor performance. Without data providing a truer picture
of contractors' performance, DOE lacks a basis for knowing whether
differences in performance truly exist. Moreover, the department also
lacks a basis for understanding whether differences in performance are
legitimate-such as stemming from the types of work performed under a
facility management contract-or are the result of differences in
contractors' level of commitment to small business subcontracting.

Having recognized potential weaknesses in contractor-reported achievement
data, at least one federal agency we contacted is taking a more innovative
approach for using data to monitor subcontracting efforts.11 The National
Aeronautics and Space Administration (NASA), for internal management
purposes, calculates small business subcontracting goals and achievements
for its prime contractors as a percentage of the annual funding for the
prime contracts. NASA's small business office said it uses this method to
oversee contractor performance because it (1) presents a truer picture of
actual achievements and (2) provides a better basis to evaluate a
contractor's maximum practicable opportunity to subcontract with small
businesses. This office said the data the contractors report to SBA can be
misleading, in that a large percentage achievement can be reported even
though a relatively small amount of dollars may actually be going to small
business subcontracts.

Although DOE continues to base its facility management contractors'
subcontracting goals on the total dollars subcontracted, for at least one
of

11We examined limited aspects of the subcontracting program managed by
small business officials at the National Aeronautics and Space
Administration (NASA), because DOE and NASA share some similarities in
their approach to accomplishing their respective missions. For example,
both NASA and DOE contract extensively to carry out their missions,
accomplished in part through work at the agencies' contractor-operated
research facilities.

those contractors, the department's Environmental Management program plans
to use a small business subcontracting approach that is similar to NASA's
approach. During a recent solicitation for bids for an environmental
cleanup contract at the Hanford Site's River Corridor Project in
Washington State, the program's solicitation specified that the winning
bidder must subcontract 60 percent of work under the approximately $2
billion contract, with half of that directed to small businesses, or
potentially about $600 million over the 7-year life of the contract.
According to proposal documents, Environmental Management took this
approach in part because of input from small businesses and because it
would better ensure that small businesses had an opportunity to
participate in a significant portion of the work under the contract.

DOE had not taken adequate steps to address known problems with the small
business subcontracting achievement data reported by its facility
management contractors. Because misleading achievement data gave the
appearance of a successful small business subcontracting program, DOE
officials did not closely monitor facility management contractors'
subcontracting practices or follow through to ensure that the contractors
complied with SBA reporting guidelines. DOE's reliance on misleading data
also resulted in a lack of assurance that the facility management
contractors were providing the maximum practicable opportunities for small
business subcontracting. The inadequate oversight was due, in part, to a
lack of clear guidance on how DOE's various headquarters and field
organizations should coordinate and integrate their efforts to effectively
oversee the small business subcontracting program.

  DOE Oversight of Small Business Subcontracting by Facility Management
  Contractors Was Not Adequate to Address Identified Problems with
  Contractor-Reported Data

    Reliance on Misleading Data Undermined DOE's Oversight

DOE knew there were problems with the data reported by the facility
management contractors but did not take adequate corrective action. This
had several undesirable consequences: (1) it created the false impression
that DOE was meeting its small business subcontracting goals, (2) it
caused errors in recognizing and rewarding contractor performance, and (3)
it undermined efforts to ensure that facility management contractors were
providing the maximum practicable subcontracting opportunities for small
businesses.

False impression that DOE was meeting its small business subcontracting
goals. The misleading data that DOE was using gave the appearance of a
successful small business subcontracting program. As a result, DOE
officials were not inclined to closely monitor facility management
contractors' subcontracting practices or to fully address

known problems with the achievement data. DOE officials in the small
business and procurement offices told us that they recognized in 2002 that
the facility management contractors were not consistently following SBA
guidelines on what subcontracts could be excluded when calculating small
business subcontracting goals and achievements. In April 2002, DOE's Small
Business Office provided clarifying information in an e-mail message to
small business program managers both in the DOE program offices and the
facility management contractors. The information emphasized the importance
of consistently following SBA guidelines. Although DOE provided subsequent
training for small business program managers, DOE officials did not take
adequate steps to ensure that the contractors were correctly applying SBA
guidelines. Based on our analysis of fiscal year 2004 subcontracting
practices, none of the 34 facility management contractors fully complied
with the SBA guidelines.

In some cases, DOE actually approved the incorrect reporting practices by
its facility management contractors. For example, we found 10 instances
where DOE had reviewed and approved subcontracting plans that specifically
called for incorrectly excluding subcontracts from the calculations of
small business subcontracting goals and achievements. In two other cases,
the facility management contractors specified incorrect exclusions in
annual planning documents for fiscal year 2004. DOE uses these planning
documents to evaluate overall contractor performance for the year. DOE
contracting officers told us that they had approved or allowed the
incorrect practices because they did not believe these subcontracts could
practically go to small businesses anyway. For example, the facility
management contractors may have had existing longterm subcontracts with
large businesses to provide information technology assistance, building
maintenance, or other site support services.

Recent program reviews by DOE's Small Business Office were also not
sufficient to identify and rectify these incorrect practices. In September
2002, the Secretary directed the Small Business Office to develop a
strategic plan for providing maximum practicable opportunities to small
businesses, including subcontracting by facility management contractors.
As part of its May 2003 strategic plan, the Small Business Office stated
that it would periodically review the small business subcontracting
efforts of the facility management contractors. During fiscal year 2004,
the Small Business Office performed reviews of the small business
subcontracting programs at five of DOE's facility management contractors.
These reviews focused primarily on determining if the small business
subcontracting plans contained the information required by federal
regulations and

whether the contractors met their annual small business subcontracting
goals. The reviews did not evaluate how the facility management
contractors were developing the annual small business subcontracting goals
or whether all appropriate subcontracts were included in the goal and
achievement calculations. DOE Small Business Office officials told us
that, based on the results of our work, they are considering revising
their review methodology to include these steps.

In March 2005, near the end of our review, DOE and NNSA procurement
organizations issued additional guidance on small business contracting
goals. The guidance stressed that the accuracy of contractor-reported data
was vital to the credibility of the department's performance in small
business subcontracting. The guidance emphasized that, in calculating and
reporting small business subcontracting goals and achievements,
contractors could exclude only the subcontract types allowed by SBA
guidelines. The guidance further states that contracting officers shall
ensure that facility management contractors are aware of these procedures
and do not apply additional exclusions when developing their
subcontracting goals. However, given DOE's oversight of these practices in
the past, it remains to be seen whether DOE will now follow through and
ensure that facility management contractors comply with this guidance.

Errors in recognizing and rewarding contractor performance. DOE's Small
Business Office established a Secretarial Small Business Awards program to
recognize and acknowledge outstanding performance on an annual basis. One
of these awards-the facility management contractor small business
achievement award-is presented each year to the facility management
contractor with the highest percentage increase in subcontract awards to
small businesses from the previous year.

We reviewed the facility management contractor small business achievement
awards DOE presented in fiscal years 2003 and 2004. Although the fiscal
year 2003 award appears to be appropriate, the fiscal year 2004 award went
to a facility management contractor who directed fewer dollars to small
businesses from one year to the next. Specifically, the data DOE used to
make the determination showed that the percentage of subcontracting
dollars going to small businesses increased from 61 percent in fiscal year
2002 to 66 percent in fiscal year 2003, a 5 percentage point increase.
However, during the same period, the total dollars subcontracted by the
facility management contractor dropped from $60.7 million to $52.1
million, and the subcontracting dollars directed to small businesses
dropped from $36.8 million to $34.4 million. If DOE had

measured the change in the contractor's small business subcontracting
achievements by comparing them with the annual funding on the facility
management contract, DOE officials would have discovered that the
contractor's performance actually declined by about 7 percent during the
period (from 19.7 percent of annual funding on the contract to 13.0
percent). DOE Small Business Office officials told us that they based this
award on increases in the percentage of subcontracting dollars going to
small businesses rather than changes in the total dollars directed to
small businesses. Officials said using changes in total dollars directed
to small businesses would not be fair to all the contractors because the
facility management contractors with multibillion dollar annual funding on
their contracts would have an advantage in showing increased dollars to
small businesses. While we agree that using dollars to compare the
performance among contractors could favor those with greater annual
funding, relying solely on the percentage of subcontracted dollars going
to small businesses may result in rewarding declining performance, as
demonstrated above.

Undermined efforts to ensure maximum practicable opportunities for small
businesses. DOE's reliance on misleading data created an environment in
which DOE officials were not inclined to closely monitor the small
business subcontracting program. For example, DOE allowed facility
management contractors to incorrectly exclude subcontracts when
calculating their small business subcontracting achievements, which led to
the incorrect perception that they were achieving their subcontracting
goals. Without accurate and consistent data on the subcontracting efforts
of the facility management contractors, DOE has no way of determining
whether a facility management contractor is providing the maximum
practicable opportunity for small businesses.

Another consequence of these program weaknesses is a perception among
members of the small business community that DOE's facility management
contractors could do better at providing opportunities for meaningful
subcontracting work. This perception has led to distrust and criticism of
DOE's facility management contractors by small business associations and
advocates. For example, during a May 2004 congressional hearing on DOE's
direct contracting with small businesses, small business advocacy groups
raised concerns about whether the level of subcontracting by DOE facility
management contractors reflected

maximum practicable opportunities.12 Additionally, small business
associations have expressed concerns about what they perceive as unfair
treatment by DOE facility management contractors, such as using small
business subcontractors to perform work that provides little opportunity
for the small business to develop technical capabilities. Small business
advocacy groups that we contacted said that if DOE held the facility
management contractors more accountable for achieving small business
subcontracting results, such as by using data that provided a truer
picture of actual performance, the small business groups would have a
basis for greater confidence in DOE's small business subcontracting
program.

    Oversight Responsibilities for the Small Business Subcontracting Program
    Were Not Clearly Defined or Integrated

DOE officials did not address problems with the small business
subcontracting program, in part, because the various headquarters and
field organizations that must work together to provide oversight of the
small business subcontracting program did not do so effectively. Oversight
of facility management contractors' small business subcontracting efforts
includes reviewing and approving facility management contractors' small
business subcontracting plans and annual goals, monitoring the
contractors' progress toward achieving small business subcontracting
goals, and taking action when necessary to ensure that the contractors
meet their small business subcontracting goals.

Although DOE contracting officers have final responsibility for providing
direction to the facility management contractors on all aspects of DOE
contracts, other DOE headquarters and field offices, such as the Small
Business Office and the program offices, share responsibilities for
monitoring and overseeing the small business subcontracting activities of
facility management contractors. DOE contracting officers, usually located
at DOE field locations, have primary responsibility for communicating with
facility management contractors on all aspects of the contracts, including
the contractors' small business subcontracting efforts.13 DOE's Small
Business Office has the overall responsibility for managing the
department's small business programs and monitoring performance

12U.S. Government Printing Office, DOE Contracting with Small Business:
Hearing Before the Committee on Energy and Natural Resources, United
States Senate, S. Hrg. 108-610 (Washington, D.C.: May 18, 2004).

13In addition, contracting officers usually review upcoming subcontract
procurements exceeding a specified dollar amount to determine if facility
management contractors have given adequate consideration to small business
opportunities.

toward meeting annual goals. Since the Small Business Office has no direct
authority over DOE's facility management contractors, it coordinates the
subcontracting program efforts by using small business program managers
within DOE's program offices and field locations. The small business
program managers at the field locations review subcontracting plans and
annual goals, and they provide input to the contracting officers.

Effective oversight requires more than just carrying out these activities,
but also collectively ensuring that the activities identify and correct
problems and that program goals are achieved. Effective oversight was not
happening, in part, because DOE guidance does not clearly define the
roles, responsibilities, and needed interaction of the various
headquarters and field organizations involved. DOE guidance on the small
business program clearly defines only the roles of the contracting
officer, which include review of small business subcontracting plans,
annual goals, and reported achievements. The guidance also states that the
contracting officer is responsible for ensuring that facility management
contractors comply with the SBA guidelines on which subcontracts may be
excluded from their subcontracting goals and achievements. However, the
guidance does not clearly define roles or responsibilities for the Small
Business Office, small business program managers, or others who need to
coordinate their efforts to achieve department goals.14 Absent this
guidance, we found that the collective efforts of these officials were not
sufficient to identify and correct the problems discussed in this report
or to ensure that program goals were being achieved.

Conclusions 	Creating opportunities for small businesses to participate in
providing goods and services to DOE's facility management contractors
supports federal policy and produces benefits for both DOE and the small
business community. Because about 85 percent of DOE's funding currently
goes to its facility management contractors, none of which are small
businesses, the small business subcontracting efforts of those facility
management contractors are of even greater importance to DOE. However,
misleading data has created the false impression that DOE is meeting its
small business subcontracting goals, undermined DOE's oversight of

14In addition to DOE guidance on small business programs, NNSA has issued
policy guidance on small business that defines requirements and
responsibilities but has limited information on how various organizations
should coordinate oversight efforts for small business subcontracting.

  Recommendations for Executive Action

subcontracting efforts, and generated mistrust among members of the small
business community. Furthermore, DOE actions to date have not adequately
addressed problems with misleading data. Until the problems with
contractor-reported achievement data are resolved and the program
oversight issues are addressed, DOE cannot ensure that the federal policy
of providing the maximum practicable opportunity for small businesses is
being achieved.

To ensure that facility management contractors comply with SBA guidelines
and follow a consistent practice for calculating and reporting small
business subcontracting goals and achievements, we recommend that the
Secretary of Energy direct the appropriate officials responsible for DOE's
Small Business Office and procurement organizations to ensure, through
regular oversight and review activities, that facility management
contractors comply with DOE's March 2005 guidance on small business
procurement goals.

To ensure that DOE has useful data for managing its small business
subcontracting program and for measuring and comparing contractors'
performance in pursuing the maximum practicable opportunity for small
business subcontracting, we recommend the Secretary of Energy direct the
appropriate officials responsible for DOE's Small Business Office and
procurement organizations to use, for internal management purposes, data
on facility management contractors' annual small business subcontracting
achievements calculated as a percentage of the obligated dollars facility
management contractors received that year on their contract with DOE.

To improve DOE's oversight of the small business subcontracting program
and to provide the maximum practicable opportunity for small businesses to
subcontract at DOE sites, we recommend that the Secretary of Energy take
steps to strengthen oversight of the program, including issuing guidance
clarifying the roles, responsibilities, and necessary interactions among
DOE small business office, program office, and procurement officials
responsible for managing the small business subcontracting program.

Agency Comments 	We provided a draft of this report to DOE for review and
comment. In written comments the Secretary of Energy generally agreed with
the report and two of the recommendations but disagreed with one of the
recommendations. The department agreed with our recommendation to
strengthen oversight of its small business subcontracting program. DOE

said that it is in the process of revising existing guidance to clarify
oversight roles and responsibilities and the necessary coordination and
integration of oversight efforts between DOE headquarters and field
organizations.

The department also agreed with our recommendation to ensure that the
facility management contractors follow a consistent practice for
calculating and reporting their small business subcontracting goals and
achievements, as outlined in DOE's March 2005 guidance. In its comments,
DOE outlined several steps it had taken to provide training, clarifying
information, and guidance on the importance of accurate and consistent
small business subcontracting data. However, effective oversight requires
more than providing guidance and training. We believe that regular review
and oversight activities will also be necessary to verify that contractors
are complying with the guidance.

Regarding our recommendation that the department use data on its facility
management contractors' small business subcontracting achievements-
recalculated as a percentage of the dollars obligated on their prime
contract-to internally manage its program, DOE disagreed with the
recommendation and proposed to continue calculating the achievements as a
percentage of the total dollars subcontracted. While we agree that DOE
should continue to follow SBA guidance for SBA reporting purposes, we
continue to believe that this calculation method fails to provide a true
picture of the facility management contractors' small business
subcontracting performance, which is necessary for effective oversight. As
our report clearly demonstrated, the method can overstate the performance
of contractors that devote a relatively small portion of their total
contract to subcontracting. Thus, to ensure that DOE is providing the
maximum practicable subcontracting opportunities to small businesses, for
internal program management purposes, the department should use
subcontracting achievement data calculated as a percentage of the facility
management contract obligations. As described in our report, one of the
department's programs intends to use this approach to internally manage
the small business subcontracting goals and achievements for the $2
billion contract to clean up the Hanford Site's River Corridor in
Washington State.

DOE also provided technical comments on the facts presented in the report,
which we incorporated as appropriate. DOE's comments and our responses are
presented in appendix III.

We conducted our review from June 2004 to April 2005, in accordance
with generally accepted government auditing standards. Appendix II
provides details on our scope and methodology.

As arranged with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after the
date of this letter. At that time, we will send copies to the Secretary of
Energy. We will also make copies available to others on request. In
addition, the report will be available at no charge on the GAO Web site at
http://www.gao.gov.

If you or your staff have any questions on this report, please call me at
(202) 512-3841. Other staff contributing to this report are listed in
appendix IV.

Gene Aloise
Director, Natural Resources and Environment

Appendix I: DOE Facility Management Contractors' Annual Small Business
Subcontracting Goals and Achievements

                                                                       Annual       Recalculated 
 Facility                                               Subcontracting funding    
            Subcontracting                                 achievement received   subcontracting 
management                                                             on the     
contractor, goal (percent  Subcontracting               (percent of      facility    achievement 
            of                                          total                     
 location,   total dollars dollars to     Total dollars        dollars               (percent of 
    and                    small                                       management 
fiscal year                    businesses subcontracted                  contract annual         
(FY)     subcontracted)                              subcontracted)            funding)       

Battelle Memorial,
Pacific Northwest National Laboratory,
Wash.

     FY 2001      47.0  $54,357,833    $104,872,886      51.8  $421,791,076   
     FY 2002      47.0   59,788,116     131,556,970      45.5   470,448,150   
     FY 2003      47.0   75,350,321     114,311,713      65.9   555,727,382   
     FY 2004      55.0   81,388,171     133,912,552      60.8   550,910,993   

Bechtel Bettis,
Bettis Atomic Power Laboratory,
Pa.

     FY 2001       30.0   53,093,888     162,362,210      32.7  342,340,000   
     FY 2002       30.0   71,145,858     136,485,213      52.1  343,972,000   
     FY 2003       30.0   55,542,807     135,949,919      40.9  334,771,000   
     FY 2004       35.0   62,811,750     159,372,044      39.4  381,767,479   

Bechtel BWXT Idaho, Idaho National Laboratory, Idaho Bechtel Hanford,
Hanford Site, Wash.

     FY 2001       70.0   123,469,383    171,069,181      72.2  643,793,953   
     FY 2002       60.0   103,106,547    153,887,715      67.0  681,960,071   
     FY 2003       60.0   100,852,558    155,992,132      64.7  809,719,475   
     FY 2004       60.0   98,794,079     169,798,501      58.2  775,716,116   

FY 2001 50.0 18,287,757 34,632,902 52.8 131,770,462

FY 2002 50.0 15,967,088 36,927,958 43.2 127,488,208 12.5

FY 2003 50.0 13,210,454 35,202,892 37.5 110,244,402 12.0

FY 2004 50.0 38,940,166 59,915,369 65.0 133,563,675 29.2

Bechtel Jacobs, Oak Ridge Site, Tenn.

    FY 2001      46.0  134,014,921   292,351,969    45.8  488,503,515    27.4 
    FY 2002      34.0  142,094,257   335,397,251    42.4  476,330,731    29.8 
    FY 2003      38.0  140,783,155   358,596,321    39.3  489,003,276    28.8 
    FY 2004      28.0  116,441,561   299,533,583    38.9  653,252,083    17.8 

     Appendix I: DOE Facility Management Contractors' Annual Small Business
                     Subcontracting Goals and Achievements

 Facility                                               Subcontracting Annual       Recalculated 
                                                                       funding    
            Subcontracting                                 achievement received   subcontracting 
management                                                             on the     
contractor, goal (percent  Subcontracting               (percent of      facility    achievement 
            of                                          total                     
 location,   total dollars dollars to     Total dollars        dollars               (percent of 
    and                    small                                       management 
fiscal year                    businesses subcontracted                  contract         annual 
(FY)     subcontracted)                              subcontracted)                  funding) 

Bechtel National, Waste Treatment Plant, Wash.

     FY 2001       46.0   34,590,534      53,276,882      64.9  339,471,427   
     FY 2002       46.0   122,452,585    217,707,111      56.3  646,035,709   
     FY 2003       46.0   167,633,416    290,642,324      57.7  653,965,320   
     FY 2004       46.0   196,320,937    301,003,381      65.2  675,301,802   

Bechtel Nevada, Nevada Test Site, Nev.

     FY 2001       50.0   54,888,245     85,069,821       64.5  287,008,003   
     FY 2002       55.0   56,746,250     83,089,259       68.3  409,298,787   
     FY 2003       62.0   83,639,885     121,103,349      69.1  434,472,175   
     FY 2004       62.0   95,085,821     134,734,610      70.6  464,972,914   

Bechtel SAIC,
Yucca Mountain Project,
Nev.

     FY 2001       60.0   22,607,401     42,993,104       52.6  173,504,003   
     FY 2002       55.0   36,779,883     60,749,142       60.5  187,150,369   
     FY 2003       55.0   34,363,154     52,122,410       65.9  265,198,002   
     FY 2004       55.0   60,965,967     106,904,609      57.0  300,692,496   

Brookhaven Science Associates, Brookhaven National Laboratory, N.Y.

FY 2001 55.0 55,169,181 96,259,669 57.3 453,190,513

FY 2002 55.0 69,726,716 127,327,687 54.8 460,076,142 15.2

FY 2003 55.0 62,610,576 108,708,417 57.6 440,919,419 14.2

FY 2004 55.0 58,257,687 101,331,077 57.5 422,891,497 13.8

BWXT Pantex, Pantex Facility, Tex.

    FY 2001      60.0  36,294,115    57,583,576     63.0  329,219,350    11.0 
    FY 2002      60.0  72,514,853    97,829,311     74.1  404,242,527    17.9 
    FY 2003      60.0  74,018,228    99,218,150     74.6  424,131,223    17.5 
    FY 2004      60.0  92,587,654    115,264,030    80.3  437,236,858    21.2 

     Appendix I: DOE Facility Management Contractors' Annual Small Business
                     Subcontracting Goals and Achievements

 Facility                                               Subcontracting Annual       Recalculated 
                                                                       funding    
            Subcontracting                                 achievement received   subcontracting 
management                                                             on the     
contractor, goal (percent  Subcontracting               (percent of      facility    achievement 
            of                                          total                     
 location,   total dollars dollars to     Total dollars        dollars               (percent of 
    and                    small                                       management 
fiscal year                    businesses subcontracted                  contract         annual 
(FY)     subcontracted)                              subcontracted)                  funding) 

BWXT Y-12,
Y-12 National Security Complex,
Tenn.

     FY 2001       40.0   69,072,392     130,070,576      53.1  889,855,250   
     FY 2002       50.0   88,579,725     139,672,095      63.4  574,888,585   
     FY 2003       50.0   86,985,976     140,627,195      61.9  707,392,050   
     FY 2004       63.0   114,442,560    171,568,241      66.7  675,042,163   

CH2M Hill Hanford, Hanford Site, Wash.

     FY 2001       32.0   36,726,618     106,629,667      34.4  380,827,936   
     FY 2002       36.0   59,584,936      92,552,044      64.4  277,569,297   
     FY 2003       48.0   55,134,273     114,819,210      48.0  363,753,927   
     FY 2004       48.0   103,529,585    172,878,788      59.9  342,276,389   

CH2M Hill Mound,
Mound Site,
Ohioa

FY 2003 62.0 10,158,519 20,966,482 48.5 85,566,434

FY 2004 62.0 12,064,809 33,408,204 36.1 100,904,523

DynMcDermott Petroleum Operations,
Strategic Petroleum Reserve,
La.

FY 2001 46.0 24,470,589 51,250,166 47.8 119,355,167

FY 2002 47.0 37,801,131 79,267,315 47.7 158,111,114

FY 2003 49.0b 19,475,303 51,608,283 37.7 156,520,402

FY 2004 27.7b 17,655,913 45,487,040 38.8 109,940,228 16.1

Fluor Fernald,
Fernald Closure Project,
Ohio

    FY 2001      50.0  25,068,949    64,304,653     39.0  287,185,818     8.7 
    FY 2002      50.0  59,830,146    108,034,504    55.4  227,425,087    26.3 
    FY 2003      36.0  68,038,876    170,975,046    39.8  317,787,501    21.4 
    FY 2004      36.8  57,402,853    171,172,293    33.5  323,951,180    17.7 

Fluor Hanford, Hanford Site, Wash.

FY 2001 38.0 88,065,808 165,445,464 53.2 634,136,465 13.9

FY 2002 50.0 76,600,234 158,177,744 48.4 646,094,972 11.9

Appendix I: DOE Facility Management Contractors' Annual Small Business
Subcontracting Goals and Achievements

 Facility                                               Subcontracting Annual        Recalculated 
                                                                       funding     
            Subcontracting                                 achievement received on subcontracting 
management                                                             the         
contractor, goal (percent  Subcontracting               (percent of       facility    achievement 
            of                                          total                      
 location,   total dollars dollars to     Total dollars        dollars                (percent of 
    and                    small                                        management 
fiscal year subcontracted)     businesses subcontracted subcontracted)    contract         annual 
(FY)                                                                                  funding) 
  FY 2003             34.0     93,676,386   169,044,664           55.4 663,332,198 
  FY 2004             40.0     97,261,252   186,626,708           52.1 702,003,969 

Honeywell Federal Manufacturing & Technologies,
Kansas City Plant,
Mo.

     FY 2001       39.6   79,894,524     156,636,154      51.0  461,742,878   
     FY 2002       43.6   78,418,650     150,710,281      52.0  444,906,343   
     FY 2003       48.0   95,707,764     163,478,172      58.5  477,229,514   
     FY 2004       50.4   109,887,925    193,471,624      56.8  473,410,852   

Iowa State University, Ames Laboratory, Iowa

     FY 2001         50.0   2,646,192     4,101,321     64.5     24,840,396   
     FY 2002         50.0   3,454,193     5,279,121     65.4     30,371,174   
     FY 2003         50.0   2,752,123     4,557,186     60.4     23,839,727   
     FY 2004         50.0   3,012,140     5,311,183     56.7     31,619,046   

Kaiser-Hill,
Rocky Flats Closure Project,
Colo.

     FY 2001       28.0   162,257,410    563,299,072      28.8  628,143,478   
     FY 2002       28.0   264,673,600    584,969,258      45.3  650,955,392   
     FY 2003       32.0   176,490,595    500,214,847      35.3  676,926,087   
     FY 2004       32.0   115,112,878    346,231,264      33.3  645,566,636   

KAPL, Inc.,
Knolls Atomic Power Laboratory,
N.Y.

    FY 2001      30.0  41,862,997    120,798,260    34.7  269,009,235    15.6 
    FY 2002      30.0  32,610,006    109,724,015    29.7  258,475,000    12.6 
    FY 2003      30.0  33,006,151    105,297,202    31.4  277,624,659    11.9 
    FY 2004      30.0  46,460,851    127,753,113    36.4  416,417,286    11.2 

Lockheed Martin,
Sandia National Laboratories,
N. Mex.

    FY 2001    55.0  360,026,522   517,397,711    69.6  1,612,890,671    22.3 
    FY 2002    50.0  387,917,485   694,278,857    55.9  1,851,953,436    21.0 
    FY 2003    50.0  458,883,711   866,283,746    53.0  2,027,314,032    22.6 
    FY 2004    50.0  486,348,399   973,878,609    49.9  2,259,983,950    21.5 

     Appendix I: DOE Facility Management Contractors' Annual Small Business
                     Subcontracting Goals and Achievements

 Facility                                               Subcontracting Annual       Recalculated 
                                                                       funding    
            Subcontracting                                 achievement received   subcontracting 
management                                                             on the     
contractor, goal (percent  Subcontracting               (percent of      facility    achievement 
            of                                          total                     
 location,   total dollars dollars to     Total dollars        dollars               (percent of 
    and                    small                                       management 
fiscal year                    businesses subcontracted                  contract         annual 
(FY)     subcontracted)                              subcontracted)                  funding) 

Midwest Research Institute,
National Renewable Energy Laboratory,
Colo.

     FY 2001       60.0   56,987,818     81,181,977       70.2  214,696,696   
     FY 2002       60.0   46,934,755     70,828,281       66.3  211,027,075   
     FY 2003       60.0   52,932,233     81,724,746       64.8  229,855,701   
     FY 2004       60.0   48,276,350     72,503,042       66.6  212,381,970   

Princeton University,
Princeton Plasma Physics Laboratory,
N.J.

     FY 2001        52.0   9,925,776     14,701,621     67.5     74,149,076   
     FY 2002        52.0   8,043,427     10,670,803     75.4     74,716,992   
     FY 2003        55.0   5,928,245     7,905,233      75.0     68,961,918   
     FY 2004        60.0   9,901,358     11,895,244     83.2     77,635,828   

Southeastern Universities Research Association, Thomas Jefferson National
Accelerator Facility, Va.

     FY 2001       46.0   22,966,248     36,869,558       62.3  106,312,598   
     FY 2002       50.0   23,663,361     41,217,369       57.4  108,275,952   
     FY 2003       50.0   16,561,882     25,653,401       64.6   98,731,409   
     FY 2004       48.0   18,697,871     37,285,236       50.1  113,896,732   

Stanford University, Stanford Linear Accelerator Center, Calif.

FY 2001 55.0 31,172,615 51,630,433 60.4 204,122,243

FY 2002 56.0 28,252,330 51,405,657 55.0 210,650,537 13.4

FY 2003 57.5 39,451,555 62,778,071 62.8 230,864,436 17.1

FY 2004 56.0 39,419,478 66,461,098 59.3 250,900,104 15.7

Universities Research Association, Fermi National Accelerator Laboratory,
Ill.

    FY 2001      50.0  44,450,000    91,872,000     48.4  307,997,017    14.4 
    FY 2002      50.0  45,862,000    87,820,000     52.2  309,200,090    14.8 
    FY 2003      50.0  39,552,000    77,990,000     50.7  316,292,588    12.5 
    FY 2004      50.0  45,284,000    71,268,000     63.5  316,519,364    14.3 

     Appendix I: DOE Facility Management Contractors' Annual Small Business
                     Subcontracting Goals and Achievements

 Facility                                               Subcontracting Annual       Recalculated 
                                                                       funding    
            Subcontracting                                 achievement received   subcontracting 
management                                                             on the     
contractor, goal (percent  Subcontracting               (percent of      facility    achievement 
            of                                          total                     
 location,   total dollars dollars to     Total dollars        dollars               (percent of 
    and                    small                                       management 
fiscal year                    businesses subcontracted                  contract         annual 
(FY)     subcontracted)                              subcontracted)                  funding) 

University of California,
Lawrence Berkeley National Laboratory,
Calif.

     FY 2001       51.8   60,364,815     129,655,264      46.6  471,669,387   
     FY 2002       51.8   61,485,715     157,523,278      39.0  471,786,072   
     FY 2003       34.0   48,337,720     114,788,499      42.1  456,533,356   
     FY 2004       32.0   63,686,742     170,154,503      37.4  397,451,166   

University of California,
Lawrence Livermore National Laboratory,
Calif.

     FY 2001      46.0  168,927,591    423,235,849      39.9  1,389,055,837   
     FY 2002      46.0  182,167,689    497,929,164      36.6  1,562,149,121   
     FY 2003      35.0  175,743,871    470,886,313      37.3  1,556,259,049   
     FY 2004      35.0  204,297,721    520,668,966      39.2  1,589,252,698   

University of California,
Los Alamos National Laboratory,
N. Mex.

    FY 2001      35.0  314,500,000     846,300,000       37.2  2,056,138,764  
    FY 2002      42.0  431,300,000    1,072,100,000      40.2  1,968,726,402  
    FY 2003      42.0  370,700,000     854,600,000       43.4  1,984,708,594  
    FY 2004      42.0  371,100,000     843,200,000       44.0  1,876,507,610  

University of Chicago, Argonne National Laboratory, Ill.

FY 2001 48.0 66,709,921 127,394,963 52.4 498,328,731

FY 2002 48.0 66,089,187 120,411,075 54.9 530,767,915 12.5

FY 2003 48.0 65,525,795 120,451,914 54.4 525,415,187 12.5

FY 2004 50.0 70,362,618 152,980,199 46.0 585,987,022 12.0

UT Battelle,
Oak Ridge National Laboratory,
Tenn.

    FY 2001    46.0  68,303,840    141,080,341    48.4   667,887,413     10.2 
    FY 2002    43.0  91,435,096    185,694,443    49.2   849,633,299     10.8 
    FY 2003    46.0  118,547,793   219,013,040    54.1   807,960,210     14.7 
    FY 2004    48.0  170,389,081   271,744,455    62.7  1,005,411,132    17.0 

     Appendix I: DOE Facility Management Contractors' Annual Small Business
                     Subcontracting Goals and Achievements

 Facility                                               Subcontracting Annual       Recalculated 
                                                                       funding    
            Subcontracting                                 achievement received   subcontracting 
management                                                             on the     
contractor, goal (percent  Subcontracting               (percent of      facility    achievement 
            of                                          total                     
 location,   total dollars dollars to     Total dollars        dollars               (percent of 
    and                    small                                       management 
fiscal year                    businesses subcontracted                  contract         annual 
(FY)     subcontracted)                              subcontracted)                  funding) 

Washington TRU Solutions, Waste Isolation Pilot Plant, N. Mex.

     FY 2001       75.0   20,291,938     26,456,431       76.7  111,360,499   
     FY 2002       75.0   33,534,321     44,576,023       75.2  118,905,751   
     FY 2003       75.0   38,629,035     45,053,723       85.7  124,985,758   
     FY 2004       60.0   39,136,122     44,500,492       88.0  140,432,118   

West Valley Nuclear Services, West Valley Demonstration Project, N.Y.

     FY 2001       46.0   22,445,717     36,359,853     61.7     95,636,099   
     FY 2002       50.0   32,013,652     45,896,861     69.8     91,345,339   
     FY 2003       55.0   21,906,883     37,503,459     58.4     95,835,513   
     FY 2004       45.0   26,661,695     40,088,050     66.5     93,272,276   

Westinghouse Savannah River,
Savannah River Site,
S.C.

     FY 2001      50.0  193,000,000    367,000,000      52.6  1,498,224,335   
     FY 2002      48.0  171,800,000    298,000,000      57.7  1,419,323,559   
     FY 2003      51.0  169,700,000    291,000,000      58.3  1,478,654,637   
     FY 2004      51.0  109,500,000    188,900,000      58.0  1,452,022,082   

Source: GAO analysis of DOE and facility management contractor data.

Note: The subcontracting achievements-both as a percent of total dollars
subcontracted and as a percent of annual funding-presented in this table
have not been adjusted to include any subcontracts that the facility
management contractors incorrectly excluded from their calculations
because we did not know the dollar value of the incorrectly excluded
subcontracts for all 34 contractors.

aWe omitted subcontracting goal and achievement data for DOE's Mound Site
in Ohio for fiscal years 2001 and 2002, because the contractor that
managed and operated the site in 2001 and 2002 is not the same contractor
that did so from 2003 through the duration of our study. While we included
subcontracting achievement data from the previous contractor in the
aggregated data for all facility management contractors in table 1, we did
not include those data in this appendix because the fiscal year 2001 and
2002 data for the Mound Site came from a different source than the rest of
the subcontracting goal and achievement data in this appendix. As a
result, we had not assessed the reliability of the fiscal year 2001 and
2002 data for the Mound Site to be able to publish the contractor-level
subcontracting goal and achievement data.

Appendix I: DOE Facility Management Contractors' Annual Small Business
Subcontracting Goals and Achievements

bThe facility management contractor managing and operating the Strategic
Petroleum Reserve had a small business subcontracting goal of 47.0 percent
for the first half of fiscal year 2003, but the goal was increased to 49.0
percent for the second half of the fiscal year, after the contractor was
awarded a new facility management contract with DOE for the same site, and
they negotiated a new subcontracting goal. However, for fiscal year 2004,
the contractor's subcontracting goal dropped to 27.7 percent. According to
a contractor official, DOE and the contractor renegotiated the lower goal
after DOE removed about $30 million of work from the facility management
contract in fiscal year 2003. The facility management contractor had been
subcontracting a majority of that work to small business subcontractors.

                       Appendix II: Scope and Methodology

  Determining the Usefulness of the Facility Management Contractor-Reported Data

We determined (1) the usefulness of the data reported by the Department of
Energy's (DOE) facility management contractors for monitoring contractor
performance in small business subcontracting and (2) the actions that DOE
has taken to address any problems identified with its facility management
contractors' small business subcontracting efforts. To conduct our work,
we contacted DOE and contractor officials, as well as representatives from
the Small Business Administration (SBA) and from small-business advocacy
groups. We also collected data from all 34 of DOE's facility management
contracts on their subcontracting activities and took steps to assess the
reliability of the contractors' data, which included reviews of
subcontracting files at 13 of the 34 contractors.

To determine the usefulness of the facility management contractorreported
data for DOE monitoring purposes, we requested data from DOE's 34 facility
management contractors on their annual small business subcontracting goals
and achievements. Specifically, we asked the contractors to provide the
subcontracting percentage-goals that they negotiated with DOE for fiscal
years 2001 through 2004, as well as the dollar figures comprising those
percentages, including the total dollars to be subcontracted during the
year and the portion of subcontracting dollars they expected would go to
small businesses.1 We also asked the contractors to provide us with their
subcontracting percentage achievements for fiscal years 2001 through 2004
and the dollar figures comprising those percentages-namely, the total
dollars that were subcontracted and the small business subcontracting
dollars. (Selected subcontracting goal and achievement data appear in app.
I.) Additionally, in our data request, we asked the contractors to
identify the types of subcontracts that they included or excluded from
their small business subcontracting goals and achievements for fiscal year
2004. Furthermore, we requested copies of the contractors' small business
subcontracting plans that were in effect during fiscal year 2004.

We used a data collection instrument to obtain data from the facility
management contractors on their fiscal year 2001 through 2004 small
business subcontracting goals and achievements. In the data collection

1Although contractors are required to establish annual subcontracting
goals for various subcategories of small businesses, such as small
disadvantaged or women-owned small businesses, during our study, we only
examined small business subcontracting as an overall category. We did not
examine the contractors' subcontracting activities with respect to any
subcategories.

Appendix II: Scope and Methodology

instrument, we provided tables for the contractors to enter their
subcontracting information, and we included instructions on how to
complete the tables. The data collection instrument also included a series
of questions on various aspects of the reliability of the data they
provided, as part of our assessment of data reliability described later in
this appendix.

Because we received the requested information from all 34 of DOE's
facility management contractors, we did not rely on results from any
subset of those contractors to conduct our analysis and, therefore, no
sampling error is associated with our work. However, data gathering
methods, such as the ones we used, may introduce error into the data that
is not associated with statistical sampling, commonly referred to as
nonsampling errors. For example, difficulties in how a particular
instruction was interpreted, in the availability of the information
requested, and in how the data were entered into the tables could
introduce unwanted variation into the data collected. We took steps in the
development of the data collection instrument to minimize these
nonsampling errors. For example, we pretested a draft of the data
collection instrument with 3 facility management contractors. In addition,
we provided the draft to 5 knowledgeable small business and procurement
officials in DOE headquarters. Within GAO the data collection instrument
was reviewed by the Office of General Counsel and by experts in federal
contracting and research methodology. We modified the data collection
instrument as appropriate to reflect the comments and suggestions of the
contractor, DOE, and GAO reviewers, and sent the data collection
instrument to all 34 of DOE's facility management contractors. We received
responses from all 34 contractors.

We then assessed the reliability of the subcontracting data we received
from each of the 34 facility management contractors. To assess the data
reliability, we (1) analyzed the contractors' responses to the data
reliability questions that were included in the data collection instrument
and (2) conducted a more detailed review of subcontract files at 13 of the
34 contractors.

First, we reviewed the contractors' responses to the series of data
reliability questions in the data collection instrument, which addressed
such areas as data entry, data access, quality control procedures, and
data accuracy and completeness. Follow-up questions were added as
necessary. In consultation with a GAO expert in research methodology, we
analyzed the contractors' responses for weaknesses in data reliability
that would make their data unusable for analysis and reporting purposes.
In

Appendix II: Scope and Methodology

their responses, 7 of the 34 contractors discussed minor limitations to
their data control processes that might affect how the data should be
interpreted. For example, 3 contractors stated that their subcontracting
data was both accurate and complete, while noting that it was such to the
extent that they could make it. Another contractor reported that the data
it
provided for fiscal years 2001 and 2002 may be less accurate than the data
for fiscal years 2003 and 2004, because prior to 2003, the contractor did
not require that its small business subcontractors self-certify or provide
documents that verify their small business status.

Second, we visited a nonprobability sample2 of 13 of the 34 facility
management contractors to conduct a more detailed assessment of the
reliability of the fiscal year 2004 subcontracting achievement data that
they provided in response to our data collection instrument. We used
several criteria to select facility management contractors for site
visits,
including a contractors' association with DOE's three largest component
organizations-Environmental Management, the National Nuclear Security
Administration (NNSA), and the Office of Science-as well as geographic
location, and the type of work performed under the facility management
contract. The three DOE component organizations we focused on control
30 of DOE's 34 facility management contracts, and their annual budgets
account for over 70 percent of DOE's overall budget. In selecting NNSA
contractors, we chose both research laboratories and weapons production
facilities, to ensure inclusion of the types of work that NNSA uses to
carry
out its missions. In addition, to obtain geographically diverse cases, we
selected contractors from four states in the Western U.S.-California,
Nevada, New Mexico, and Washington-and one Eastern state, Tennessee.
Nearly one-half of the 34 DOE facility management contractors are located
within these five states.

Based on these selection criteria, we made visits to the following 13
facility management contractors:

Battelle Memorial, Pacific Northwest National Laboratory, Wash.;
Bechtel Hanford, Hanford Site, Wash.;
Bechtel Jacobs, Oak Ridge Site, Tenn.;
Bechtel National, Waste Treatment Plant, Wash.;

2Results from a nonprobability sample cannot be used to make inferences
about a population, because in a nonprobability sample, some elements of
the population being studied have no chance or an unknown chance of being
selected as part of the sample.

Appendix II: Scope and Methodology

Bechtel Nevada, Nevada Test Site, Nev.;
Bechtel SAIC, Yucca Mountain Project, Nev.;
BWXT Y-12, Y-12 National Security Complex, Tenn.;
CH2M Hill Hanford, Hanford Site, Wash.;
Fluor Hanford, Hanford Site, Wash.;
Lockheed Martin, Sandia National Laboratories, N. Mex.;
University of California, Lawrence Livermore National Laboratory, Calif.;
University of California, Los Alamos National Laboratory, N. Mex.; and
UT Battelle, Oak Ridge National Laboratory, Tenn.

Collectively, these 13 contractors had subcontracts worth about $4.2
billion in fiscal year 2004 (or 64.2 percent of the total subcontracting
dollars for all 34 facility management contractors). Of that amount, over
$2.1 billion went to small businesses, accounting for nearly two-thirds of
the almost $3.3 billion in subcontract dollars that the 34 contractors
directed to small businesses that year.

During our visits to these 13 facility management contractors, we looked
at the reliability of the fiscal year 2004 small business subcontracting
achievement data that the contractors provided in the data collection
instrument. Even though our data covered fiscal years 2001 through 2004,
for our more detailed review of data reliability, we focused on fiscal
year
2004, because we performed most of our analyses on data from that year.

Although individual contractors may manage thousands of small business
subcontracts in a given year, for each of the 13 contractors, we chose
separate nonprobability samples of 5 small business subcontracts-for a
total of 65 subcontracts-that the facility management contractors had
included in the fiscal year 2004 small business subcontracting
achievements. We selected each nonprobability sample from a complete
list of the contractors' fiscal year 2004 small business subcontracts,
which
we obtained prior to visiting the contractors. The criteria we used for
selecting contracts was the subcontract amount and the goods and
services provided. We selected subcontracts that received among the
largest dollar commitments in fiscal year 2004 and that encompassed a
variety of the types of goods and services provided by small business
subcontractors. In total, the 65 subcontracts in our nonprobability
samples
accounted for 17.2 percent ($368.1 million) of the $2.1 billion dollars
committed to small business subcontracts in fiscal year 2004 by the 13
facility management contractors.

At each contractor's facility, we reviewed documents for each of the five
subcontracts, in order to verify the dollar commitments to those

Appendix II: Scope and Methodology

subcontracts in fiscal year 2004, that the contractor included in their
response to the data collection instrument. We also reviewed any documents
certifying the small business status of those subcontractors at the time
the subcontracts were awarded. In addition, to understand the effect of
excluding certain subcontracts from the contractors' small business
subcontracting achievement calculations, these 13 contractors provided us
with data on the dollar amount of their excluded subcontracts in fiscal
year 2004.

For all 65 of the small business subcontracts we reviewed, we were able to
verify through documents in the subcontract files that the amount of
dollars committed to the selected subcontracts in fiscal year 2004 equaled
the dollar amounts that the facility management contractors had taken
credit for when reporting their small business subcontracting achievements
for that year. Also, for 63 of the selected subcontracts, we were able to
find documents that certified the subcontractor's status as a small
business at the time the subcontract was awarded. However, for the 2
remaining subcontracts-which were from 2 different facility management
contractors-documents showed that the subcontractors had been classified
as large businesses at the time the subcontract was awarded.3 Therefore,
these 2 subcontracts should not have been reflected in those contractors'
fiscal year 2004 subcontracting achievements as small business
subcontracts. Because this only occurred with 3 percent of the 65
subcontracts (representing 5.7 percent of the total $368.1 million value
of those subcontracts), we did not consider it to be a material weakness
of the subcontracting achievement data. In both instances where facility
management contractors had mistakenly included a large business
subcontract in their small business subcontracting achievements, the
contractors subsequently restated their fiscal year 2004 subcontracting

3In addition to the two facility management contractors, one other
facility management contractor informed us, prior to the site visit, that
one of the five subcontracts in the nonprobability sample had turned out
to be awarded to a large business. The contractor said that, as a result,
they were restating their reported small business subcontracting
achievement data. Therefore, we selected an additional subcontract to
complete the nonprobability sample of five, before beginning our review of
this contractor's subcontracting files.

                       Appendix II: Scope and Methodology

achievements.4 The subcontracting achievement data included in this report
reflect the restated amounts.

Based on all of our efforts to assess data reliability, we believe that
the data are sufficiently reliable for characterizing the 34 facility
management contractors' fiscal year 2004 small business subcontracting
achievements.

  Determining Actions Taken by DOE to Address Problems

To determine the actions that DOE has taken to address any problems
identified with its facility management contractors' small business
subcontracting efforts, we visited officials at the nonprobability sample
of 13 of the 34 facility management contractors previously described. We
also met with the field-based DOE small business officials and contracting
officers responsible for overseeing the facility management contractors'
performance in small business subcontracting.

In addition to our site visits, in DOE's headquarters we interviewed
officials from DOE's Small Business Office and small business officials
from the major component organizations, as well as DOE and NNSA
procurement officials, to learn about their role and actions for
overseeing the facility management contractors' small business
subcontracting efforts. From these officials, we obtained policy guidance,
results of field reviews, and other documents related to DOE and NNSA's
oversight activities. We also interviewed headquarters and field-based
officials from SBA's Office of Government Contracting to further
understand SBA guidelines for contractor reporting of small business
subcontracting data. Furthermore, we spoke with representatives from three
small business advocacy groups-the East Tennessee Environmental Business

4Following our reliability assessment, one contractor reported that it
encountered other problems with potential miscoding of large business
subcontracts as small in the data system that the contractor uses to
calculate its small business subcontracting achievements. A contractor
official said that the contractor is implementing corrective actions, such
as requiring its procurement staff to manually enter subcontractors'
business size information into the contractor's procurement data system.

Appendix II: Scope and Methodology

Association, the New Mexico 8(a) and Minority Business Association, and
the Small Environmental Business Action Coalition.

We conducted our work from June 2004 to April 2005 in accordance with
generally accepted government auditing standards.

Appendix III: Comments from the Department of Energy

Note: GAO comments supplementing those in the report text appear at the
end of this appendix.

Appendix III: Comments from the Department of Energy

Appendix III: Comments from the Department of Energy

See comment 1.

Now on p. 8. See comment 2.

Appendix III: Comments from the Department of Energy

Now on p. 12. See comment 3.

See comment 4.

Now on p. 21. See comment 5.

Appendix III: Comments from the Department of Energy

Now on p. 23 See comment 6.

See comment 7.

See comment 8.

See comment 9.

Appendix III: Comments from the Department of Energy

Appendix III: Comments from the Department of Energy

  GAO Comments

The following are GAO's comments on the Department of Energy's letter
dated May 3, 2005.

1. 	We acknowledge in the draft report and highlights page that DOE had
taken steps to address the problems with contractor-reported data,
including issuing clarifying information in 2002 and additional guidance
in March 2005. However, we stated that these steps had not been adequate
to ensure that the facility management contractors were complying with the
guidance. The draft report also stated that the reviews of the five
facility management contractors performed by DOE's Small Business Office
did not include an evaluation of whether the facility management
contractors were following SBA guidelines for developing small business
subcontracting goals.

2. 	We agree that the Small Business Act and the Federal Acquisition
Regulation do not require a specific level of subcontracting and that
individual contractors determine the amount of work that will be
subcontracted. The draft report reflects these two statements. However, we
also stated in the draft report that if a contractor determines that only
a small percentage of the work will be subcontracted, calculation of small
business subcontracting achievements as a percentage of that percentage
can be misleading.

3. We agree and modified the final report.

4. 	We modified the final report to acknowledge that prior to fiscal year
2000, DOE was able to include the small business subcontracting
achievements of its facility management contractors toward the
department's small business prime contracting goals. However, while it may
have been an acceptable past practice for the facility management
contractors to exclude more subcontracts under these conditions, the
practice should have been discontinued in fiscal year 2000.

5. 	In the draft report, we acknowledged that DOE is in the process of
revising existing guidance to clarify oversight roles and responsibilities
and the necessary coordination and integration of oversight efforts
between DOE headquarters and field organizations.

6. 	In the draft report, we stated that effective oversight of facility
management contractors' practices for calculating and reporting their
small business subcontracting goals and achievements will require more
than providing guidance and training. We believe that regular

Appendix III: Comments from the Department of Energy

oversight activities will also be necessary to verify that contractors are
complying with this guidance.

7. 	Our draft report does not state that "more small business
subcontracting is always better." The draft report does discuss federal
policy, set out in the Small Business Act, that small businesses shall
have the maximum practicable opportunity to provide goods and services to
the federal government and its contractors, consistent with efficient
contract performance. The draft report also states that there can be
several reasons for differences in contractors' small business
subcontracting achievements, including type of work, contract performance
goals, and changes in the annual funding for a contract.

8. 	We disagree that the fiscal year 2004 subcontracting achievement data
are premature. Although the facility management contractors have not yet
submitted their fiscal year 2004 subcontracting reports to DOE, we
obtained this data directly from the 34 facility management contractors so
that we could include the most recent results in our report. We obtained
fiscal year 2004 data after the end of the fiscal year so that it would
reflect the final subcontracting activities for the year. We assessed the
reliability of the data for accuracy and completeness (see app. II). In
addition, in March 2005, we provided a statement of facts to the
contractors for their review to ensure the accuracy of the information.

9. 	DOE disagreed with our recommendation that, for internal management
purposes, the department use data on its contractors' subcontracting
achievements, calculated as a percentage of the dollars obligated to their
prime contract with DOE. While the contractors should continue to report
their subcontracting achievements as SBA requires, we continue to believe
that, for internal management purposes, the data do not provide a true
picture of their performance, which is necessary for the department to
perform effective oversight.

Appendix IV: GAO Contacts and Staff Acknowledgment

  GAO Contacts Acknowledgments

(360492)

Gene Aloise, (202) 512-3841 William R. Swick, (206) 287-4851

In addition to the individuals named above, Carole Blackwell, Ellen Chu,
John Delicath, Doreen Feldman, Dominic Nadarski, Judy Pagano, Laina Poon,
Jeff Rueckhaus, and Ginny Vanderlinde made key contributions to this
report.

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