Priority Shift Makes Dollars Go Farther

The 1997 budget continues the era of tightened belts and restructuring at the Energy Department. After congressional Republicans targeted the department for closure in 1995, Energy Secretary Hazel O'Leary countered with a strategic alignment initiative to cut more than $14.1 billion and 27 percent of her department's workforce over the next five years. DOE expects staff cuts in fiscal 1996 to net $50 million in savings; reductions in support service contracting should bring in another $120 million. Since the start of 1993, prime contractor employment has declined by more than 30,000, from 148,000 to 117,000, according to Richard Hopf, deputy assistant secretary of Energy for procurement and acquisition reform.

"We intend to prioritize our contracting and spend less," says Hopf. Each departmental element will get a spending ceiling for support service contracts and organization chiefs will get quarterly reports on their contract obligations. When support service obligations reach 85 percent of the ceiling, the organization will get a notice, and when obligations reach the ceiling amount, contracting officers will be directed to stop obligating funds for support contracts.

The department's overall budget request for 1997 is $16.3 billion, virtually the same as appropriated for fiscal 1996. Defense atomic energy activities will account for $10.9 billion, two-thirds of Energy's budget. The request for defense-related spending is 2.1 percent more than Congress approved for fiscal 1996.

Contracting for Cleanup

The largest portion of defense-related Energy spending goes for cleaning up waste generated at 130 sites in 33 states during Cold War nuclear weapons production and nuclear energy research. The 1997 environmental management request, $5.4 million, is 1 percent less than appropriated for 1996. Environmental restoration of former nuclear production sites will require $1.8 million in 1997, 2 percent less than in 1996. Energy hopes to save money by using performance-based restoration contracts and by finally beginning to spend less on assessing contamination and more on actual cleanup.

Energy has awarded about $27 billion in performance-based contracts and several such contract solicitations are under way or planned, according to Hopf. "The department is getting away from the how-to method of contracting," Hopf says. In the June 24 issue of the Federal Register, Energy published proposed rules reforming its management and operations contracts.

In the past, the contracts to run nuclear weapons production and scientific facilities usually were extended without competition. Two years ago, the department opened competition and put in place a number of other reforms-implementing performance-based management, withholding fees for potentially unallowable costs and compelling contractors to control overtime costs, for example. The reforms, codified in the proposed rules, are aimed at improving contracting efficiency and stripping out unnecessary requirements.

The 'federal norm' rule in maintenance and operation contracts is an example of the regulatory undergrowth that needed weeding out, according to Hopf. "Under the federal norm, contractors were to adopt the essential elements of the federal procurement system. Instead, they became mirror images of the federal system. With the demise of the federal norm, that will change. It is results that we want, not unique federal processes."

At Energy's Hanford, Wash., site, 56 million gallons of highly radioactive substances stored in 177 underground tanks must be identified before they can be removed. The Hanford cleanup is expected to cost $36 billion when it's finished, but contractor Westinghouse Hanford Co. has taken longer than expected to figure out what's in the tanks, and costs have mounted. Energy now hopes to hire a company or consortium to finance, design, build and run pretreatment and treatment facilities to deliver vitrified waste-radioactive waste bound into glass logs-in stainless steel containers. Energy requested proposals in February and plans to select contractors by August.

Two groups have expressed interest in the Hanford tank cleanup: British Nuclear Fuel Limited, Inc., (BNFL) a team including Bechtel National Inc., GTS Duratek and SAIC; and Lockheed Martin Advance Environmental Systems, a team which includes M4 Environmental Management Inc., Fluor Daniel Inc., Numatec, Duke Engineering and Services Inc., Babcock and Wilcox, Nukem Nuclear Technologies Corporation, Molten Metals Technologists Inc., Los Alamos Technical Associates Inc., AEA Technology and OHM Remediation Services Corp.

The Hanford contract, Energy's largest privatization so far, marks a change in Energy contracting strategy. It will shift more cost and technical and performance responsibility to the winning bidder than under the traditional cost-plus award fee approach. The contract will let Energy move from a government-owned, contractor-operated facility running on a cost-reimbursable basis to a contractor-owned, contractor-operated facility treating waste at fixed unit prices. In other words, Energy won't pay until treated waste is delivered.

Energy is aggressively encouraging partnering for the operation of large facilities, Hopf says, hoping to spread expertise through a broader base of contractors and increase competition in future procurements. For example, at the Savannah River Site-a 300-square-mile facility in South Carolina encompassing five nuclear reactors, chemical separation facilities and a reactor fuel manufacturing facility-Westinghouse has added several major contractors to the team running the operation. Energy is pushing hard to expand its contractor base, Hopf adds, and has given major contractors permission to use different procurement strategies to increase subcontracting by small and disadvantaged businesses.

Simplifying Requirements

In April 1995, Energy Department officials began meeting with federal and state regulators to find ways to simplify, without relaxing, some cleanup requirements-leaving contaminated soil in place rather than moving it, for example. Energy hopes renegotiating cleanup programs will reduce their cost. Hopf says the meetings are helping officials plan for future land use, evaluate technology that can be used to improve cleanup, and reorder work to better address site priorities within tight budgets.

Contractors should benefit from cleanup requirement changes, Hopf explains, because they will be more active participants in the technical discussions and their participation will afford greater insight into the problems DOE's regulators must solve. As contractors address cleanup concerns in a more targeted fashion, they will reduce the time and expense involved in reworking and resubmitting proposals, Hopf says. "I believe by having clearly defined cleanup requirements that are tied to hard performance measures, you get products and approaches that are fresh, innovative and can be applied in wider applications."

Nuclear Weapons Programs

After environmental cleanup, nuclear weapons programs take the next largest portion of Energy's defense-related spending. The department seeks $3.7 billion for the weapons program in 1997, just slightly more than in 1996 and not enough to cover the program needs, according to chiefs of Energy's Lawrence Livermore, Los Alamos and Sandia national laboratories. The lab chiefs told Congress earlier this year that they need more funding to refurbish their facilities, which will take on weapons production and oversight activities as Energy's weapons program downsizes. The labs will develop computer-based methods to test weapons reliability as the stockpile ages.

Because the United States has no facilities to produce tritium, a key ingredient of nuclear weapons, Energy wants to buy or lease a commercial nuclear reactor or build its own accelerator for tritium production. The agency requested an additional $25 million for 1997 to keep both the commercial and noncommercial options alive. Energy hopes to have options to buy or lease reactors by this year or next, but Congress will have to reconsider the effective ban on mixing civilian and military nuclear operations in order for the tritium effort to go forward.

Scientific Research

DOE's 1997 request for energy supply research and development funding is $3 billion, up nearly 30 percent from the 1996 appropriation of $2.9 billion. The largest portion of research funding, $1.5 billion, would go to basic research at the labs as well as the high energy and nuclear physics programs. The R&D funding request also includes $363 million for solar and renewable technology. The 1997 funding request for fossil energy R&D is $350 million, down 10.5 percent from the 1996 level.

Energy has essentially abandoned plans it announced last year to sell its Southeastern, Southwestern and Western Area power marketing administrations, though the sale could have brought in $3.7 billion. Instead, the department will sell the Alaska Power Administration, the Elk Hills oil field (part of the Strategic Petroleum Reserve) and the Institute of Petroleum and Energy Research.

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