Kenneth Fletcher
WC Monitor
6/13/2014
As the Department of Energy pushes for more firm-fixed price contracts and aims to better define which efforts fall under regulations for capital asset projects, the move has led to some concern within the Department. DOE Office of Acquisition and Project Management Director Paul Bosco is working on new contracting requirements that aim to improve the success rate of DOE projects. But Savannah River Site Manager Dave Moody said this week that the site is discussing potential issues with Bosco’s office. “What are some of the new requirements under development that cause me the most concern?” Moody said at a meeting the Energy Facility Contractors Group held in DOE headquarters. “I’m not sure I totally agree with Paul in where we are in operating and capital projects and I’m really concerned with one size fits all as we’re moving in that direction. I believe that it is really going to tie the site’s hands.”
After confusion at some Environmental Management projects, the Department is working to better define which projects are operations projects and which are capital assets, Bosco said at the EFCOG meeting. The capital asset projects must comply with more restrictive contract requirements under DOE’s Project Management Order that aim to control cost growth and schedule delays. “We are very close to coming up with a Departmental framework in EM that clearly defines operational activities versus capital assets. … The ops-cap issue hopefully is going to be resolved this month and we’ll have a definitive framework by which we all will categorize an operational activity versus a capital asset,” he said, adding, “There were different opinions in specific instances there where a couple would call it an activity while others would call it a capital asset.”
Given that DOE’s big capital construction projects are “hemorrhaging cash,” Bosco emphasized that tighter controls are needed. “I can’t give a brief without saying I love firm-fixed price. By the way … it does not pertain to M&O contracts. M&O contracts are cost reimbursable, that’s a fact, it will always be that way and it makes sense to do that,” Bosco said. One advantage of the firm-fixed price approach is that contractors do not need to have an Earned Value Management System, Bosco said. “I also like firm fixed price for a whole bunch of other reasons to include it’s a forcing function to make sure we our feds get our requirements definitions right, definitive, accurate and we don’t change them. What a novel concept. And I do understand we build things where we can’t get to that point. Cost reimbursable is a fact of life.”
Moody: Issue ‘Keeps Me Up at Night’
But Moody said that DOE may not be close yet to being in agreement on these project management issues. “This is one of the few things that keeps me up at night,” Moody said. A challenge is that funds may be taken up by management reserve and contingency in tight budget times, when funding cuts are leading the site to miss regulatory compliance milestones. “In very tight budget times when you have insufficient funds to meet compliance milestones you really have to ask yourself is the performance on these projects that are smaller in scope adequate? Are you managing that adequately? If you are, then you would much rather be reinvesting those dollars into meeting those compliance commitments. The bottom line is … one size fits all is still not going to empower you or make you manage those projects adequately and so that’s the real task.”
An example could be remediation of a landfill. For a firm fixed price contract, even if a lot is spent up front on characterization there would still be uncertain scope. Contingency or reserve funds would subsequently need to be very high. “I’m not sure I have the total answer, but there are certainly some environmental remediation projects and some D&D activities that don’t suit themselves very well to this one-size-fits all approach,” Moody said. “So I would encourage us to open that dialogue even further. This is the one that causes me perhaps the most heartburn.”
Surash: Procurements Could Mix Firm Fixed Price and Cost Reimbursable
The Office of Environmental Management will attempt to make procurements going forward fixed price or use a fixed unit rate, EM Deputy Assistant Secretary for Acquisition and Project Management Jack Surash said this week. “So that should be our assumption on the way we are going to procure. Now that being said, you’ve got to look at the statement of work and each procurement and we may end up with a procurement where you actually have a mixture of fixed price and cost reimbursable work,” Surash told WC Monitor on the sidelines of this year’s DOE Small Business Conference, held in Tampa, Fla. “It all depends on the circumstances. Is the statement of work sufficiently mature and predictable? Really, quite frankly it’s also the availability of funds, because if you have a fixed price you really need to know what our funding outlook is.”
Surash explained, “The last thing you want to do is fixed price work that cannot be properly priced or projected or work that you are not sure that you can fund. Where you have those sorts of situations you’d probably want to use a cost reimbursable contract.”
