GAO: Energy contracts mismanaged

The Government Accountability Office has uncovered major problems with contract administration at the Energy Department, which spends about 90 percent federal of its $23 billion annual budget on contracting-more than any other civilian agency.

The report (GAO-05-123), which examined 33 contracts, found mismanagement of performance-based contracts, dependency on vendor data for evaluating their performance, and a lack of training among Energy's acquisition workforce. All of the contracts were valued at more than $100 million.

The Energy Department embedded performance incentives--financial rewards for good work--into 15 of the 33 contracts without including a clause that limited those rewards if the contract exceeded expected costs. That failure violates the Federal Acquisition Regulation as well as Energy's own acquisition rules, GAO said.

Excluding cost limits has the effect of "giving contractors an incentive to pay limited attention to costs when working toward meeting technical or performance levels in order to earn a higher award fee," the report stated.

Energy failed to validate performance data from contractors on 30 of 33 contracts. The report said the department should do so immediately. "Without such actions, the department is totally dependent on its contractors' self-reports on their performance," the report said.

GAO singled out earned value management, a method of contract evaluation that has been growing in popularity under new guidance from the Office of Management and Budget, as a possible solution to Energy's problems.

The auditors urged Energy to train contracting officers in the technique, which they said "is needed to ensure that contractors' project management systems are providing accurate performance data."

In addition, GAO recommended that the department identify its best contracting practices and lessons learned from previous experience, and include those in its acquisition guide.

Energy's contracting troubles long have been the focus of media and watchdog attention. A 2002 GAO report found that projects frequently doubled in cost, and an internal Energy report that same year pointed to reliance on uncorroborated contractor data when evaluating contract progress. Energy contract management has been on the GAO's high-risk list since 1990.

One of the department's best-known contractors, the University of California, was fined $5 million earlier this year for mismanaging Los Alamos National Laboratory, run by Energy's National Nuclear Security Administration.

While the department generally agreed with GAO's recommendations, Susan Grant, Energy's chief financial officer, said the department already had introduced measures to address the identified problems. She also said that every agency has to rely on contractors' own data to some degree, but that Energy is taking steps to validate the information they provide.

Rep. Tom Davis, R-Va., who requested the report, said that while Energy has taken steps toward better management, he still is concerned about waste and mismanagement.

"Without the assurance of reliable data from these systems and the validation of cost and technical baselines in advance of contract awards, DOE cannot save money, ensure good performance or reward contractors for exceptional performance," he said in a statement.