Managing DOE: The Department of Energy Is Making Efforts to Control
Litigation Costs (Letter Report, 11/22/94, GAO/RCED-95-36).

The Energy Department (DOE) has not kept centralized data on the costs
it reimburses contractors for outside litigation; however, available
data indicate that DOE spent about $40 million in fiscal year 1992 on
costs linked to the legal defense of current and former contractors.
Most costs were for legal fees, travel and administrative expenses, and
consultant fees incurred by outside law firms hired by the contractors.
These costs, however, were poorly controlled because DOE lacked
effective criteria spelling out what costs it would reimburse.  As a
result, DOE was being billed at higher rates that other federal agencies
for professional legal fees, travel, word processing, and photocopying.
Furthermore, legal bills were being reimbursed with little or no
departmental oversight.  DOE has begun to strengthen its control over
these costs.  In particular, it issued specific cost guidelines and
instituted procedures for periodically reporting all litigation costs.
DOE is also establishing an audit function to enable it to conduct a
detailed review of the bills it receives for legal services.  Finally,
DOE is trying to consolidate cases involving multiple contractors and
law firms to improve case management and cut costs.

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

 REPORTNUM:  RCED-95-36
     TITLE:  Managing DOE: The Department of Energy Is Making Efforts to 
             Control Litigation Costs
      DATE:  11/22/94
   SUBJECT:  Litigation
             Civil procedure
             Lawyers
             Legal services contracts
             Cost control
             Contractor payments
             Contract administration
             Legal fees
             Cost accounting
             Liability (legal)

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


Report to the Chairman, Subcommittee on Oversight and Investigations,
Committee on Energy and Commerce, House of Representatives

November 1994

MANAGING DOE - THE DEPARTMENT OF
ENERGY IS MAKING EFFORTS TO
CONTROL LITIGATION COSTS

GAO/RCED-95-36

Controlling DOE's Litigation Costs


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

  ARCHO - Atlantic Richfield Hanford Corporation
  DOE - Department of Energy
  FDIC - Federal Deposit Insurance Corporation
  M&O - management and operating
  NLO -
  RTC - Resolution Trust Corporation
  UNC -

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


B-258656

November 22, 1994

The Honorable John D.  Dingell
Chairman, Subcommittee on
 Oversight and Investigations
Committee on Energy and Commerce
House of Representatives

Dear Mr.  Chairman: 

The Department of Energy (DOE) spends millions of dollars each year
for legal expenses that its management and operating (M&O)
contractors incur in defending themselves against class action
lawsuits.  This litigation arises from concerns that the operation of
DOE's facilities for producing nuclear materials and weapons may have
exposed workers and local populations to harmful radiation and
chemicals.  The cost of defending the contractors in such litigation
is being borne by DOE, since its contracts require it to indemnify
the contractors for most costs, including the costs of litigation,
resulting from their operation of DOE's facilities.  Concerned about
whether DOE was adequately monitoring the litigation costs reimbursed
to its contractors, you asked us to (1) determine how much DOE was
spending for litigation to defend its contractors, (2) evaluate
whether adequate controls are in place to ensure that all of these
costs are appropriate, and (3) assess the efforts being made by DOE
to improve its control of outside litigation costs. 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

DOE has not maintained centralized data on the costs it reimburses
contractors for outside litigation; however, available data indicate
that the Department spent approximately $40 million in fiscal year
1992 on costs associated with the legal defense of its past and
present contractors.  Most costs were for legal fees, travel and
administrative expenses, and consultant fees incurred by outside law
firms hired by the contractors.  These costs, however, were not well
controlled because DOE lacked effective criteria outlining what costs
it would or would not reimburse.  As a result, DOE was being billed
at higher rates than other federal entities for professional legal
fees, travel, word processing, document duplication, and other
expenses and items associated with litigation.  Furthermore, legal
bills were being reimbursed with little or no departmental oversight
because DOE had not established requirements and procedures for
detailed review. 

We raised these issues at a hearing before this Subcommittee\1 and
pointed out that DOE was not doing enough to control costs.  As a
result, DOE has initiated actions to strengthen its controls over
these costs.  In particular, it issued specific cost guidelines and
instituted procedures for periodically reporting all litigation
costs.  DOE is also establishing an audit function that will enable
it to conduct a detailed review of the bills it receives for legal
services.  Finally, DOE is attempting to consolidate cases involving
multiple contractors and law firms to improve case management and
reduce costs.  The Department estimates that these actions may save
millions of dollars in legal costs. 


--------------------
\1 Managing DOE:  Tighter Controls Needed Over the Department of
Energy's Outside Litigation Costs (GAO/T-RCED-94-264, July 13, 1994). 


   BACKGROUND
------------------------------------------------------------ Letter :2

DOE's responsibility for contractors' litigation costs has its roots
in the early nuclear programs.  Since the inception of these programs
in the 1940s, the federal government has relied on contractors to
operate its nuclear facilities.  However, because of the high risk
associated with operating these facilities, the agencies responsible
for managing nuclear activities--from the Atomic Energy Commission to
DOE--included litigation and claims clauses in their management and
operating contracts.  These clauses provide that litigation expenses
are allowable costs under the contracts.  In addition, judgments
against the contractors arising from their performance of the
contracts are reimbursable by DOE. 

Over the past several years, class action lawsuits have been filed
against many past and present contractors responsible for operating
DOE's facilities.  In general, these suits contend that the operation
of the facilities released radioactive or toxic emissions and caused
personal injury, emotional distress, economic injury, and/or property
damage.  These suits have been filed against the current and former
operators of certain DOE facilities throughout the country, such as
the Fernald Plant in Fernald, Ohio; the Hanford Site near Richland,
Washington; the Los Alamos National Laboratory in Los Alamos, New
Mexico; the Rocky Flats Plant in Golden, Colorado; and various other
facilities.  (App.  I lists ongoing class action suits against DOE
contractors during fiscal years 1991-93.)

DOE has the option of undertaking the defense against such class
action litigation on its own; however, it has generally opted to have
the contractors defend the case in good faith.  As standard practice,
DOE has authorized contractors to proceed with their defense and has
limited its own involvement to approving the hiring of outside
counsel, reviewing billings, and agreeing upon any settlement
amounts.  The cognizant DOE field office is responsible for funding
each contractor's litigation and overseeing the litigation effort. 


   FULL EXTENT OF LITIGATION COSTS
   IS NOT KNOWN
------------------------------------------------------------ Letter :3

DOE has not maintained complete information on the costs of
litigation against present and former DOE contractors.  According to
officials from DOE's Office of General Counsel, costs for
contractors' legal defense are budgeted and controlled by each
responsible contractor and field office.  These officials said that
each DOE field office, through its Office of Chief Counsel, is
responsible for managing the costs associated with its contractors'
litigation.  The officials added that DOE headquarters has not
maintained overall cost data because it was not involved in the
day-to-day management of these cases. 

Nevertheless, DOE has collected some data indicating that it is
incurring substantial costs for the services of outside law firms. 
In 1993, a subgroup of DOE's Contract Reform Team surveyed the Chief
Counsels' offices to determine how much DOE was spending to reimburse
its contractors for their legal expenses.  According to the data the
subgroup collected, DOE contractors paid over $31 million to outside
law firms in fiscal year 1992 and almost $24 million during the first
8 months of fiscal year 1993.  The subgroup attributed these large
costs to "toxic tort" class action lawsuits filed against current and
former contractors reporting to DOE's Albuquerque, Oak Ridge, and
Richland operations offices. 

The costs associated with these class action suits are large, in
part, because several of the suits involve multiple contractors and
law firms.  Many lawyers work on each case, and the monthly costs can
exceed $500,000.  The In Re:  Hanford case, for example, has six
former and present DOE contractors as codefendants, and 10 separate
law firms are representing them.  In just 1 month in 1992, DOE paid
for the services of 62 outside attorneys, 25 of whom billed at least
$200 per hour, and 44 legal assistants working on the case.  The cost
of these services alone was over $455,000.  (See app.  II for
detailed information on the billings for this particular month.)

DOE has incurred additional costs for contractors' litigation that
were not reflected in the data collected by DOE.  The most
significant of these are costs for establishing data bases.  For each
of the major class action lawsuits we examined--In Re:  Hanford, Cook
et al.  v.  Rockwell/Dow, In Re:  Los Alamos, and Day v.  NLO--the
contractors and the outside legal firms have established data bases
of documents and other information.  According to DOE officials in
the field offices and representatives of the contractors, these data
bases provide unique capabilities to identify and retrieve
information needed for the contractors' legal defense. 

The costs for these data bases increase DOE's total outside
litigation costs substantially.  Data obtained from the cognizant
Chief Counsels' offices show that from fiscal year 1991 through
fiscal year 1993, over $25 million was spent for developing
litigation data bases for these four cases.  The data base for the
Fernald litigation was the most costly--exceeding $14 million--but
the other data bases cost over $2 million each.  (App.  III contains
information on the costs of data bases.) When the fiscal year 1992
costs for data bases are added to the expenses paid to outside law
firms during the same fiscal year, the total costs incurred by DOE
for its contractors' legal defense during that fiscal year exceed $40
million. 

Other costs that should be considered as litigation-related costs
include all funds associated with the activities of NLO, Inc., and
the in-house legal costs at current M&O contractors.  NLO--a former
operator of the Fernald Plant--is currently in existence only to
manage its legal defense under a postoperations contract.\2 From
fiscal year 1991 through fiscal year 1993, NLO received $15.7 million
from DOE--$8 million for costs incurred by outside law firms, an
estimated $2.5 million for developing the litigation data base, and
much of the remaining $5.2 million for activities directly supporting
the litigation.  For example, consultants hired by NLO over this
period conducted various projects for the outside law firm, NLO staff
assisted in activities related to the litigation, and the firm earned
almost $1 million in fees for managing the litigation. 

Similarly, current M&O contractors incurred in-house costs to monitor
and manage ongoing legal activities; however, the portion of these
costs related to litigation against the contractors is not known. 
Contractor officials at Oak Ridge, Sandia, and Hanford all stated
that they have lawyers on staff who manage outside litigation
activities and in some cases participate in litigation activities. 
The in-house costs related to these activities, however, were not
available.  The officials said that data are not maintained on the
costs related to the internal efforts associated with such
litigation. 


--------------------
\2 This contract expired on Sept.  30, 1994. 


   DOE LACKED EFFECTIVE GUIDELINES
   AND PROCEDURES FOR CONTROLLING
   LITIGATION COSTS
------------------------------------------------------------ Letter :4

Legal fees represent the largest and most visible cost associated
with DOE contractors' litigation expenses.  These costs include the
hourly rates charged by the outside attorneys and other expenses
incurred by the law firms in defending the contractors.  However, DOE
exercised little control over these costs.  Specifically, DOE did not
establish any criteria or guidelines for allowable costs, and it did
not develop procedures requiring detailed reviews of law firms'
bills.  As a result, DOE paid for legal expenses that would not be
allowed under criteria established by certain other federal
organizations. 


      DOE DID NOT ESTABLISH COST
      GUIDELINES
---------------------------------------------------------- Letter :4.1

Cost guidelines are necessary for contractors and law firms to know
what costs will or will not be reimbursed; however, DOE had not
developed and implemented such cost criteria.  Two federal
corporations--the Federal Deposit Insurance Corporation (FDIC) and
the Resolution Trust Corporation (RTC)--have developed cost
guidelines for outside counsel.  These corporations' guidelines
clearly specify what costs will be allowable and at what rates. 
These guidelines appear to be consistent with an opinion issued in
December 1993 by the American Bar Association.  The association's
opinion--although nonbinding--suggests that law firms can recoup only
reasonable and actual costs for services. 

Comparing DOE's reimbursements with the corporations' guidelines, we
found that DOE had paid significantly more than these guidelines
allow for professional fees, duplication and facsimile costs, travel
costs, and office overhead expenses. 


         PROFESSIONAL FEES WERE
         NOT DISCOUNTED
-------------------------------------------------------- Letter :4.1.1

The corporations require that discounts on fees for legal services be
sought in all cases.  Their guidelines direct law firms seeking to
represent the corporations to offer a discount on their rates.  A
corporation official stated that FDIC receives at least a 5-percent
discount.  Most of the law firms representing FDIC discount their
rates by 10 percent--some firms, by as much as 20 percent.  DOE,
however, did not require its contractors to seek discounts on
professional fees from outside law firms.  Consequently, few
discounts were obtained.  Only 2 of the 16 law firms' bills we
examined contained any discounts.\3

If DOE were to adopt this guideline, it could obtain substantial cost
savings, as the following example shows.  One law firm is
representing DOE contractors in three separate class action suits. 
Over a 3-year period, the firm received $8 million in professional
fees for its work on these cases.  If a 5-percent discount had been
applied, DOE could have saved over $400,000.  At a 10-percent
discount rate, the savings could have been over $800,000.  (See app. 
IV for further examples of the savings DOE could have obtained
through discounts on fees.)


--------------------
\3 Both firms provided 10-percent discounts on their fees. 


         DUPLICATION AND FACSIMILE
         RATES WERE HIGH
-------------------------------------------------------- Letter :4.1.2

Law firms charge for certain administrative tasks that they perform
for their clients.  One of these tasks is duplicating documents.  The
corporations' criteria state that charges for photocopying shall not
exceed 8 cents per page.  DOE was reimbursing its contractors at a
much higher rate.  The amounts charged for reproducing documents
varied among the DOE contractors' law firms, ranging from 10 cents
per page to 25 cents per page.  Gibson, Dunn, and Crutcher charged
almost $170,000 for duplicating documents over a 3-year period.  For
13 months, the firm charged 25 cents per page, and for 23 months, it
lowered the rate to 20 cents per page.  Had the firm been allowed to
charge only 8 cents per page, the total cost reimbursed by DOE would
have been $58,750, a savings of nearly $109,000.  Limiting all firms
to this rate would have saved almost $425,000.  (App.  V contains
further details on costs for duplicating.)

Another administrative task for which DOE was paying high rates is
facsimile transmission.  An FDIC official stated that this charge is
to be billed at the actual cost--the cost of the telephone call. 
However, several firms representing DOE contractors charged as much
as $1.75 per page plus the cost of the long-distance call.  For
example, the law firm of Gibson, Dunn, and Crutcher was reimbursed by
DOE for more than $47,000 in telefax and telecopying charges--in
addition to the related telephone charges--over a 3-year period. 


         TRAVEL AND MEAL COSTS
         EXCEEDED FEDERAL
         STANDARDS
-------------------------------------------------------- Letter :4.1.3

Travel costs incurred by law firms representing DOE contractors
exceeded guidelines set forth by RTC and FDIC.  The corporations'
criteria limit travel costs to coach airfare, moderate hotel prices,
and federal per diem rates for meals.  Travel costs reimbursed by DOE
were significantly higher.  For example, two firms--Hunton and
Williams and Perkins Coie--billed first-class airfare for their
senior partners.  Additionally, attorneys often were reimbursed for
the costs of high-priced hotel rooms.  Lawyers from Kirkland and
Ellis billed for hotel rooms in Washington, D.C., that cost from $215
to as much as $250 per night.  In contrast, the government's lodging
allowance for that city is $113 per night. 

Additionally, some firms billed for meals costing far more than
federal per diem rates.  In many cases, the meals cost almost $100
per person.  For example, the law firm of Perkins Coie

billed for a four-person dinner in New York City costing $95 per
person (the federal per diem allowance in this city is $38) and

billed for a five-person dinner in Seattle costing $90 per person
(the federal per diem allowance in this city is $34). 

This firm also billed for meal expenses that consisted only of
drinks--an expense that is not allowable under federal per diem
regulations. 

Furthermore, some of the meal expenses were incurred for attorneys
and staff who were not on travel.  One firm--Perkins Coie--billed
over $9,000 for expenses labeled as "conference meals" over a 3-year
period.  Review of the supporting documentation indicates that these
expenses were for meals purchased while many of the staff in
attendance were not on travel and/or for activities associated with
"client development." In another instance, Crowell and Moring billed
not only for the meals of its local attorneys but for the meals of
their spouses as well.\4 According to a legal opinion from one DOE
operations office, meal expenses for attorneys and staff who are not
on travel are not reimbursable.  Nevertheless, although such costs
were not allowed by contractors within that particular region, they
were allowed by other contractors and were reimbursed in full by DOE
in other regions. 


--------------------
\4 A Crowell and Moring representative said that these meals were
billed to the Hanford case in error.  The error was discovered after
our review of the firm's travel records in April 1994.  A credit of
$133.62 was applied to the firm's May 26, 1994, billing to cover the
cost of the meals. 


         OVERHEAD EXPENSES WERE
         BILLED AS ADDITIONAL
         EXPENSES
-------------------------------------------------------- Letter :4.1.4

Other costs were incurred and charged to DOE that, under the two
federal corporations' guidelines, are considered to be law firm
overhead that should be subsumed within the professional fees.  These
include costs for word processing services, overtime, utilities and
supplies, and legal publications.  In many instances, however, DOE
allowed these charges. 

Although these costs could conceivably, in some cases, be
appropriately charged and reimbursed, we found many instances in
which the charges were inappropriate.  For example, Shea and Gardner
billed for purchasing American Bar Association publications, such as
a guide to taking depositions.  Crowell and Moring marked up its
telephone charges 25 percent above the actual cost and its computer
research 50 percent above the actual cost. 

Additionally, according to the federal corporations' guidelines,
expenses for activities conducted by lawyers to develop subject
matter expertise are not to be charged to the federal corporations. 
Instead, law firms must absorb the cost of developing an
understanding of specialty issues.  In contrast, some law firms--Shea
and Gardner and Gibson, Dunn, and Crutcher--billed DOE contractors
for staff to attend seminars on toxic/radiation litigation. 


      DOE DID NOT ESTABLISH
      REQUIREMENTS FOR REVIEWING
      BILLINGS
---------------------------------------------------------- Letter :4.2

DOE did not have requirements mandating and facilitating detailed
reviews by contractors and/or DOE of the bills submitted by law
firms.  As a result, the quality of the reviews varied greatly, and
some reviews were inadequate.  For example, one
contractor--Westinghouse Hanford Company--performed an internal audit
2 years into the In Re:  Hanford litigation and found that it did not
have adequate reviews of the legal bills submitted to it.  The audit
also revealed that several costs that were not allowable under the
company's own in-house criteria had been paid, such as first class
airfares.  In another instance, UNC, Inc.--a former contractor at
Hanford--never examined detailed billings of its principal law firm
and instead approved all of its bills on the basis of a monthly
two-page billing summary.  These summaries lacked detailed
information on the activities that each lawyer had performed; in
fact, they did not even specify the number of hours that lawyers had
worked on the case. 

DOE's review of bills was also inadequate.  At only one DOE
operations office--Oak Ridge--did Chief Counsel officials perform
detailed reviews of legal costs before approving bills for payment. 
This office disallowed numerous costs--including costs for meals
charged by lawyers who were not on travel and expenses for
seminars--that were allowed by other operations offices.  At
Albuquerque, few detailed reviews of bills were performed, and when
performed, such reviews took place after the bills had been paid.  At
Richland, bills were approved for payment by the Chief Counsel
primarily on the basis of billing summaries, and any detailed reviews
were conducted annually or semiannually.  In our view, the summaries
were not specific enough for a reviewer to determine what the costs
were for and whether they were appropriate. 

Additionally, DOE did not require the bills to be presented in a
format that included enough detail to allow a reviewer to understand
the basis for the charges.  Consequently, even when detailed reviews
were performed, many of the charges in the bills could not be
adequately assessed.  For example, some charges were listed simply
for "research" or "reviewing documents," while others were listed for
meetings with specific individuals, but no mention was made of either
the purpose of the meeting or the subject discussed.  In other
instances, activities were cumulated into a daily total and briefly
described; this information did not indicate how much time was spent
on each activity and whether the time spent was appropriate. 

Charges for activities performed by attorneys and their staffs might
have been questioned if DOE had established adequate review
procedures and sufficient criteria for reasonableness.  For instance,
several firms charged time for staff to prepare monthly bills, review
and catalog newspaper articles, prepare security clearance forms, and
rearrange or move file rooms.  Additionally, General Electric hired a
public relations firm to analyze trends in the case and passed these
costs along to DOE for reimbursement.  In our view, these activities
were of such questionable benefit to DOE that a detailed review would
have raised concerns about the appropriateness of DOE's paying for
them. 


   DOE RECENTLY BEGAN TO CONTROL
   LITIGATION COSTS
------------------------------------------------------------ Letter :5

DOE has recognized that its controls over contractors' litigation
costs are problematic and has taken some actions to improve them.  In
March 1994, DOE issued guidance on managing litigation, directing its
field office Chief Counsels to ensure that the rates charged are
reasonable.  The guidance also requires that contractors develop for
each case a formal understanding concerning, among other things,
allowable expenses, billing procedures, and contractors' reviews of
bills. 

In testimony before this Subcommittee on July 13, 1994, we stated
that although these actions represented a step in the right
direction, they did not go far enough.  The guidance still gave
contractors considerable discretion in controlling costs.  Given our
experience with the way contractors had applied cost controls in the
past, we were not convinced that this guidance would ensure that
consistent and effective cost controls were developed and applied to
all legal bills.  Since the hearing, however, DOE's Office of General
Counsel has begun to develop and adopt additional measures to address
the problems identified. 

On August 25, 1994, DOE issued an acquisition letter (No.  94-13)
setting forth interim policies for contracting officers to consider
in determining whether particular litigation costs are reasonable. 
The cost guidelines--which became effective for all ongoing class
action suits on October 1, 1994--establish limits and terms for the
costs that DOE will reimburse to contractors for outside litigation. 
For example, the guidelines specify that costs for duplication are
not to exceed 10 cents per page; telephone charges, facsimile
transmission costs, and computer-assisted research costs are not to
exceed the actual costs; airfare is not to exceed the coach fare; and
other travel expenses should be moderate, consistent with the rates
set forth in the Federal Travel Regulations.  The guidelines also set
forth DOE's policy for reimbursing attorneys' fees, profit and
overhead, and overtime expenses, and they designate specific
nonreimbursable costs. 

Additionally, officials from the Office of General Counsel have met
with RTC and FDIC officials to gain insight from their experience in
developing systems for auditing bills to determine the reasonableness
of both the professional activity and the related expenses.  A staff
has been assembled in headquarters to develop requirements and
procedures for reviewing bills and to conduct detailed review of
bills.  Chief Counsel staff in regional offices are also developing
review procedures that will be coordinated with the headquarters
requirements.  DOE is still in the initial stages of developing an
audit function but plans to have one in place by early 1995. 

Furthermore, a cost-reporting system is being implemented that will
provide monthly reports on all litigation.  This reporting system
will collect Department-wide cost data in a consistent format. 
According to DOE's General Counsel, this system will report all
costs, including data base costs and contractors' in-house costs,
within 10 days after the end of each month.  DOE plans to compare the
actual with the budgeted costs for each case to better ensure that
the costs remain reasonable.  This system is now operational,
although Office of General Counsel officials acknowledge that the
data are not yet complete. 

Finally, DOE is consolidating its legal defense in various cases--a
measure with the greatest cost-saving potential.  The In Re:  Hanford
case, for example, has six codefendants--each represented by at least
one law firm and some by as many as three firms.  DOE acknowledges
that duplication of effort is likely and, with it, unnecessary costs. 
To prevent further duplication, DOE informed the codefendants that
beginning in fiscal year 1995, it would not reimburse any contractor
for the services of any outside counsel other than the law firm
selected to serve as lead counsel for the litigation. 

At the time this report was being completed, a lead contractor had
been designated and that contractor--with concurrence from DOE--had
selected a lead counsel.  DOE estimates that by consolidating, it
will reduce its annual outside litigation expenses by nearly 60
percent, saving millions of dollars on this case alone.  Office of
General Counsel officials estimated that these efforts--establishing
cost criteria, implementing an audit function, and consolidating
class action cases--would save DOE $5 million to $7 million annually. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

During fiscal years 1991 through 1993, DOE incurred large litigation
costs but, in many cases, did not have the internal controls needed
to ensure that these costs were appropriate.  At a recent hearing
before this Subcommittee, we discussed these problems and, as a
result, DOE began to improve its management of contractors'
litigation costs.  If DOE's recent efforts are fully implemented and
successful, substantial cost savings could accrue to the government. 
Additionally, DOE should have cost controls and case management
principles in place to ensure that any future lawsuits are handled
efficiently. 

DOE is to be commended for its quick and thorough response to the
problems we identified.  However, it remains to be seen whether or
not these new procedures will be universally implemented within DOE's
field offices and whether or not all contractors will accept and
abide by these new procedures. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :7

We discussed the facts in this report with DOE officials, including
the General Counsel and other officials from the Office of General
Counsel.  They agreed with the facts presented; however, they
expressed concern that the tone of the report might lead readers to
believe that DOE was not addressing the problems we had identified. 
They provided comments and information on the actions they are taking
to reduce litigation costs and improve cost controls.  We have
incorporated these comments into the report where appropriate.  As
requested, we did not obtain written agency comments on a draft of
this report. 


---------------------------------------------------------- Letter :7.1

We performed our work between November 1993 and August 1994 in
accordance with generally accepted government auditing standards. 
Appendix VI contains details on the objectives, scope, and
methodology of our review. 

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
send copies of the report to the appropriate Senate and House
committees; interested Members of Congress; the Secretary of Energy;
and other interested parties.  We will make copies available to
others on request. 

Major contributors to this report are listed in appendix VII.  If we
can be of further assistance, please contact me at (202) 512-3841. 

Sincerely yours,

Victor S.  Rezendes
Director, Energy and
 Science Issues


ONGOING CLASS ACTION LITIGATION
AGAINST DOE CONTRACTORS DURING
FISCAL YEARS 1991-93
=========================================================== Appendix I

Case name           Facility            Contractor(s)
------------------  ------------------  --------------------
In Re: Hanford      Hanford Site        DuPont
Nuclear             Hanford, WA         UNC, Inc.
Reservation                             Atlantic Richfield
Litigation                              Hanford Corporation
                                        (ARCHO)
                                        General Electric
                                        Rockwell
                                        International
                                        Westinghouse
                                        Hanford Company

Cook et al. v.      Rocky Flats Plant   Rockwell
Rockwell            Golden, CO          International

Cook et al. v. Dow  Rocky Flats Plant   Dow Chemical
                    Golden, CO

In Re: Los Alamos   Los Alamos          University of
Litigation\a        National            California
                    Laboratory
                    Los Alamos, NM

Stepp v. Monsanto   Mound Plant         Monsanto Research
Research Company    Miamisburg, OH      Company

Day v. NLO\b        Fernald Plant       NLO, Inc.
                    Fernald, OH

Boggs v. Goodyear   Portsmouth Plant    Goodyear Atomic
Atomic Corporation  Portsmouth, OH      Corporation
                                        Martin Marietta
                                        Energy Systems

Euchee Marina and   Oak Ridge           Union Carbide
Campground, Inc.,   National            Corporation
v. Union Carbide    Laboratory          Martin Marietta
Corporation         Oak Ridge, TN       Energy Systems
------------------------------------------------------------
\a This case was dismissed on Nov.  15, 1993. 

\b This case was settled on July 25, 1994. 


NUMBER OF STAFF WORKING ON THE IN
RE:  HANFORD CASE IN FEBRUARY 1992
========================================================== Appendix II

                                  Rate
                                   per    Number
Contractor/Firm         Title     hour  of hours        Cost
----------------------  --------  ----  --------  ----------
ARCHO
In-house                Attorney    \a      4.50     $368.77
                         (2)
                        Paralega    \a    383.75   $7,352.46
                         l/
                         Litigat
                         ion
                         support
                         (7
                         people)
Gibson, Dunn, and       Partner   $350     10.40   $3,640.00
 Crutcher
                        Partner   $335     24.50   $8,207.50
                        Partner   $325     50.75  $16,493.75
                        Partner   $280     54.75  $15,330.00
                        Associat  $210     94.45  $19,834.50
                         e
                        Associat  $210      0.75     $157.50
                         e
                        Associat  $210    120.25  $25,252.50
                         e
                        Associat  $210     13.75   $2,887.50
                         e
                        Associat  $185     91.25  $16,881.25
                         e
                        Legal      $95      1.00      $95.00
                         Assista
                         nt
                        Legal      $80     90.25   $7,220.00
                         Assista
                         nt
                        Legal      $75     47.25   $3,543.75
                         Assista
                         nt
                        Legal      $20     40.50     $810.00
                         Assista
                         nt
DuPont
Kirkland and Ellis      Attorney  $295     27.25   $8,038.75
                        Attorney  $195     46.25   $9,018.75
                        Attorney  $135     19.00   $2,565.00
                        Attorney  $195      1.50     $292.50
                        Legal      $40     16.75     $670.00
                         Assista
                         nt
                        Legal      $36      8.50     $306.00
                         Assista
                         nt
                        Legal      $70     36.50   $2,555.00
                         Assista
                         nt
                        Legal      $36    137.25   $4,941.00
                         Assista
                         nt
Williams, Kastner,      Attorney  $175     10.10   $1,767.50
 Gibbs
                        Attorney  $175      1.00     $175.00
                        Attorney  $175      7.60   $1,330.00
                        Paralega   $65      7.60     $494.00
                         l
General Electric
Perkins Coie            Partner   $220     45.00   $9,900.00
                        Partner   $275     32.50   $8,937.50
                        Partner   $220     11.80   $2,596.00
                        Partner   $215      3.75     $806.25
                        Of        $180      0.40      $72.00
                         Counsel
                        Associat  $142     41.50   $5,893.00
                         e
                        Associat  $135     44.75   $6,041.25
                         e
                        Associat  $120      1.50     $180.00
                         e
                        Associat  $110      4.50     $495.00
                         e
                        Associat  $110    126.20  $13,882.00
                         e
                        Associat   $95     67.40   $6,403.00
                         e
                        Associat   $95      2.50     $237.50
                         e
                        Legal      $78      0.50      $39.00
                         Assista
                         nt
                        Legal      $80      3.90     $312.00
                         Assista
                         nt
                        Legal      $57      0.50      $28.50
                         Assista
                         nt
                        Legal      $62     85.50   $5,301.00
                         Assista
                         nt
                        Legal      $83    132.70  $11,014.10
                         Assista
                         nt
                        Legal      $39     48.50   $1,891.50
                         Clerk
                        Contract   $22    801.60  $17,635.20
                         Staff -
                         Clerk(s
                         )
                        Contract   $25     55.75   $1,393.75
                         Staff -
                         D.E.
                         Clerk
                        Administ   $75      0.25      $18.75
                         rative
                         Staff
                        Administ   $65      7.10     $461.50
                         rative
                         Staff
                        Administ   $25     54.50   $1,362.50
                         rative
                         Staff
Hunton and Williams     Partner   $300      3.75   $1,125.00
                        Partner   $210      0.50     $105.00
                        Counsel   $300      3.25     $975.00
Rockwell
Shea and Gardner        Partner   $285      0.25      $71.25
                        Partner   $275     28.50   $7,837.50
                        Partner   $235      5.25   $1,233.75
                        Partner   $235     38.75   $9,106.25
                        Associat  $155     53.25   $8,253.75
                         e
                        Associat  $145     28.00   $4,060.00
                         e
                        Associat  $145     37.25   $5,401.25
                         e
                        Associat  $120     16.75   $2,010.00
                         e
                        Associat  $120    108.25  $12,990.00
                         e
                        Paralega   $65     70.25   $4,566.25
                         l
                        Paralega   $65     70.00   $4,550.00
                         l
                        Paralega   $45      0.50      $22.50
                         l
                        Paralega   $45      0.25      $11.25
                         l
                        Paralega   $65      4.50     $292.50
                         l
                        Paralega   $65      7.75     $503.75
                         l
Helsell, Fetterman,     Partner   $215     44.90   $9,653.50
 Martin, Todd, and
 Hokanson
                        Partner   $185     36.20   $6,697.00
                        Partner   $175     51.00   $8,925.00
                        Associat  $130     40.30   $5,239.00
                         e
                        Associat  $115     60.20   $6,923.00
                         e
                        Associat  $110     27.60   $3,036.00
                         e
                        Paralega   $75     44.20   $3,315.00
                         l
                        Paralega   $65    133.00   $8,645.00
                         l
                        Paralega   $65    121.40   $7,891.00
                         l
                        Document   $30     85.00   $2,550.00
                         Clerk
                        Document   $25     22.90     $572.50
                         Clerk
UNC
Crowell and Moring      Partner   $335      6.50   $2,177.50
                        Partner   $275     16.00   $4,400.00
                        Partner   $210     81.75  $17,167.50
                        Associat  $130     14.75   $1,917.50
                         e
                        Associat  $115     33.75   $3,881.25
                         e
                        Paralega   $75     40.75   $3,056.25
                         l
                        Paralega   $70      0.50      $35.00
                         l
                        Clerk      $45      0.50      $22.50
                        Clerk      $45      0.50      $22.50
Stoel, Rives, Boley,    Partner     \a     18.30   $4,387.00
 Jones, and Grey                            2.20
                         Partner             .60
                         Clerk
Westinghouse
Davis, Wright,          Partner   $230     20.00   $4,600.00
 Tremaine
                        Partner   $190     72.60  $13,794.00
                        Partner   $190     48.00   $9,120.00
                        Partner   $190      0.10      $19.00
                        Associat  $120     25.00   $3,000.00
                         e
                        Associat  $110      8.40     $924.00
                         e
                        Associat  $100     16.30   $1,630.00
                         e
                        Paralega   $60     60.60   $3,636.00
                         l
                                                  $455,481.3
                                                           8
------------------------------------------------------------
\a Data not available. 


COSTS INCURRED FOR LITIGATION DATA
BASES
========================================================= Appendix III

                    (Dollars in millions)


                                                        Tota
Site                                  1991  1992  1993     l
------------------------------------  ----  ----  ----  ----
Fernald                               $3.9  $5.4  $4.8  $14.
                                                           1
Hanford                                0.2   1.7   2.2   4.1
Los Alamos                               -   1.2   1.6   2.8
Rocky Flats                            1.7   1.2   1.3   4.2
============================================================
Total                                 $5.8  $9.5  $9.9  $25.
                                                           2
------------------------------------------------------------

SAVINGS DOE COULD HAVE ACHIEVED BY
REQUIRING DISCOUNTED PROFESSIONAL
FEES
========================================================== Appendix IV

                                 Savings             Savings
                       Cost if        if   Cost if        if
                      discount  discount  discount  discount
Fiscal    Profession  ed by 10  ed by 10   ed by 5   ed by 5
year         al fees   percent   percent   percent   percent
--------  ----------  --------  --------  --------  --------
Kirkland and Ellis\a
------------------------------------------------------------
1991      $3,689,741  $3,320,7  $368,974  $3,505,2  $184,487
                            67                  54
1992      $2,372,003  $2,134,8  $237,200  $2,253,4  $118,600
                            03                  03
1993      $1,991,554  $1,792,3  $199,155  $1,891,9   $99,578
                            99                  76

Shea and Gardner\b
------------------------------------------------------------
1991      $2,055,920  $1,850,3  $205,592  $1,953,1  $102,796
                            28                  24
1992      $1,601,794  $1,441,6  $160,179  $1,521,7   $80,090
                            15                  04
1993      $1,799,710  $1,619,7  $179,971  $1,709,7   $89,985
                            39                  25
------------------------------------------------------------
\a Kirkland and Ellis' professional fees were incurred for the Day v. 
NLO, Cook et al.  v.  Rockwell/Dow, and In Re:  Hanford litigations. 

\b Shea and Gardner's professional fees were incurred for the Cook et
al.  v.  Rockwell/Dow and In Re:  Hanford litigations. 


SAVINGS DOE COULD HAVE ACHIEVED IF
RATE FOR DOCUMENT DUPLICATION HAD
BEEN STANDARDIZED
=========================================================== Appendix V

                              Rate   Total   Cost at
                               per  amount     $0.08  Saving
Case name and law firm        page  billed  per page       s
----------------------------  ----  ------  --------  ------
In Re: Hanford
Gibson, Dunn, and Crutcher    0.20       $  $ 25,443       $
                                    63,608            38,165
                              0.25  104,11    33,317  70,799
                                         6
Kirkland and Ellis            0.20  29,444    11,778  17,666
                              0.10  29,295    23,436   5,859
Perkins Coie                  0.10  89,247    71,398  17,849
Shea and Gardner              0.15  86,203    45,975  40,228
Helsell, Fetterman, Martin,
 Todd, and Hokanson

                              0.20  52,088    20,835  31,253
Crowell and Moring
                              0.20  30,823    12,329  18,494
Davis, Wright, Tremaine
                              0.20  50,622    20,249  30,373
Cook et al. v. Rockwell/Dow
Shea and Gardner              0.15  112,19    59,836  52,356
                                         2
Kirkland and Ellis            0.20  38,144    15,258  22,886
                              0.10  25,108    20,086   5,022
Day v. NLO
Kirkland and Ellis            0.20  97,695    39,078  58,617
                              0.10  75,829    60,663  15,166
============================================================
Total                               $884,4  $459,681  $424,7
                                        14                33
------------------------------------------------------------

OBJECTIVES, SCOPE, AND METHODOLOGY
========================================================== Appendix VI

On October 29, 1993, the Chairman of the Subcommittee on Oversight
and Investigations, House Committee on Energy and Commerce, asked us
to review the Department of Energy's (DOE) expenses for outside
litigation.  After discussions with the Chairman's office, we agreed
to (1) determine how much DOE was spending for litigation to defend
its contractors, (2) evaluate whether adequate controls are in place
to ensure that all of these costs are appropriate, and (3) assess the
efforts being made by DOE to improve its controls over these outside
litigation costs. 

To respond to this request, we met with staff in DOE's Office of
General Counsel in Washington, D.C., to obtain an overall perspective
on the litigation activities of the Department's various contractors,
the underlying issues associated with such litigation, and the
rationale for DOE's paying the costs of the contractors' litigation. 
Additionally, we selected and visited three of DOE's operations
offices--Albuquerque, Oak Ridge, and Richland--and examined records
of the litigation activities and costs incurred in each office.  We
selected these offices because DOE data indicated that these offices
had incurred about 75 percent of the Department's expenses for
contractors' litigation. 

To address the first objective, we discussed litigation costs with
DOE headquarters and operations office officials.  We discussed the
types of costs associated with the litigation and the records
maintained on these costs.  We also obtained and reviewed data
covering the period from October 1991 through May 1993 compiled by an
internal DOE litigation management task force assessing the costs of
litigation.  To verify the data on costs for outside legal firms'
services developed by the task force and to attempt to obtain
complete cost data for fiscal year 1993, we examined available
records at the three operations offices, including the data that were
submitted to the task force, supporting documentation, and various
other records detailing expenditures for outside legal firms'
services.  However, we were not able to obtain sufficient data on
costs to ensure that the amounts provided to the task force were
accurate or to calculate the total costs for fiscal year 1993.  In
addition, we discussed other costs of litigation with these DOE
officials and obtained data from them detailing the costs of
developing litigation data bases.  We also contacted contractors and
law firms responsible for developing and managing the data bases and
obtained data on the costs incurred.  Furthermore, we discussed
in-house costs with contractor officials at all three operations
offices. 

To address the second objective, we (1) evaluated the charges and
expenses of the outside law firms engaged by the contractors and (2)
assessed the process used by the contractors and DOE to review these
costs.  We obtained and reviewed the billings of outside law firms
involved in four major class action suits:  In Re:  Hanford, Cook et
al.  v.  Rockwell/Dow, In Re:  Los Alamos, and Day v.  NLO.  We
examined the supporting documentation for the various charges, and
when the available data were insufficient, we contacted the
contractors and/or law firms to obtain information on the rates and
charges for activities, or in some cases, we visited the law firms to
review documentation supporting the charges.  We did not, however,
obtain and examine law firms' internal documents supporting the
hourly charges of individual lawyers or legal assistants. 

To evaluate the reasonableness of the law firms' charges and
expenses, we compared these costs to the guidelines developed and
used by the Federal Deposit Insurance Corporation and the Resolution
Trust Corporation.  These federal corporations use outside law firms
to conduct much of their legal work and have had cost guidelines in
place for several years to ensure that the expenses they incur for
litigation are reasonable.  We judged the corporations' guidelines to
be an appropriate benchmark for evaluating the costs incurred by DOE. 
Additionally, we used the American Bar Association's Formal Ethics
Opinion 93-379 as another guide for judging the reasonableness of the
law firms' charges.  Finally, we met with a litigation management
consultant to obtain further guidance on reasonable and prudent costs
to be paid for legal services. 

To assess the adequacy of the review of the law firms' billings, we
discussed review procedures with each DOE operations office we
visited and obtained available documentation that showed evidence of
review and comment on the law firms' charges.  In addition, we met
with representatives of the contractors--DuPont, Martin Marietta
Energy Systems, NLO, UNC, the University of California, and
Westinghouse Hanford Company.  We discussed review procedures by
telephone with Atlantic Richfield Hanford Corporation, Dow Chemical
Company, General Electric, and Rockwell International. 

To keep apprised of DOE's efforts to develop and implement cost
controls over litigation costs, we discussed actions proposed by the
agency with officials from the Office of General Counsel at DOE
headquarters and the Office of Chief Counsel at the Albuquerque, Oak
Ridge, and Richland operations offices.  We obtained documents
detailing the actions DOE intends to take to better control
litigation costs and ensure more effective litigation management. 
Furthermore, we discussed planned procedures for auditing law firms'
bills with the official responsible for this activity in DOE's Office
of Inspector General. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix VII

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON,
D.C. 

William F.  Fenzel
John R.  Schulze
Tracy Kelly Solheim

OFFICE OF GENERAL COUNSEL

Martin J.  Fitzgerald
Susan W.  Irwin

DENVER REGIONAL OFFICE

Peter Fernandez
Ernie V.  Limon, Jr. 

SEATTLE REGIONAL OFFICE

John E.  Cass

