Mike Nartker
WC Monitor
12/12/2014
In a move welcomed by potential bidders, the Department of Energy has dropped plans to include a cost cap in the new Idaho Cleanup Project (ICP) Core contract. The draft Request for Proposals for the new contract had included a provision that would have made contractors responsible for all costs going forward once the target cost for the new contract had been exceeded by $150 million. In a notice issued Dec. 5, though, DOE said that language stating, “if the Contract Performance Ceiling is exceeded by $150M in allowable costs, then the Contractor shall pay all costs of continued work for cost overruns using a share ratio of 0%/100% (Government/Contractor),” will be removed from the RFP.
The proposed cost cap had generated significant concern among potential bidders, and was one of the main provisions in the draft RFP for the new Idaho contract that most major DOE contractors had indicated would prevent them from bidding on the work. While DOE’s plan to remove the cost cap was cautiously greeted this week by industry officials, some continued to express concern over other provisions in the draft RFP. “I saw their statement as a simple one liner and while I trust they will modify the cost cap, there hasn’t been a regime change,” one industry official said, questioning DOE’s continued plans to make all fee on the new contract provisional until the end. “While the risk profile isn’t severe, the predictability of profits is still a guessing game and therefore difficult to sell when you’re laying out cost of the proposal, probability of win and then expected profits if you win.”
DOE Officials Credit Industry Feedback for Removal of Cap
Senior officials in DOE’s Office of Environmental Management this week said the cost cap will be removed from the new Idaho contract due to industry feedback. “A part of every new procurement is the process of working with industry to get industry’s input, get the contractor and potential bidders’ input on it, whether it be through written input and through the onsite meetings and even the one-on-ones we have with the companies after the draft information comes out. So the bottom line is, we just factored all that into our review of the procurement and in considering many things and discussing it internally we felt this was the right thing to do for the government,” acting Assistant Secretary of Energy for Environmental Management Mark Whitney told WC Monitor this week.
At an EM business opportunity forum held late this week, EM Deputy Assistant Secretary for Acquisition and Project Management Jack Surash told industry officials, “We want to shift and allocate risk to you all, properly. On this particular deal we were not able to fix price it. … We floated out a target cost and we took your feedback and took another step to address it.” He noted, “This applies to this deal only.”
DOE Planning for Heavy Key Personnel Penalties
Also this week, DOE outlined plans to include heavy penalties for the early departure of key personnel on the new Idaho contract. DOE is proposing a fee reduction of $1 million for the early departure of a Program Manager ahead of a two-year commitment, according to a new section of the draft Request for Proposals for the new Idaho contract released this week. Contractors could also face fee reductions of $750,000 for the early departure ahead of a two-year commitment for the other two planned key personnel positions for the new contract—ESH&Q Manager and Business Manager.
Notably, the proposed key personnel penalties for the new Idaho cleanup contract are significantly greater than those contained in a number of other cleanup contracts awarded in recent years. For example, DOE’s most recently awarded major cleanup contract—for deactivation services at Paducah—only calls for a fee reduction of $250,000 for the departure of a Program Manager ahead of a two-year commitment, and reductions of $125,000 for the early departure ahead of other key personnel. The proposed fee reductions for the new Idaho contract also are significantly higher than those included in the current contracts at the Idaho site. CH2M-WG Idaho, which is responsible for the bulk of the current cleanup work, does not appear to have any key personnel-related penalties in its contract, while Idaho Treatment Group’s contract to manage the Advanced Mixed Waste Treatment Project calls for a reduction of $100,000 for the departure of a Project Manager ahead of a two-year commitment and reductions of $25,000 for the early departure of other key personnel.
Contract Already Had Incentive for Key Personnel Staying Through Contract Duration
One industry official questioned this week DOE’s plans to include such strong key personnel penalties in the new contract, noting that the draft RFP also contains a performance incentive fee the contractor can earn if all key personnel remain for the duration of the five-year contract. “Although referred to as a ‘Performance Incentives,’ in reality, each of the PI clauses are additional penalties. If you assume that the total achievable fee over the five-year term is $100 million, the contractor would lose $3 million if just one of the Key Personnel leaves before completion of the contract,” the official said. “My personnel view on the key personnel issue is that rather than impose additional penalties, DOE should evaluate the issue as part of each contractors past performance assessment.”
The industry official went on to say, “As you can imagine, imposing penalties of this magnitude create numerous unintended consequences. For instance, think of the leverage Key Personnel have over their employer knowing that their departure could cost the contractor $4 million. If the personnel selection criteria is limited to those managers that are willing to commit to five years, are we ensuring the client that our best candidates are being proposed? Does it even make sense to keep the entire management team through the duration of the contract?”
