Todd Jacobson
NS&D Monitor
5/16/2014
In a move that could foreshadow its strategy for a new Sandia National Laboratories contract, the National Nuclear Security Administration is upping the fixed fee lab manager Lockheed Martin is guaranteed under the contract in a two-year extension that took effect May 1. Details of the contract were released for the first time late this week, revealing that Lockheed Martin will earn $25 million a year in fixed fee, $6.7 million more than it could have previously earned per year. At the same time, the amount of performance, or at-risk fee, has been reduced to $2.8 million starting in FY 2015, down from $9.8 million during FY 2014. The two-year extension runs through April 30, 2016, and there is an option for a third year. Lockheed will earn a prorated portion of the $25 million a year in fixed fee for the first seven months of FY 2016, $14.6 million.
It’s unclear if the fee change is a signal of things to come at the NNSA’s nuclear weapons laboratories. Former acting NNSA Administrator Bruce Held earlier this year made no secret of the fact that Energy Secretary Ernest Moniz wanted to reduce the fees earned by contractors running the labs and move toward more of a “public interest” model. The Sandia competition was expected to represent the first test of the new approach, but NNSA officials this spring approached Bechtel and the University of California, the contractors that run Los Alamos and Lawrence Livermore, about the “public interest” model and lowering the fees earned at the labs. Held has suggested that the high fees paid at Los Alamos and Livermore aren’t a motivator of performance at the labs, but industry officials have suggested that if the agency wants to reduce the fee at the labs, they would have to also reduce the risk to the contractors.
Where’s the ‘Hammer’?
Sandia National Laboratories declined to comment, referring questions to NNSA. The NNSA did not respond to a request for comment. One industry official suggested that the increase in fixed fee represented a compromise between the NNSA and Lockheed Martin. For years, Lockheed Martin had pushed for a long-term extension and an increase to Sandia’s fee to bring it more in line with higher fees at Los Alamos and Lawrence Livermore national laboratories, and an industry official suggested Lockheed might have accepted the lower fee and short-term extension with lesser risk in the form of the increase in fixed fee. “Lockheed drove the high fixed fee to take the risk out of the equation,” the official said. “They didn’t get what they wanted, which was higher fee, but they got higher surety.”
The official suggested that Congress and the White House Office of Management Budget would object to the rebalanced fee at Sandia, leading to a different approach when the contract is competed. “It makes no sense,” the official said. “The Hill is going to go crazy. OMB is going to get pissed off. Once that plays out you’ll see a different outcome in the competition.” Another industry official questioned how the NNSA would be able to hold contractors accountable. “How can you bring the hammer down now?” the official said. “The argument is performing for money. You’re going to get the money no matter how you perform so therefore you’re doing it in the public interest? I’m not sure that computes.”
Justification Reemphasizes Competition Plans
The NNSA this week also released the justification for extending Lockheed Martin’s contract to run Sandia National Laboratories, and the document makes it clear that the agency is planning to eventually compete the lab contract. In the Justification for Other than Full and Open Competition, the NNSA reiterated comments previously made by Moniz that the extension would provide time for the agency to react to several governance studies currently underway. “These independent studies on governance of the nuclear security enterprise and the DOE laboratory system are anticipated to be completed within the next 12-18 months,” the NNSA said in the justification. “Consequently, the Department of Energy senior leadership has concluded that the Department needs a period of time in order to benefit from the resulting recommendations and to evaluate improvements in the effectiveness, efficiency and the way in which DOE manages all its FFRDCs.”
The agency said the extension would also allow NNSA to “negotiate to obtain its intermediate acquisition objectives, and allow time as necessary for a full and open competition that takes advantage of the efficiency, effectiveness, and governance initiatives currently being defined by the Administration and Department with regard to all Departmental National Laboratories.”
