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Mr. Chairman and Members of the Subcommittee, I am submitting for

the record a copy of the attached Office of Inspector General

report entitled "General Management Inspection of the San

Francisco Operations Office." The report was issued in September

1990.

The following is a brief summary of the premise for the

inspection and the results of the attached report.

The Department of Energy has management and operating contracts

with about 52 contractors to operate DOE facilities and carry out

a major part of its mission.

These contractors spend

approximately 70% of the Department's procurement funds.

Since

first established, M&O contractors have been reimbursed for

virtually all costs incurred, in return for performing as the

Government. directed.

DOE recently issued regulations designed to increase the accountability of for-profit M&O contractors. However, the

fundamental policy, of completely indemnifying and reimbursing

almost all costs remains unchanged for its non-profit M&O

contractors such as the University of California (UC) and

Stanford.

Because of this fundamental policy, effective contract administration is the primary method the Department has of

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assuring that funds are spent as intended and are not wasted.

Within DOE, Field Offices have the primary responsibility for

administering M&O contracts.

For these reasons my office decided to conduct general management

reviews of Field Offices, focusing on how they administer M&O

contracts.

The first general management review was of the San

Francisco Field Office.

Our report on the SAN Field Office review identifies four

impediments to the Department's ability to effectively administer

its M&O contracts.

The four areas are:

First, nonstandard contract clauses limit DOE's authority to

direct its contractors' to follow DOE policy and procedures;

Second, lack of visibility of indirect costs at DOE

facilities limits DOE's control over how its funds are spent

for indirect services;

Third, staffing problems limit SAN's ability to administer

its contracts; and

Fourth, DOE policies and management agreements limit SAN'S

authority to administer its contracts.

The Secretary has taken action in regard to our report issued in September 1990. He immediately tasked the Directors of

Procurement and Administration to provide him with

recommendations for corrective actions.

He also requested the

status of actions already underway, and established a task force

to review and make recommendations on the management and

contractual relationship between DOE and UC.

In closing, the Department--not its M&O contractors--is

ultimately responsible for operating its facilities and assuring

that its funds are properly spent.

Therefore as I stated before,

effective M&O contract administration is essential to DOE

carrying out its responsibilities.

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This report can be obtained from the
DOE Technical Information Center,
P.0. Box 62, Oak Ridge, Tennessee 37830

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