Major Management Challenges and Program Risks: Department of Energy
(Letter Report, 01/01/99, GAO/OCG-99-6).

As part of its Performance and Accountability Series, GAO provided
information on major management challenges and program risks facing the
Department of Energy (DOE).

GAO noted that: (1) DOE has had difficulty completing large projects on
time and within budget; (2) from 1980 through 1996, DOE terminated 31 of
80 major system acquisitions (mission-critical projects costing over
$100 million) before completion, after expenditures of over $10 billion,
and completed only 15, most of which were behind schedule and over
budget; (3) with few exceptions, DOE's facilities are not licensed or
inspected by independent regulators to help ensure safe operations; (4)
the Department's own advisory committee concluded that widespread
environmental contamination at DOE facilities and the immense costs
associated with their cleanup provide clear evidence that
self-regulation has failed; (5) while DOE agreed to external regulation
in these areas, its commitment appears to be lagging; (6) DOE's
ineffective organizational structure blurs accountability, allowing
problems to go undetected and remain uncorrected; (7) DOE relies on
contractors to perform about 90 percent of its work; (8) recently, it
has significantly increased its use of competition in selecting
contractors to manage and operate its major facilities, but it should do
more; (9) however, it is still not competitively awarding contracts for
environmental restoration work at its national laboratories, even though
it does so at other facilities; (10) in addition, although DOE
originally planned to shift risk from the federal government to private
contractors as a means of enhancing their performance, it now considers
risk-sharing more appropriate; (11) DOE's staff lack technical and
management skills needed to oversee complex operations; (12) finding
enough staff with the necessary skills presents a serious challenge to
DOE, particularly in light of recent downsizing initiatives; (13) to
correct performance and management challenges, DOE developed a strategic
plan for contract reform in 1994; (14) in addition, during the early
1990s, DOE conducted or commissioned several studies of the missions and
organization of its national laboratories; (15) DOE completed strategic
and annual performance plans under the Results Act; and (16) these plans
responded to reported criticisms of DOE's operations and established
goals and measures for improved performance.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  OCG-99-6
     TITLE:  Major Management Challenges and Program Risks: Department 
             of Energy
      DATE:  01/01/99
   SUBJECT:  Performance measures
             Accountability
             Risk management
             Internal controls
             Federal procurement
             Personnel recruiting
             Financial management
             Federal agency reorganization
             Contract administration
             Strategic planning
IDENTIFIER:  Performance and Accountability Series 1999
             Hanford (WA)
             National Performance Review
             Clinch River Breeder Reactor (TN)
             DOE Fermilab Main Injector Project (IL)
             DOE Superconducting Super Collider Project
             Rocky Flats Plant (CO)
             DOE Idaho Pit 9 Remediation Demonstration Project
             
******************************************************************
** This file contains an ASCII representation of the text of a  **
** GAO report.  Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved.  Major          **
** divisions and subdivisions of the text, such as Chapters,    **
** Sections, and Appendixes, are identified by double and       **
** single lines.  The numbers on the right end of these lines   **
** indicate the position of each of the subsections in the      **
** document outline.  These numbers do NOT correspond with the  **
** page numbers of the printed product.                         **
**                                                              **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced.  Tables are included, but    **
** may not resemble those in the printed version.               **
**                                                              **
** Please see the PDF (Portable Document Format) file, when     **
** available, for a complete electronic file of the printed     **
** document's contents.                                         **
**                                                              **
** A printed copy of this report may be obtained from the GAO   **
** Document Distribution Center.  For further details, please   **
** send an e-mail message to:                                   **
**                                                              **
**                                            **
**                                                              **
** with the message 'info' in the body.                         **
******************************************************************


Cover
================================================================ COVER


Performance and Accountability Series

January 1999

MAJOR MANAGEMENT CHALLENGES AND
PROGRAM RISKS - DEPARTMENT OF
ENERGY

GAO/OCG-99-6

Dept.  of Energy Challenges


Abbreviations
=============================================================== ABBREV

  DOE - x
  NRC - x
  EPA - x
  GAO - x
  RCED - x

Letter
=============================================================== LETTER



January 1999

The President of the Senate
The Speaker of the House of Representatives

This report addresses the major performance and management challenges
that have limited the effectiveness of the Department of Energy (DOE)
in carrying out its mission.  For many years, we have reported
significant management challenges at DOE.  These challenges include
difficulties in completing large projects, making the transition to
external regulation, modifying the Department's organizational
structure to correct challenges, reforming its contracting practices,
and maintaining sufficient technical and managerial skills.  These
challenges cut across DOE's programs. 

To address its performance and management challenges, DOE developed a
strategic plan for departmentwide improvement, as well as a specific
plan for contract reform in 1994.  In addition, during the 1990s, DOE
conducted or commissioned several studies of the missions and
organization of its national laboratories.  However, DOE has not
always implemented reform recommendations and has been slow in acting
on others.  Therefore, we will continue monitoring DOE's contract
management as a high-risk area.  Furthermore, some challenges facing
DOE are long-standing, and the solutions to some may lie beyond the
scope of DOE's current reform efforts. 

This report is part of a special series entitled the Performance and
Accountability Series:  Major Management Challenges and Program
Risks.  The series contains separate reports on 20 agencies--one on
each of the cabinet departments and on most major independent
agencies as well as the U.S.  Postal Service.  The series also
includes a governmentwide report that draws from the agency-specific
reports to identify the performance and management challenges
requiring attention across the federal government.  As a companion
volume to this series, GAO is issuing an update to those government
operations and programs that its work has identified as "high risk"
because of their greater vulnerabilities to waste, fraud, abuse, and
mismanagement.  High-risk government operations are also identified
and discussed in detail in the appropriate performance and
accountability series agency reports. 

The performance and accountability series was done at the request of
the Majority Leader of the House of Representatives, Dick Armey; the
Chairman of the House Government Reform Committee, Dan Burton; the
Chairman of the House Budget Committee, John Kasich; the Chairman of
the Senate Committee on Governmental Affairs, Fred Thompson; the
Chairman of the Senate Budget Committee, Pete Domenici; and Senator
Larry Craig.  The series was subsequently cosponsored by the Ranking
Minority Member of the House Government Reform Committee, Henry A. 
Waxman; the Ranking Minority Member, Subcommittee on Government
Management, Information and Technology, House Government Reform
Committee, Dennis J.  Kucinich; Senator Joseph I.  Lieberman; and
Senator Carl Levin. 

Copies of this report series are being sent to the President, the
congressional leadership, all other Members of the Congress, the
Director of the Office of Management and Budget, the Secretary of
Energy, and the heads of other major departments and agencies. 

David M.  Walker
Comptroller General of
the United States


OVERVIEW
============================================================ Chapter 0

Today's Department of Energy (DOE) is a multibillion-dollar
enterprise with multiple missions in energy and science.  It is also
an agency with multiple performance and management challenges.  We,
DOE's Inspector General, the National Performance Review, and the
Department itself have documented these challenges and recommended
reforms.  DOE has taken corrective actions, but major performance and
management challenges remain. 


   THE CHALLENGES
---------------------------------------------------------- Chapter 0:1


      DOE HAS HAD DIFFICULTY
      COMPLETING LARGE PROJECTS
-------------------------------------------------------- Chapter 0:1.1

DOE has had difficulty completing large projects on time and within
budget.  From 1980 through 1996, DOE terminated 31 of 80 major system
acquisitions (mission-critical projects costing over $100 million)
after expenditures of over $10 billion, and completed only 15, most
of which were behind schedule and over budget.  For example, DOE
spent $6.5 billion over 15 years for a permanent disposal site for
highly radioactive waste at Yucca Mountain, Nevada.  This project is
currently 12 years behind schedule, and DOE has not yet determined
whether the site is suitable for a repository. 


      DOE'S TRANSITION TO EXTERNAL
      REGULATION IS SLOW
-------------------------------------------------------- Chapter 0:1.2

With few exceptions, DOE's facilities are not licensed or inspected
by independent regulators to help ensure safe operations.  The
Department's own advisory committee concluded that "Widespread
environmental contamination at DOE facilities and the immense costs
associated with their cleanup provide clear evidence that
self-regulation has failed."\1 While DOE agreed to external
regulation in these areas, its commitment appears to be lagging. 


--------------------
\1 Total environmental liabilities reported in DOE's 1997 financial
report were $181 billion. 


      DOE'S ORGANIZATIONAL
      STRUCTURE ALLOWS CHALLENGES
      TO GO UNCORRECTED
-------------------------------------------------------- Chapter 0:1.3

DOE's ineffective organizational structure blurs accountability,
allowing problems to go undetected and remain uncorrected.  At
Brookhaven National Laboratory on Long Island, radioactive tritium
leaked into groundwater for years because DOE's weak organizational
structure discouraged effective oversight of the contractor's
operations.  DOE eventually terminated its relationship with the
organization managing this facility because the laboratory lost
public trust. 


      CONTRACT MANAGEMENT REMAINS
      VULNERABLE TO RISK
-------------------------------------------------------- Chapter 0:1.4

DOE relies on contractors to perform about 90 percent of its work. 
Recently, it has increased its use of competition in selecting
contractors to manage and operate its major facilities, but it should
do more.  However, it is still not competitively awarding contracts
for environmental restoration work at its national laboratories, even
though it does so at other facilities.  In addition, although DOE
originally planned to shift risk from the federal government to
private contractors as a means of enhancing their performance, it now
considers risk-sharing more appropriate.  At its Hanford site in
Washington State, for example, DOE assumed much of the risk that it
initially planned to shift to the contractor. 


      DOE'S STAFF LACK TECHNICAL
      AND MANAGEMENT SKILLS
-------------------------------------------------------- Chapter 0:1.5

DOE's staff lack technical and management skills needed to oversee
complex operations.  At an Idaho facility, DOE turned to a private
contractor, in part, because it lacked the in-house expertise needed
to evaluate technical cleanup proposals.  At the Hanford site, where
DOE entered into a multibillion-dollar fixed-price contract for the
next 20 years, DOE has no experts in fixed-price contracting. 
Finding enough staff with the necessary skills presents a serious
challenge to DOE, particularly in light of recent downsizing
initiatives. 


   PROGRESS AND NEXT STEPS
---------------------------------------------------------- Chapter 0:2

To correct performance and management challenges such as these, DOE
developed a strategic plan for departmentwide improvement, as well as
a specific plan for contract reform in 1994.  In addition, during the
early 1990s, DOE conducted or commissioned several studies of the
missions and organization of its national laboratories.  Most
recently, DOE completed strategic and annual performance plans under
the Government Performance and Results Act.  These plans responded to
reported criticisms of the Department's operations and established
goals and measures for improved performance. 

DOE's strategic plan articulates what the Department regards as its
primary missions.  This plan gives the Congress and the
administration an opportunity to affirm or change DOE's missions and
reach agreement on long-term priorities for the Department.  Together
with the contract reform initiative, the strategic plan establishes a
framework for improving DOE's performance and management.  However,
DOE's challenges are deeply entrenched, and the solutions to some may
lie beyond the Department's control.  If the Congress is not
satisfied with the pace and scope of DOE's reform efforts, it may
need to provide further direction to the Department through
legislation. 


   KEY CONTACT
---------------------------------------------------------- Chapter 0:3

Victor S.  Rezendes, Director
Energy, Resources, and Science Issues
Resources, Community, and Economic
 Development Division
(202) 512-3841
[email protected]


MAJOR PERFORMANCE AND MANAGEMENT
CHALLENGES
============================================================ Chapter 1

DOE is a large agency with critical missions and serious challenges
in carrying out these missions.  In fiscal year 1998, DOE obligated
almost $18 billion to maintain the nation's nuclear weapons
stockpile, manage the largest environmental cleanup in history,
support research and development at 23 national laboratories, and
accomplish other missions in energy and science.  Despite recent
downsizing, DOE employs over 11,000 federal employees and is the
largest civilian contracting agency in the federal government,
retaining about 108,000 contract employees at over 50 major
installations in 35 states. 

Over the years, we, DOE's Inspector General, and the National
Performance Review have documented challenges with DOE's performance
and management and recommended reforms.  This report summarizes
findings from our issued reports on the effectiveness of DOE's
efforts at managing large mission-critical projects; protecting the
environment, safety, and health at its own facilities; clarifying its
organizational structure; reforming its contracting practices; and
obtaining needed technical and management skills to oversee complex
operations.  This report also indicates, where applicable, how DOE
has responded to recommendations of the National Performance Review
and addressed weaknesses through the strategic plan that it developed
in response to the Results Act. 


   DOE HAS HAD DIFFICULTY
   COMPLETING LARGE PROJECTS
---------------------------------------------------------- Chapter 1:1

To support its missions, DOE often requires large projects costing
hundreds of millions of dollars, many of which it designates as major
system acquisitions.  DOE's projects are often first-of-a-kind and
involve substantial risk, as well as substantial funding for
construction.  For example, DOE's programs in high-energy physics and
nuclear physics require accelerators (large machines that propel
atomic particles near the speed of light) that can range in cost from
hundreds of millions of dollars to billions of dollars. 

DOE has had difficulty completing large projects on time and within
budget.  From 1980 through 1996, the Department conducted 80 major
system acquisitions whose actual or planned costs totaled $65
billion.  Thirty-one of these projects were terminated before
completion, after expenditures of over $10 billion, and only 15 were
completed, the majority of which were usually behind schedule and
over budget.  For the 34 ongoing projects, we found that 27 had cost
overruns averaging over 70 percent and 16 were behind schedule.\2 One
large project, a repository at Yucca Mountain, Nevada, for
permanently disposing of highly radioactive waste, including the
by-products of nuclear power generation, has already cost $6.5
billion, and DOE has not yet determined whether the site is suitable
for a repository.  In addition, the project is at least 12 years
behind schedule.  Because of this delay, many nuclear power plants
have had to construct their own temporary waste storage facilities. 

Some of the challenges in managing large projects were attributable
to factors beyond DOE's control, including world events (especially
the end of the Cold War), incomplete technologies, and changes in the
administration's policy.  Nevertheless, weaknesses in DOE's
management and oversight also contributed to the challenges. 
Overall, we identified four factors underlying the cost increases,
delays, and terminations. 

  -- Changing missions for DOE have made it difficult to sustain
     departmental and congressional support for long-term, high-cost
     projects.  For example, today's emphasis on conducting
     environmental cleanups at DOE sites is very different from DOE's
     focus in the 1970s on developing alternative sources of energy. 
     With changing missions, projects such as the Gas Centrifuge
     Enrichment Plant and the Clinch River Breeder Reactor were
     terminated after expenditures of $2.8 billion and $1.6 billion,
     respectively. 

  -- Incremental funding for projects has delayed their construction
     and increased their costs.  Because budget authority for the
     total cost of a project is not provided at the time the project
     is approved, annual funding for the project is often less than
     requested.  For example, the Fermilab Main Injector Project in
     Illinois (for use in high-energy physics experiments) received
     only 40 percent of its planned funding for the first 3 years. 
     As a result, according to DOE officials, the project fell behind
     schedule and incurred additional costs. 

  -- A flawed system of incentives does not always reward employees
     and contractors appropriately.  For years, DOE's culture
     encouraged employees to complete projects but not to question
     the need for them or to raise management issues.  Thus,
     participants in the Superconducting Super Collider project tried
     to keep it going even when expected foreign contributions did
     not materialize and the total projected costs rose from $5.9
     billion to over $11 billion.  Additionally, DOE managers have
     often failed to penalize contractors for poor performance and
     have sometimes even rewarded inadequate performance.  For
     example, during the 1980s and early 1990s, DOE paid millions of
     dollars in bonuses to the contractor at its Rocky Flats Plant in
     Colorado, despite well-documented safety and health deficiencies
     at the facility. 

  -- Finally, inadequate technical and managerial skills have
     resulted in higher costs and delays.  For example, according to
     DOE, the Defense Waste Processing Facility in South Carolina
     cost about $900 million more than planned and opened about 6
     years late, in large part because the project's managers lacked
     experience with large-scale technology projects and did not
     focus sufficient attention on technical, institutional, or
     management issues. 

There are no quick, easy solutions to DOE's challenges in keeping
large projects on schedule and within budget; however, changes made
by the Congress, the executive branch, and DOE could help.  First,
two acts--the Federal Acquisition Streamlining Act of 1994 and the
Federal Acquisition Reform Act of 1996--encourage federal agencies to
establish goals and incentives for managing acquisition projects and
to improve education and training for their acquisition workforce. 
Second, starting in 1996, the Office of Management and Budget has
required all federal agencies to request full funding for fixed
assets, which would include DOE's large projects.  Finally,
departmental initiatives in the areas of contract reform, asset
management, strategic planning, information systems management, and
financial planning should strengthen DOE's ability to manage large
projects.  For example, DOE's strategic plan incorporates performance
measures, as the National Performance Review recommended, requiring
the Department to annually meet baselines established for the scope,
schedule, and cost of its projects. 

While these changes may strengthen DOE's management, the fate of
DOE's acquisitions also depends on direction from the Congress and
the administration.  Now that DOE has developed its first strategic
and annual performance plans under the Results Act, we believe the
time is right for reviewing its missions and agreeing on long-term
priorities for the Department. 


--------------------
\2 Completion dates and costs were not available for 14 of these 34
projects. 


   DOE'S TRANSITION TO EXTERNAL
   REGULATION IS SLOW
---------------------------------------------------------- Chapter 1:2

With few exceptions, DOE's research and nuclear facilities are not
inspected or licensed by independent regulators to help ensure safe
operations.  For national security reasons, DOE relied historically
on its own staff to ensure safety at these facilities.  We and others
have criticized DOE for weaknesses in its self-regulation.  In 1995,
for example, a DOE advisory committee concluded that the widespread
environmental contamination at DOE's facilities and the immense costs
associated with their cleanup is evidence that self-regulation has
failed.  In 1998, the Defense Nuclear Facilities Safety Board, an
independent group that oversees but has no regulatory authority over
DOE's defense facilities, criticized the Department for failing to
correct worker health and safety hazards. 

With several exceptions, DOE is subject to environmental protection
statutes enforced by the Environmental Protection Agency (EPA) and
the states.  But DOE is still the only federal agency whose
facilities are generally exempt from regulation by the Nuclear
Regulatory Commission (NRC) for nuclear safety and by the
Occupational Safety and Health Administration for worker safety.  In
1993, the Secretary of Energy announced that the Department would
seek external regulation for worker safety.  Two years later, DOE
created advisory groups to help formulate its policies and implement
plans to eliminate self-regulation for both nuclear and worker safety
at its facilities.  Although these advisory groups endorsed external
regulation, DOE has backed off from its initial plans and is now
conducting pilot programs to simulate external regulation at selected
facilities and determine whether it is warranted. 

Although DOE's pilot programs may provide useful insights, they will
not yield much of the information that managers need to make
well-informed judgments about the value and practicality of external
regulation at DOE's vast nuclear complex.  For example, NRC estimates
on the basis of one pilot project that it would need about one-fifth
of one staff person's time per year to regulate nuclear safety at the
Lawrence Berkeley National Laboratory in California.  However, this
estimate does not fairly represent the cost of external regulation
for the majority of DOE's nuclear facilities because the Lawrence
Berkeley National Laboratory does not have the nuclear reactors,
weapons plants, or heavily contaminated facilities found at the
defense and environmental cleanup sites that make up 80 percent of
DOE's complex. 

DOE's current plan to conduct pilot programs to simulate external
regulation is inconsistent with its former plan to move forward
immediately with external regulation.  Although DOE maintains that
its current plan reflects appropriate caution, we believe that the
Department is wavering in its commitment to external regulation.  We
recommended in May 1998 that DOE set forth its position on the
external regulation of nuclear and worker safety at its facilities
and develop an implementation strategy consistent with its position. 


   DOE'S ORGANIZATIONAL STRUCTURE
   ALLOWS CHALLENGES TO GO
   UNCORRECTED
---------------------------------------------------------- Chapter 1:3

DOE's organization includes a dozen headquarters program offices, 10
major field offices with many smaller offices located near DOE's
facilities, and over 50 major facilities owned by the government and
operated by DOE's contractors.  As we reported in 1981, DOE does not
have clear lines of authority linking the Department's units, and as
we reported in 1993 and again in 1998, the roles and responsibilities
of DOE's headquarters and field offices are not clearly defined. 
Contractors, such as those operating the large national laboratories,
receive policy guidance from many different program offices but are
managed and evaluated by field offices that are not accountable to
the program offices.  Several program (and staff) offices can direct
a single contractor, bypassing the field office and other program
offices.  This uncoordinated direction limits DOE's ability to hold
contractors accountable for their activities and ultimately affects
their performance. 

In 1997, we ultimately attributed leaks of tritium (a radioactive
element) into groundwater from a research reactor at the Brookhaven
National Laboratory on Long Island, New York, to weaknesses in DOE's
organizational structure.  These leaks went undetected for many years
and then remained uncorrected for several more years because the
contractor assigned low priority to them, despite public concern and
local environmental regulations requiring corrective action.  DOE did
not hold the laboratory accountable for meeting its regulatory
commitments but eventually terminated the contract because the
laboratory lost public trust.  We found that DOE's organizational
structure prevented effective accountability over the Department's
on-site field office--the office with the most immediate
responsibility for ensuring the laboratory's compliance with
environmental, safety, and health requirements.  Because the on-site
office was part of a chain of command with no explicit responsibility
for environmental, safety, and health issues, it did not report
directly to either of two other offices with such responsibility--one
of these offices was in another chain of command, and the other was
an independent office.  In 1998, the Defense Nuclear Facilities
Safety Board recommended that DOE establish clear lines of authority
and responsibility to ensure the resolution of safety issues. 

DOE's own oversight offices have reported similar weaknesses in the
Department's organizational structure.  For example, in 1997, DOE's
Laboratory Operations Board reported inefficiencies in both
headquarters and the field resulting from the Department's
complicated management structure.  The Board recommended that DOE
undertake a major effort to rationalize and simplify its headquarters
and field management structure to create a more effective line
management.  DOE's strategic plan includes a performance measure
designed to create a line of accountability by requiring (1) links in
annual performance budgets between resource requirements and plans,
(2) independent validations of projects' costs, and (3) crosscutting
evaluations of performance. 


   CONTRACT MANAGEMENT REMAINS
   VULNERABLE TO RISK
---------------------------------------------------------- Chapter 1:4

DOE is the largest civilian contracting agency in the federal
government.  In fiscal year 1997, it obligated about $16.2 billion,
or about 91 percent of its obligations, to contracts.  We have
reported on weaknesses in DOE's contracting practices, including
noncompetitive awards and lax oversight of costs and activities.  In
1990, we designated DOE's contracting as a high-risk area.  Three
years later, the Secretary of Energy established a Contract Reform
Team, which reviewed DOE's contracting practices and, in February
1994, published a report with 48 recommendations to make contracting
work better and cost less.\3 Among these were recommendations to
award contracts competitively, incorporate performance-based
incentives, and increase the use of fixed-price contracts.  While DOE
was reviewing its contracting practices, it was also developing its
strategic plans.  Together, the contract reform and strategic
planning initiatives helped to shape the framework for contract
reform that DOE has since put in place.  While these reforms are
generally steps in the right direction, DOE has had some problems in
implementing them, and in some instances, their effectiveness will
not be known for several years.  Therefore, we will continue
monitoring DOE's contract management as a high-risk issue. 

Since 1996, DOE has increased its use of competition in awarding
contracts for managing and operating its facilities, but it could do
more, particularly at its national laboratories.  In 1996, we
reported that from July 1994 through August 1996, DOE had awarded 8
of 24 management and operating contracts (33 percent) competitively. 
For fiscal year 1996 through fiscal year 1998, DOE reported that it
had awarded 14 of 26 such contracts (54 percent) competitively and
extended the other 12 noncompetitively.  (The total value of these 12
contracts was $102 billion.) According to DOE, 8 of these 12
contracts were eligible for noncompetitive renewal under the
Competition in Contracting Act, which exempts contracts for federally
funded research and development centers from the requirements for
competition.  However, as we reported in 1996, only about half of the
funds spent by management and operating contractors at the national
laboratories went for research and development; the remainder went
for other work, such as environmental restoration.  At other
facilities, DOE awards contracts for environmental restoration work
competitively.  In our view, DOE could improve its contracts with the
national laboratories by separating and competitively awarding the
portion of the work that is not related to research. 

In 1994, DOE began incorporating performance-based incentives in its
management and operating contracts to better link contractors' fees
to the satisfactory accomplishment of specific tasks.  In 1997 and
1998, DOE's Inspector General found problems in the Department's
implementation of these incentives, and in 1997, a departmentwide
assessment identified other concerns, such as limited guidance on
developing and administering the incentives.  Our July 1998 report
indicated that DOE had taken steps to correct these problems,
including issuing guidance, conducting training, and incorporating
lessons learned into the fiscal year 1998 incentives.  However, it
was too early to assess the effectiveness of these incentives because
DOE's technical, financial, and contracting personnel had not yet
completed their reviews, which they perform at the end of the fiscal
year.  Moreover, as we reported in April 1998, DOE incorporated
performance-based incentives for fiscal year 1998 in 16 of the 20
contracts we reviewed after the contractors had started their work. 
Thus, the incentives were less effective than they might have been in
guiding and enhancing the contractors' performance. 

To control costs and shift risks from the government to contractors,
DOE has begun to use fixed-price contracts for environmental cleanups
in place of the cost-reimbursement contracts that the Department
routinely used in the past.  Under this "privatization" initiative,
DOE planned to pay its contractors a fixed amount for acceptable
goods and services, regardless of the costs they incurred, and shift
most financial risks to the contractors.  While DOE has used
fixed-price contracts for some well-defined projects, such as
cleaning up some contaminated soils and decontaminating workers'
uniforms, it has not met its initial goals for more complex
environmental cleanups, as the following examples show: 

  -- Pit 9, a project to clean up radioactive waste at the Idaho
     National Engineering and Environmental Laboratory, incurred
     nearly $200 million in cost overruns.  The project, which we
     characterized as a failure, was at least 26 months behind
     schedule when we reported on it in July 1997.  Issues
     surrounding this project, such as the type and amount of waste
     to be cleaned up and who will pay for the increased costs, are
     currently in litigation. 

  -- At the Hanford site in Richland, Washington, DOE planned to make
     the contractor fully responsible for the financial risk
     associated with constructing a facility to treat highly
     radioactive waste, currently stored in leaking underground
     tanks.  However, because lenders told DOE that the contractor
     would not be able to obtain affordable financing without
     government backing, DOE agreed to pay much of the project debt
     if the contractor defaulted on its loans.  The extent of the
     liability retained by the contractor remains uncertain.  While
     this financing approach appears reasonable for this project, DOE
     faces a financial risk not initially contemplated that could be
     in the billions of dollars. 

Before DOE decides whether to award fixed-price or cost-reimbursement
contracts, it needs to consider several factors, including the
cleanup and financial risks involved, the adequacy of the competition
among qualified firms, the types of financing available, and the
skills of the DOE staff responsible for designing and overseeing the
contracts. 


--------------------
\3 Some of these recommendations also were made by the National
Performance Review and were included in DOE's strategic plan as
performance measures. 


   DOE'S STAFF LACK TECHNICAL AND
   MANAGEMENT SKILLS
---------------------------------------------------------- Chapter 1:5

A lack of staff with the requisite skills is an underlying cause of
problems in several areas.  As previously noted, insufficient staff
with the appropriate management skills was one of the four key
factors underlying the cost overruns, delays, and terminations
associated with DOE's major system acquisitions.  Inadequate
technical and management skills have also hampered DOE's
self-regulation and contract management.  DOE and its Inspector
General have identified the need for stronger technical and
management skills, and the National Performance Review recommended
strengthening this area.  DOE included performance measures in its
strategic plan to address the problem. 

A lack of staff with the requisite technical skills limited the
effectiveness of DOE's self-regulation and contributed to the
environmental problems at many of DOE's facilities.  The Defense
Nuclear Facilities Safety Board, in its annual reports to the
Congress, has repeatedly stated that the lack of appropriate
technical expertise in DOE is a significant problem.  As we have
reported since 1991, managers throughout DOE have told us that the
lack of skilled staff in program, project, and contracting oversight
positions is one of the most fundamental challenges in the
Department.  In March 1997, we reported that DOE did not assign
enough staff with the proper technical capability to oversee the
early stages of a project at the Fernald site in Ohio, resulting in
major cleanup problems that could have been avoided. 

In 1994, DOE's Contract Reform Team acknowledged that DOE's staff
were not prepared to effectively oversee contractors.  According to
the team, DOE lacked "sufficient and adequately trained personnel in
such areas as contract administration, cost estimation, and financial
management." As we reported in July 1997, DOE's Idaho facility turned
to privatization, in part, because it did not have the in-house
expertise to evaluate technical cleanup proposals.  However, delays
and cost overruns at both the Idaho and the Hanford facilities
suggest that DOE may likewise lack expertise in administering
fixed-price contracts.  Both the Director of Contract Reform and
Privatization and the contracting officer at Hanford acknowledged
that the DOE staff at Hanford are not experts in fixed-price
contracting.  As DOE stated in a 1997 study, the use of fixed-price
contracts for privatizing cleanups will require its employees to
become more involved in the early stages of procurement development
and to acquire more skills in corporate budgeting, capital market
analysis, and the financing of employee benefits. 

Finding enough staff with the necessary skills presents a serious
challenge to DOE, particularly in light of recent downsizing.  At
Hanford, for example, DOE plans to ensure adequate oversight of the
tank waste cleanup by putting about 80 technical and managerial staff
in place.  However, as of August 28, 1998, DOE had not yet filled 30
positions, including 5 of the 9 DOE staff responsible for contract
management.  DOE officials told us that they plan to hire these and
other needed staff during fiscal year 1999. 


RELATED GAO PRODUCTS
============================================================ Chapter 2


   COMPLETING LARGE PROJECTS
---------------------------------------------------------- Chapter 2:1

Nuclear Waste:  Department of Energy's Hanford Tank Waste
Project--Schedule, Cost, and Management Issues (GAO/RCED-99-13, Oct. 
8, 1998). 

Information Technology:  Department of Energy Does Not Effectively
Manage Its Supercomputers (GAO/RCED-98-208, July 17, 1998). 

Nuclear Waste:  Department of Energy's Project to Clean Up Pit 9 at
Idaho Falls Is Experiencing Problems (GAO/RCED-97-180, July 28,
1997). 

Nuclear Waste:  Impediments to Completing the Yucca Mountain
Repository Project (GAO/RCED-97-30, Jan.  17, 1997). 

Department of Energy:  Opportunity to Improve Management of Major
System Acquisitions (GAO/RCED-97-17, Nov.  26, 1996). 

Nuclear Waste:  Uncertainties About Opening the Waste Isolation Plant
(GAO/RCED-96-146, July 16, 1996). 


   SHIFTING TO EXTERNAL REGULATION
---------------------------------------------------------- Chapter 2:2

Department of Energy:  Clear Strategy on External Regulation Needed
for Worker and Nuclear Facility Safety (GAO/RCED-98-163, May 21,
1998). 

Department of Energy:  Information on the Tritium Leak and Contractor
Dismissal at the Brookhaven National Laboratory (GAO/RCED-98-26, Nov. 
4, 1997). 


   STREAMLINING DOE'S
   ORGANIZATIONAL STRUCTURE
---------------------------------------------------------- Chapter 2:3

Department of Energy:  Uncertain Progress in Implementing National
Laboratory Reforms (GAO/RCED-98-197, Sept.  10, 1998). 

Results Act:  DOE Can Improve Linkages Among Plans and Between
Resources and Performance (GAO/RCED-98-94, Apr.  14, 1998). 

Department of Energy:  Information on the Tritium Leak and Contractor
Dismissal at the Brookhaven National Laboratory (GAO/RCED-98-26, Nov. 
4, 1997). 

Department of Energy:  A Framework for Restructuring DOE and Its
Missions (GAO/RCED-95-197, Aug.  21, 1995). 

Department of Energy:  Management Problems Require a Long-Term
Commitment to Change (GAO/RCED-93-72, Aug.  31, 1993). 


   IMPROVING CONTRACT MANAGEMENT
---------------------------------------------------------- Chapter 2:4

Nuclear Waste:  Department of Energy's Hanford Tank Waste
Project--Schedule, Cost, and Management Issues (GAO/RCED-99-13, Oct. 
8, 1998). 

Department of Energy:  Lessons Learned Incorporated Into
Performance-Based Incentive Contracts (GAO/RCED-98-223, July 29,
1998). 

Department of Energy:  Alternative Financing and Contracting
Strategies for Cleanup Projects (GAO/RCED-98-169, May 29, 1998). 

Results Act:  DOE Can Improve Linkages Among Plans and Between
Resources and Performance (GAO/RCED-98-94, Apr.  14, 1998). 

Nuclear Waste:  Department of Energy's Project to Clean Up Pit 9 at
Idaho Falls Is Experiencing Problems (GAO/RCED-97-180, July 28,
1997). 

High-Risk Series:  Department of Energy Contract Management
(GAO/HR-97-13, Feb.  1997). 

Department of Energy:  Contract Reform Is Progressing, but Full
Implementation Will Take Years (GAO/RCED-97-18, Dec.  10.  1996). 

Federal Research:  Information on Fees for Selected Federally Funded
Research and Development Centers (GAO/RCED-96-31FS, Dec.  8, 1995). 


   OBTAINING ENOUGH STAFF WITH
   NEEDED SKILLS
---------------------------------------------------------- Chapter 2:5

Nuclear Waste:  Schedule, Cost, and Management Issues at DOE's
Hanford Tank Waste Project (GAO/T-RCED-99-21, Oct.  8, 1998). 

Nuclear Waste:  Department of Energy's Project to Clean Up Pit 9 at
Idaho Falls Is Experiencing Problems (GAO/RCED-97-180, July 28,
1997). 

Department of Energy:  Management and Oversight of Cleanup Activities
at Fernald (GAO/RCED-97-63, Mar.  14, 1997). 

Department of Energy:  Opportunity to Improve Management of Major
System Acquisitions (GAO/RCED-97-17, Nov.  26, 1996). 


PERFORMANCE AND ACCOUNTABILITY
SERIES
============================================================ Chapter 3

Major Management Challenges and Program Risks:  A Governmentwide
Perspective (GAO/OCG-99-1)

Major Management Challenges and Program Risks:  Department of
Agriculture (GAO/OCG-99-2)

Major Management Challenges and Program Risks:  Department of
Commerce (GAO/OCG-99-3)

Major Management Challenges and Program Risks:  Department of Defense
(GAO/OCG-99-4)

Major Management Challenges and Program Risks:  Department of
Education (GAO/OCG-99-5)

Major Management Challenges and Program Risks:  Department of Energy
(GAO/OCG-99-6)

Major Management Challenges and Program Risks:  Department of Health
and Human Services (GAO/OCG-99-7)

Major Management Challenges and Program Risks:  Department of Housing
and Urban Development (GAO/OCG-99-8)

Major Management Challenges and Program Risks:  Department of the
Interior (GAO/OCG-99-9)

Major Management Challenges and Program Risks:  Department of Justice
(GAO/OCG-99-10)

Major Management Challenges and Program Risks:  Department of Labor
(GAO/OCG-99-11)

Major Management Challenges and Program Risks:  Department of State
(GAO/OCG-99-12)

Major Management Challenges and Program Risks:  Department of
Transportation (GAO/OCG-99-13)

Major Management Challenges and Program Risks:  Department of the
Treasury (GAO/OCG-99-14)

Major Management Challenges and Program Risks:  Department of
Veterans Affairs (GAO/OCG-99-15)

Major Management Challenges and Program Risks:  Agency for
International Development (GAO/OCG-99-16)

Major Management Challenges and Program Risks:  Environmental
Protection Agency (GAO/OCG-99-17)

Major Management Challenges and Program Risks:  National Aeronautics
and Space Administration (GAO/OCG-99-18)

Major Management Challenges and Program Risks:  Nuclear Regulatory
Commission (GAO/OCG-99-19)

Major Management Challenges and Program Risks:  Social Security
Administration (GAO/OCG-99-20)

Major Management Challenges and Program Risks:  U.S.  Postal Service
(GAO/OCG-99-21)

High-Risk Series:  An Update (GAO/HR-99-1)


The entire series of 21 performance and accountability reports and
the high-risk series update can be ordered by using the order number
GAO/OCG-99-22SET. 


*** End of document. ***