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Project on Government Oversight

POGO Releases Defense Dept. Memo that Points to Weaknesses of Energy Dept. Labs

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April 18, 2012

Chairman Carl Levin
Ranking Member John McCain
Senate Armed Services Committee
SR-228 Russell Senate Office Building
Washington, DC 20510

Chairman Buck McKeon
Ranking Member Adam Smith
House Armed Services Committee
2120 Rayburn House Office Building
Washington, DC 20515

Chairman Dianne Feinstein
Ranking Member Lamar Alexander
Senate Appropriations Subcommittee on Energy and Water Development
Room S 128, the Capitol
Washington, DC 20510

Chairman Rodney P. Frelinghuysen
Ranking Member Pete Visclosky
House Appropriations Subcommittee on Energy and Water Development
H-307, the Capitol
Washington, DC 20515

Dear Chairmen and Ranking Members:

Since the end of the Cold War, the Department of Energy (DOE) has ignored calls from a past Administration, a couple of congressional agencies, and several non-governmental entities to downsize its sprawling nuclear weapons laboratories to a scale that reflects the realities of the twenty-first century. Now it appears that even the Pentagon wants to blow the whistle on the rogue relationship between DOE and its labs. POGO has obtained a leaked Department of Defense (DoD) memo from November 2011 that details waste and redundancies within the DOE’s privately operated lab system, and details evidence of DOE’s ongoing efforts to circumvent the congressional appropriations process.

The memo appears to be written in response to the work of a newly created interagency council comprised of representatives from the DOE, DoD, Department of Homeland Security (DHS), and Office of the Director of National Intelligence (ODNI). That council is exploring ways to expand the mission of the 17 DOE National Laboratories, with a focus on the roles of the 3 nuclear weapons laboratories. The council’s charter allows the four departments “to engage in interagency long-term strategic planning for capabilities that are unique to the National Laboratories.”[1]

However, the internal DoD memo presents the arguments of a number of experts who have said that the DOE laboratories should downsize, rather than expand, their mission. The memo cites the following arguments:

  • DOE Labs Cost More than Other Labs. As the internal memo notes, the prestigious JASON science and technology advisory panel found in 2009 that Work For Others (WFO) agreements at DOE laboratories are “more expensive per FTE [full-time equivalent] than elsewhere.”[2] The internal memo further notes that DOE laboratories cost, according to the non-profit Stimson Center, “an average of two to three times more” than other industrial firms.[3] Fees paid to two of the DOE laboratories, according to the memo, “‘have swelled’ by 850 and 600 percent after their conversion from non-profit to for-profit operation.”[4]
  • DOE’s Refusal to Downsize Contrasts with the DoD’s History of Downsizing. As the memo notes, unlike the DoD, the DOE has chosen to “maintain its ‘oversized’ Cold War infrastructure.”[5] By contrast, the memo notes that the DoD “reduce[d] excess capacity within its laboratory system,” by conducting five Base Realignment and Closure (BRAC) rounds from 1988 to 2005, closing 21 laboratories.[6
  • Do DOE Labs Promote Scientific Excellence? The quality of science at DoD labs remains excellent despite the downsizing, according to the memo, which uses DoD membership in the prestigious National Academies as a metric. For instance, as of December 2010, the memo counted 10 National Academies members out of the DoD’s Naval Research Laboratory workforce of 2,500. By contrast, the memo found only 15 National Academies members among the DOE’s three nuclear laboratories’ total workforce of 27,000.[7] The memo also cites a nuclear culture expert, writing in the Bulletin of the Atomic Scientists, who notes that the contractor-run management at Los Alamos National Laboratory “focuses more on personal bonuses than on scientific achievement.”[8]
  • DOE is Trying to Circumvent the Existing Merit-Based Competitive Funding Process. The memo includes a May 2011 DoD and DOE Science and Technology Governance Plan, which notes that “[t]he strategic relationship between DoD and DOE should commit to a stable and long-term vision,” calling for an annual cycle of planning in which the two departments evaluate which DoD work will be performed though WFO agreements at the DOE’s National Laboratories.[9] In other words, the Labs would get a steady stream of funding outside congressional appropriations or competitively awarded funds. The memo raises the concern that, with this interagency agreement, DoD and DOE are “bypassing the services’ competitive funding with an institutional entitlement.”[10] As the memo stresses, “When millions of R&D dollars are at stake, the public must be confident that the government’s funds are awarded on merit, not steered by influence.”[11]
  • Previous Administrations Believed the DOE Lab Complex is “Bigger and More Expensive than it Should Be.” As the memo notes, the White House’s Office of Science and Technology Policy released a report in 1995 that found that “the DOE laboratory system is bigger and more expensive than it needs to be” and that there is “excessive duplication of capabilities among the labs.”[12] Furthermore, the report noted, “In part, [the laboratory system] reflects political considerations that inhibit lab consolidations and restructuring.”[13]
  • DOE Lab Directors’ Lobbying Has Pushed Lab Funding Above Cold War Levels. Despite past White House support for DOE laboratory downsizing, the Obama Administration seems to be heading in the opposite direction. According to the memo, the DOE labs have undertaken an apparent lobbying campaign in recent years, pushing to dramatically increase their funding:

Directors of the three DoE labs (one of whom has a salary of $1.7 million) visited the White House [in December 2009] where they described the dangerous impact of budgetary pressures. The administration later announced plans to increase investments in the nuclear weapons complex to $8.6 billion per year over the next decade. In constant dollars, this is almost 40% more than the previous 20-year average of $6.2 billion per year and nearly 70% more than the Cold War average (1948-89) of $5.1 billion per year.[14]

Other compelling evidence suggests that the DOE laboratories should downsize to reflect “the diminishing workload associated with the maintenance of the country’s nuclear stockpile,”[15] rather than pursue new missions. In another leaked memo obtained by POGO, a DoD member of the interagency council expressed concerns to the Secretary of Defense about the council’s plans that would provide DOE with additional missions and funding through other agencies. The memo pointed out that “the DOE labs believe they may not be able to maintain their laboratory system as it currently exists” unless they take on new missions to justify the size of the system.[16] Notably, the official also wrote that “the existing DoD in‐house laboratory system is meeting the requirements of the military services and increased utilization of the DOE labs may not be required.”[17]

In addition, a couple of recent reports from government watchdog agencies call for downsizing the DOE laboratory system, though they say DOE has been resistant to such changes.

A November 2011 DOE Office of Inspector General special report noted that “[DOE’s] research complex is organized essentially as it has been for over a half-century,”[18] and recommended that the agency follow the example of DoD, which has gone through five BRAC rounds since the end of the Cold War and may soon undergo its sixth and seventh rounds.[19] The report said that, “using the Department of Defense’s [BRAC] experience as a guide, the Department [of Energy] should establish an independent panel to comprehensively examine alternatives for evaluating, consolidating, and/or realigning the Department’s R&D laboratory complex.”[20]

A January 2012 Government Accountability Office (GAO) report recommended that the DOE laboratories streamline support operations performed by their contractors in order to reduce overall operating costs. The GAO said that the DOE agreed with its recommendation, but the report cited the “potential difficulty of getting contractors to coordinate” with these efforts.[21]

Also in January, President Obama called for a leaner military, reductions in defense spending, and a rejection of Cold War-era weapons systems.[22] However, the Administration’s push for cost-cutting and downsizing does not appear to extend to the DOE.

The concerns raised by the DoD memo and these recent reports reflect an out-of-control lab system that POGO has sought to hold accountable for years. For example, as POGO noted in 2009, top DOE contractor lab officials make considerably more money than government executives or even the President,[23] with many of their salaries well above the already generous current cap of nearly $700,000 that can be charged to government contracts for executive compensation.[24] In 2011, seven of the top fifteen officials at the three DOE nuclear labs made more than the executive compensation cap, according to lab disclosures required by the American Recovery and Reinvestment Act.[25]

For typical private contractors, any compensation exceeding that cap is paid out of the contractor's profits. However, the companies that run the weapons labs are not typical private companies, but were in fact created exclusively to run the labs. As a result, the intent of the rule to limit taxpayer subsidies of exorbitant executive compensation is undermined by the labs paying the excess executive salaries through their taxpayer-funded award fees. For example, taxpayers paid the entire salary of former Sandia Lab Director Tom Hunter’s $1.7-million salary in 2009 through a combination of allowable reimbursed costs and the lab’s award fee.[26]

Furthermore, the executive compensation cap only applies to the top five officials at any DOE lab in most cases, meaning that other lab employees can bill their full salaries directly to the contract, no matter the cost. Legislation with bipartisan support that POGO has championed would lower the cap on all contractor compensation at all agencies—including at DOE nuclear labs—so that contractor executives are not paid more than the President of the United States (S. 2198, H.R. 2980).[27] This would go a long way to rein in the taxpayer dollars spent on exorbitant lab salaries.

More accountability for taxpayer money is a prime example of why DOE nuclear lab Performance Evaluation Plans (PEPs) and Performance Evaluation Reports (PERs) should be available to the public in a timely fashion. Unfortunately, because the public has been denied timely access to PEPs and PERs since 2009, taxpayers cannot know if the basis for DOE award fees is reasonable. Not only do award fees fund DOE executive salaries, but, as POGO wrote to President Obama in 2009:

This information is perhaps the single most important information available to hold NNSA [National Nuclear Security Administration] accountable. These evaluations assess the performance of the contractors who manage the laboratories and production facilities that comprise the national weapons complex. Additionally, this information demonstrates how effectively the government uses the power of the purse to hold the contractors accountable for their performance.[28]

The NNSA recently released the latest PERs for some of the labs, but only after Nuclear Watch of New Mexico initiated a lawsuit against the agency.[29] The documents reveal that, instead of being used as tools of accountability, award fees are largely rubber-stamped, despite the labs’ contractual failures. Specifically, the recent PERs reveal among other things that, despite the contractor’s refusal to use approved accounting practices to calculate costs at a major nuclear research facility, Lawrence Livermore National Laboratory was awarded $26 million, or 88 percent of its possible bonus.[30] Despite significant unresolved safety issues at a nuclear weapons components production facility, the Los Alamos National Laboratory contractor was awarded $54 million, or 83 percent of its possible bonus.[31] As things stand, it is apparent that the DOE’s contractor-operated labs will continue to receive multi-million dollar bonuses, regardless of the quality of contractor performance.

Recommendations

Given the evidence, it is clear that DOE is resistant to transparency in its labs, which will only continue to expand their missions unless Congress intervenes. The DOE must follow DoD’s lead—and the advice of numerous experts—and downsize its lab system.

In this time of fiscal constraint, we strongly urge Congress to ensure that additional funding for the DOE nuclear weapons laboratories be awarded competitively, rather than allowing agencies to circumvent congressional intent. Congress should enact the pending legislation to close the loopholes on caps that allow exorbitant taxpayer-funded salaries at the DOE nuclear labs as well as to all government contractors. We also strongly urge that the DOE Inspector General’s recommendation to establish a BRAC-like commission to conduct a long-overdue review of DOE’s oversized and costly weapons laboratories be mandated by law.

Sincerely,

Danielle Brian
Executive Director

 

cc:  Senate Armed Services Committee
Senate Appropriations Committee
House Armed Services Committee
House Appropriations Committee

Enclosure:  DoD Memo: “New Missions for the Nuclear Weapons Labs,” with attachments A, B, C, and D

________________________

[ 1] Memorandum from Don J. DeYoung, Laboratory Joint Analysis Team (U.S. Navy Team Member), to Dr. John W. Fischer, Laboratory Joint Analysis Team (Chair, OSD), regarding “New Missions For the Nuclear Weapons Labs,” November 16, 2011, attachment B. (hereinafter New Missions For the Nuclear Weapons Labs). The memo and its attachments do not have consistent page numbers, so our citations will not include page numbers. The memo and its attachments are enclosed with this letter.

[ 2] New Missions For the Nuclear Weapons Labs

[ 3] New Missions For the Nuclear Weapons Labs

[ 4] New Missions For the Nuclear Weapons Labs

[ 5] New Missions For the Nuclear Weapons Labs

[ 6] New Missions For the Nuclear Weapons Labs

[ 7] New Missions For the Nuclear Weapons Labs

[ 8] New Missions For the Nuclear Weapons Labs

[ 9] New Missions For the Nuclear Weapons Labs, attachment C

[ 10] New Missions For the Nuclear Weapons Labs

[ 11] New Missions For the Nuclear Weapons Labs

[ 12] National Science and Technology Council, Interagency Federal Laboratory Review: Final Report, May 15, 1995, p. 12. (Downloaded February 27, 2012) (hereinafter Interagency Federal Laboratory Review: Final Report)

[ 13] Interagency Federal Laboratory Review: Final Report, p. 12.

[ 14] New Missions For the Nuclear Weapons Labs

[ 15] Memorandum from Dr. John W. Fischer, Laboratory Joint Analysis Team, to the Office of the Secretary of Defense, regarding “Interagency Strategic Governance Charter Concerning the DOE National Laboratories.” (hereinafter Interagency Strategic Governance Charter Concerning the DOE National Laboratories)

[ 16] Interagency Strategic Governance Charter Concerning the DOE National Laboratories

[ 17] Interagency Strategic Governance Charter Concerning the DOE National Laboratories

[ 18] Department of Energy, Office of Inspector General, Special Report: Management Challenges at the Department of Energy (DOE/IG-0858), November 2011, p. 9.  (Downloaded February 27, 2012) (hereinafter Special Report: Management Challenges at the Department of Energy (DOE/IG-0858))

[ 19] Leon E. Panetta, Secretary of Defense, and Gen. Martin E. Dempsey, Chairman of the Joint Chiefs of Staff, “Major Budget Decisions Briefing from the Pentagon,” January 26, 2012.  (Downloaded February 27, 2012); Andy Medici, “Dodd seeks more BRAC rounds, sparking opposition,” Federal Times, January 27, 2012. (Downloaded February 27, 2012)

[ 20] Special Report: Management Challenges at the Department of Energy (DOE/IG-0858), p. 9.

[ 21] Government Accountability Office, Department of Energy: Additional Opportunities Exist to Streamline Support Functions at NNSA and Office of Science Sites (GAO-12-255), January 2012, p. 23.  (Downloaded February 27, 2012)

[ 22] Barack Obama, President of the United States, “Remarks by the President on the Defense Strategic Review,” January 5, 2012.  (Downloaded February 27, 2012)

[ 23] Project On Government Oversight, “Lifestyles of the Rich and Nuclear,” November 9, 2009. 

[ 24] Office of Management and Budget, “Office of Federal Procurement Policy Cost Accounting Standards Board Executive Compensation, Benchmark Maximum Allowable Amount.”  (Downloaded April 16, 2012)

[ 25] Compensation levels were obtained from Recovery.gov:  Los Alamos National Security LLC, (Downloaded April 16, 2012);  Sandia Corporation, (Downloaded April 16, 2012); Lawrence Livermore National Security, LLC, (Downloaded April 16, 2012)

[ 26] Compensation level was obtained from Recovery.gov: Sandia Corporation, (Downloaded April 16, 2012)

[ 27] Project On Government Oversight, “Senators Introduce Bill to Reel in Excessive Contractor Compensation,” March 26, 2012.

[ 28] Project On Government Oversight, “POGO asks President Obama to instruct the DOE’s NNSA to reverse its decision to withdraw contractor performance data from public view,” December 14, 2009.

[ 29] Nuclear Watch New Mexico, “NNSA Responds to Lawsuit by Releasing Nuclear Weapons Complex Performance Evaluation Reports,” April 4, 2012.  (Downloaded April 16, 2012)

[ 30] National Nuclear Security Administration, Livermore Site Office, Fiscal Year 2011 Performance Evaluation Report, Lawrence Livermore National Laboratory, November 30, 2011, p. 20.    (Downloaded April 16, 2012)

[ 31] National Nuclear Security Administration, Los Alamos Site Office, FY 2011 Performance Evaluation Report for the Los Alamos National Security, LLC’s Management and Operation of the Lost Alamos National Laboratory Contract No. DE-AC52-06NA25396: Performance Period October 1, 2012 through September 30, 2011, December 6, 2011, p. 41.  (Downloaded April 16, 2012)

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