Energy Management

The Energy Department's (DOE) monitoring of its main contractors at the Savannah River Site in South Carolina--Westinghouse and Bechtel--do not ensure that DOE pays fair and reasonable prices for acquisitions of goods and services from the contractors' subsidiaries. GAO's review of Westinghouse and Bechtel acquisitions uncovered inadequate cost controls and performance problems, unallowable and questionable costs, and inappropriate contract approvals and contract payments. Poor Westinghouse management and limited DOE internal controls were contributing factors. DOE has not complied with its own regulations requiring competition for acquisitions from affiliates. Furthermore, Westinghouse and Bechtel have been able to acquire items from its subsidiaries without the same level of scrutiny that DOE would apply if the purchases were made from nonaffiliated third parties. Various DOE studies point out that problems with acquisitions from affiliates exist elsewhere in the agency. GAO summarized this report in testimony before Congress; see: Energy Management: Inadequate DOE Monitoring of Contractors' Acquisitions From Affiliates, by Victor S. Rezendes, Director of Energy and Science Issues, before the Senate Committee on Governmental Affairs. GAO/T-RCED-94-128, Mar. 17, 1994 (10 pages).

GAO found that: (1) analysis of 60 of the contractors' acquisitions from affiliates, totalling about $48 million, indicated that DOE monitoring has not adequately controlled or minimized costs, ensured the receipt of acceptable goods or services, or maximized competition; (2) DOE monitoring and procurement problems include inadequate cost controls and performance problems, payment of unallowable and other questionable costs, and inappropriate contract approval and contract payments; (3) weaknesses in the contractors' management systems and internal reviews and DOE internal control limitations and staffing constraints contributed to monitoring deficiencies; (4) DOE evaluations have identified similar problems with affiliate acquisitions at other DOE sites; (5) DOE partial implementation of regulations concerning affiliate acquisitions has adversely affected DOE ability to protect the government's interests; and (6) DOE has not required affiliate acquisitions to comply with competition and conflict-of-interest requirements and has subjected such acquisitions to less scrutiny than nonaffiliated third-party acquisitions.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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