DOE Management

In indemnifying its cleanup contractors, the Department of Energy (DOE) has adopted an inconsistent approach in which the government often accepts liabilities and contractors assume little financial responsibility. Individual contractors are indemnified not on the basis of a well-analyzed policy but as the result of negotiations, during which DOE does not first test to see whether indemnification is needed or set limits to its potential cost. As a result, some contractors have received more-favorable indemnification provisions than have others. More importantly, this approach has exposed the government to unknown but potentially significant financial risk since more than $5 billion in environmental damage lawsuits and claims have been filed under existing contracts. A consistent policy for indemnification that takes into account use of section 119 of the Superfund Amendments and Reauthorization Act, as well as other specific statutes, such as the Price-Anderson Act, can ensure that cleanup contractors are indemnified in a way that protects both the contractors' and the government's interests.

GAO found that: (1) under the cost reimbursement approach, DOE reimburses its contractors for all allowable costs, including environmental costs, incurred in contract performance; (2) under the accountability rule, contractors are reimbursed for all allowable costs, but are liable for avoidable costs; (3) as required by the Price-Anderson Act, the government provides indemnification protection from nuclear incidents or nuclear waste activities to all DOE contractors without regard to who caused the incident; (4) the National Defense Contracts Act authorizes DOE to provide extraordinary contract relief if a contractor's activities are necessary to facilitate the national defense; (5) special provisions that modify standard DOE or federal contract clauses may be the result of previous agreements or other negotiations with the contractors and can define or expand the government's liability; (6) DOE determines what approach to use for indemnifying its cleanup contractors on an individual basis; (7) DOE is aware of the problems with the use of nonstandard clauses and plans to negotiate contracts that include as many standard clauses as possible; (8) the Environmental Protection Agency (EPA) is responsible for developing indemnification guidelines; and (9) EPA intends to offer indemnification only if it does not receive a sufficient number of qualified bids and the lack of response can be linked to the absence of indemnification.

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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