Chris Schneidmiller
WC Monitor
9/25/2015
The Department of Energy’s Office of Environmental Management (EM) is striving to fit the right type of contract onto the right remediation projects, but that does not necessarily mean fixed-price agreements that are seen as a way of saving taxpayer money, senior DOE officiald said recently.
“Fixed price is not the answer to everything in the complex. In fact, a significant amount of the work, a majority, cannot be fixed price,” Mark Whitney, EM principal deputy assistant secretary, said at a Sept. 17 Capitol Hill panel discussion sponsored by the U.S. Nuclear Infrastructure Council. “It’s not good for the taxpayers, it’s not good for EM, and it creates an additional risk that we don’t want to take.”
The vast majority of EM defense nuclear waste remediation projects are handled through cost-reimbursable contracts under which the supplying company recoups all of the money it spends on the project as long as DOE determines the expenses are allowable, allocable, and reasonable. That includes any cost overruns, requiring extra money from EM and, by extension, the taxpayer.
However, EM since 2009 has issued about $1.1 billion in fixed-price contracts, which both ensures the office is not put on the spot for unanticipated expenses and offers the companies an opportunity to make extra profit if they can complete the project under budget. That, though, is a small amount compared to the roughly $25 billion in contracts EM has issued in that time, Jack Surash, EM deputy assistant secretary for acquisition and project management, said in an interview this week.
While then-Deputy Energy Secretary Dan Poneman in 2012 issued a project management directive that called on officials to first consider employing a firm-fixed-price contract for DOE projects, Surash said the opportunities are limited when it comes to EM projects. He emphasized the size of the contracts issued by the office – regularly in the $1 billion to $2 billion range – for highly sensitive work involving construction or decommissioning and demolition of facilities that contain chemicals and radiological material.
“This nuclear work is complicated and it’s not always predictable,” Surash said. “If you try to transfer that risk to a contractor … they’re going to raise their cost a whole lot. It works better that we self-insure ourselves at that point.”
Paul Grimm, chairman of NIC’s EM Task Force, said fixed-price contracts are largely useful only for projects where the scope of work is well established and not likely to change. Cost-reimbursable contracts, meanwhile, are better for attracting quality companies and aligning the expectations of the government and industry managers. “Either way the government site officials always try to make the contractor ‘do more’ than what was expected during bids,” he stated by email this week.
In his 2012 directive, Poneman acknowledged concerns within the department about fixed-price contracts “given the unique and unpredictable nature” of DOE’s work. He countered, though, that “improved upfront planning and requirements definition, as well as appropriate scoping of the contract to clearly-defined, will allow for the greater use of firm-fixed-price contracting.”
Whitney said EM is focused “on having the right type of contract for the right type of work. Fixed-price contracts have tremendous value for the taxpayer if they are for the right scope of work. So making sure that we don’t try to put the wrong scopes into wrong contracts. Having the resources necessary to administer contracts.”
Surash said EM would like to use more cost plus incentive fee contracts, which are effectively cost-reimbursable contracts that feature a target expense and have been used in projects including Rocky Flats and the Savannah River Site’s Salt Waste Processing Facility. The contractor in such cases shares in the revenue from any expense underrun.
Both Whitney and Surash acknowledged EM’s ongoing troubles with bringing in its contracts on time and on budget. The Government Accountability Office’s latest “High-Risk List” in February again featured contract management as a key area of concern for EM and the DOE’s semiautonomous National Nuclear Security Administration. In 2014, “EM and NNSA struggled to stay within cost and schedule estimates for most of their major projects,” the report says.
Whitney said contracts are one key area EM aims to improve as it develops its five-year plan, which would be followed by a 10-year plan and ultimately a life-cycle plan for its mission. “One thing that we really are looking at over the next several months to try to improve upon, recognizing where we have weaknesses, is in the contracting period area, particularly the pre-award acquisitions, so I’m talking everything from communications pre-award, improving that,” he said. “We try to do a lot there, but understanding that some of the things that we’ve been doing haven’t necessarily hit the mark.”
Grimm, during last week’s panel, urged Whitney to look at increased communication with the industry to give contractors time to hire appropriate managers and prepare a plan to earn a profit and convince the board well in advance of the value of pursuing the project. “ I also suggested he provide the program’s early intentions on which site contracts he intends to bid and in what scope forum,” he said this week “This again allows industry to better plan for a detailed proposal.”
Surash said communication with industry has been one of his priorities, as demonstrated by a series of quarterly business opportunity forums, the next of which is scheduled for Oct. 1 at DOE headquarters in Washington, D.C. He also occasionally schedules open-door days to meet with industry representatives.
