Department of Energy

As part of its efforts to reform its management of contract operations, the Energy Department (DOE) in 1994 began using performance-based incentives in contracts for managing and operating its facilities. These incentives are intended to better link contractors' fees to the satisfactory accomplishment of specific tasks. However, DOE's Office of Inspector General has identified problems with the Department's implementation of performance-based contracting at several facilities. In addition, DOE's October 1997 departmentwide assessment of performance-based incentives in contracting identified other problems and recommended corrective actions. The assessment also cited examples of the successful use of performance-based incentives. This report reviews performance-based incentives at DOE's Hanford, Idaho Falls, Rocky Flats, and Savannah River sites to determine (1) the extent to which DOE has incorporated lessons learned in developing its fiscal year 1998 performance-based incentives, (2) whether these incentives incorporate the baseline measures in DOE's 10-year plan for environmental cleanup and how the fees are allocated to the incentives; and (3) how DOE evaluates completed incentive measures and determines their effectiveness.

GAO noted that: (1) during the past year, DOE has taken steps to correct the problems identified in the Office of the Inspector General reports and its own assessment of performance-based incentives; (2) these steps have included issuing guidance, conducting training, and incorporating lessons learned into the FY 1998 incentives; (3) however, DOE believes that FY 1998 represents a transitional period to better performance-based incentives because it plans to continue to make improvements to the incentives; (4) for FY 1998, at three of the four sites GAO visited, DOE's performance-based incentives incorporated the baseline measures in the Department's 10-year plan for environmental cleanup and were generally linked to both DOE's strategic plan and the site-specific plans; (5) the fourth site, Idaho Falls, has not yet developed performance incentives in environmental management, but its goals and objectives do incorporate the 10-year plan's baseline measures; (6) furthermore, each of the four sites generally allocates fees to individual performance incentives in proportion to their relative importance and on the basis of the site's missions and objectives; (7) DOE evaluates completed actions that were tied to performance-based incentives through reviews by its technical, financial, and contracting personnel to determine whether the contractor satisfied the criteria and earned the amount of fee to be paid; (8) overall, DOE maintains that performance-based incentives have been effective in achieving desired end results; (9) however, it is not clear whether the successes reported in the departmentwide assessment have been due to the performance-based incentives or to the accompanying increased emphasis on program management; and (10) furthermore, it is too soon to assess the effectiveness of the FY 1998 incentives because the evaluation of these incentives will not be complete until the end of the fiscal year.