One Lockheed Martin affiliate reaped more than $60 million in unallowable profits over four years under a dubiously permissible information technology subcontract with another Lockheed affiliate at the Department of Energy’s Hanford Site in Washington state, the DOE Inspector General’s Office said in an audit report released Wednesday.
The internal DOE watchdog also warned the episode had created at least the appearance of a conflict of interest at the former plutonium production site, where Lockheed Martin executives offered DOE a $2 million settlement to drop the matter of the possibly impermissible charges.
In the report, the IG said Mission Support Alliance, the Lockheed-led prime contractor for support services at DOE’s long-running Hanford cleanup near Richland, Wash., was supposed to handle information technology services for the site’s main cleanup contractors under a 2009 mission support contract from the agency’s Richland Operations Office. Including options, the deal is worth up to $3.6 billion through May 25, 2019.
Rather than provide the services itself, the prime dealt the work to Lockheed Martin Services Inc. in January 2010, giving the other Lockheed affiliate a five-year, $232 million subcontract for which no other company had a chance to compete.
Lockheed Martin Services subsequently, and in apparent violation of the Federal Acquisition Regulation that governs federal purchasing, priced profit into information technology support services it provided from 2010 through 2014 for both CH2M Hill Plateau Remediation Co. and Washington River Protection Solutions — respectively, DOE’s primary central plateau cleanup and tank farm contractors at Hanford.
Whether those fees were allowable hinges on whether Lockheed Martin Services provided a commercial service, as the Federal Acquisition Regulation defines that term. In 2010, before the subcontract went out, the Richland Operations Office told Mission Support Alliance these information technology services were noncommercial, and therefore had to be provided at cost.
For reasons the IG’s report did not illuminate, the message did not get across.
The Richland Operations Office did eventually notify Mission Support Alliance it planned to claw back the $60 million or so in fees paid to Lockheed Martin Services. The agency and Mission Support Alliance are now negotiating whether, and how, that will happen in a dispute resolution process before the U.S. Civilian Board of Contract Appeals.
A Mission Support Alliance spokesperson said Wednesday the company is “working with DOE on the disallowed fee.”
Besides letting its affiliate book the dubious profits, the Inspector General’s Office said Mission Support Alliance never asked permission to subcontract any information technology work in the first place, as it was required to do, and that Lockheed Martin Services overcharged DOE for services rendered under that contract.
In addition, the subcontract was written in such a way that DOE had little insight into what it was actually paying for, the IG’s report says. The agency echoed that complaint in its official response to the investigation, which was appended to the report and signed by Monica Regalbuto, DOE’s assistant secretary for environmental management.
Meanwhile, the IG found there is at least the appearance of a conflict of interest between Mission Support Alliance and Lockheed Martin Services.
According to the the report, several Mission Support Alliance employees who are also senior Lockheed Martin executives attempted to resolve DOE’s claims of unallowable profits by offering the agency a $2.2 million settlement to drop the matter.
Under federal contracting rules, these people “were specifically excluded from making strategic and tactical decisions on the management of [Mission Support Alliance’s] contract with the Department,” the IG said. “However, we determined that some of these excluded employees were directly involved in discussions or negotiations with Department officials on a proposed settlement agreement,” the report reads
DOE ultimately did not accept the settlement, the IG said. In all, there are six Mission Support Alliance employees who were supposed to be excluded from contract decisions, though not all of them were involved with the proposed settlement, according to the IG.
The Mission Support Alliance spokesperson declined to comment on the appearance of a conflict of interest.
The DOE IG findings were published in an audit report titled “Management and Oversight of Information Technology Contracts at the Department of Energy’s Hanford Site.” The IG investigated the contracts at issue between August 2014 and April after the watchdog “received a complaint expressing concerns with the Department’s oversight of IT functions at Hanford,” according to the report.
