Todd Jacobson
NS&D Monitor
3/28/2014
The Department of Energy has begun discussions with the companies that run Los Alamos and Lawrence Livermore national laboratories about reducing the fee they can receive, acting National Nuclear Security Administration chief Bruce Held confirmed this week. Speaking on the sidelines of a March 26 Senate Armed Services Strategic Forces Subcommittee hearing that was postponed, Held noted that the discussions were in their preliminary stages but he characterized them as “pretty productive.”
In February, Held said DOE/NNSA was looking to move toward more of a “public interest” model of management for the nuclear weapons laboratories and away from the high fees paid to Bechtel and University of California-run contractor teams at Los Alamos and Livermore. “Conversations have been very, very good, really good,” Held said this week. “That’s not getting into the details but starting to frame the issue of what we’re trying to achieve. My strong feeling is these institutions exist to serve the public interest. They do not exist for profit maximization. For the M&Os that run them we have to provide them reasonable compensation … but they are not profit-maximizing organizations.”
The contractors that run Los Alamos and Livermore currently earn about 3 percent of the lab’s budget in fee, while most Office of Science labs—and Sandia National Laboratories contractor Lockheed Martin—make around 1 percent. Held said he expects Energy Secretary Ernest Moniz to ask the Secretary of Energy Advisory Board to take up the lab management issue. “I think people are in good faith thinking, if we’re going to ask for fee reductions they’re probably going to ask for something related to unallowable costs or risks or liability,” Held said. “The question is what is a reasonable package of things we can do.” High Fees a Thing of the Past?
Nearly a decade ago, the NNSA recompeted the contracts for Los Alamos and Lawrence Livermore national laboratories, awarding contracts to teams run by Bechtel and the University of California. The high fees associated with the contracts were designed to reflect the risk and challenges involved in fixing a myriad amount of problems at the labs, which had been besieged by security and safety lapses. In Fiscal Year 2013, that meant up to $66.9 million could have been earned at Los Alamos and $47.4 million could have been earned at Livermore, compared with $26.8 million at Sandia National Laboratories.
Over the years, the high fees have led some to question whether the NNSA was getting its money’s worth at the labs, and in February Held for the first time suggested the agency was interested in moving to a different model. “The laboratories exist to serve the public interest and not to make profit,” Held said at the time. “That will affect our structure of the contracting mechanisms. They are legally contractors, but having lived at one of those laboratories for close to a decade, that’s not what motivates people to work there.”
DOE opened discussions with Bechtel and UC shortly after Held’s announcement, with top Bechtel and UC leaders meeting with Moniz and senior DOE and NNSA officials. “Everybody is committed to the idea of the laboratories as being national assets; everybody is committed to that, so we have to just find a kind of commonality of approach that actually implements that,” Held said. He said the “whole panoply of the kind of social contract of what we would have to do” has been under discussion. “It’s getting back to the idea of why do these laboratories exist and what is our responsibility to maintain these institutions, which are pretty incredible institutions, for future generations. This is not about short-term profit. This is not about my benefit or their benefit. This is working together to actually maintain institutions that are vital to this country’s national security and make sure they’re healthy for the next generation.”
The Sandia Test Case
While contracts at Livermore and Los Alamos are signed and could stretch on for more than a decade, Sandia is expected to be the first test case of the agency’s new approach to contracting. The agency said last week that it was extending Lockheed Martin’s contract to run Sandia for two years (with an option for a third year) while it prepares to compete the laboratory contract. Sandia’s contract currently expires at the end of April. “This gets caught up in what is the model we’re trying to create,” Held said. “Whereas the Los Alamos and Livermore contracts have a couple more years to run, here’s an opportunity where we can actually sit down and talk and start talking about moving into reality. Will we get there in one fell swoop? I don’t know. Will we get there at all? Who knows?” He said the goal with the Sandia contract would be to “see if we can explore the possibility if we can get a model that’s a win-win for everybody and maintains these institutions.” He also confirmed that the agency planned to compete the lab contract in its entirety, and not combine portions of it with other contracts, as the agency had been contemplating.
Held acknowledged, however, the potential logjam of contracts that will be up for bid at the same time. In addition to the Sandia contract, the Kansas City Plant contract expires in 2015 and the Nevada National Security Site contract expires in 2016, raising questions about the ability of the NNSA to compete them all at once. “We’ll find the bandwidth,” Held said. “We’re going to have to manage that and recognize that, but we’ll find it. I’m pretty confident about that.” Held acknowledged that the agency would likely to have to stagger the procurements. “Maybe and probably,” he said. “But no hard decisions. We recognize there’s the issue out there, but do we have a hard decision on that yet? No. But we recognize it’s out there.”
