IV. RESULTS OF INSPECTION Part IV presents the results of the inspection. The results are divided into the following sections: Management and Operating Contracts. Assistant Manager for Environment, Safety and A. B. Assistant Manager for Administration. C. D. E. F. G. Assistant Manager for Facilities and Management Assistant Manager for Energy Programs. Assistant Manager for Defense Programs. Except for M&O Contracts, all of these sections concern an organizational element of SAN. Each of these sections presents summary information on that organizational element's responsibilities, authorities, staffing, and organizational structure. That is followed by a brief discussion of each of the issues regarding that organizational element identified by the inspection. Management comments have been incorporated, where appropriate, in these discussions of issues. A. MANAGEMENT AND OPERATING CONTRACTS Differences From Standard Contracts The M&O contracting concept differs in a number of ways from standard Federal contracting practices. The principal distinction is that it contemplates a long-term relationship for the operation of Government owned facilities, in a spirit of partnership and cooperation rather than the typical arms length "buyer/seller" relationship of most Federal contracts. Fundamental to these stable relationships are several procedures which do not comply with the standard Federal procurement policy and regulations. These differences from standard contracts include: o M&O contract extend/compete procedures which focus on o The absence of price competition and any requirement for M&O contractors to certify cost or pricing data at the time of contract negotiation. o A tasking and deliverables procedure for M&O contractors that is less formal than standard contracts. o For several M&O contracts, the concept of mutuality in some contract clauses is one factor which restricts the Government from unilaterally requiring the contractor to follow policy or procedures, not required by law. The following discussion of the development of M&O contracting examines the basis for these differences from standard contracting approaches. M&O Contracting Concept Development For over 40 years the Department and its predecessor agencies have used M&O contracts as the contractual instrument under which its major research, production and weapons facilities are operated. Use of this contractual concept began when the Manhattan Engineer District (MED) first contracted with major industrial companies to develop and operate facilities to produce an atomic bomb. These contracts were developed during wartime activities, in an environment of extreme security and urgency and with a mission at the frontier of scientific and technical knowledge. To facilitate developing the bomb, these contracts were written to contain a great deal of latitude in assigning work and committed the contractor to whatever the Government directed. return, the contractor was assured they would be reimbursed for virtually all costs which they incurred under the contract. Also, in order to cover the risks associated with developing an atomic bomb, the Government provided the contractor the fullest indemnity it was authorized to grant. Atomic Energy Acts of 1946 and 1954 as Amended In Following World War II, the Atomic Energy Act of 1945, authorized the transfer of the MED contracts to the AEC. Under the AEC the nuclear programs had become less urgent and focused on both pursuing peaceful uses of nuclear energy and military applications. The Act authorized the AEC to contract in support of its missions and required contracts to be awarded consistent with 41 U.S.C. section 5, which prescribed Government-wide procurement policies. These policies specifically required agencies to follow formal advertising procedures. The Atomic Energy Act of 1946 allowed the AEC to exempt itself from these requirements by certifying that a contract action was necessary in the interests of the common defense and security or by showing that advertising was not reasonably practicable. Section 5 of Title 41, U.S.C. also exempted agencies from formal advertising requirements in four other instances: (1) small purchases, (2) public exigency, (3) sole source procurement and (4) technical or professional services contract. Once the AEC made a determination that it was exempt from 41 U.S.C. Section 5, it was free to establish regulations governing a procurement without regard to advertising, or competition. In 1951, the AEC issued procurement regulations covering the M&O contractual concept. The Atomic Energy Act of 1954 did not change AEC contract authorities. The AEC successor agencies, the Energy Research Development Administration and the Department of Energy continued the use of M&O contracts. Federal Property and Administrative Services Act of 1949 "No Impairment" Authority Defined Three years after the AEC was established, the Federal Property and Administrative Services Act of 1949 (Federal Property Act) was enacted. The main purpose of the Federal Property and Administrative Services Act was to establish a uniform system of procurement for all Federal agencies. Section 302(a) of the Act states that: "Executive agencies shall make purchases and contracts for Subsection 602 (d) of the Federal Property Act contains the so called "no impairment" authority and states that: "Nothing in this Act shall impair or affect any authority of...(13) the Atomic Energy Commission...." This authority permitted the AEC to retain and rely upon procurement authorities contained in the Atomic Energy Act, even where these authorities were in direct conflict with the Federal Property Act and its implementing regulations. AEC Application of "No Impairment" The legislative history of the Federal Property Act, Presidential direction, and the Comptroller General opinions made it clear that the "no impairment" authority was not intended as a blanket license to escape Federal procurement requirements. For instance, on July 1, 1949, President Truman issued a directive pursuant to his authority under Section 205(a) of the act. Concerning the "no impairment" authority the Directive stated: "However, the attention of these agencies is called specifically to the purposes of this legislation and they shall, insofar as practicable, procure, utilize and dispose of property in accordance with the provisions of the Act and the regulations issued thereunder...." The President quoting the House Report on H.R. 4754, which with some modification, became the Federal Property Act, stated: "It is not intended by these exemptions that those regulations issued thereunder...." (H.Rep. No. 670, 81st The AEC used the "no impairment" authority in the manner intended, interpreting it as authority to exempt itself from a specific requirement of the Federal Property Act or its regulations only when it impaired AEC authorities. Accordingly, the AEC Procurement Regulations were amended to reflect that the regulations both implemented and supplemented the Federal Property Act and its implementing regulations. Specifically, the amendment to the AEC Procurement Regulations provided that the "no impairment" authority was to be exercised only when compliance with the requirements of the Federal Property Act would impair or affect the AEC's ability to carry out its programs. A written request to invoke the authority, along with a justification explaining how compliance with the Federal Property Act would impair AEC programs, had to be submitted to the AEC Director, Division of Contracts. Current Use of "No Impairment" Authority Under the Department of Energy Organization Act the "no impairment" authority remains available. The Department does not, however, require that the "no impairment" authority be authorized or justified in the formal manner that the AEC did. The Department expressly uses the "no impairment" authority in at least two instances: (1) to exempt the procurement of architect engineer services for prior AEC functions from the 6 percent fee limitation in the Brooks Act and (2) to exempt all M&O contractors from the prior notification requirements of the FAR for subcontracts relating to prior AEC functions. The "no impairment" authority also was recognized in establishing FAR section 17.6. This section recognizes M&O contracts as a unique concept and allows the Department to establish its own procurement policy and procedures for these contracts. The Department established its policy and procedures in Part 970 of its acquisition regulations, which vary significantly from standard FAR policy and procedures. Competition in Contracting Act of 1984, PL 98-369 Prior to the Competition in Contracting Act of 1984 (CICA), the Department relied on its authorities under the Atomic Energy Acts of 1946 and 1954 as amended and the "no impairment" authority under the Federal Property Act to exempt M&O contracts from cost or pricing data and competition requirements. CICA amended the Federal Property Act to encourage and provide requirements for increased competition in contracting. CICA generally required, prime contractors to submit cost or pricing data and to certify |