Department of Energy: Value of Benefits Paid to Separated Contractor
Workforce Varied Widely (Letter Report, 01/23/97, GAO/RCED-97-33).

Since 1993, The Department of Energy (DOE) has paid more than $600
million in benefits to contractor employees separated in workforce
restructurings and downsizings at its facilities. Brought on by the end
of the Cold War, this downsizing has been carried out using benefits
provided by legislation requiring DOE to develop plans for minimizing
the impact of downsizing on workers at affected facilities. Members of
Congress have raised concerns about the costs associated with DOE's
implementation of these plans, particularly as the costs relate to
workers hired after the end of the Cold War. This report answers the
following questions: What types and amounts of benefits were provided to
separated employees? What distinctions did DOE make in determining who
should receive these benefits? To what extent did the contractors at DOE
facilities have to rehire workers or replace them with others having
similar skills because the downsizings were not targeted enough to
retain critically needed skills? What steps has DOE taken to oversee
implementation of the plans?

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

 REPORTNUM:  RCED-97-33
     TITLE:  Department of Energy: Value of Benefits Paid to Separated 
             Contractor Workforce Varied Widely
      DATE:  01/23/97
   SUBJECT:  Federal downsizing
             Severance pay
             Federal employees
             Contractor personnel
             Reductions in force
             Employee benefit plans
             Human resources utilization
             Nuclear facilities
             Personnel management
IDENTIFIER:  Ohio
             Grand Junction (CO)
             Naval Petroleum Reserve No. 1 (Elk Hills, CA)
             Oak Ridge (TN)
             Savannah River (SC)
             DOE Workforce Restructuring Plan
             
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Cover
================================================================ COVER


Report to the Subcommittee on Energy and Water Development, Committee
on Appropriations, House of Representatives

January 1997

DEPARTMENT OF ENERGY - VALUE OF
BENEFITS PAID TO SEPARATED
CONTRACTOR WORKFORCE VARIED WIDELY

GAO/RCED-97-33

Benefits Paid to Separated Contract Workers

(308688)


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

  COBRA - Consolidated Omnibus Budget Reconciliation Act of 1985
  GAO - General Accounting Office

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


B-275540

January 23, 1997

The Honorable Joseph McDade
Chairman
The Honorable Vic Fazio
Ranking Minority Member
Subcommittee on Energy and Water Development
Committee on Appropriations
House of Representatives

Since 1993, the Department of Energy has spent over $609 million to
provide benefits to contractor employees separated in workforce
restructuring and downsizing efforts at its facilities.  Brought on
by the end of the Cold War,\1

this downsizing has been carried out using the benefits provided by
section 3161 of the National Defense Authorization Act for Fiscal
Year 1993, which requires Energy to develop plans for minimizing the
impact of downsizing on the workforce at affected facilities.  The
former Chairman and Ranking Minority Member, in a July 18, 1996,
letter, expressed concern about the costs associated with Energy's
implementation of these plans, particularly as the costs relate to
workers hired after the end of the Cold War.  We focused our analysis
on the following questions: 

  -- What types and amounts of benefits were provided to separated
     employees? 

  -- What distinctions did Energy make in determining who should
     receive these benefits? 

  -- To what extent did the contractors at Energy's facilities have
     to rehire workers or replace them with others having similar
     skills, because the downsizing was not targeted sufficiently to
     retain critically needed skills? 

  -- What steps has Energy taken to oversee the implementation of the
     plans? 


--------------------
\1 Energy recognizes September 27, 1991, the date of the first
announcement of a unilateral reduction in the nation's nuclear
stockpile, as the Cold War's end. 


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

The 23,800 contractor employees separated since 1993 under Energy's
workforce restructuring plans have received an average of $25,600 in
benefits.\2 About 88 percent of the costs were for enhanced
retirement incentives or severance pay.  Other benefits included
extended medical insurance and help with retraining, relocating, and
finding new jobs for the affected employees.  Although similar
benefits were offered at most facilities, the value of these benefits
varied considerably among locations, reflecting the considerable
discretion given to each facility in determining how best to reduce
its workforce.  More than half of the workforce restructuring plans
provided more generous severance pay than would have normally been
provided by the contractors under existing contracts, and almost all
plans provided other benefits not normally provided by the
contractors, such as extended medical insurance.  Moreover, the
benefits provided under the plans exceeded those that would have been
provided to federal employees in a reduction in force. 

Energy's guidelines provide that the consideration of specific
benefits for contractor employees should take into account both
available funding and whether the employee was hired prior to the end
of the Cold War.  However, most plans made no distinction in the
benefits provided to employees hired during the Cold War and those
hired after the Cold War ended.  Furthermore, although the act
referred only to defense nuclear facilities, the Secretary of Energy
directed that in the interest of fairness, workforce restructuring
plans would be developed for all facilities.\3 However, most of the
restructuring costs benefited Cold War workers at defense nuclear
facilities. 

The preliminary data for fiscal years 1995 and 1996 suggest that
Energy's facilities have improved their ability to retain critically
needed skills during downsizing.  Early restructuring at some
facilities resulted in subsequent hiring to fill vacated critical
skill positions.  For example, at the agency's Fernald, Ohio,
facility, almost every position that was vacated had to be refilled
within a year.  To retain workers with the skills necessary to
accomplish the new mission at its facilities, Energy subsequently
revised its guidelines to emphasize the importance of workforce
planning.  While data are not available on the number of critical
skill positions that were refilled during fiscal years 1993 and 1994,
Energy's preliminary data for fiscal years 1995 and 1996 indicate
that about 2 percent of the positions vacated had to be refilled. 
However, since this percentage does not reflect hiring done below the
level of principal contractor, employees with critical skills may
still be leaving the principal contractor and accepting employment
with a subcontractor at the facility. 

Energy provides limited oversight over how contractors implement
workforce restructuring plans.  According to agency officials, once
the workforce restructuring plans are approved, the responsibility
for implementation is left with the contractors; furthermore, little
monitoring is done by Energy program personnel.  The reviews by
Energy's Office of Inspector General and others of Energy's early
restructuring efforts have identified problems with the awarding of
benefits, including the construction of a training and outplacement
facility that was not warranted, separated employees' receiving
benefits for which they were not eligible, and retained employees'
receiving educational reimbursements for training not relevant to the
facility. 


--------------------
\2 During this same period, an additional 15,062 employees left who
were not eligible for benefits under the plans, either because they
worked for subcontractors or because they left through normal
attrition. 

\3 According to the Director, Office of Worker and Community
Transition, the authority and funding for the implementation of
nondefense facility plans is contained in Energy's general authority
to reimburse the contractors for the costs incurred in operating its
facilities. 


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

To carry out its missions, Energy relies on contractors for the
management, operation, maintenance, and support of its facilities. 
Since the end of the Cold War, the agency's mission at its defense
nuclear facilities has changed from weapons production to cleanup and
environmental restoration, thus necessitating a change in employees'
skills.  Energy's facilities have also had to reduce their workforce
in response to overall cuts in the federal budget.  At the end of
fiscal year 1996, total employment by contractors at the facilities
was estimated at about 110,000, down from a high of nearly 149,000 at
the end of fiscal year 1992. 

Section 3161 of the National Defense Authorization Act for Fiscal
Year 1993 requires that when a change in the workforce at a defense
nuclear facility is necessary, Energy must develop a plan for
restructuring the contractor workforce.  These plans are to be
developed in consultation with the appropriate national and local
stakeholders, including labor, government, education, and community
groups.  According to the act,

  -- changes in the workforce should be accomplished to minimize
     social and economic impacts, should be made only after 120 days'
     notice, and should be accomplished, when possible, through the
     use of retraining, early retirement, attrition, and other
     options to minimize layoffs;

  -- the Secretary shall submit to the Congress a plan for a defense
     nuclear facility within 90 days after the date of the 120-day
     notice, or 90 days after the enactment of the act, whichever is
     later;

  -- employees shall, to the extent practicable, be retrained for
     work in environmental restoration and waste management
     activities;

  -- employees whose employment is terminated shall, to the extent
     practicable, receive preference in hiring; and

  -- Energy should provide relocation assistance to transferred
     employees and should assist terminated employees in obtaining
     appropriate retraining, education, and reemployment. 

In addition to the act's specific requirements, Energy's guidelines
provided that extended medical insurance should be offered to all
separated contractor employees.  Moreover, although the act refers
only to defense nuclear facilities, the Secretary of Energy
determined that in the interest of fairness, the workforce
restructuring planning process would be applied at both defense
nuclear facilities and nondefense facilities.  Although Energy
provided guidelines to the field offices, these guidelines were
intended to be general and not prescriptive.  In order to allow for
consultation with local stakeholders and to incorporate the unique
needs at each facility, field offices were responsible for developing
workforce restructuring plans. 

Energy's Office of Worker and Community Transition is responsible for
coordinating restructuring efforts, reviewing and approving workforce
restructuring plans, and reporting on the status of the plans.  As of
November 1996, a total of 35 workforce restructuring plans either had
been approved or were in draft form.  While restructuring occurred at
32 of Energy's facilities, some facilities had multiple restructuring
plans; others had none because few employees were affected, and plans
were not required if fewer than 100 employees would be involved. 
(App.  I contains a list of the 32 facilities that reported costs
associated with the restructuring.)


   SIMILAR TYPES OF BENEFITS
   OFFERED, BUT AMOUNTS VARIED
   AMONG LOCATIONS
------------------------------------------------------------ Letter :3

The workforce restructuring plans generally included similar types of
separation payments and other benefits.  Since 1993, the costs
associated with these benefits have totaled about $609 million.\4 The
value of separation payments varied among facilities due to such
factors as differences in the method used to calculate severance pay. 
Other benefits, including extended medical insurance,
educational/training assistance, relocation assistance, and
outplacement assistance, were offered at most facilities, and the
value of these benefits also varied.  These differences in the value
of benefits among facilities reflect the nonprescriptive nature of
Energy's guidelines and the emphasis on developing plans at the local
level. 


--------------------
\4 Data on numbers of employees and costs were provided by the Office
of Worker and Community Transition on the basis of preliminary data
from Energy field offices and are subject to change.  The Office also
reported about $40 million for retraining or transfer of retained
workers and about $6 million spent on severance payments for
subcontractor employees, who were not eligible for benefits under the
plans. 


      TYPES AND AMOUNTS OF
      BENEFITS PROVIDED
---------------------------------------------------------- Letter :3.1

The workforce restructuring plans included three types of separation
programs:  enhanced retirement, voluntary separations, and
involuntary separations.  Energy's goal in workforce restructuring
was to encourage employees to leave through enhanced retirement or
voluntary separation programs and to use involuntary separations only
when necessary.  The enhanced retirement programs typically added 3
years to age and service for the purpose of calculating pension
benefits.  Some enhanced retirement programs included an additional
incentive payment.  The voluntary and involuntary separation programs
usually consisted of a severance payment based on length of service
and base salary.  In all, nearly 75 percent of the employees leaving
under the three separation programs accepted enhanced retirement or
voluntary separations (see fig.  1). 

   Figure 1:  Distribution of
   Separated Employees by Program

   (See figure in printed
   edition.)

Note:  For fiscal years 1993-96, there were a total of 23,782
voluntary and involuntary separations at Energy defense nuclear
facilities and nondefense sites. 

Source:  Prepared by GAO using data provided by Energy. 

Employees leaving under most voluntary and involuntary separation
programs were eligible for additional benefits.  These additional
benefits included extended medical insurance, educational/training
assistance, relocation assistance, and outplacement assistance. 
However, separation payments accounted for most of the total funds
spent on workforce restructuring.  Figure 2 shows that 88 percent of
the $609 million in workforce restructuring costs consisted of
separation and enhanced retirement payments. 

   Figure 2:  Distribution of
   Workforce Restructuring Costs,
   in millions of dollars

   (See figure in printed
   edition.)

Note:  Total costs for fiscal years 1993 through 1996 were
$609,274,911.  Percentages do not total 100 percent due to rounding. 

Source:  Prepared by GAO using data provided by Energy. 

As shown in table 1, the total average cost of benefits provided to
the 23,782 separated employees was $25,619.  Average separation
payments ranged from about $37,400 for enhanced retirement to about
$15,800 for involuntary separation. 



                                Table 1
                
                 Total and Average Costs of Separation
                  Payments and Other Benefits, Fiscal
                        Years 1993 Through 1996

                               Number of                  Average cost
                               employees     Total costs  per employee
--------------------------  ------------  --------------  ------------
Costs for employees separated with benefits
----------------------------------------------------------------------

Separation payments
----------------------------------------------------------------------
Enhanced retirement                4,969    $185,988,167       $37,430
Voluntary separation              12,576     252,355,809        20,066
Involuntary separation             6,237      98,787,082        15,839
Total separation payments         23,782     537,131,058        22,586

Other benefits
----------------------------------------------------------------------
Extended medical coverage         10,652    $ 35,262,286       $ 3,310
Educational assistance             8,012      16,385,819         2,045
Relocation assistance                444       1,265,637         2,851
Outplacement assistance               \a      19,230,111            \a
Total other benefits                  \a      72,143,853            \a
======================================================================
Total costs for employees         23,782    $609,274,911       $25,619
 separated with benefits
----------------------------------------------------------------------
\a Amounts cannot be calculated because the number of persons who
received outplacement assistance is unknown; in addition, persons
receiving a specific other benefit may be included in more than one
category

Source:  Data provided by Energy's Office of Worker and Community
Transition.. 


      VALUE OF BENEFITS VARIED
      AMONG FACILITIES
---------------------------------------------------------- Letter :3.2

Although most facilities included similar benefits in their workforce
restructuring plans, the value of these benefits varied considerably
for several reasons.  For separation payments, the variance was
generally due to two factors:  differences in the severance pay
formula used and the characteristics of the workforce at a given
facility.  For example, the Fernald facility provided severance pay
based on service up to a maximum of 24 weeks' pay, while Lawrence
Livermore National Laboratory provided 2 weeks of pay per year of
service to a maximum of 52 weeks.  In addition, the value of
severance payments at a location varied due to average salaries,
length of employment, and the age of the workforce.  For example, the
average severance payment for voluntary separations ranged from
$10,172 at Grand Junction to $42,855 at Portsmouth; for involuntary
separations, the average payment ranged from $4,076 at Morgantown to
$51,409 at the Naval Petroleum Reserve; and for enhanced retirement,
the average benefit ranged from $10,000 at Grand Junction to $78,783
at Pinellas. 

Similarly, the value of benefits other than separation payments
generally varied for two reasons--either because Energy's guidelines
specified a maximum amount for the benefit but allowed discretion in
determining the appropriate amount for each facility or because of
local variances in the costs of those benefits.  For example, almost
all plans provided educational and training assistance; the maximum
benefit ranged from $2,500 to $10,000.  In addition, relocation
assistance was offered at most facilities; the maximum reimbursement
ranged from $2,000 to $5,000.  For extended medical coverage,
Energy's costs included the contractors' full share of health
insurance premiums for the first year following separation.  The
differences in the value of this benefit were due to the costs of
coverage at different locations.  For example, the average value of
the extended medical coverage ranged from $194 at Grand Junction to
$16,084 at Pinellas (the Pinellas costs included coverage for retired
workers under the plant-closing provisions of the contract). 

Appendix II summarizes the benefits provided in the 29 workforce
restructuring plans at defense nuclear facilities, and appendix III
summarizes the benefits provided in 6 workforce restructuring plans
at nondefense facilities.  Both tables show some of the differences
in how these benefits were calculated. 


      BENEFITS EXCEEDED AMOUNTS
      THAT WOULD HAVE BEEN AWARDED
      UNDER EXISTING CONTRACTS
---------------------------------------------------------- Letter :3.3

Section 3161 of the National Defense Authorization Act for Fiscal
Year 1993 authorized benefits such as educational and relocation
assistance that exceeded those that would have been provided under
existing contracts at the facilities.  In addition, the agency
determined that all contractor employees, whether voluntarily or
involuntarily separated, should be eligible for extended medical
coverage (as shown in table 1, the cost of providing this benefit
totaled $35.2 million).  The contracts at Energy's facilities usually
provide only severance payments and outplacement assistance; no other
benefits are offered.  As we reported in March 1995, these limited
benefits are consistent with both federal and private practices.\5
Our review of downsizing efforts at 22 private companies and state
organizations and 3 foreign governments concluded that many of these
organizations offered separation incentives more generous than those
generally included in federal "buyout" legislation to encourage
employees to resign or retire.  The only other benefit frequently
offered by these organizations was outplacement assistance.  However,
most of Energy's workforce restructuring plans included benefits,
such as extended medical coverage and educational assistance, in
addition to severance pay and outplacement assistance.  In contrast,
federal employees who are involuntarily terminated through a
reduction in force receive only severance pay based on years of
service and an additional 10 percent of basic severance for each year
an employee is over age 40; the maximum lifetime benefit is 1 year's
annual salary.  Under the federal buyout legislation for voluntary
separations, the maximum severance pay allowed was $25,000. 

Although the act was silent on the issue of severance pay, Energy's
guidance allowed the use of enhanced severance payments to encourage
voluntary separations.  The plans varied as to whether they provided
severance payments in accordance with the existing contracts.  Of the
35 plans reviewed, 9 conformed to existing contracts, 8 were unclear
as to how severance payments compared to normal contract provisions,
and 18 provided severance payments that exceeded those normally
provided for in the contracts.  For example, at Rocky Flats, the
existing contractor policy allowed for a maximum of 15 weeks
severance pay, while the plan provided a maximum of 52 weeks.  At Elk
Hills Naval Petroleum Reserve, the enhanced severance pay amounts
exceeded the normal severance pay by 41 percent. 


--------------------
\5 Workforce Reductions:  Downsizing Strategies Used in Selected
Organizations (GGD-95-54, Mar.  13, 1995). 


   SIMILAR BENEFITS WERE GENERALLY
   PROVIDED TO COLD WAR AND
   POST-COLD WAR WORKERS AT
   DEFENSE AND NONDEFENSE
   FACILITIES
------------------------------------------------------------ Letter :4

Although the act referred only to workforce restructuring at defense
nuclear facilities, the Secretary of Energy determined that in the
interests of fairness, the planning process included in the act would
apply to all workforce restructuring.  Therefore, the agency
generally extended the same benefits to contractor employees at both
defense nuclear and nondefense facilities.  Workforce restructuring
costs were reported for 15 nondefense facilities.  However, the cost
of benefits provided at these facilities accounted for about 7
percent of the total workforce restructuring costs reported for
fiscal years 1995 and 1996 and primarily included severance payments
and medical coverage. 

The act does not specifically mention employees who worked during the
Cold War.  However, in its March 1994 guidelines, the Office of
Worker and Community Transition established a "job attachment test"
that was to be used to determine whether an employee qualified as a
Cold War worker and stated that only Cold War workers should be
eligible for all benefits.  In practice, most plans made little or no
distinction in the benefits offered to those employees who worked
during and after the Cold War.  The largest benefit cost--for
severance pay--depended on length of service and base salary rather
than on whether the employee worked during the Cold War.  The two
facilities that did make a distinction--Hanford and Savannah
River--provided a lump-sum payment option for voluntary separations,
with larger payments for Cold War workers.  For other benefits, most
plans offered the same benefits to all workers regardless of when
they were employed. 

Although Energy does not routinely collect data separating costs
between Cold War and post-Cold War workers, four facilities--Hanford,
Savannah River, Oak Ridge, and Rocky Flats--did provide this
breakdown of costs.  However, since these data are not normally
collected, the contractors at the facilities were not able in all
cases to identify or separate all costs.  According to the data
available at these four locations, about 7 percent of the costs went
to post-Cold War workers.  Table 2 shows the number of employees and
cost of benefits provided at the four facilities. 



                                Table 2
                
                     Comparison of Benefits at Four
                 Facilities for Cold War and Post-Cold
                              War Workers

                           Cold War workers     Post-Cold War workers
                        ----------------------  ----------------------
                         Number of               Number of
                         employees       Costs   employees       Costs
----------------------  ----------  ----------  ----------  ----------
Hanford                      2,921  $109,330,5         911           $
                                            00               8,333,000
Oak Ridge                    1,916  36,930,025          72     282,714
Rocky Flats                  2,493  50,905,742         704   7,253,710
Savannah River               3,639  59,833,357         507   4,731,752
======================================================================
Total                       10,969  $256,999,6       2,194  $20,601,17
                                            24                       6
----------------------------------------------------------------------
Source:  Data provided by contractors at four facilities. 


   EFFORTS TO RETAIN CRITICAL
   SKILLS HAVE IMPROVED
------------------------------------------------------------ Letter :5

The limited data available for the early years of restructuring
showed problems in retaining workers with critically needed skills. 
While Energy did not collect comprehensive information about rehiring
rates during the early years, audits at three facilities indicated
difficulties in maintaining the workforce necessary to accomplish the
mission at the facilities.  For example, the agency's Office of
Inspector General reported that during the first restructuring at
Fernald, of the 255 separations in fiscal year 1994, all but 14 of
the positions had been refilled within 1 year by either the previous
employees or ones with similar skills, representing a 95-percent
rehire/backfill rate.\6 The report concluded that Energy did not (1)
require the contractor to perform the skills analysis necessary to
identify which employees were needed to perform the current mission
and (2) effectively monitor the contractor's restructuring efforts. 
In addition, the report stated that continuing to separate and
replace employees with critical skills was deemed a material internal
control weakness.  In response, Energy acknowledged that this
restructuring did not accomplish its objectives. 

Since these early efforts, Energy has taken steps to improve its
ability to retain critically needed skills.  The agency acknowledged
in its report on the restructuring efforts in fiscal years 1993 and
1994 that it was essential for facilities to do more effective
workforce planning to identify the critical skills necessary to carry
out the new mission.  After Energy revised its guidance to emphasize
workforce planning, the facilities targeted voluntary separations to
retain critical skills and established controls to restrict the
rehiring of employees taking voluntary separations.  For example,
during the fiscal year 1995 restructuring at the Hanford facility,
the employees with critical skills were excluded from the voluntary
separation program. 

According to preliminary data reported for all facilities for fiscal
years 1995 and 1996, about 2 percent of separated employees have had
to be rehired or have their positions backfilled by someone with
similar skills.  In the explanations accompanying these data, many of
these rehires were either employees who had been involuntarily
separated and qualified for preferential hiring or collective
bargaining employees who had recall rights.  However, Energy normally
does not track contractor employees below the level of principal
contractor and has no data available on hires at most subcontractors. 
Therefore, separated employees with critical skills could be rehired
by subcontractors at the same facility and would not be reflected in
the 2-percent rehire/backfill rate. 


--------------------
\6 Audit of Workforce Restructuring at Fernald Environmental
Management Project (ER-B-96-01, Apr.  23, 1996). 


   ENERGY PROVIDES LIMITED
   OVERSIGHT OF PLAN
   IMPLEMENTATION
------------------------------------------------------------ Letter :6

After Energy approves the workforce restructuring plans, it provides
little oversight or monitoring of how contractors implement those
plans.  According to the Director of the Office of Worker and
Community Transition, agency field offices are responsible for
monitoring workforce restructuring efforts and for determining if
benefits are applied appropriately.  However, field offices at the
four facilities we visited do little monitoring or oversight of the
implementation of the facilities' plans.  When monitoring has been
done by either Energy's Office of Inspector General or internal audit
personnel at field offices, their investigations have identified
instances of excessive costs or inappropriate benefits. 

The Office of Worker and Community Transition reviews all
restructuring plans to ensure that they conform to Energy's policy
before submitting the approved plans to the Congress.  This Office
also gathers data from the facilities on the costs of restructuring
for annual reporting to the Congress.  In addition, the office has
revised program guidelines to incorporate lessons learned in early
restructuring efforts. 

At the four facilities we visited, field office personnel told us
that the contractor was primarily responsible for implementing the
workforce restructuring plan.  However, agency personnel do review
the contractors' separation programs to ensure consistency with the
plan and respond to the contractors' questions about specific benefit
determinations.  At one facility, the rehiring of the individuals who
accepted enhanced retirement requires approval by the field office
manager.  However, according to the agency officials responsible for
workforce restructuring at the four facilities, they do no detailed
review of the costs submitted by the contractors for workforce
restructuring. 

Independent reviews of early restructuring efforts by Energy audit
staff have raised questions about the impact of limited monitoring. 
The Inspector General has issued four reports on workforce
restructuring problems and has two ongoing reviews.  For example, an
August 1995 report at Oak Ridge found that the contractor established
training programs and an outplacement center that provided few
benefits to separated employees, yet cost Energy $8.2 million in
fiscal years 1993 and 1994 and would cost an additional $15.6 million
through fiscal year 1997.\7 The report recommended that Energy
officials at Oak Ridge evaluate and monitor the implementation of the
plan to preclude unnecessary expenditures. 

In addition, the reviews by an internal audit organization at one
facility have identified problems and excessive costs associated with
workforce restructuring.  The reviews of restructurings at Rocky
Flats that occurred in fiscal years 1993 through 1995 identified
problems with both separation payments and educational and training
assistance.  For example, one review noted that the contractor paid
out $0.8 million for voluntary separations and then hired workers to
fill the vacated positions.  In addition, another review found
voluntary separation payments made to ineligible employees that
totaled over $93,000.  Internal audits also found that retained
employees were reimbursed for training courses that were not relevant
to the skills needed at the facility; $200,000 in questionable
expenses were identified, including $25,000 for helicopter pilot
training for a retained employee. 

We discussed these concerns with the Director of Energy's Office of
Worker and Community Transition.  According to the Director, the
agency shares these concerns and acknowledges that early
restructuring efforts could have been more effective.  The Director
added that the Office has learned from these experiences and has a
two-part strategy in place to address these issues.  First, to
increase the effectiveness of workforce restructuring efforts, the
Office revises the guidelines annually to reflect lessons learned and
holds annual meetings to share experiences with field office
personnel responsible for workforce restructuring plans.  In
addition, although the agency provides limited oversight of the
implementation of the plans, the Director believes that contract
reform efforts, including the change to performance-based contracts,
will provide the appropriate incentives for the contractors to
implement the workforce plans more effectively. 


--------------------
\7 Audit of Workforce Restructuring at the Oak Ridge Operations
Office (ER-B-95-06, Aug.  3, 1995). 


   CONCLUSIONS
------------------------------------------------------------ Letter :7

Energy has exercised wide discretion in restructuring its contractor
workforce, defining the types and amounts of benefits and who should
receive those benefits at its defense nuclear facilities and
nondefense facilities.  Through improved guidance and emphasis on
workforce planning, the agency has taken steps to improve its ability
to conduct restructuring while meeting critical skill needs at its
facilities.  However, given the lack of tracking of employees below
the level of principal contractor, it is difficult to determine how
effective these steps have been.  In addition, given Energy's limited
oversight of the implementation of restructuring plans, problems with
excessive costs or inappropriate benefits, such as those identified
by audit organizations, could occur in future restructurings.  To
address these concerns, Energy has developed a strategy to
incorporate lessons learned and to provide incentives for contractors
to implement the plans in a cost-effective manner.  Since workforce
restructuring will continue, the agency needs to ensure that this
strategy will be effective in preventing similar problems in the
future. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :8

We sent a draft of this report to the Department of Energy for its
review and comment.  (Energy's comments appear in app.  IV.) Energy
generally agreed with the report's findings and conclusions; however,
the agency had two concerns.  First, Energy did not agree with the
characterization of its workforce restructuring program in the title
of the report, stating that similar types of benefits were offered at
most facilities.  While similar types of benefits were offered at
most facilities, the formulas used to calculate severance pay
combined with the differences in length of service and base salaries
among the facilities resulted in a wide range for the value of these
benefits. 

Second, in connection with the rehiring of separated employees,
Energy acknowledged that it does not normally track employees below
the level of principal contractor.  Furthermore, the agency believes
that the reduction in both its overall budget and the number of
principal contractor employees would not have occurred if
subcontractors were hiring employees separated under the programs. 
However, reductions in budgets and employment levels are not
necessarily good indicators.  While reductions in budgets and
employment levels have occurred, hiring has continued at most
facilities. 

In addition, Energy forwarded a copy of our draft report to the four
sites that we visited.  The Richland and Savannah River Operations
Offices said that our characterization of Energy's limited oversight
of the implementation of restructuring plans did not apply to them. 
Both offices believe that they are involved in providing direction to
the contractors and then monitoring the results.  For example,
Savannah River indicated that they closely monitor the cost reports
and other data submitted by the contractors.  However, as noted in
our draft report, the activities performed by these offices did not
include detailed reviews of the costs submitted by contractors.  The
other two facilities had only clarifying comments that we
incorporated as appropriate. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :9

To determine the types and amounts of benefits provided to separated
employees as well as to determine what distinctions Energy made in
determining who should receive these benefits, we relied primarily on
data provided by the agency's Office of Worker and Community
Transition.  The data provided by this office relating to the
detailed results of workforce restructuring at Energy's facilities
for fiscal years 1995 and 1996 were preliminary and subject to
change, and we did not independently verify the data's accuracy.  The
data for fiscal years 1993 and 1994 were obtained from the first
report on workforce restructuring efforts.  We reviewed section 3161
of the National Defense Authorization Act for Fiscal Year 1993 and
Energy's guidelines for implementing this legislation.  We also
discussed policies, procedures, and data with officials from the
Office of Worker and Community Transition.  We reviewed 35 final and
draft workforce restructuring plans covering the restructuring
activities at 32 of Energy's facilities.  Our summaries of these
plans are included in apps.  II and III and are based on our
understanding of the language included in the plans; we did not
contact the Energy field offices for clarification.  At the four
facilities we visited--Hanford, Oak Ridge, Rocky Flats, and Savannah
River--contractors provided a breakdown of costs between Cold War and
post-Cold War workers. 

To determine the extent to which the contractors at Energy's
facilities had to rehire or replace workers, and to determine the
steps that the agency has taken to oversee the implementation of the
plans, we interviewed the officials responsible for restructuring at
the four facilities we visited and officials in the Office of Worker
and Community Transition.  We also reviewed narrative explanations
accompanying the fiscal years 1995 and 1996 data provided by that
Office, which identified the extent of rehires and backfills.  We
also reviewed reports by Energy's Office of Inspector General and the
results of reviews by the Chief Financial Officer at the Rocky Flats
facility. 

Our review was performed from August through December 1996 in
accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :9.1

As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report for
7 days after the date of this letter.  At that time, we will send
copies to the Secretary of Energy.  We will also make copies
available to others on request. 

Please call me at (202) 512-3600 if you or your staff have any
further questions.  Major contributors to this report were Jeffrey E. 
Heil, Carole J.  Blackwell, Gene M.  Barnes, William K.  Garber,
Robert E.  Sanchez, Stan G.  Stenersen, and Carrie M.  Stevens. 

Allen Li
Associate Director, Energy,
 Resources, and Science Issues


ENERGY FACILITIES REPORTING
WORKFORCE RESTRUCTURING COSTS
=========================================================== Appendix I


      DEFENSE FACILITIES
------------------------------------------------------- Appendix I:0.1

Argonne National Laboratory
Brookhaven National Laboratory
Fernald Environmental Management Project Site \8
Hanford Site\8
Idaho National Engineering Laboratory\8
Kansas City Plant\8
Lawrence Livermore National Laboratory\8
Los Alamos National Laboratory\8
Mound Facility\8
Nevada Test Site\8
Oak Ridge Site (Oak Ridge National Laboratory, Y-12 Plant, K-25
Site)\8
Pinellas Plant\8
Portsmouth Gaseous Diffusion Plant
Rocky Flats Plant\8
Ross Aviation\8
Sandia National Laboratory
Savannah River Site\8


--------------------
\8 Facilities with one or more workforce restructuring plans. 


      NONDEFENSE FACILITIES
------------------------------------------------------- Appendix I:0.2

Ames Laboratory
Bettis Atomic Power Laboratory
Fermi National Accelerator Laboratory
General Atomics
Grand Junction Site\8
Knolls Atomic Power Laboratory
Lawrence Berkeley National Laboratory\8
Morgantown Energy Technology Center
National Renewable Energy Laboratory
Naval Petroleum Reserve\8
Pittsburgh Energy Technology Center
Princeton Plasma Physics Laboratory\8
Strategic Petroleum Reserve\8
Western Environmental Technology Center
Yucca Mountain


SUMMARY OF BENEFITS PROVIDED UNDER
SECTION 3161 IN 29 WORKFORCE
RESTRUCTURING PLANS FOR DEFENSE
NUCLEAR FACILITIES
========================================================== Appendix II

Benefit/number of plans    Examples of range of benefit    Distinctions made
-------------------------  ------------------------------  ------------------------------
Separation payments
-----------------------------------------------------------------------------------------
Enhanced retirement--18    Typical enhanced retirement     None.
plans                      programs added 3 years to age
                           and pension credited service    Most enhanced retirement
                           for calculating pension         offerings would not be
                           benefits.                       available to employees hired
                                                           after 9/27/91 because of
                           Oak Ridge allowed the addition  minimum years of service
                           of only 2 years to both age     requirements.
                           and pension credited service.

                           The Mound plan allowed an
                           employee, if at least age 49,
                           to retire with an unreduced
                           pension if age and years of
                           service totaled 80. In
                           addition, there was a one-
                           time payment of 3 months of
                           current base pay plus 1.25
                           percent of base pay for each
                           year of service.

Voluntary separation--26   Severance pay calculations      Three plans had lump-sum
plans                      were usually based on length    payment options that varied on
                           of service and base salary. A   the basis of whether employees
                           limited number of plans         were hired before or after 9/
                           provided payments in addition   27/91. For example, two plans
                           to severance pay. Examples      provided employees hired prior
                           include 60 days' notice pay     to this date with the option
                           (Kansas City), $3,500           of a $15,000 payment, while
                           termination bonus (Idaho        employees hired after this
                           Protection Technology), and     date received $7,500.
                           transition assistance equal to
                           3 months base salary (Mound).   The remaining plans made no
                                                           distinction.
                           Fernald's fiscal year (FY)
                           1994 plan provided severance
                           pay up to a maximum of 24
                           weeks of pay for employees
                           with 15 or more years of
                           service.

                           Fernald's FY 1995 plan
                           provided separation pay based
                           on length of service up to 50
                           weeks of pay for employees
                           with 35 or more years of
                           service. Employees also
                           received a lump-sum payment of
                           $15,000.

                           Lawrence Livermore National
                           Laboratory provided 2 weeks of
                           pay for each year of service
                           up to a maximum of 52 weeks
                           pay.

Involuntary separation--   Most severance pay              In one plan, employees hired
27 plans                   calculations were based on      after 9/27/91 were not
                           years of service and base       eligible to receive separation
                           salary.                         payments.

                           In 10 plans, severance pay was  The remaining plans made no
                           the same as for voluntary       distinction.
                           separations.

                           Ross Aviation allowed only 2
                           weeks of pay in lieu of notice
                           for involuntary separations.

                           Los Alamos National Laboratory
                           used two severance schedules,
                           depending on overall length of
                           service. One provided from 1
                           week of pay for employees with
                           less than 1.5 years of service
                           up to a maximum of 52 weeks of
                           pay. The other provided from 2
                           weeks of pay for employees
                           with less than 2 years of
                           service up to a maximum of 39
                           weeks.


Other 3161 benefits
-----------------------------------------------------------------------------------------
Medical benefits--25       All plans that included         In six of the plans, employees
plans                      extended medical coverage used  hired after 9/27/91 were not
                           the Displaced Workers Medical   eligible for extended medical
                           Benefits program. For the       coverage.
                           first year, the company
                           continues to pay its normal     The remaining plans made no
                           contribution to health          distinction.
                           insurance; for the second
                           year, the separated worker
                           pays one-half the Consolidated
                           Omnibus Budget Reconciliation
                           Act of 1985 (COBRA) rate and
                           for the third and subsequent
                           years, the full COBRA rate.
                           The COBRA rate is equal to the
                           full premium for group
                           insurance plus an
                           administrative surcharge.

                           All but one plan provided this
                           coverage to both voluntary and
                           involuntary separations,
                           provided the employee had no
                           alternate coverage through
                           other employment or a spouse's
                           medical plan.

                           Two plans--Pinellas and Kansas
                           City--provided coverage for up
                           to a year at no cost, in
                           accordance with existing
                           agreements.

Educational/training--28   Most of the plans provided for  In five of the plans,
plans                      up to $10,000 in educational    employees hired after 9/27/91
                           assistance over a period of 4   were not eligible for
                           years for both voluntary and    educational assistance. In
                           involuntary separations. Mound  three additional plans,
                           provided the maximum for        employees who were
                           degree programs and up to       involuntarily separated and
                           $5,000 for job-specific         hired after 9/27/91 were not
                           programs.                       eligible for this benefit.

                           Fernald provided different
                           benefits for voluntary and
                           involuntary separations--
                           $10,000 for voluntary and
                           $5,000 for involuntary. In
                           addition, Lawrence Livermore
                           National Laboratory restricted
                           these benefits to voluntary
                           separations only.

Relocation--28 plans       All but one plan (Los Alamos    Four plans provided relocation
                           Cafeteria) provided relocation  assistance only to employees
                           assistance. The amount          hired before 9/27/91. Three
                           provided ranged from $2,000 to  additional plans provided
                           $5,000; the Kansas City plan    relocation assistance for
                           provided reimbursement for      involuntary separations only
                           "reasonable and actual"         to employees hired before 9/
                           relocation expenses.            27/91. The remaining plans
                                                           made no distinction.

Outplacement assistance-   All of the plans included a     One plan restricted
-29 plans                  provision for outplacement      outplacement assistance to
                           assistance, which was           those employed as of 9/27/91,
                           available for both voluntary    and one plan restricted this
                           and involuntary separations.    benefit for involuntary
                           At most sites, an outplacement  separations of those employed
                           resource center was             as of 9/27/91.
                           established to provide
                           assistance to workers of all    The remaining plans made no
                           contractors on the site.        distinction.
-----------------------------------------------------------------------------------------
Note:  In addition to these benefits, certain plans provided other
benefits such as child care assistance (Fernald), subsistence grants
of up to $500 per month while attending school (Rocky Flats), or 1
year's life insurance (Idaho Protection Technology). 


SUMMARY OF BENEFITS PROVIDED IN
SIX WORKFORCE RESTRUCTURING PLANS
FOR NONDEFENSE FACILITIES
========================================================= Appendix III

Benefit/number of plans        Examples of range of benefit
-----------------------------  ----------------------------------------------------------
Separation payments

Enhanced retirement--1 plan    Princeton Plasma Physics Laboratory provided, for those
                               eligible for retirement (age 55 with at least 10 years
                               service), a one-time incentive payment based on length of
                               service up to 11 months of pay--no years were added to age
                               and service for pension calculation.

Voluntary separation--5 plans  Severance pay normally calculated on the basis of base pay
                               and length of service.

                               Strategic Petroleum Reserve offered 2 weeks of base pay
                               per year of service with a maximum payment of $25,000.

                               Princeton Plasma Physics Laboratory included severance pay
                               for nonexempt employees from 2 to 30 weeks for 25 years;
                               exempt employees received from 1 to 15 months of pay for
                               25 years.

Involuntary separation--4      Severance pay normally calculated on the basis of base pay
plans                          and length of service.

                               National Institute for Petroleum and Energy Research
                               allowed 20 percent of base salary with all benefits or 25
                               percent of base salary with medical coverage only.

                               Princeton Plasma Physics Laboratory included severance pay
                               for nonexempt employees of 2 to 30 weeks for 25 years;
                               exempt employees received from 1 to 15 months of pay for
                               25 years.

Other benefits

Medical benefits--4 plans      All plans that offered extended medical coverage did so
                               using Displaced Workers Medical Benefits: employee pays
                               share of premium as if active employee for first year;
                               one-half Consolidated Omnibus Budget Reconciliation Act of
                               1985 (COBRA) rate for second year; and full COBRA rate for
                               third and subsequent years.

Educational/training--3 plans  Maximum benefit ranges from $3,000 to $10,000 over maximum
                               of 4 years.

Relocation--2 plans            Maximum of $5,000, if relocation costs not reimbursed by
                               receiving employer.

Outplacement assistance--5     Resource center established to provide outplacement
plans                          assistance to all separated employees.
-----------------------------------------------------------------------------------------
Note:  Includes Elk Hills Naval Petroleum Reserve, Princeton Plasma
Physics Laboratory, Grand Junction Site, Strategic Petroleum Reserve,
National Institute for Petroleum and Energy Research, and West Valley
Demonstration Project. 




(See figure in printed edition.)Appendix IV
COMMENTS FROM THE DEPARTMENT OF
ENERGY
========================================================= Appendix III



(See figure in printed edition.)



(See figure in printed edition.)


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