Nuclear Contractor’s Award Fee Slashed by 90 Percent

At the end of 2014 the Department of Energy revealed that the contractor managing the Los Alamos National Laboratory in New Mexico would receive only $6.25 million of the $63 million in potential award fees, a 90 percent cut, citing a “significant or ‘First Degree’ performance failure.”

In early December 2014, the Project On Government Oversight worked with fellow watchdog group Nuclear Watch New Mexico to urge the Energy Department's National Nuclear Security Administration (NNSA) to significantly reduce the performance award fees for the contractor managing the lab, Los Alamos National Security, LLC (LANS), a for-profit partnership between the University of California and the Bechtel Corporation.

POGO and Nuclear Watch New Mexico highlighted the contractor’s substandard performance, including the inability to perform major plutonium operations at PF-4, and its unauthorized changes to transuranic waste handling procedures that led to radioactive contamination of workers and the closure of the Waste Isolation Pilot Plant. The letter urged the Energy Department to cut the contractor’s award fee in half at least. We are pleased to see that the final cut far exceeds our request.

However, the NNSA should take the next step and consider opening bidding on the management contract for the Los Alamos National Lab. The Bechtel Corporation has a spotty track record in its management of nuclear projects. Bechtel has been working on the construction of the Vitrification Plant at the Hanford Site in Washington for 12 years, and under its management the cost of the building has skyrocketed from $3.5 billion to $13 billion. Similarly, under Bechtel’s management, estimated costs for a new building at the Los Alamos lab soared from $600 million to $6.5 billion and the project was canceled late last year.

In its fiscal year 2012 performance rating, LANS only earned 68 percent. In order to receive a one-year contract extension the contractor must earn at least 80 percent, yet LANS was granted a waiver extending the contract through 2018. Congress now requires the NNSA to report any future waivers to the House and Senate Armed Services and Appropriations Committees.

Despite the waiver, LANS could ultimately end up losing the contract due to poor performance. The Principal Deputy Administrator of the NNSA exercised her authority in December 2014 to revoke a previously awarded contract extension, resulting in the contract now only going through fiscal year 2017. Furthermore, LANS did not earn contract award term extensions for fiscal years 2013 and 2014. LANS must now earn the award term extension in every future performance review in order to keep the contract past 2017 and through fiscal year 2023.

While we are pleased that LANS was not rewarded for their performance failures, the same cannot be said for the contractor managing the Sandia National Laboratory. In late 2014, the Energy Department Inspector General found that Sandia Corporation, a wholly owned subsidiary of the Lockheed Martin Corporation, illegally used taxpayer dollars to lobby Congress for a multi-billion contract extension between 2009 and 2011. The investigation also found that this wasn’t the first time Sandia Corporation improperly tried to influence the contracting process: the report stated that Sandia officials used funds this way in 1998 and 2003. Furthermore, a 2013 Energy Department Inspector General Report found that ex-Representative Heather Wilson received approximately $226,000 from the Sandia Corporation for consulting services but provided little to no documentation of her services. Sandia was required to return the money paid to Wilson.

In light of these findings, POGO and Nuclear Watch New Mexico sent a letter to the Energy Department urging the agency not to grant Sandia Corporation any portion of the available $9.8 million in performance incentive fees. Unfortunately, the Department decided to grant Sandia 93 percent of the available award fee.

While slashing the award fee for LANS by 90 percent is a step in the right direction, it’s time for the National Nuclear Security Administration to crack down on all nuclear contractors. The numerous mistakes and violations should be severely punished, and cutting award fees should only be the beginning.