Summary: DOE spends more money on contracts than any other civilian federal agency because it relies primarily on contractors to operate its sites and carry out its diverse missions. These missions include maintaining the nuclear weapons stockpile, cleaning up radioactive and hazardous waste, and supporting basic energy and science research activities. For fiscal year 2001, DOE spent about 90 percent of its total annual budget, or about $18.2 billion, on contracts. Of that amount, DOE spent about $16.2 billion on contracts to manage or operate 28 major DOE sites. For over a decade, GAO, DOE's Office of Inspector General, and others have identified problems with DOE's contracting practices and the performance of its contractors. Projects were late or never finished; project costs escalated by millions and sometimes billions of dollars; and environmental conditions at the sites did not significantly improve. At the same time, contractors were earning a substantial portion of the profit (fee) available under the contract. Because of these problems, since 1990 we have designated DOE contract management as a high-risk area vulnerable to fraud, waste, abuse, and mismanagement. To address these and other problems, DOE began a series of reforms in the 1990s that were intended to, among other things, strengthen DOE's contracting and project management practices, hold contractors more accountable for their performance, and demonstrate progress in achieving the agency's missions. In this context, contracting practices include, among other things, selecting the type of contract (such as fixed price), deciding whether to ask contractors to compete for the contract or offer it only to a single contractor, and determining the performance measures that will be used to assess and reward the contractor's performance. Similarly, project management practices include, among other things, planning, organizing, and tracking project activities and costs; training to ensure expertise of federal project managers; and project reporting and oversight. In addition, in February 2002, DOE's environmental management team launched an improvement initiative that places additional emphasis on contracting and project management reforms in the cleanup program, which represents almost a third of the department's overall budget. This initiative followed a review by DOE managers, who concluded that the waste cleanup program was not achieving the desired results and that further improvements were needed to make the program effective, including improvements in contracting and project management. This testimony focuses on (1) describing DOE's progress in implementing contracting and project management reforms, (2) assessing the extent to which these reforms have resulted in improved contractor performance, and (3) providing observations on DOE's latest improvement efforts.
Since the mid-1990s, DOE has made some progress in implementing initiatives to improve both its contracting practices and its management of projects, but it continues to encounter difficulties in implementing these reforms. Contract reform began in 1994 and consisted primarily of initiatives in three key areas--developing alternative contracting approaches, increasing competition for contracts among potential bidders, and using performance-based incentives in the contracts. For example, DOE now requires performance-based contracts at all of its major sites. These contracts incorporate performance-based statements of work and identify performance measures and objectives that DOE will use to evaluate the contractors' performance. DOE has also increased the proportion of contractors' fees tied to achieving the performance objectives. Nevertheless, difficulties remain in implementing the reforms. DOE continues to modify and test its performance measures by, for example, developing multiyear and multisite measures that are more closely aligned with the department's missions. Regarding project management reforms, DOE began its reform effort in 1999 in response to recommendations from the National Research Council that were intended to improve DOE's oversight and management of projects. Among other things, DOE implemented new policy and guidance for developing and controlling projects and established a project office to lead the initiative. However, in November 2001 the National Research Council reported that, although DOE had taken some positive steps to address its recommendations, the department still did not adequately plan projects before starting them and had no training program for federal project managers. DOE is continuing its efforts to implement its project management initiative. While DOE has made some progress in implementing its contracting and project management initiatives, available information raises doubts about the extent to which these reforms have resulted in improved contractor performance. DOE has developed little objective information to demonstrate whether the reforms have improved results. However, in September 2002, we reported that, based on a comparison of 25 major DOE projects in 1996 with 16 major projects in 2001, it did not appear that DOE's contractors had significantly improved their performance over the period. In both sets of projects, over half had both schedule delays and cost increases. And the proportion of projects with significant cost increases and schedule delays was actually higher in 2001 than in 1996. For example, 38 percent of the projects we reviewed in 2001 had doubled their initial cost estimates, compared with 28 percent in 1996. Furthermore, problems with individual projects and with site operating contracts continue to appear. These include a 3-year delay and $2.1 billion cost increase to submit the license application for the Yucca Mountain waste repository project in Nevada and allegations of contractor fraud, waste, and abuse at the Los Alamos National Laboratory in New Mexico. In 2002, we saw DOE's management team take encouraging steps that could help to foster improvements in contract and project management. The Environmental Management program, which administers DOE's waste cleanup program, completed a frank and open assessment of problems with the program and initiated a number of additional reforms. These initiatives included improving contract and project management and streamlining business practices. DOE has also been working on agencywide initiatives, including developing an integrated budgeting and program results information system and placing increased emphasis on human capital initiatives to develop the department's future leaders. Although these management actions are encouraging, making these new policies a matter of practice will require strong leadership, clear lines of accountability and responsibility, and effective management systems to monitor results.
