Contract Reforms Full Speed Ahead

nergy Department employees know a lot about change. Since President Clinton took office, they've seen two Secretaries come and go, undergone significant downsizing and launched major procurement and other management reforms.

By the end of fiscal 1999, the Strategic Alignment Initiative downsizing plan, launched by former Secretary Hazel O'Leary in 1995, is expected to bring employment at DOE down to 10,613 employees, nearly 3,000 fewer people than at the May 1995 high point. The contractor staffs operating and managing DOE sites in 35 states are expected to shrink to about 43,000, 29 percent less than in 1992.

At the same time, the agency will be deep into its new missions of promoting scientific research, overseeing the country's nuclear weapons inventory and cleaning up former weapons production sites. That's a far cry from the days when DOE functioned primarily as the nation's manager of nuclear weapons.

"When you go through periods of rapid change like this, it is a rather daunting exercise," says Richard Hopf, deputy assistant secretary for procurement and assistance management at DOE. "It creates a lot of angst. It creates a lot of excitement. It creates a lot of criticism. And hopefully, it results in some pretty interesting products coming out of the organization."

Among the "interesting products" coming out of DOE's procurement shop these days are fixed-price, performance-based competitive contracts. These pacts represent a significant shift from the agency's traditional approach, under which contracts based on detailed solicitations were awarded without competition. The process also has been streamlined, with procurements that a few years ago would have taken a year or two to negotiate now being completed in a matter of months.

DOE is also focusing on various privatization efforts, which include everything from outright sales of property to the transferring of sites to state or local governments. The goal: Get the federal government out of business others can do better.

The agency's $18 billion fiscal 1999 budget request, proposed by former Secretary Federico Pena in February, would continue the management reforms started by O'Leary. Pena's request is about $1.5 billion, or 9 percent, above the department's fiscal 1998 appropriation, notably more than the 2.6 percent increase requested last year for the current budget cycle. According to agency officials, the increase is earmarked for scientific research and obligations related to the Comprehensive Test Ban Treaty, which seeks to prohibit nuclear weapon testing worldwide.

Cleanup Plans

The largest chunk of DOE's budget, $6.7 billion, is slated for environmental quality programs. The amount is approximately 5 percent more than this year's appropriation. About $6.1 billion would go to environmental restoration and waste management. Through contractors, DOE manages more than 130 hazardous, radioactive and mixed waste sites, remnants of the Cold War nuclear weapons production complex, in more than 30 states.

About $1 billion of the budget request would support an accelerated closure pilot program launched by Pena in August 1997. By speeding up cleanup at the three pilot sites-Rocky Flats in Colorado and Fernald and Mound in Ohio-DOE hopes to redirect savings to accelerate cleanup at other sites. The department wants to complete at least 90 percent of its 353 cleanup projects by 2006.

Also in the environmental quality budget request is $517 million for continuing a 1997 privatization plan that seeks alternative financing strategies for large-scale cleanup design and construction projects. DOE wants to transfer much of the financial risk for development-stage work to contractors. The agency will then buy waste back from contractors once it has been successfully converted to a safe form.

Eight such projects are currently in the works, including one at the Hanford site in Washington. Contractors British Nuclear Fuels Limited Inc. and Lockheed Martin Advanced Environmental Services have agreed to finance and build remediation facilities to treat and vitrify up to 13 percent of the 55 million gallons of radioactive waste that has been stored in underground tanks at Hanford since 1944. DOE will then buy back the solidified waste and draw on lessons learned from this first phase of the process when competing contracts for the rest of the cleanup, which is slated to be finished by 2028.

Increasingly, DOE is seeking to "projectize" environmental remedial work, awarding a broad management contract to one group that then subcontracts out responsibility for different cleanup elements, Hopf says. The goal is to "get the best-in-class companies to do what they're best-in-class at," he says.

Last December, DOE took this approach for the $2.5 billion five-and-a-half year management and integration contract to oversee work at the department's Environmental Management and Enrichment Facilities programs located in Oak Ridge, Tenn.; Paducah, Ky.; and Portsmouth, Ohio. Contract winner Bechtel Jacobs Co., which took control of the sites April 1, will subcontract out actual cleanup work via fixed-price, performance-based contracts.

National Security

DOE's national security initiatives would see $6.1 billion in spending during fiscal 1999 under the department's budget request. All of the $421 million increase over fiscal 1998 would go to implementing the Comprehensive Test Ban Treaty. As part of that effort, DOE wants $291 million for its National Ignition Facility, which will house a 192-beam laser to be used for studying the physics of nuclear weapons without conducting underground nuclear tests.

Also in the national security category is a $331 million request for the Accelerated Strategic Computing Initiative. The aim is to develop supercomputers by the year 2004 that will be 1,500 times faster than the fastest computer technology available in 1996 and to reestablish the U.S. supercomputer industry infrastructure. If DOE succeeds, Hopf says, the effort will represent a "quantum leap for the United States in its computation capabilities."

DOE also has requested $2.3 billion for energy resources investments in fiscal 1999, a 30 percent jump from this year. About two-thirds of the money would go to programs related to energy efficiency, renewable energy, fossil energy, power marketing and energy information. The Nuclear Energy Research Initiative, which is a collaborative research effort among universities, national laboratories and industry, would receive $361 million.

In addition, DOE requested $2.7 billion in science and technology funding. The 10 percent boost over last year would support neutron science studies.

Boosting Competition

As DOE implements its budget plan, the agency will be awarding as many contracts as possible competitively, Hopf says. The department's 1999 performance plan sets a target of awarding 50 percent of all management and operating contracts competitively. "It is our intent to make competition the norm [instead of] the exception," Hopf says.

Since 1994, DOE has completed eight competitive management and operating transactions, accounting for about $30 billion in business. Contracts have been competed "with greater frequency than at any time in the agency's history," Hopf notes. In 1997, the three major contracts competitively awarded were for work at Oak Ridge, Mound and New York's Brookhaven National Laboratory.

Among the contracts slated for competitive bidding in 1998 are those for Bettis Atomic Power Laboratory in West Misslin, Pa.; the National Renewable Energy Laboratory in Golden, Colo.; and paramilitary security services in Savannah River, S.C.

Along with competition, DOE is pushing performance-based contracts, such as the Brookhaven contract, awarded in January to Brookhaven Science Associates. The agency revoked the contract of former Brookhaven operator Associated Universities Inc. last year after discovery of lax environmental safety and health oversight that led to tritium leaks, among other problems. The new contract includes performance improvement objectives for the laboratory and allows DOE to terminate the contract if performance is not rated excellent after 33 months.

For Sale

Earlier this year, DOE closed the largest divestiture of federal property ever when it sold the Elk Hills Naval Petroleum Reserve to Occidental Petroleum Corp. for $3.7 billion.

Elk Hills, 47,000 acres near Bakersfield, Calif., contains more than 1,000 producing oil wells, a 47-megawatt electricity-generating facility and two gas plants. Under DOE stewardship, the site produced about 60,000 barrels of oil and almost 400 cubic feet of natural gas a day.

Although it was set aside early this century as a future source of crude oil for the Navy, Congress authorized commercial production on the site in 1976. Clinton proposed selling the site as part of a broader privatization initiative.

To Hopf, the Elk Hills sale represents an ideal procurement. "It's a real success story . . . that went off with barely a hitch," he says. The nine procurements needed to support the sale were completed in record time -about 45 days.

DOE first asked interested parties for their basic qualifications and then narrowed down the pool of qualified candidates to four. Those contractors then submitted formal proposals and gave oral presentations, all of which DOE evaluated within a matter of days. Under the old process of publishing detailed contract solicitations, the procurements "could have easily taken over a year," Hopf says.

DOE is hoping for similar success in its quest to sell the U.S. Enrichment Corp., a global energy company that provides fuel enrichment services to electric utility companies operating nuclear power plants.

The department also is midway through "defederalizing" the Alaska Power Marketing Administration, one of the nation's five power marketing operations, which sell electricity generated primarily by federal hydropower projects to public organizations and cooperatives. One part of the Alaska PMA has been split up between a municipality and two private utilities, a DOE spokeswoman says. The remaining facilities should be transferred to the state by August. Congress has not approved the sale or transfer of any other PMA.

In June, President Clinton announced he would nominate Bill Richardson, the ambassador to the United Nations, to replace Pena as DOE Secretary. But the fate of the agency's fiscal 1999 budget request was still up in the air on Capitol Hill early this summer. While the President and Congress sort out such political decisions, Hopf says, DOE will focus on continuing contract reforms.

"The politics is ever-present," he notes. "The employees here are ever-aware of that. Politics is politics. I stay out of it."