I have reviewed your report of the "General Management
Inspection of the San Francisco Operations Office"
which took place from June to December 1989. As a
result, today I am tasking the Director, Office of
Procurement Assistance and Project Management and the
Director, Administration and Human Resource Management
to report to me with their joint recommendations for
corrective actions within 90 days. Since I understand
many corrective actions have already taken place, I
have asked for a report on those within 10 days. I will
take further appropriate actions promptly.

Thank you for your continuing efforts to ensure the
Department's accountability.

SUBJECT: INFORMATION: Report on the "General Management Inspection of the San Francisco Operations Office"

TO: Secretary

BACKGROUND:

The purpose

Attached is a copy of the subject inspection report.
of this inspection was to: (1) determine the responsibilities,
authorities, and resources of the Department of Energy's San
Francisco Operations Office (SAN); and (2) review SAN's
organizational structure, resource allocation, and management
procedures to carry out these responsibilities and authorities.
The inspection focused in particular on how SAN carried out the
Department's management and operating contract administration
authorities and practices.

DISCUSSION:

The report includes 65 recommendations to the SAN manager and
Headquarters Secretarial Officers to improve SAN management and
operating contract administration and other aspects of the
Department's and SAN's operation. Management agreed with 61 of
the recommendations and provided comments which are included in
the report.

The report also identified four impediments to SAN's
administration of its management and operating contracts. These
impediments and management's general comments on these
impediments are discussed below.

Four of SAN's five management and operating contracts contain a
number of clauses which are different from the standard clauses
prescribed in the Federal Acquisition Régulations (FAR) and
Department of Energy Acquisition Regulations (DEAR). These
nonstandard clauses often restrict the Department and SAN from
requiring policy or procedural changes in the operation of
Department of Energy facilities without the mutual agreement of
the contractor. Standard clauses in these areas would allow
unilateral direction by the Department.

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Regarding this impediment, the Deputy General Counsel for Programs stated that the number of major deviations from the standard DEAR clauses in the University of California contracts are due to the fact that the Department is dealing with the State of California on a nonprofit basis and that these contracts, in several respects, are unique among management and operating contracts.

2) Limited Visibility of Indirect Costs

DOE does not require management and operating contractors to report detailed information on indirect costs. At Lawrence Livermore National Laboratory, indirect expenditures represented about 35 percent, or $350 million, of its FY 1987 funding. Additionally, indirect costs are generally not considered in formulating and executing the Department's budget. As a result, indirect funds are spent by management and operating contractors with limited review or consideration by Department of Energy officials.

The Controller agreed to implement our recommendations to: 1) require Operations Offices to periodically review components of the management and operating contractors' budgeted and actual indirect costs, to ensure efficient and effective use of these funds; and 2) require that field budgets identify laboratory overhead costs.

SAN has had difficulty recruiting and retaining a sufficient number of staff to perform its responsibilities particularly in certain specialized fields such as patent law, procurement, and environment, safety, and health.

The SAN Manager and the Director of Administration and Human Resource Management agreed to implement our recommendations to address SAN's recruiting and staffing problems. The SAN Manager subsequently reported that the personal property administration staff has been doubled and the operations office has been reorganized to address problems associated with the administration of Environment, Safety and Quality Assurance functions. On July 12, 1990, the Director of Administration and Human Resource Management reported that SAN had filled many of its vacancies and fully staffed its environmental and safety office.

Delegated responsibility and authority from Departmental elements to SAN officials does not permit them to perform certain contract administration functions. SAN officials perform services for Energy Research in most cases only as "required and requested." Additionally, SAN management of Defense Program activities is limited by a Management Agreement with the Assistant Secretary, Defense Programs. For example, Defense Programs requests of Lawrence Livermore National Laboratory or resource requirements need only be sent concurrently to SAN and do not have to be processed through SAN.

Further, Department of Energy policy limits responsibility for contract administration of work for others conducted at the laboratories. DOE policy provides for the requesting agency to monitor work for compliance with project scope, technical requirements, schedule and cost performance and to inform Department of Energy of any problems. SAN officials are supposed to monitor for compliance but typically do not monitor for technical requirements. The Director, Office of Management, Office of Energy Research, commented that "Energy Research does not regard limited responsibility as an impediment to SAN's management and operating contract administration. When dealing with basic research, where programmatic expertise is at Headquarters, SAN would play an administrative role. SAN would play a much larger role regarding construction projects. SAN plays an important implementation role regarding laboratory management, including laboratory appraisals, exploratory research and development, and Environment, Safety, and Health."

The Deputy Assistant Secretary for Planning and Resource Management, Defense Programs, stated that "...the report does not explain the Department of Energy Operations Office system and the philosophical role of the operations office in that system. A review and update of the Management Agreement between SAN and Defense Programs, Headquarters might serve to clarify

Headquarters and SAN roles."

John

John C. Fayton

John C. Layton
Inspector General

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