Nuclear Facility Cleanup: Centralized Contracting of Laboratory Analysis
Would Produce Budgetary Savings (Letter Report, 05/08/95,
GAO/RCED-95-118).
Pursuant to a congressional request, GAO reviewed the Department of
Energy's (DOE) decentralized approach to laboratory analysis, focusing
on: (1) the differences in prices and contracting approaches between DOE
and the Environmental Protection Agency (EPA) for similar types of
laboratory analyses; (2) whether DOE decentralized approach has resulted
in any administrative inefficiencies; and (3) key changes DOE is making
in its contracting procedures.
GAO found that: (1) DOE pays substantially higher prices than EPA for
the same types of commercial laboratory analyses; (2) while savings
could be achieved through centralization, the amount of savings is
difficult to measure; (3) unlike DOE, EPA conducts two procurements for
organic and inorganic analyses for Superfund sites, while the DOE
decentralized approach results in numerous inefficiencies, such as
contractors performing redundant quality assurance evaluations at
numerous commercial laboratories; and (4) DOE has recently identified 17
initiatives designed to improve many phases of its laboratory analysis
program, but it does not plan to change its decentralized approach to
laboratory analyses.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-95-118
TITLE: Nuclear Facility Cleanup: Centralized Contracting of
Laboratory Analysis Would Produce Budgetary Savings
DATE: 05/08/95
SUBJECT: Laboratories
Federal procurement
Centralization
Information analysis operations
Cost control
Contract administration
Soil conservation
Water conservation
Nuclear facilities
Radioactive waste disposal
IDENTIFIER: Superfund Program
Hanford (WA)
Fernald (OH)
Rocky Flats (CO)
Oak Ridge (TN)
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Cover
================================================================ COVER
Report to the Ranking Minority Member, Committee on Commerce, House
of Representatives
May 1995
NUCLEAR FACILITY CLEANUP -
CENTRALIZED CONTRACTING OF
LABORATORY ANALYSIS WOULD PRODUCE
BUDGETARY SAVINGS
GAO/RCED-95-118
Centralized Contracting of Laboratory Analysis
Abbreviations
=============================================================== ABBREV
DOE - Department of Energy
EPA - Environmental Protection Agency
GAO - General Accounting Office
Letter
=============================================================== LETTER
B-260566
May 8, 1995
The Honorable John D. Dingell
Ranking Minority Member
Committee on Commerce
House of Representatives
Dear Mr. Dingell:
Environmental cleanup is a costly effort that the nation is now
undertaking, involving federal agencies as well as private industry.
The Department of Energy (DOE), tasked with cleaning up the massive
contamination resulting from more than 50 years of production at its
nuclear weapons facilities, estimates that this cleanup will cost at
least $300 billion (and perhaps as much as $1 trillion) and take more
than 30 years to complete. The laboratory analysis (of soil and
water, for example) necessary to assess the kind and level of
contamination at these facilities is expected to cost at least $15
billion, according to DOE's estimates. DOE's approach to such
analysis is decentralized; that is, the contractors that primarily
manage and operate the Department's facilities independently obtain
such laboratory analysis either through commercial laboratories or
contractor-operated laboratories. In contrast, the Environmental
Protection Agency (EPA), which oversees the cleanup of Superfund
sites,\1 contracts for the same types of analysis\2 on a centralized
basis.
Concerned about the budgetary impact of the large expenditures for
DOE's laboratory analysis, you asked us to (1) compare the average
prices that DOE and EPA pay to commercial laboratories for the same
types of analysis and determine whether the two agencies' different
contracting approaches affect these prices, (2) identify whether
DOE's decentralized approach has resulted in any administrative
inefficiencies, and (3) discuss any key changes DOE is making in its
contracting for laboratory analysis. We analyzed the prices paid by
four DOE contractors that accounted for 68 percent of DOE's costs for
laboratory analysis in fiscal year 1994.\3 Appendix I provides more
detail on our analysis of these prices.
--------------------
\1 The Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended, authorized the creation of a
funding mechanism--a "Superfund"--to pay for the cleanup of
contaminated sites. The term Superfund has also been used to refer
to the program and the sites that will be cleaned up under the act.
\2 EPA has developed specific procedures to be followed for organic
and inorganic analyses under its Superfund program. DOE's
contractors also use these procedures.
\3 DOE has 15 major facilities operated by contractors. We analyzed
the prices paid at DOE's facilities at Fernald, Ohio; Hanford,
Washington; Rocky Flats, Colorado; and Oak Ridge, Tennessee.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
DOE paid substantially higher prices than EPA for the same types of
laboratory analysis at commercial laboratories. For example, DOE's
price for inorganic chemical analysis averaged $358, about 223
percent more than EPA's price of $111. If DOE had obtained the same
prices as EPA did under a centralized approach, it would have saved
$247 per analysis, on average. While we believe that savings could
be achieved through centralization, the amount of savings is
difficult to estimate for several reasons. For example, DOE does not
know the number of analyses it performs since it only recently
started to collect this information. Additionally, DOE does not know
the extent to which its prices are affected by the potential for
radioactivity in the samples. However, DOE's most recent sampling
statistics, for fiscal year 1994, show that 85 percent of the organic
and inorganic samples were not radioactive.
Because of multiple contract awards and contract management
activities, DOE's decentralized approach results in numerous
inefficiencies. For example, EPA conducts two procurements, one for
the organic analysis and one for the inorganic analysis commonly used
for Superfund sites. In contrast, more than 40 different DOE
contractor organizations\4 procured organic and inorganic analyses in
fiscal year 1994. For each of these procurements, the contractors
are required to perform numerous duplicate administrative tasks, such
as soliciting bids, ensuring that the laboratories can do the
analysis, and awarding contracts. For example, in 1995, DOE's
Inspector General reported that the Department's contractors
performed 103 duplicate and redundant quality assurance evaluations
at 38 commercial laboratories.
DOE's annual operating plan for 1994 outlines 17 initiatives designed
to improve many phases of its laboratory analysis program. For
example, to reduce the number of duplicate quality assurance
evaluations, DOE is considering using a third-party organization to
qualify commercial laboratories for contracts. However, DOE does not
plan to change its decentralized approach.
--------------------
\4 Some contractors made separate procurements for the different
program organizations within their firms.
BACKGROUND
------------------------------------------------------------ Letter :2
DOE is undertaking the cleanup of contaminants that were dumped or
leaked into the soil and water at its facilities during more than 50
years of nuclear weapons production. According to a recent DOE
estimate, this contamination is spread over 7,000 sites at 15 major
facilities and more than 100 smaller facilities across the nation.
Under the Superfund program, EPA also is engaged in an expansive
cleanup of some of the same contaminants at the nation's worst
nonfederal sites, except that EPA does not face the same potential
for radioactivity that DOE does at its facilities. Both agencies
perform laboratory analysis on samples of soil and water taken from
polluted sites to determine the type and level of contamination.
Contaminants include (1) organic chemicals such as benzene and
fluorene, (2) inorganic chemicals such as arsenic and mercury, and
(3) radiochemicals.\5
--------------------
\5 Some organic and inorganic substances also may be contaminated
with radioactivity. In addition, DOE specifically analyzes for
radiochemicals such as plutonium and uranium.
DOE PAYS HIGHER PRICES THAN EPA
------------------------------------------------------------ Letter :3
DOE pays substantially higher prices than EPA for the same types of
laboratory analysis at commercial laboratories. Furthermore, the
four DOE contractors we reviewed sometimes contracted with the same
commercial laboratories used by EPA. Yet EPA paid an average of $111
for inorganic analysis, while DOE's four contractors paid an average
of $358, or 223 percent more.\6 Likewise, EPA paid an average of $786
for organic analysis, while DOE's contractors paid $1,099, or 40
percent more. In addition, as shown in table 1, the average price
paid by the four contractors at each of the facilities was higher
than the average price paid by EPA. Appendix I provides a more
detailed comparison.
Table 1
Average Prices Paid by DOE and EPA for
Organic and Inorganic Analyses
Percent Percent
Averag above Averag above
anal e EPA's e EPA's
ysis ity price price price price
---- --------------- ------ ---------- ------ ----------
EPA $786 \a $111 \a
Rocky Flats 952 21 296 167
Hanford 1,026 31 329 196
Oak Ridge 1,178 50 358 223
Fernald 1,238 58 447 303
Average for DOE's $1,099 40 $358 223
contractors
------------------------------------------------------------
\a Not applicable
--------------------
\6 For the Oak Ridge facility, the average prices included both those
paid by the contractor and those paid by its subcontractors, which
were procuring the same analyses.
DOE'S DECENTRALIZED CONTRACTING
RESULTS IN HIGHER PRICES
------------------------------------------------------------ Letter :4
DOE's decentralized approach of allowing contractors to independently
procure laboratory analysis results in higher prices than the prices
EPA pays for the same analysis. EPA basically conducts one central
procurement for the organic analysis and one for the inorganic
analysis commonly used at its Superfund sites. In contrast, at least
40 DOE contractor organizations independently contract with
commercial laboratories for laboratory analysis.
Lower prices can generally be achieved through the consolidated
procurement of common-use items. The General Services
Administration, for example, the federal agency tasked with
economically and efficiently procuring property and services for most
government agencies, combines the common needs of several federal
agencies into a centralized procurement. In contrast, decentralized
procurement of common-use items results in higher prices because this
approach dilutes an agency's overall buying power.
Officials involved in laboratory analysis issues at major commercial
laboratories and representatives from two industry associations
generally agreed that DOE's decentralized contracting approach
contributed to the higher prices the agency paid. They stated that
if DOE centralized its procurement for commonly used analyses, the
prices could be reduced. They also cited other advantages of a
centralized approach. They said, for example, that bids for
laboratory analysis vary according to the number of samples to be
analyzed and the contractor's ability to provide a steady flow of
samples to keep a laboratory operating efficiently. In their view,
one of the reasons that DOE paid higher prices was the uncertain and
irregular flow of samples from over 40 different DOE contractor
organizations, in contrast to a steadier flow of samples from EPA.
By consolidating samples, centralized procurement is more likely to
result in a continuous flow of samples.
It is difficult to quantify the overall savings resulting from a
centralized approach on the basis of the differences between the
average prices paid by EPA and DOE because DOE has only recently
started collecting data on the number of analyses performed for the
Department by commercial laboratories, and those data are not yet
complete or precise. Commercial laboratory officials also told us
that while savings could occur, some of DOE's samples, unlike EPA's
typical samples, may be radioactive and require screening and special
handling, increasing the price of the analysis. However, DOE's most
recent sampling statistics, for fiscal year 1994, show that 85
percent of the organic and inorganic samples were not radioactive.
Recognizing these constraints, we developed two estimates that show
possible savings over 30 years, ranging from about $0.49 billion to
about $1.26 billion. The difference in the two estimates depends on
the extent of radioactive samples. To develop the estimate of $0.49
billion in savings, we assumed that, under centralized procurement,
DOE would obtain the equivalent of the prices paid at Rocky Flats
because (1) they were the lowest prices paid at the DOE facilities we
reviewed and (2) as at other DOE facilities, the samples are
potentially radioactive, which would add to the cost of analysis.
This estimate, therefore, assumes that the total difference between
the prices paid by EPA and by the Rocky Flats contractor is caused by
the potential for radioactivity and that, under centralized
procurement, DOE could only match the prices paid by the Rocky Flats
contractor and not the lower prices paid by EPA. The estimate of
$1.26 billion uses EPA's average prices as a baseline. This estimate
shows the potential savings arising from centralized procurement
because that is the approach EPA uses. However, this estimate does
not reflect the cost effect of the potential for radioactivity in
DOE's samples, since EPA's samples are not typically radioactive.
(App. I explains the assumptions and calculations for these
estimates.)
DOE'S DECENTRALIZED CONTRACTING
RESULTS IN ADMINISTRATIVE
INEFFICIENCIES
------------------------------------------------------------ Letter :5
Under DOE's decentralized approach, the Department's contractors
duplicate many of their efforts in both awarding and managing
contracts, especially as a result of redundant quality assurance
evaluations at the commercial laboratories. In addition, when
contractors try to decide whether to have analyses performed at
commercial laboratories or perform them in the DOE laboratories they
operate, they may not select the most efficient use of DOE's
resources because they do not know their true costs of doing the
analysis in the DOE laboratories. Ultimately, DOE pays the costs of
these inefficiencies in higher payments to contractors and in
duplicate oversight of contractors.
Inefficiencies result from the decentralized awarding of contracts.
For any organization, including DOE and EPA, this process requires
the same basic functions, such as soliciting bids, ensuring that the
commercial laboratories can perform the analysis, and making the
award. EPA basically conducts two procurements to meet its needs
over a 3-year period--one for commonly used organic analysis and the
other for commonly used inorganic analysis. EPA thus performs the
related functions only once for each analysis. In contrast, DOE
repeats these functions over and over again because its contractors
award their own contracts covering their needs for varying time
periods. DOE's current contracts have resulted from at least 45
procurements for organic analysis, 43 procurements for inorganic
analysis, and 38 procurements for radiochemical analysis. In some
cases, duplication occurs within a single contractor's organization.
For example, at one facility, the contractor and two of its
subcontractors conducted three separate procurements for the same
kind of analysis.
Further inefficiency results because the contracts for laboratory
analysis allow DOE's contractors to conduct quality assurance
evaluations of the commercial laboratories' work. Because DOE's
decentralized approach results in many individual contracts, DOE's
contractors award contracts to the same commercial laboratories and
then conduct numerous evaluations of them. In a 1995 draft report,
DOE's Inspector General stated that the contractors performed 103
duplicate and redundant quality assurance evaluations on 38
commercial laboratories during 1993 and 1994. At one commercial
laboratory, 11 redundant evaluations were performed by nine different
DOE contractors.\7 According to the commercial laboratories included
in the Inspector General's review, the evaluations frequently
required a substantial investment of their staff's time and disrupted
their operations.
Decisions made by DOE's contractors in determining whether to have
the analysis performed in the DOE laboratories they operate or in
commercial laboratories may result in an inefficient use of DOE's
resources. Although DOE's procurement regulation requires
contractors to consider cost as a significant factor in deciding
whether the work should be done in a contractor-operated laboratory
or at a commercial laboratory, contractors may consider other factors
in making their decisions. The DOE officials responsible for the
program told us that the contractors do not comprehensively and
completely account for the costs of the laboratories they operate.
Furthermore, even when the contractors use such data to compare
costs, they may not make the most cost-effective decisions. For
example, DOE's Inspector General, using costs developed for the Rocky
Flats laboratory by the facility's contractor, reported that the
contractor was using its laboratory even though commercial
laboratories were 44 percent less costly.\8
--------------------
\7 Audit of the Department of Energy's Commercial Laboratory Quality
Assurance Evaluation Program, draft report, to be issued in the
spring of 1995.
\8 Audit of Effectiveness and Efficiency of the Rocky Flats
Analytical Services Program (CR-B-95-01, Nov. 3, 1994).
DOE IS MAKING SOME IMPROVEMENTS
BUT IS NOT CENTRALIZING ITS
CONTRACTING
------------------------------------------------------------ Letter :6
While DOE is not currently planning to centralize its contracting for
laboratory analysis, it does plan to take actions it believes will
improve the current system. DOE's annual operating plan for 1994
outlines 17 initiatives designed to improve many phases of its
laboratory analysis program. Three of these 17 initiatives, as well
as another action taken in response to a recommendation made by DOE's
Inspector General, directly relate to the issues of price and
inefficiency discussed in this report. Generally, however, these
initiatives are likely to have only limited effects. They will not
realize the cost savings possible as a result of centralized
procurement, nor will they completely eliminate the inefficiencies of
decentralization, except concerning the duplication of quality
assurance audits. These four actions follow.
First, in response to the Inspector General's draft report showing
duplication of effort in the contractors' quality assurance
evaluations, DOE is considering the report's recommendation to
authorize a third-party organization to qualify commercial
laboratories for contracts. This organization would evaluate the
laboratories and certify that they are able to perform the analysis.
While DOE has not made its final decision, it believes that the same
organization also could perform the quality assurance evaluations on
the laboratories after the contracts are awarded to ensure continued
quality performance. If such a plan is adopted, it could eliminate
the duplicate evaluations that contractors are now conducting to
qualify laboratories for contracts.
Second, in August 1994 DOE's Assistant Secretary for Environmental
Management issued a policy requiring the operations offices to
collect summary information on local sampling and analysis and
communicate the information to headquarters so that headquarters
could monitor the program. DOE program officials told us that while
this effort appears limited, they hoped that it could eventually be
expanded so that only one contractor at each of the agency's
operations offices will procure laboratory analysis.
Third, DOE has been drafting model procurement guidance for its
contractors that could incorporate standard provisions on such issues
as the time allowed to analyze a sample and reduced prices when the
analysis is not timely. However, as a result of the contractors'
continuing disagreements among themselves and with DOE about the
various provisions, this effort has stalled.
Fourth, DOE is attempting to improve the ability of its contractors
to choose between having the analyses done in commercial laboratories
and in their own laboratories. Among other things, DOE is developing
guidance on what types of costs the contractors should allocate to
their laboratories and to commercial laboratories in making this
decision. Although such guidance can help, the costs that DOE will
ask the contractors to use will reflect the inefficiencies and higher
costs of decentralized procurement.
CONCLUSIONS
------------------------------------------------------------ Letter :7
Unlike EPA, which consolidates its total requirements for commonly
used analyses, DOE dilutes its massive buying power by procuring its
commonly used analyses on a piecemeal basis through its contractors.
The results of DOE's contracting approach are higher prices and
unnecessary costs resulting from duplication of the contractors'
efforts. Without centralizing its laboratory analysis procurements,
DOE will not realize the cost benefits resulting from its massive
buying power.
RECOMMENDATIONS
------------------------------------------------------------ Letter :8
To realize the cost savings inherent in centrally procured laboratory
analysis and to eliminate other related inefficiencies resulting from
decentralization, we recommend that the Secretary of Energy
centralize the procurement of its commonly used laboratory analyses
for environmental contaminants in the cleanup of its nuclear
facilities. In doing so, the Secretary should also identify and
eliminate the contractor resources that will no longer be needed
under a central procurement system.
AGENCY COMMENTS
------------------------------------------------------------ Letter :9
As requested, we did not obtain written agency comments on a draft of
this report. However, we discussed the factual information in the
report with the Deputy Assistant Secretary for Compliance and Program
Coordination in DOE's Office of Environmental Management; the
Director, Analytical Services Division, Office of Environmental
Management; and the Director, Contract Reform Project Office. These
officials generally agreed with the facts presented and provided
additional comments. They noted that DOE's contractors have
historically resisted change but that this resistance is diminishing
and may not be a major impediment to implementing a centralized
system for procuring laboratory analysis within DOE. They did state
that centralization is contrary to DOE's current efforts to
decentralize many functions but said that decentralization is less
important than achieving cost savings. Finally, these officials
explained that their original cost estimate of $15 billion for
laboratory analysis may be reduced in the future if plans to improve
the current sampling process succeed in reducing the program's costs.
However, at this time these officials could not estimate the cost
more accurately.
---------------------------------------------------------- Letter :9.1
We conducted our review from May 1994 through March 1995 in
accordance with generally accepted government auditing standards.
Details of our scope and methodology are presented in appendix I.
As arranged with your office, 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
provide copies to the Secretary of Energy; the Director, Office of
Management and Budget; the House Committee on Government Reform and
Oversight; the Senate Committee on Governmental Affairs; the House
and Senate Committees on Appropriations; and other interested
parties. We will also make copies available to others upon request.
If you have any questions about this report, please call me at (202)
512-3841. Major contributors to this report are listed in appendix
II.
Sincerely yours,
Victor S. Rezendes
Director, Energy and
Science Issues
SCOPE AND METHODOLOGY
=========================================================== Appendix I
We conducted our review of the prices paid for analysis by
contractors at the Department of Energy's (DOE) facilities at
Fernald, Ohio; Hanford, Washington; Rocky Flats, Colorado; and Oak
Ridge, Tennessee because they accounted for 68 percent of DOE's costs
for commercial laboratory analysis in fiscal year 1994.
Additionally, we interviewed the Director and staff of DOE's
Analytical Services Division and reviewed related documents. We
reviewed the Environmental Protection Agency's (EPA) contracts in
Research Triangle Park, North Carolina, and interviewed the Chief and
staff of the Analytical Operations Branch of EPA's Contract
Laboratory Program in Arlington, Virginia. Finally, we reviewed
reports by DOE's Inspector General on the laboratory analysis
program. To obtain industry's view of DOE's contracting approach, we
discussed our review with four commercial laboratories that had
contracts with DOE's contractors; two of these laboratories also had
current contracts with EPA. We also talked with officials involved
with laboratory analysis issues at two industry associations--the
International Association of Environmental Testing Laboratories and
the Association of Independent Scientific, Engineering and Testing
Firms.
COMPARISON OF PRICES PAID BY
DOE AND EPA
--------------------------------------------------------- Appendix I:1
To compare the average prices that DOE and EPA paid for the same
analyses of organic and inorganic contaminants, we used the prices
that were in effect during the first 9 months of 1994. Our universe
of prices included, for EPA, 35 contract prices for organic analysis
and 19 contract prices for inorganic analysis and, for DOE's
contractors, 33 contract prices for organic analysis and 36 contract
prices for inorganic analysis. We used this procedure because
averaging prices over a period of time provides a more realistic
average price since doing so reduces the impact of any one price. We
also reviewed the contract documents that EPA and DOE's contractors
used and discussed their provisions with the Chief and staff of EPA's
Analytical Operations Branch of the Contract Laboratory Program and
with officials in the contractors' program and contracting offices.
The organic analysis includes three separate analyses--for volatile
organic compounds, semivolatile organic compounds, and
pesticides/polychlorinated biphenyls. EPA procured these three
analyses together in one procurement and paid one overall price.
DOE's contractors, on the other hand, procured these three analyses
separately. To compare the prices paid by the two agencies, we added
the prices of the three separate analyses to obtain the price DOE
paid for the complete analysis. We discussed this procedure with
commercial laboratories, which agreed that this comparison was
acceptable and valid.
EPA's procurements of organic and inorganic analyses each included
only one price for the analysis of contaminants in a water or soil
solution, referred to as the matrix. DOE's contractors paid separate
prices for analyses in soil and water matrixes. Therefore, to
compare DOE's prices with EPA's, we had to calculate an overall
average price using the prices for the two matrixes. To do this, we
identified the prices for each matrix and developed a weighted
average for the overall average price for organic and inorganic
analyses. For example, if a facility's contractor paid six prices
for analysis of contaminants in soil and seven prices for analysis of
contaminants in water, we added the total of all 13 prices and
divided by 13 to obtain the weighted average price at that facility.
Table I.1 shows the average prices paid by the contractors for
organic analysis in water and soil matrixes and the weighted average
price for organic analysis. Table I.2 shows the same information for
inorganic analysis.
Table I.1
Average Prices Paid by DOE for Organic
Analysis in Soil and Water Matrixes
Average Average
price in price in Weighted
DOE facility soil matrix water matrix average
------------------ ------------ ------------ ------------
Fernald $1,279 $1,197 $1,238
Hanford 1,080 973 1,026
Rocky Flats \a 930 971 952
Oak Ridge 1,214 1,143 1,178
------------------------------------------------------------
\a The average price paid for analysis in a soil matrix was lower
than the average price paid for analysis in a water matrix because
one laboratory had a high contract price analysis in water but no
contract for analysis in soil.
Table I.2
Average Prices Paid by DOE for Inorganic
Analysis in Soil and Water Matrixes
Average Average
price in price in Weighted
DOE facility soil matrix water matrix average
------------------ ------------ ------------ ------------
Fernald $468 $426 $447
Hanford 334 325 329
Rocky Flats 296 296 296
Oak Ridge 373 343 358
------------------------------------------------------------
To determine the causes of the differences in the prices paid by the
contractors, we identified the commercial laboratories that had
contracts for analysis with each of the four contractors we reviewed.
Table I.3 shows the average prices paid for organic and inorganic
analyses at the same four laboratories by the contractors at Hanford,
Oak Ridge, and Fernald. The average price paid by the Rocky Flats
contractor includes the prices at only two of the four laboratories
since only these two had contracts with Rocky Flats.
Table I.3
Comparison of Average Prices for the
Same Analyses Paid to the Same
Commercial Laboratories by DOE's
Contractors
Organic Inorganic
DOE facility analysis analysis
------------------------------------ ---------- ----------
Rocky Flats $843 $211
Hanford 994 322
Oak Ridge 1,179 434
Fernald 1,262 425
------------------------------------------------------------
We reviewed the four facilities' contracts to identify reasons for
the variations in price. Although actual differences in the
facilities' contracts caused by decentralization could account for
some of the price differences, we could not segregate any one cause
that significantly affected the price from the effect on price of
other factors. Additionally, any such differences would not occur in
a centralized contract since all of the facilities would use the same
contract.
ESTIMATE OF POTENTIAL
SAVINGS
------------------------------------------------------- Appendix I:1.1
To show potential savings, we prepared two estimates that show
possible savings over 30 years, ranging from about $0.49 billion to
about $1.26 billion. We developed this range of savings because
EPA's prices, obtained through centralized procurement, do not
reflect the costs resulting from potential radioactivity in the
samples. On the other hand, DOE's prices reflect the potential for
such radioactivity but were obtained through decentralized
procurement. Our estimates therefore, make several assumptions to
give a general idea of potential savings. First, to develop the
estimate of $0.49 billion in savings, we assumed that, under
centralized procurement, DOE would pay the equivalent of the prices
paid by the Rocky Flats contractor, because these were the lowest of
the prices paid at the DOE facilities we reviewed and because the
samples at Rocky Flats, as at other DOE facilities, are potentially
radioactive. This estimate therefore assumes that the total
difference between the prices paid by EPA and by the Rocky Flats
contractor is caused by the potential for radioactivity and that
under centralized procurement, DOE could only match the prices paid
at Rocky Flats. We believe our assumptions make this a conservative
estimate that reflects the low end of potential savings. Second, to
develop the estimate of $1.26 billion in savings, we assumed that DOE
could obtain the same prices that EPA obtained. While this estimate
uses prices obtained through centralized procurement, it does not
consider any effect due to the potential for radioactivity in DOE's
samples. Since this estimate does not consider the potential effect
of radioactivity, we believe it reflects the high end of potential
savings.
Our first estimate is based on the difference between the prices paid
at Rocky Flats and those paid at the other facilities. We began with
DOE's estimate that at least $15 billion will be spent on laboratory
analysis and administrative costs over 30 years. Since the
contractor at Rocky Flats paid the lowest prices and we are using
them as our baseline, we eliminated the costs associated with
laboratory analysis at Rocky Flats from the $15 billion. To do this,
we deducted the costs at Rocky Flats--which amounted to 13 percent of
the total expenditures for analysis for 1994--from the $15 billion.
This resulted in an estimated cost for the remaining facilities of
$13.05 billion. As shown in table I.4, we then multiplied the $13.05
billion by the amount that DOE's contractors awarded to commercial
laboratories during fiscal year 1994 (65 percent of the total
expenditures for analysis) to show that about $8.48 billion
eventually may be associated with the laboratory analysis performed
by commercial laboratories. DOE estimates that 31 percent of all the
commercial laboratory costs are allocated solely to analysis; the
remainder is spent on such things as the DOE contractors' costs of
managing the procurement of laboratory analysis, shipping samples to
the laboratories, and providing assurance that the laboratory's
analysis is valid. According to our estimate, 31 percent of $8.48
billion, or $2.63 billion, will be spent on laboratory analysis. Of
the $2.63 billion, DOE estimates that 31 percent (or $0.82 billion)
will be spent for organic analysis of various kinds, 33 percent (or
$0.87 billion) for inorganic analysis of various kinds, and 36
percent (or $0.95 billion) for radiochemical analysis. Assuming that
contractors at the other DOE facilities could obtain the same prices
as Rocky Flats' contractor, DOE could save 22 percent on its
inorganic analysis and 17 percent on its organic analysis. These
saving rates would result in a potential savings of about $0.14
billion for organic analysis and about $0.19 billion for inorganic
analysis. If we applied the smaller savings associated with organic
analysis--17 percent--to the $0.95 billion for radiochemical
analysis, the additional potential savings would be $0.16 billion.
The total potential savings for all of the analyses would then amount
to $0.49 billion over 30 years. This estimate of savings assumes
that there will be no offsetting costs due to the termination of any
laboratory contracts.
Table I.4
Calculation of Potential Savings, With
Prices Paid at Rocky Flats as a Baseline
(Dollars in billions)
Factor Calculations Cost
------------------------------ ------------------ --------
Estimated 30-year cost \a $13.05\b
excluding Rocky Flats
Percentage of costs at 65% x $13.05 $8.48
commercial laboratories billion =
Percentage of costs for sample 31% x $8.48 $2.63
analysis (less overhead) billion =
Percentage of costs for
------------------------------------------------------------
organic analysis 31% x $2.63 $0.82
billion =
inorganic analysis 33% x $2.63 $0.87
billion =
radiochemical analysis 36% x $2.63 $0.95
billion =
Difference between prices at Rocky Flats and at other
facilities for
------------------------------------------------------------
inorganic analysis 22% x $0.87 $0.19
billion =
organic analysis 17% x $0.82 $0.14
billion =
Applied savings for 17% x $0.95 $0.16
radiochemical analysis billion =
Total estimated savings $0.49
------------------------------------------------------------
\a Not applicable.
\b In nominal dollars.
Our second estimate is based on differences between the average
prices paid by DOE and EPA. Although this comparison would more
closely show the potential savings that could be obtained through
centralization, it does not consider the effects of potential
radioactivity in the samples on DOE's prices. We believe this
estimate shows the high end of potential savings. We began with
DOE's estimate that at least $15 billion will be spent on laboratory
analysis and administrative costs over 30 years. As shown in table
I.5, we then multiplied the $15 billion by the amount that DOE's
contractors awarded to commercial laboratories during fiscal year
1994 (65 percent of the total expenditures for analysis) to show that
about $9.75 billion eventually may be associated with the laboratory
analysis performed by commercial laboratories. Thirty-one percent of
$9.75 billion, or $3.02 billion, will be spent on laboratory
analysis. Of the $3.02 billion, DOE estimates that 31 percent (or
$0.94 billion) will be spent for organic analysis of various kinds,
33 percent (or $1 billion) for inorganic analysis of various kinds,
and 36 percent (or $1.09 billion) for radiochemical analysis.
Assuming that DOE could obtain the same prices as EPA, DOE could save
69 percent on its inorganic analysis and 28 percent on its organic
analysis. At these rates, the potential savings would be about $0.26
billion for organic analysis and about $0.69 billion on inorganic
analysis. If we applied the smaller savings associated with organic
analysis--28 percent--to the $1.09 billion for radiochemical
analysis, the additional potential savings would be $0.31 billion.
The total potential savings for all of the analyses would then amount
to $1.26 billion over 30 years. As in our first estimate, this
estimate assumes that there will be no offsetting costs due to the
termination of any laboratory contracts.
Table I.5
Calculation of Potential Savings, With
Prices Paid by EPA as a Baseline
(Dollars in billions)
Factor Calculations Cost
------------------------------ ------------------ --------
Estimated 30-year cost \a $15.00
\b
Percentage of costs with 65% x $15 billion $9.75
commercial laboratories =
Percentage of costs for sample 31% x $9.75 $3.02
analysis (less overhead) billion =
Percentage of costs for
------------------------------------------------------------
organic analysis 31% x $3.02 $0.94
billion =
inorganic analysis 33% x $3.02 $1.00
billion =
radiochemical analysis 36% x $3.02 $1.09
billion =
Difference between DOE's and EPA's costs for
------------------------------------------------------------
inorganic analysis 69% x $1.00 $0.69
billion =
organic analysis 28% x $0.94 $0.26
billion =
Applied savings for 28% x $1.09 $0.31
radiochemical analysis billion =
Total estimated savings $1.26
------------------------------------------------------------
\a Not applicable.
\b DOE's estimate (in nominal dollars).
We could not estimate the savings that would result from reducing the
duplication and inefficiencies resulting from DOE's decentralized
contracting approach.
EVALUATION OF DOE'S
INEFFICIENCIES AND ASSESSMENT
OF DOE'S EFFORTS TO IMPROVE
--------------------------------------------------------- Appendix I:2
To evaluate the inefficiencies of DOE's contracting approach caused
by duplication of effort, we discussed the contracting function with
contractors at the Department's Fernald, Hanford, Los Alamos, Oak
Ridge, and Rocky Flats facilities. Additionally, to get a better
idea of the number of contractors that had contracts for laboratory
analysis, we surveyed all other DOE contractors that the Department
believed might have had contracts for laboratory analysis.
To identify DOE's actions to improve its program, we reviewed
documents describing these improvement efforts and evaluated their
potential to lower the prices DOE pays for laboratory analysis and to
reduce its inefficiencies. We also discussed these efforts with the
Director and staff of DOE's Analytical Services Division.
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II
RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION
Jeffrey E. Heil, Assistant Director
Robert M. Antonio, Senior Evaluator
David O. Bourne, Senior Evaluator
Casandra D. Joseph, Senior Evaluator
Gregory D. Mills, Evaluator
James B. Hayward, Evaluator
Sarah A. Renfro, Evaluator