DOE Management: Opportunities for Saving Millions in Contractor Travel
Costs (Letter Report, 04/01/99, GAO/RCED-99-107).

Pursuant to a congressional request, GAO provided information on the
Department of Energy's (DOE) contractor travel costs, and DOE's efforts
to reduce these costs, focusing on the: (1) travel costs incurred by DOE
contractors and their primary destinations during fiscal years (FY) 1996
through 1998; (2) purpose of this travel; and (3) success that DOE has
had in reducing contractor travel costs and additional actions available
to reduce these costs further.

GAO noted that: (1) travel costs incurred by DOE contractors were
reduced from $261 million in FY 1995 to $223 million in FY 1996; (2)
since then, travel costs have increased--to $249 million by FY
1998--even though funding to the contractors during this period had been
decreasing; (3) about 96 percent of the contractors' travel was to
domestic locations, the most frequent of these being Washington, D.C.
and the sites of DOE's major laboratories and test facilities:
Albuquerque, New Mexico; Oakland/San Francisco, California; Las Vegas,
Nevada; and Los Alamos, New Mexico; (4) the most frequent foreign
destinations were Russia, the United Kingdom, Germany, France, and
Japan; (5) the purpose of most travel was reported as being for business
reasons, that is, travel for purposes related to the mission of the
facilities; (6) this category included trips to attend meetings or
perform research; (7) GAO identified trips that were miscategorized or
were of questionable value to DOE; (8) for example, business trips
included travel to obtain advanced degrees; (9) the second most
frequently cited travel purpose was for attending conferences; (10)
according to DOE's Inspector General, the large number of conference
attendees is a concern; (11) the Inspector General identified hundreds
of DOE contractor staff attending a 1997 conference in Vancouver,
British Columbia, resulting in travel costs of about $1 million; (12)
DOE's success in reducing contractor travel costs has been limited; (13)
although contractor travel costs have increased since FY 1996, they have
remained below the FY 1995 level--the level that DOE established as a
baseline for calculating contractor travel cost savings; (14) only in FY
1996 did DOE attain the expected $30 million savings in contractor
travel by achieving a $38 million reduction in that year; (15)
contractors did not continue to achieve such savings because DOE did not
enforce its cost reduction targets and some contractors did not have an
overall strategy or plan to achieve lower travel costs; (16) DOE spends
millions of dollars on travel and other costs for contractor employees
on temporary or permanent assignment to Washington, D.C.; (17) DOE has
reduced the number of contractor employees in Washington and is planning
on further reductions; and (18) however, concerns exist over the
additional compensation that contractors are providing for employees on
long-term temporary assignments to cover the tax liabilities on their
living allowances.

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

 REPORTNUM:  RCED-99-107
     TITLE:  DOE Management: Opportunities for Saving Millions in
	     Contractor Travel Costs
      DATE:  04/01/99
   SUBJECT:  Contract costs
	     Reductions in force
	     Contract administration
	     Cost control
	     Travel allowances
	     Travel costs
	     Federal downsizing
	     Cost analysis
IDENTIFIER:  DOE Strategic Alignment and Downsizing Initiative
	     Russia
	     United Kingdom
	     France
	     Germany
	     Vancouver (British Columbia)
	     Japan
	     District of Columbia

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DOE MANAGEMENT: Opportunities for Saving Millions in Contractor
Travel Costs GAO/RCED-99-107 United States General Accounting
Office

GAO Report to the Subcommittee on Energy and Water Development,
Committee on

Appropriations, House of Representatives

April 1999 DOE MANAGEMENT Opportunities for Saving Millions in
Contractor Travel Costs

GAO/RCED-99-107

  GAO/RCED-99-107

GAO United States General Accounting Office

Washington, D. C. 20548 Resources, Community, and Economic
Development Division

B-282146 April 1, 1999 The Honorable Ron Packard Chairman The
Honorable Peter J. Visclosky Ranking Minority Member Subcommittee
on Energy and

Water Development Committee on Appropriations House of
Representatives

The Department of Energy (DOE) incurs hundreds of millions of
dollars in travel costs each year. About 80 percent of these costs
are incurred by the contractors managing and/ or operating the
Department's various facilities. DOE has been concerned about
travel costs and in 1995 implemented a 5- year, $175 million
travel cost- reduction initiative to reduce travel costs by $35
million per year, of which $30 million would come from
contractors. Because of your concern about the Department's
contractor travel costs, you requested that we examine certain
issues related to these costs and DOE's cost- reduction efforts.
As discussed with your office, we agreed to (1) provide
information on the travel costs incurred by DOE contractors and
their primary destinations during fiscal years 1996 through 1998,
(2) identify the purpose of this travel, and (3) assess the
success that DOE has had in reducing contractor travel costs and
identify additional actions available to reduce these costs
further. In addition, we agreed to examine the travel and other
costs associated with contractor employees on assignment to
Washington, D. C.

Results in Brief Travel costs incurred by DOE contractors were
reduced from $261 million in fiscal year 1995 to $223 million in
fiscal year 1996. Since then, travel

costs have increased to $249 million by fiscal year 1998 even
though funding to the contractors during this period had been
decreasing. About 96 percent of the contractors' travel was to
domestic locations, the most frequent of these being Washington,
D. C. and the sites of DOE's major laboratories and test
facilities: Albuquerque, New Mexico; Oakland/ San Francisco,
California; Las Vegas, Nevada; and Los Alamos, New Mexico. The
most frequent foreign destinations were Russia, the United
Kingdom, Germany, France, and Japan.

The purpose of most travel about 70 percent was reported as being
for business reasons, that is, travel for purposes related to the
mission of the

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facilities. This category included trips to attend meetings or
perform research. In a few instances, we identified trips that
were miscategorized or were of questionable value to DOE. For
example, business trips included travel to obtain advanced
degrees. The second most frequently cited travel purpose was for
attending conferences. According to DOE's Inspector General, the
large number of conference attendees is a concern. For example,
the Inspector General identified hundreds of DOE contractor staff
attending a 1997 conference in Vancouver, British Columbia,
resulting in travel costs of about $1 million.

DOE's success in reducing contractor travel costs has been
limited. Although contractor travel costs have increased since
fiscal year 1996, they have remained below the fiscal year 1995
level the level that DOE established as a baseline for calculating
contractor travel cost savings. However, only in fiscal year 1996
did DOE attain the expected $30 million savings in contractor
travel by achieving a $38 million reduction in that year.
Contractors did not continue to achieve such savings because DOE
did not enforce its cost reduction targets and some contractors
did not have an overall strategy or plan to achieve lower travel
costs. Greater emphasis on travel management controlling the
amount of travel and travel cost control minimizing airfare costs
and other travel costs could result in additional travel cost
savings.

DOE spends millions of dollars on travel and other costs for
contractor employees on temporary or permanent assignment to
Washington, D. C. A 1997 DOE Inspector General report identified
over 800 contractor employees from field locations working in
Washington and costing DOE over $76 million annually, which
includes significant living allowances. DOE has recognized
problems with controlling this practice. The Department has
reduced the number of contractor employees in Washington and is
planning on further reductions. However, concerns exist over the
additional compensation that contractors are providing for
employees on long- term temporary assignments to cover the tax
liabilities on their living allowances.

We are making recommendations to the Secretary of Energy designed
to reduce contractor travel costs and to clarify DOE's policy on
allowable travel costs.

Background To carry out its missions, DOE relies on contractors
for the management, operation, maintenance, and support of its
facilities. DOE headquarters and

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its field offices oversee 34 major contractors at DOE sites
throughout the country. The activities that these contractors
conduct serve a variety of DOE missions, such as managing
environmental cleanup, including the safe treatment, storage, and
final disposal of radioactive wastes; developing energy
technologies for transportation systems, efficient building
systems, and utilities; and maintaining the safety, security, and
reliability of the U. S. nuclear weapons stockpile.

In support of these activities, contractors' staff travel
domestically and internationally to collaborate with officials in
DOE programs, other federal programs, industry, academia, and
foreign countries. All of these trips add up to hundreds of
millions of dollars spent on airfare, hotels, meals, and other
direct travel expenses. DOE contracts spell out the allowable
costs that contractors can charge for travel expenses. Although
these contracts vary, the five contractors that we reviewed are
generally allowed to provide for employees the actual and
reasonable costs for lodging and transportation and a maximum
daily amount for meals. Air travel is to be via coach or the
lowest discount fare available. However, airfare discounts
available to federal government employees are generally not
available to contractors.

Concerned with the cost of travel in its programs, DOE included
travel cost reductions in its 1995 Strategic Alignment and
Downsizing Initiative. This initiative aimed to reduce Department-
wide funding by $1.7 billion over a 5- year period beginning in
fiscal year 1996. The initiative targeted a $175- million cost
saving for travel over the same period. This saving would be
achieved by maintaining travel costs at a level $35 million below
the fiscal year 1995 level. DOE's fiscal year 1995 travel cost was
$307 million, of which $261 million was for contractor travel and
$46 million was for federal travel. 1 DOE anticipated a $30
million saving each year from contractor travel and a $5 million
annual saving from federal travel. According to DOE officials in
the Office of the Chief Financial Officer, these reduction levels
represented amounts that the Department believed to be reasonable
and achievable savings goals.

Contractor Travel Costs Are Increasing

Travel costs incurred by DOE contractors were reduced in fiscal
year 1996, but since then these costs have been increasing.
Thirty- four DOE contractors reported that during the fiscal year
1996- 98 period, they spent over $700 million on direct travel
costs. Annual contractor travel costs

1 The original fiscal year 1995 baseline totaled $324 million, of
which $54 million was federal travel and $270 million was
contractor travel. However, DOE has created a new baseline for
fiscal year 1995 travel costs to improve consistency with travel
costs reported in later years.

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were reduced to about $223 million in fiscal year 1996 but
increased to about $241 million in fiscal year 1997 and to about
$249 million in fiscal year 1998. More than half of the reported
travel was incurred by five contractors at DOE's Oak Ridge,
Sandia, Los Alamos, and Livermore facilities. 2 The details on the
cost of travel and the number of trips reported by each of the 34
contractors are contained in appendix I.

The increase in DOE contractor travel costs since fiscal year 1996
is more dramatic when contrasted with other variables, such as the
contractors' overall funding and staffing. For example, at the
same time that travel costs were increasing, funding for
contractors was decreasing. Specifically, travel costs increased
12 percent from fiscal year 1996 to fiscal year 1998, while
overall funding to contractors decreased by about 1 percent. As a
result, travel costs took a larger portion of the contractors'
funding. For each $1,000 of contractor funding, the average amount
needed for travel rose from $16.24 in fiscal year 1996 to $18.32
in fiscal year 1998. 3 Similarly, while the number of trips taken
remained fairly stable for this period, the number of contractor
staff at the facilities decreased about 10 percent, increasing the
average number of trips per person. Figure 1 illustrates the
trends in travel costs, funding, staffing, and the number of trips
over the past 3 fiscal years.

2 Lockheed Martin Corporation has two subsidiaries at Oak Ridge
Lockheed Martin Energy Systems, Inc., which manages activities at
DOE's Y- 12 Plant, and Lockheed Martin Energy Research
Corporation, which manages the Oak Ridge National Laboratory.

3 Some contractors spent as little as $1.87 for travel per $1,000
of funding, while others spent as much as $33.73 per $1,000 of
funding. (See app. II.)

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Figure 1: Percent Change in Trips, Costs, Funding, and Staffing
Levels for DOE Contractors From Fiscal Year 1996 to Fiscal 1998

Legend FY = fiscal

The primary domestic and foreign destinations of DOE contractors
were Washington, D. C., and Russia, respectively. Most of the
travel conducted by contractors 96 percent was to domestic
locations. Trips to Washington, D. C., accounted for about 11
percent of all domestic trips. For fiscal year 1998 alone, 34 DOE
contractor sites reported making over 20,000 trips to Washington,
D. C., costing at least $20 million. 4 More than percent of these
trips were taken by five contractors. For example, Sandia National
Laboratory reported taking over 4,500 trips to Washington, D. C.,
in fiscal year 1998 or the equivalent of about 87 trips each week.
Albuquerque, New Mexico, which is the destination for such sites
as Sandia and the DOE Albuquerque Operations Office, was the
second most frequent domestic destination, accounting for 8
percent of the domestic

4 Total costs for travel to Washington, D. C., are understated,
since not all contractors reported costs by location, and two
Sandia National Laboratories and Lawrence Berkeley National
Laboratory were able to identify only airfare costs.

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trips taken. The remaining top destinations were Oakland/ San
Francisco, California; Las Vegas, Nevada; and Los Alamos, New
Mexico.

For foreign travel accounting for 4 percent of the travel
contractors most frequently listed Russia as the top destination.
For fiscal year 1996 to fiscal year 1998, DOE contractors took
3,829 trips to Russia, or about 15 percent of all foreign trips.
The second most frequent foreign destination was the United
Kingdom, which accounted for 6 percent of all foreign trips. The
remaining top foreign destinations were Germany, France, and
Japan.

Costs are increasing for both domestic and foreign travel, but the
greatest percent increase is occurring in foreign travel. Although
foreign travel represents only 4 percent of the trips, it
represents 11 percent of the travel cost. From fiscal year 1996 to
fiscal year 1998, foreign travel costs increased by about 53
percent. More frequent trips to Russia have significantly
contributed to this increase. The number of trips to Russia
increased 107 percent from fiscal year 1996 to fiscal year 1998,
and the cost of these trips has more than tripled. Costs increased
from about $2.2 million in fiscal year 1996 to about $6.7 million
in fiscal year 1998. According to contractor officials, one reason
for the increase in foreign travel, particularly to Russia, was
that there is a greater emphasis on nuclear nonproliferation work
abroad.

Most Travel Is Related to Facilities' Missions

DOE contractors reported that most travel to domestic and foreign
locations was for business purposes, that is, travel for purposes
related to the mission of the facilities. This category accounted
for about 70 percent of all travel for fiscal years 1996 through
1998. The next most frequent travel category was for attending
conferences. The remaining trips were for training, recruitment,
and other purposes. Figure 2 provides information on the major
travel categories reported by DOE contractor sites.

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Figure 2: Major Purposes for DOE Contractor Travel, Fiscal Years
1996- 98

The largest category business covered a wide variety of
activities. Our review of travel documentation showed that
employees take trips to meet with DOE officials, perform field
tests, conduct various reviews and inspections related to warhead
components, or perform other activities directly related to
accomplishing the contractor's mission. Some trips categorized as
business had dual purposes, such as to attend a conference and to
conduct meetings with industry.

Although it was generally difficult to determine the
reasonableness of such trips, we identified some business trips
that were not directly related to or needed for accomplishing the
facility's mission. For example, Los Alamos National Laboratory
funded a number of trips for its employees to obtain a master of
business administration degree, many of which were categorized as
business trips. In fiscal year 1998, 24 laboratory employees were
enrolled in courses held at the University of New Mexico's main
campus in Albuquerque about 100 miles from Los Alamos. These
employees made at least 380 trips to attend class. Various
expenses were incurred, including the cost of overnight hotel
stays, rental cars, and meals. For example, one laboratory
employee made 38 trips to Albuquerque in fiscal year 1998,
spending about $5,321. We brought this practice to the attention
of DOE officials, who subsequently determined that the cost of
travel and per diem while attending these classes is not
justified. These officials have

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determined that in the future, such costs for travel and per diem
will not be allowable under the contract.

Attending conferences accounts for the second most frequent travel
category. For the 3- year period from fiscal year 1996 through
fiscal year 1998, DOE contractors reported making 56,205 trips to
conferences about 15 percent of the categorized trips costing
about $59 million. However, this figure may be understated, since
we found that for at least one contractor, some conference trips
were categorized as business trips. The DOE Inspector General has
raised concerns about the large number of attendees at individual
conferences. In a December 1998 report, the DOE Inspector General
concluded that some conferences were attended by many DOE
contractor participants. 5 The report cited a May 1997 particle
accelerator conference in Vancouver, British Columbia, that was
attended by 520 DOE contractor employees (as well as 5 DOE
employees), resulting in travel costs of about $1 million. In
another case, 176 DOE and DOE contractor participants attended a
January 1996 human genome conference in Santa Fe, New Mexico. The
Inspector General also reported that, contrary to government
policy, DOE had no internal procedures to minimize the number of
conference attendees. In response to the Inspector General's
report, DOE issued requirements and responsibilities for
conference management on March 22, 1999. Among other things, the
requirements are intended to better ensure that the number of DOE
and contractor employees attending conferences is minimized.

Success in Reducing Travel Costs Limited

DOE is aware of the high costs being incurred for travel and has
developed cost- reduction goals to help limit these costs. A
substantial amount of these reductions was projected to be
obtained from the contractors. However, DOE has had limited
success. Although DOE surpassed its goal in fiscal year 1996, it
did not reach its annual goals in subsequent years because it did
not achieve the travel cost savings that it anticipated from its
contractors. To increase cost reductions in contractor travel, DOE
and the contractors will have to take additional actions. These
could include reducing the number of trips taken by contractor
employees, obtaining lower airfares for contractors, and adopting
best contractor practices for other allowable costs.

5 Inspection of the Department of Energy's Conference Policies and
Practices, DOE/ IG- 0433 (Dec. 1998).

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Cost- Reduction Efforts for Contractor Travel Not Fully Successful

DOE and the contractors have taken actions to reduce travel costs.
In implementing its travel cost- savings initiative, DOE first set
an overall cost- savings target and then allowed its contractors
to establish their own cost- savings measures. According to DOE
officials, the Department basically established an overall target
a reduction of about $35 million below the travel costs for fiscal
year 1995 and conveyed to each contractors specific targets
necessary to achieve the total reduction. However, DOE did not
establish measures to enforce these targets, nor was it
prescriptive as to how these cost reductions were to be achieved.

DOE contractors reported to us that they initiated a number of
efforts to reduce travel costs. These activities included greater
use of videoconferencing to reduce the number of trips and efforts
to reduce the costs of airline tickets. For example, some
contractors made block purchases of discount airline tickets,
increased the use of Saturday night stays for travelers when
feasible, and negotiated discounts on airfares. Furthermore, the
contractors consolidated travel services and negotiated discounts
on hotel rooms. However, while all five contractors that we
visited were undertaking some efforts to reduce travel costs, none
could provide us with an overall strategy or plan to achieve the
initiative's travel cost- savings targets. Instead, the level and
type of effort taken varied by contractor. For example, one
contractor reported that as travel costs neared the target,
contractor officials directed programs to limit their travel so
that their target would not be exceeded. Officials for another
contractor told us that they basically do not follow the targets.

The contractors have not done their part to meet the target of a
$30 million annual reduction in their travel costs. They met the
first year's reduction achieving a $39 million, or 15- percent,
reduction. Since then, however, contractor travel costs have risen
each year, and by fiscal year 1998, travel costs were only $16
million 6 percent below the levels for fiscal year 1995. However,
DOE is on track to meet its overall cost- savings goals only
because DOE's federal travel costs have been reduced significantly
beyond the expected $5 million annually. Federal travel costs have
been reduced each year, and for fiscal year 1998 represent a $15
million, or 32- percent, reduction from the level for fiscal year
1995. Figure 3 shows the amount of travel cost savings in both DOE
federal and contractor travel, as compared with the expected
savings targets.

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Figure 3: DOE Contractor and Federal Travel Cost Savings in Fiscal
Years 1996- 98

Dollars in millions Legend FY = fiscal year

Additional Actions Could Further Reduce Travel Costs

DOE contractors need to contribute a larger share of travel cost
savings in order for DOE to meet its overall travel cost-
reduction targets over the next 2 years. Cost savings
opportunities could result from improvements in travel management
the overall management of travel and trips taken and travel cost
control the reduction of costs incurred when on travel. Although
some cost- reduction actions are occurring by contractors in these
areas, additional efforts are needed to reduce the number of trips
and expand best practices for controlling travel costs.

Reduce the Number of Contractor Trips The quickest and potentially
easiest way to reduce travel costs is to reduce

the number of trips taken. During fiscal years 1996- 98, even
though the number of contractor staff has dropped and some
contractors reported that they increased the use of video and
teleconferencing, the number of trips taken by DOE contractors had
not been reduced. The number of trips was approximately the same
for each of the 3 years about 200,000 according to the data that
we obtained from contractors that were able to provide the number
of trips for that period. Furthermore, some individuals take many
trips. Some contractor employees have taken

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up to 52 trips in a single year, have been on travel status for
over 200 days in a year, and incurred travel costs as high as
$96,000.

To reduce the number of trips requires effective overall travel
management. Yet, there are few contractor management controls over
the number of trips taken, which may be reflected in the
contractors' overall lack of success in reducing the number of
trips. None of the facilities that we visited had established
managerial controls over the extent of travel or set cost targets.
In most instances, travel expenses were absorbed into a large
program budget, limited only by each specific program's
availability of funds. Although some managers whom we talked with
said that they do review proposed travel to ensure that it has a
programmatic purpose or limit attendance at conferences, they
generally rely on their staffs to take trips only when necessary.
In fact, the program managers responsible for approving travel
told us that they were unaware of DOE's cost- reduction targets
and therefore did not make specific efforts to reduce travel to
meet them.

Despite the contractors' reliance on their employees to limit the
number of trips they take, individual travelers stated that they
have little control over their travel. They said that much of
their travel is dictated by the needs of the organizations
providing the funding for their programs. Many staff whom we
talked with stated that they had to take trips, particularly to
Washington, D. C., that they felt were unnecessary. For example,
one senior official from Lawrence Livermore told us that despite
alternative options available, such as videoconferencing, he felt
compelled to travel to Washington, D. C., 15 times in the past
year to attend program meetings or risk a reduction in program
funding. Another frequent traveler said that DOE officials ask him
to travel to attend meetings, in the event that technical
questions might be asked, and if no such questions are asked, he
returns home without accomplishing much. In most cases, travelers
felt that they had to attend these meetings because they view DOE
as their customer and the sponsoring program in Washington wanted
their attendance. Contractor staff added that DOE often requires
them to travel so that DOE staff do not have to travel, thus
reducing DOE's travel costs while at the same time increasing
contractors' travel costs.

Reduce Airfare Costs In the area of cost control, the biggest
single element of travel costs is airfare. For example, about one-
half of the travel cost incurred by the contractor at Oak Ridge
was for the purchase of airline tickets. In contrast, airfare cost
for DOE federal employee travel is much lower about 35 percent of
travel costs. A major reason for this difference is the airfare

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discounts that the federal government obtains for federal
employees. The General Services Administration negotiates and
contracts for discount airfares with airlines and generally
obtains discounted, unrestricted fares. These discounts, however,
are not available to federal contractors, and the cost difference
can be substantial. For example, a typical coach- fare flight from
San Francisco to Washington, D. C. in September 1998 cost about
$200 for a federal employee but about $1,300, on average, for a
Lawrence Livermore employee.

Efforts to get lower airfare rates have met with limited success.
In the past, DOE contacted airlines and requested that they extend
their federal discounts to DOE contractors. However, only one
airline responded to DOE's request, and its proposal proved
unfeasible. Currently, the General Services Administration is
considering plans in 2000 to solicit proposals from airline
carriers for airfare rates for government contractors. However,
General Services Administration officials are not optimistic that,
if a solicitation for contractor airfares is made, the airlines
will respond favorably to it. We noted that contractors have had
some success in this area. They are negotiating discounts directly
with the airlines and have been successful in getting reductions
from full- fare rates.

Nevertheless, contractors could take additional actions to reduce
the airfare costs they are incurring. The most significant action
is obtaining nonrefundable tickets. A nonrefundable ticket is a
ticket for which the purchase price will not be returned if the
trip is canceled. However, the ticket can be exchanged for another
for a small additional charge. Nonrefundable tickets are generally
less expensive and although the savings will depend on the
individual circumstances such as destination, ticket availability,
ticket class, and the number of days the ticket is purchased in
advance they can be substantial. An internal audit report at
Pacific Northwest National Laboratory found that the savings on
nonrefundable tickets were typically around 50 percent. Specific
examples that we identified had also shown significant savings.
For example, at Livermore one employee purchased a $1,602
refundable airline ticket to attend a conference while another
employee purchased a $414 nonrefundable ticket the next day to the
same conference. In another instance, an employee purchased a $473
refundable ticket, also to attend a conference, while another
employee purchased a nonrefundable ticket a week later to go to
the conference for $255.

However, the usage of nonrefundable tickets varied greatly among
contractors. For example, Livermore's travel data showed that
about

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75 percent of the tickets purchased by travelers were
nonrefundable and Sandia estimated that about 65 percent of its
tickets were purchased on a nonrefundable basis. However, the
percentage for Los Alamos was significantly lower. Los Alamos
estimated that its nonrefundable ticket usage at less than 5
percent. The contractors' travel management staff said that
contractor employees are responsible for selecting the flights and
tickets that they want to use and that the contractor encourages,
but does not require, the use of nonrefundable tickets. They added
that employees often do not like to use nonrefundable tickets
because their travel plans frequently change or are canceled.

Reduce Other Allowable Costs Controlling other allowable travel
costs that contractor employees incur could further reduce travel
expenses. Consistent with its contract with DOE, each contractor
has its own allowable rates or criteria for costs that its
employees incur for hotels, meals, rental cars, and other
incidental expenses. However, in certain instances, costs allowed
by some contractors are more generous than those allowed by
others, as illustrated below:

 The contractors at Oak Ridge and Pacific Northwest National
Laboratory use federal per diem rates as a general standard for
allowable hotel costs. However, Lawrence Livermore and Los Alamos
do not and, instead, allow hotel rates that are deemed reasonable.
These allowable rates can be significantly higher than the federal
lodging rates. We found instances where Lawrence Livermore allowed
hotel costs in Washington, D. C., that were $284 per night; in
Orlando, Florida, that were $218 per night; in Monterey,
California, that were $303 per night; and in Las Vegas, Nevada,
that were $176 per night. In each instance, the federal hotel
rate, which other contractors follow, would have been over 50
percent less.  Both Lawrence Livermore and Los Alamos allow actual
daily meal costs of

up to $46 on any domestic trip. In contrast, the meal costs
allowed by other contractors were up to the rate under federal
travel regulations ($ 30 to $42 per day, depending on location)
or, in the case of Oak Ridge, up to $35 per day. Although not all
Livermore and Los Alamos employees use the full $46 allowance, we
did note instances where the full $46 meal allowance was charged
every day.  One contractor established a policy that allows
employees to stay in

higher- priced hotels when attending conferences but does not then
allow the travelers rental cars. However, we saw instances where
other contractors allowed their employees to stay in higher-
priced hotels for conferences and to obtain rental cars. We noted
one instance in which two employees from one contractor both went
to the same conference in

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Atlanta, stayed in a hotel costing up to $158 per night, and
obtained rental cars.

While some of these cost savings, when taken individually, may not
be substantial, they could add up to considerable savings when
taken together. For example, a reduction of just $100 on the
average trip to Washington, D. C., would amount to total yearly
savings of over $2 million.

Other, more fundamental changes in allowable costs could result in
greater travel savings. At least one contractor has established a
policy for other allowable costs that resulted in lower rates than
the federal per diem. The contractor at Pacific Northwest National
Laboratory charged DOE the lower of the actual travel costs
incurred by its employees or the federal per diem rate and shared
with DOE any cost savings that the contractor obtained below
federal per diem rates. During fiscal year 1998, the contractor
continued to follow this policy even though this savings incentive
program was not included in its contract with DOE. However,
according to contractor officials, the fiscal year 1999 contract
with DOE again does not provide for this program and it is
therefore not being continued.

Millions Spent Annually for Contractor Employees on Assignment to
Washington, D. C.

DOE spends millions of dollars on the costs associated with
management and operating contractor employees assigned temporarily
or permanently to Washington, D. C. In fiscal year 1997, over 800
contractor employees were assigned to Washington, costing $76
million for the employees' salary, living allowance, relocation
cost, and other related expenses. DOE's Office of Inspector
General raised concerns about the Department's awareness of, and
control over, these assignments, and DOE has taken actions to
reduce the number of employees on assignments and plans to reduce
it further. However, a concern remains about the payments that
contractors are making to employees on long- term temporary
assignments for their increased tax- related costs.

Contractor employees are often assigned to Washington on a
temporary either short- term or long- term (more than 1 year) or
permanent basis to provide technical expertise associated with the
stated mission of the employee's home facility. DOE requires that
contractor staff assignments to Washington are not to be for
providing administrative or management support, or performing
functions reserved for federal employees. Currently, some
contractor employees have been in

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Washington for over 5 years, and at least 14 contractor employees
have been there for over 10 years.

The costs of employees on assignments are paid by specific DOE
programs or, in some cases, are a general administrative expense
paid by DOE under the various contracts. The costs to DOE for a
contractor employee assigned to work in Washington can be
significant, ranging from $5,000 per month to $29,000 per month
(or as much as $348,000 per year). The costs for assignments
include not only the employee's salary and benefits and applicable
contractor charges but also expenses for moving the employee to
Washington and various living allowances provided for the employee
while on assignment. The living allowances are provided for
employees to offset the expenses that they incur during an
assignment. Each contractor has its own formula or methodology for
determining this compensation, but it is generally tied to per-
diem rates for the Washington area. Under these formulas, the
compensation can total $50,000 annually or more. Appendix III
provides details on the additional compensation provided for
employees on assignment for the five contractors we visited.

Concerns about the cost and number of employees on assignment to
Washington have been raised by DOE's Office of Inspector General.
In December 1997, the Inspector General reported that DOE was
spending at least $76 million annually for field contractor
support in Washington, D. C. 6 Furthermore, although the
Department was required to maintain an inventory of these
employees, it was unaware of the magnitude of contractor personnel
in Washington. The Inspector General identified over 800 field
contractor employees in Washington almost twice the number listed
in the DOE inventory. Moreover, the Inspector General determined
that, contrary to DOE requirements, many contractor employees were
providing support and administrative services.

DOE has since taken actions to reduce the number of, and improve
its controls over, contractor personnel assigned to Washington.
The Department has established a policy limiting the use of field
contractor employees in Washington and has reduced the number of
contractor employees on assignment there. According to a January
1999 DOE report to the House Committee on Appropriations, 7 the
Department reduced the number of employees on assignment to
Washington by 235 as of

6 Audit of the Department of Energy's Management of Field
Contractor Employees Assigned to Headquarters and Other Federal
Agencies, DOE/ IG- 0414 (Dec. 1997). 7 Department of Energy: Use
of Management & Operating Contractor Employees Supporting DOE in
Washington D. C., Use of Support Services Contractors (Jan. 1999).

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January 1998 through attrition, reductions, and reassignments, and
by an additional 59 as of January 1999. According to DOE, this
brings the level of contractor assignments down to 379. 8 DOE
expects to reduce the number of contractor employees assigned to
Washington by another 10 percent by the end of fiscal year 1999.
DOE is also drafting an order that revises the requirements for
the use and management of contractor employees.

Although DOE is addressing the issue of contractor employees in
Washington, D. C., and reducing their number, concerns still
remain about the amount of living allowance that employees are
receiving during their assignment. At four of the five facilities
we visited, the contractors have a two- tiered living allowance
that pays a higher amount for employees on temporary assignments
of 1 year or longer. This is because the living expenses provided
for employees become taxable when the assignment is longer than 1
year. Consequently, the contractors provide higher additional
compensation to offset the tax liability. For example, Los Alamos
provides its employees on assignments to Washington, D. C., for
longer than 1 year with (1) a basic living allowance of 80 percent
of the federal lodging rate for the Washington area and (2) an
additional 40 percent of the basic allowance, for a total of about
$4,200 per month in fiscal year 1998. Only one contractor we
visited Battelle at DOE's Richland, Washington location did not
follow this practice. However, Battelle officials said that they
are currently requesting that DOE approve a revised living
allowance that would include a higher rate for employees on
assignments that last longer than 1 year.

The allowability of these additional payments, however, is
unclear. A DOE Notice provides requirements on headquarters' use
of contractor employees. A specific objective of the notice is to
establish limitations on payments to employees whose assignments
exceed 1 year. The notice states that, for any assignment that
exceeds 365 days, payments to the affected employee for any
additional tax burden caused by the long- term assignment is
unallowable in accordance with the Department's acquisition
regulations. However, the cited acquisition regulations relate to
reimbursed relocation costs for permanent changes of duty not
long- term assignments.

DOE's Office of General Counsel recognizes that the Department
does not have a consistent and well- articulated position on
allowing contractors to

8 This total does not include certain contractor employees who
were included in the amounts identified by the Inspector General.
These employees are working for other federal agencies, assigned
under statutorily authorized intergovernmental personnel
agreements, assigned to the Nuclear Emergency Search Team, or
working under the Yucca Mountain contract based in Washington, D.
C.

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pay for employees' additional taxes caused by long- term
assignments. According to an Office of General Counsel official,
there are valid arguments on both sides of the issue. Much depends
on (1) the interpretation of contract provisions, or the absence
of such provisions, that would make the payments allowable or
unallowable and (2) whether, after a certain period of time, a
temporary assignment becomes tantamount to a permanent relocation
and therefore the relocation rules should apply. According to the
General Counsel official, the issue of long- term assignments of
contractor employees to headquarters has top- level attention and
concern within the Department and is being closely monitored by
DOE management.

Conclusions The lack of substantial travel cost reductions from
contractors stems largely from a lack of overall travel management
by DOE and its

contractors. In this regard, DOE has set targets for its
contractors to achieve but has not enforced them or ensured that
its overall contractor travel cost- savings target was met. For
its part, DOE contractors were aware of the targets, but many
contractors did not translate this into an overall strategy or
plan to achieve lower travel costs. Furthermore, consistent
practices for reducing costs have not been put into place. In our
view, it is difficult to justify why some contractors allow their
staff to stay in high priced hotels, purchase higher priced
airline tickets, or charge higher meal costs when others take
stronger actions to minimize such costs. Similarly, the payments
that contractors are making to employees on long- term temporary
assignments for their tax- related costs are also being
implemented inconsistently, and the allowability of such costs has
not been resolved.

A number of relatively simple ways are available to achieve
substantial cost reductions. However, a commitment by both DOE and
the contractors will be required to reduce the number of trips,
reduce the cost of airfares, and reduce other allowable travel
costs. This means that DOE, as an organization, needs to make
clear what cost reductions are expected, contractors need to
improve both their travel management and travel cost control, and
DOE program areas will have to lessen their travel demands on
contractor staff. Furthermore, achieving cost reductions will
require that DOE develop clear policies and guidance on the
travel- related costs it will deem allowable.

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Recommendations To reduce contractor travel costs, consistent with
DOE's cost- reduction targets for travel, we recommend that the
Secretary of Energy set travel

cost targets for each contractor and require that contractors not
exceed these targets. The target amounts should be conveyed to
both the contractors and DOE program areas for a combined
commitment to ensure that the cost reductions are achieved.
Furthermore, to implement more consistent travel cost
reimbursement practices, the Secretary should establish clear DOE
policy on allowable costs both travel costs and the reimbursement
of tax- related costs and, when new contracts are let, incorporate
the policy into the contracts.

Agency Comments and Our Evaluation

DOE agreed that there are additional opportunities to achieve
travel cost savings and generally concurred with the report's
recommendations. With regard to the first recommendation, DOE
stated that it will establish travel cost targets, in
collaboration with program offices and contractors, to ensure a
combined commitment to cost reductions. Furthermore, DOE will
promote alternatives to travel and will heighten headquarters and
field managers' awareness of the cost of contractor travel to
headquarters. However, DOE did not specifically agree to require
that contractors not exceed its travel cost targets. In our view,
firm targets are necessary to provide DOE with the control needed
to ensure that travel costs are effectively managed and that its
savings objectives are achieved; consequently, we continue to
recommend that DOE require that its contractors not exceed the
targets that it establishes.

In commenting on the second recommendation to establish clear DOE
policy on allowable travel costs DOE said it will evaluate the
merits of establishing standard rates, such as federal per diem
rates, for the reimbursement of contractor travel. DOE also agreed
to determine the appropriate treatment of the tax consequences of
extended temporary assignments and promulgate departmental
guidance, which will be incorporated into new contracts. The
complete text of DOE's comments is included as appendix IV.

Scope and Methodology

To determine the amount of travel incurred by DOE contractors, the
primary destinations of this travel, and the travel purposes, we
collected data from the 34 management and operating contractors
identified in DOE's Strategic Alignment and Downsizing Initiative.
We requested data on the cost of travel and the number of trips
taken in fiscal years 1996 to 1998, as well as the most frequent
travel destinations in each of those fiscal years.

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We also requested information on the purpose of travel, as well as
each contractors' staffing and funding levels during fiscal years
1996 to 1998. We did not independently verify the data that the
contractors provided. We also compared the data with other
information available at the five sites we visited the Oak Ridge
National Laboratory and Y- 12 Plant in Oak Ridge, Tennessee; the
Hanford Reservation in Richland, Washington; the Lawrence
Livermore National Laboratory in Livermore, California; the Los
Alamos National Laboratory in Los Alamos, New Mexico; and the
Sandia National Laboratories in Albuquerque, New Mexico. Such
information included contractors' internal self- assessments of
their data and travel systems and internal audit reports. In
general, we found that the data were reliable for the purpose for
which they were used.

At each of the facilities we visited, we reviewed pertinent
contracts, regulations, and guidance that detailed the controls
over travel costs and the allowability of such costs. We obtained
and reviewed internal audit reports on travel costs and the
propriety of these costs. We also judgmentally selected contractor
employees' travel vouchers for review to determine if the costs
for airfare, hotels, rental cars, and other expenses were
appropriate. We met with travel officials at each facility and
discussed with them the management of travel costs and the efforts
being taken to reduce these costs. Finally, we interviewed
travelers, supervisors, and managers to obtain their perspectives
on the amount of and need for the travel taken and on the methods
for reducing these costs.

We obtained and reviewed documentation from DOE on its Strategic
Alignment and Downsizing Initiative and its plans for achieving
the initiative's cost- savings goals. We discussed with officials
from the Office of the Chief Financial Officer and the Office of
Management and Administration the Department's efforts to reduce
contractor travel costs and obtained their viewpoints on the
contractors' control of travel and efforts to meet the current
cost- reduction targets.

To examine the travel and other costs associated with contractor
employees in Washington, D. C., we obtained information at each
facility that we visited on the rationale and procedures for
approving and conducting off- site assignments and obtained
listings of the individuals on such assignments. We also obtained
information on the additional compensation provided for employees
while on assignments. Furthermore, we discussed contractor
assignments to Washington, D. C., with DOE's Office of General
Counsel and with DOE officials in the Office of Management and
Administration who are responsible for maintaining the

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