March 29, 1995
 
IG-1
 
INFORMATION:  Report on "Audit of Staffing Requirements for the
              Strategic Petroleum Reserve"
 
The Secretary
 
 
BACKGROUND:
 
The audit was undertaken in response to a request from the Deputy
Secretary of Energy to determine whether current staffing levels for
the Reserve were necessary to effectively accomplish current and
future anticipated mission requirements.  As of May 31, 1994, over
1,650 full-time equivalents were employed by the Department and its
contractors to manage and operate Strategic Petroleum Reserve
(Reserve) programs.
 
DISCUSSION:
 
We compared Reserve performance levels and staffing practices with
those for similar functions in the private sector and other DOE
contractors.  The audit disclosed that the Reserve staffing levels
were significantly higher than those organizations against which it
was benchmarked.  We estimated that the realization of industry
performance levels by selected Reserve activities would enable the
Reserve to eliminate 329 positions, with annual savings of about $16
million.  Developing objective and supportable estimates of staffing
needs is a highly technical and complex process.  For this reason, we
obtained expert advice from a nationallyrecognized organizational
management consultant firm.
 
We recommended that the Assistant Secretary for Fossil Energy: (1)
reduce staffing in eight functional areas by 329 positions; (2)
increase the span of control for Reserve managers to one manager for
at least ten subordinates; (3) conduct additional analysis to
determine if further staffing reductions were feasible; (4) provide
incentives to management and operating contractor to reduce staffing
and costs; and (5) perform periodic evaluations of Reserve staffing
requirements using appropriate external benchmarks and other
performance data.
                                  -2-
 
 
The Assistant Secretary for Fossil Energy indicated that actions had
been taken or were planned for each of the report recommendations.
However, the Assistant Secretary did not agree with the specific
staffing reductions and savings cited in the report and contended
that additional analysis was needed to determine the appropriate
staffing levels.  For this purpose, the Reserve had formally
commissioned a streamlining initiative on December 9, 1994.
 
 
                                  /s/
 
                              John C. Layton
                              Inspector General
 
 
Attachment
 
cc:  Deputy Secretary
     Under Secretary
     Assistant Secretary for Fossil Energy
                    U.S. DEPARTMENT OF ENERGY
                   OFFICE OF INSPECTOR GENERAL
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
                             AUDIT OF
 
                     STAFFING REQUIREMENTS FOR THE
 
                      STRATEGIC PETROLEUM RESERVE
 
 
 
 
 
 
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Report No.:  DOE/IG-0370            Eastern Regional Audit Office
Date of Issue:  March 29, 1995      Oak Ridge, TN 37830
                            AUDIT OF
                  STAFFING REQUIREMENTS FOR THE
                   STRATEGIC PETROLEUM RESERVE
 
 
                        TABLE OF CONTENTS
 
 
                                                             Page
 
 
             SUMMARY .....................................     1
 
PART I     - APPROACH AND OVERVIEW .......................     3
 
             Purpose and Objectives ......................     3
 
             Scope and Methodology .......................     3
 
             Background ..................................     6
 
             Observations and Conclusions ................     8
 
PART II    - FINDING AND RECOMMENDATIONS .................     9
 
             Staffing Practices ..........................     9
 
PART III   - MANAGEMENT AND AUDITOR COMMENTS .............    30
 
APPENDICES - A.  Strategic Petroleum Reserve Organization
                 Chart
             B.  Abbreviations
             C.  Assistant Secretary's Summary Comments on
                 Official Draft Report
             D.  Projections of Near-Term and Long-Term
                 Staffing Reductions
             E.  Department Reporting Requirements for
                 Strategic Petroleum Reserve
                              #=1
                    U.S. DEPARTMENT OF ENERGY
                   OFFICE OF INSPECTOR GENERAL
                         OFFICE OF AUDITS
 
 
                            AUDIT OF
                  STAFFING REQUIREMENTS FOR THE
                   STRATEGIC PETROLEUM RESERVE
 
 
Audit Report Number:  DOE/IG-0370
 
                             SUMMARY
 
     The Department of Energy's (Department) Strategic Petroleum
Reserve (Reserve) is responsible for storing large quantities of
crude oil, currently about 592 million barrels, to reduce the
impact of any future supply disruptions.  The Reserve facilities
consist of a marine terminal and five underground storage sites
located in Louisiana and Texas, and program and administrative
offices in New Orleans and Washington, D.C.  At May 31, 1994,
1,692 Departmental and contractor personnel were employed in the
operation, maintenance, and administration of Reserve activities
and the Fiscal Year 1994 Congressional Appropriation was about
$207 million.
 
     The audit was requested by the Deputy Secretary of Energy to
assist Departmental management in evaluating the human resources
required to meet Reserve program requirements.  Specifically, the
objective of the audit was to determine whether current staffing
levels for the Reserve were necessary to effectively and
efficiently accomplish current and future anticipated mission
requirements.
 
     The Secretary's goal of having the Department and its
contractors embrace the best management practices in other
Government agencies and industry to improve processes and
eliminate waste has not been fully realized by Reserve
management.  We identified industry performance levels and
staffing practices that, if achieved by the Reserve, could enable
the Reserve to eliminate approximately 329 positions in eight
functional areas with potential annual savings of about $16
million.  Our analysis indicated that additional staffing
reductions are possible over the long term through further
application of industry practices and decreases in the number of
managers.  However, such staffing reductions will require further
analysis by management to determine the specific number of
staffing reductions that are attainable.
 
     The actual staffing reductions realized by the Reserve will
be heavily influenced by several factors.  These include: the
levels of proficiency attained by the Reserve work force; the
manner in which the recommendations are implemented; the degree
of success in obtaining waivers to Federal and Departmental
regulations; and the extent to which the organizational
alignments and operating systems are streamlined.
 
     The differences in staffing levels existed because the
Reserve had not compared its staffing practices and performance
levels against those of industry, management control was overly
centralized, and no effective contracting incentives existed to
improve efficiency and lower costs.
 
     The Assistant Secretary for Fossil Energy indicated that
corrective actions had been taken or were planned on each of the
report recommendations.  However, the Assistant Secretary did not
agree with the staffing reductions and related savings set forth
in the report and indicated that a streamlining study was
underway to provide the additional analysis needed to determine
appropriate staffing levels for Reserve activities.
 
 
 
                               (Authenticated)
                                 Office of Inspector General
                              PART I
 
                      APPROACH AND OVERVIEW
 
 
PURPOSE AND OBJECTIVES
 
     The audit was requested by the Deputy Secretary of Energy
for the purpose of assisting Departmental management in ensuring
that human resources were properly aligned with program
priorities and that maximum use was made of effective management
practices.  Specifically, the objective of the audit was to
determine whether Departmental and contractor staffing levels at
the Reserve were necessary to effectively and efficiently
accomplish current and anticipated future mission requirements.
 
SCOPE AND METHODOLOGY
 
     The audit was performed primarily at the offices of the
Strategic Petroleum Reserve Project Management Office (Project
Management Office) and DynMcDermott Petroleum Operations Company
(DynMcDermott) in New Orleans, Louisiana, and a marine terminal
and three storage facilities in Texas and Louisiana, from June 14
through September 1, 1994.  We also obtained information from and
interviewed personnel in the Office of the Deputy Assistant
Secretary for Strategic Petroleum Reserve in Washington, D.C.
The audit included such tests as determined necessary to satisfy
the audit objective and for an assessment of significant internal
controls associated with the determination of staffing
requirements.  The following specific methodologies were used:
 
     o  Examined applicable Departmental orders and
regulations;
 
     o  Reviewed pertinent provisions in the Department's
contracts and DynMcDermott's subcontract with Wackenhut
Services Inc. (Wackenhut);
 
     o  Reviewed Departmental and DynMcDermott policies and
procedures for developing, reviewing, and approving
staffing levels for specific functions;
 
     o  Reviewed current and future staffing plans for the
Reserve;
 
     o  Interviewed Departmental and DynMcDermott managers to
gain an understanding of the role and operations of each
organizational element and their interface with other
Reserve organizations;
 
     o  Identified work processes, staffing practices, and
performance levels from the private sector, including
other Departmental management and operating contractors,
for functions that were common or similar to those
performed by Reserve organizations; and
 
     o  Compared industry staffing practices and performance data
with Reserve staffing practices to determine impacts upon
staffing levels.
 
     Determining the optimum staffing for a large organization
such as the Reserve is an imprecise process.  This process is
affected by a number of variables including the dynamic nature of
organizational goals and objectives, and the programs,
procedures, and processes that flow from those goals and
objectives; employee turnover; unexpected events; differing
capabilities of employees; requirements of higher organizational
levels and other regulators; and technological advances.
 
     Nevertheless, in both the private and public sectors,
reasonable estimates of staffing levels are obtained by using
various analytical techniques.  In this connection, we utilized
the services of management consultants from the firm of KPMG Peat
Marwick LLP.  These consultants had broad knowledge of, and
in-depth experience in, evaluating organizational and staffing
issues in the oil, gas and utilities industries whose activities
paralleled those of the Reserve.  Also, the consultants had
access to data bases of industry benchmarks and performance data
for operations and maintenance and various support functions,
such as human resources, finance, administration, and
procurement.
 
     Two complementary techniques or methodologies were used to
estimate the number of employees that would be required if
Reserve staffing requirements were based on industry practices.
These techniques included: (1) analyses of tasks and activities
for each function; and (2) comparisons of performance data for
the Reserve with performance data from companies in the private
sector.  Each is discussed in the following paragraphs.
 
     The analysis of work tasks or activities compared to those
generally used by industry was the primary basis used to
determine staffing requirements for most Reserve functions.  A
key component for determining how work processes may be
simplified is to evaluate how much time people spend on specific
activities.  The primary sources of information on the time
devoted to specific tasks were a prior staffing study by Boeing
Petroleum Services Company, Inc. (Boeing) and interviews with
appropriate Reserve managers.  By comparing time expenditures
associated with each activity, determinations can be made as to
whether greater or fewer resources should be devoted to the
performance of each activity.
 
     Industry performance data and benchmarks were used in two
different ways to estimate staffing requirements.  For certain
functions, the benchmarks were used to compute staffing levels
while for other functions the benchmarks were used to validate
the reasonableness of staffing levels developed from an activity
analysis.  To illustrate, we relied upon industry performance
data contained in a study conducted by the Bureau of National
Affairs to develop staffing needs for the Reserve's human
resources function.  For the maintenance function, performance
statistics from a refinery and a petrochemical plant were used to
evaluate the reasonableness of the staffing estimates developed
by the consultants from a detailed analysis of activities for the
maintenance function.
 
     This report does not contain the names of the companies that
provided data on performance levels and management practices used
in the audit.  This is necessary because the companies considered
such data proprietary.
 
     The audit was made in accordance with generally accepted
Government auditing standards for performance audits.  We
reviewed internal controls and compliance with laws and
regulations to the extent necessary to satisfy the audit
objectives.  Since our audit was limited, it would not
necessarily have disclosed all material internal control
deficiencies that may have existed at the time of our audit.  We
relied on computer-generated data for staffing levels, number of
managers, and related information.  However, this information was
verified by observation and discussion with senior Reserve
managers during the audit.
 
     We discussed this report with the Project Manager, Project
Management Office, and members of his staff on November 10, 1994.
BACKGROUND
 
Mission of Strategic Petroleum Reserve
 
     The Reserve was authorized by the Congress for the purpose
of maintaining a large crude oil stockpile to minimize the impact
of any disruptions in the supply of crude oil.  The Reserve
facilities are designed to store up to 750 million barrels of
crude oil and to draw down 4.5 million barrels a day.  However,
in 1994, problems with gases in storage caverns and high crude
oil temperatures had reduced the drawdown capability to about 2
million barrels a day.  Five underground storage sites are
located at Bayou Choctaw, Weeks Island, and West Hackberry in
Louisiana, and Bryan Mound and Big Hill in Texas.  In addition,
the Reserve has a marine terminal in Saint James Parish,
Louisiana.  Each site is linked through Department-owned
pipelines to commercial crude oil distribution systems and marine
terminals for water-borne distribution.
 
     The Reserve is operated and maintained by the Department and
its contractors.  The management and operating contractor for the
Reserve is DynMcDermott.  The Assistant Secretary for Fossil
Energy has overall programmatic responsibility for achieving the
goals and objectives of the Reserve.  This responsibility is
delegated to the Deputy Assistant Secretary for Strategic
Petroleum Reserve.  The Project Management Office carries out
day-to-day project activities including contract administration
functions.  Appendix A depicts the entire Reserve organization
from the Assistant Secretary for Fossil Energy to the crude oil
storage sites and terminal.
 
     The acquisition of new crude oil inventories was terminated
in July 1994.  The Department had no plans to increase the
current crude oil inventory of 592 million barrels through Fiscal
Year 2000.  Currently, the Reserve's primary mission is to
maintain the operational readiness of crude oil storage
facilities through cavern pressure monitoring, cavern and well
maintenance, testing of integrity, conducting preventive and
corrective maintenance, exercising equipment, performing
readiness exercises, and assuring compliance with state and
Federal laws.
 
Staffing Levels
 
     Reserve staffing requirements had increased significantly
since the original Reserve Plan was approved by the Congress.
The original plan, submitted to the Congress in December 1976,
envisioned a work force growing to over 1,000 employees during
the design, construction and inventory building phases.  After
the crude oil inventories had been acquired and placed in
storage, the plan envisioned a work force of no more than 200
employees would be required to maintain the crude oil inventories
and storage facilities.
 
     Many changes occurred since 1976 in the size and location of
Reserve facilities and in operating philosophies.  The crude oil
storage capacity was increased from about 500 million barrels to
over 750 million barrels.  Different storage sites than those
considered in the original plan were acquired and developed.  The
original plan provided for the filling of storage facilities by
1982.  However, the Reserve was still acquiring crude oil stocks
in the 1990's.
 
     At May 31, 1994, 1,692 full-time equivalents were employed
by the Department and its contractors to carry out Reserve
mission requirements, of which, 1,349 were employees of
DynMcDermott and its subcontractors.  Of the 1,692 positions, 813
were located in New Orleans, 818 at the five storage sites and
terminal, and 61 in Washington, DC.  A breakdown of staffing by
function and organizational entity as of May 31, 1994, is shown
in Table 1 (see Appendix B for abbreviations):
 
 
        +-------------------------------------------------------------------------------------------------+
        |                                                                                                 |
        |                                               Table 1                                           |
        |                                                                                                 |
        |                                     Staffing by Functional Area                                 |
        |                                                                                                 |
        |                                                      DynMcDermott &   Other Department          |
        |         Functional Area                Department    Subcontractors     Contractors     Total   |
        |                                                                                                 |
        |  Maintenance & Materials (M&M)            14              308               0            322    |
        |  Engineering and Construction (E&C)       25              171              98            294    |
        |  Security (SEC)                            4              286               1            291    |
        |  Operations (OPS)                         30              207               9            246    |
        |  Project Planning & Control (PP&C)        15               90              40            145    |
        |  Procurement & Property (P&P)             16              113               3            132    |
        |  Finance & Administration (F&A)           18               42              16             76    |
        |  Environmental, Safety,                                                                         |
        |    and Health (ES&H)                      14               54               3             71    |
        |  Quality Assurance  (QA)                   7               51              10             68    |
        |  Project Management  (PM)                 11               12               2             25    |
        |  Human Resources  (HR)                     7               15               0             22    |
        |                                                                                                 |
        |       Total                              161            1,349             182          1,692    |
        |                                         ----            -----            ----          -----    |
        |                                                                                                 |
        +-------------------------------------------------------------------------------------------------+
 
 
        Prior Audits
 
     We issued two prior audit reports that addressed staffing
issues at the Reserve.  In an October 1988 audit report entitled
"Plant and Facilities Management at the Strategic Petroleum
Reserve," we recommended that engineered standards be developed
and used in determining staffing requirements.  Departmental
management partially concurred with that recommendation and
subsequently developed engineering standards.  In a December
1992 audit report entitled "Boeing Petroleum Services, Inc., Use
of Overtime at the Strategic Petroleum Reserve," we recommended
that the contractor monitor work shifts to determine if they
achieved the desired results of reducing overtime costs.  The
Project Management Office concurred with the recommendation and
took actions to reduce overtime costs.
 
OBSERVATIONS AND CONCLUSIONS
 
     The Secretary has expressed the desire for the Department
and its contractors to implement the "best management practices"
in order to improve efficiency and reduce costs.  The Reserve
had undertaken various initiatives and was considering other
initiatives to improve the efficiency and economy of its
operations.
 
     Despite these initiatives, our comparison of industry
performance levels and staffing practices with the Reserve
showed opportunities for the Reserve to better achieve the
Secretary's expectation of improved efficiency and lower costs.
This condition existed because Reserve performance had not been
compared with management practices in industry, management
control was overly centralized, and limited incentives existed
for contractors to improve efficiency and thus lower costs.  The
potential staffing reductions in eight of eleven functional
areas could result in annual savings of salaries and fringe
benefits of about $16 million.  Further staffing reductions may
be possible by having managers supervise more employees and
implementing additional industry practices and performance
levels.  The exact number of possible staffing reductions will
require further analysis by Reserve management.
 
     In our opinion, the Department should consider the need to
improve Reserve staffing performance as a reportable problem
when preparing the yearend assurance memoranda on internal
controls.
                            PART II
 
                   FINDING AND RECOMMENDATIONS
 
                       Staffing Practices
 
FINDING
 
     Policy guidance established by the Secretary requires the
Department and its contractors to identify and implement the best
management practices of other Government agencies and industry to
improve the efficiency and economy of Department operations.  Our
comparison of industry performance levels and staffing practices
with those of the Reserve showed that the Reserve had higher
staffing levels than those generally found in industry.  This
condition existed because Reserve staffing performance had not
been compared with industry management practices, management
control was overly centralized, and limited contract incentives
existed to improve efficiency and lower costs.  We estimate that
the application of industry performance levels would enable the
Reserve to eliminate approximately 329 positions and realize
potential annual savings of about $16 million.  Additional
staffing reductions of over 400 positions may be possible.
However, further analysis will be required of the staffing
requirements for selected functional areas and manager positions
to accurately establish the staffing reductions that are
practicable.
 
RECOMMENDATIONS
 
     We recommend that the Assistant Secretary for Fossil Energy:
 
     1.  Direct that actions be taken to implement the staffing
reductions described in Part II of this report for eight
functional areas by improving performance levels through
redesign of work processes, revisions in organizational
operating policies and procedures, further automation of
systems, and obtaining appropriate waivers from
Departmental orders and other regulations.
 
     2.  Implement a 3 year goal to reduce overcentralization and
increase the span of control for Reserve managers to an
average of one manager for each 10 subordinates, and to
reduce total staffing levels by the number of
supervisory positions so eliminated.
 
     3.  Require further research and analysis of the potential
long term staffing reductions listed in Appendix D of
the report to determine the specific number of positions
that should be eliminated to improve efficiency,
productivity, and operating costs.
 
     4.  Provide contract incentives for the management and
operating contractor and Federal managers to reduce
staff and operating costs for the Reserve.
 
     5.  Ensure that Reserve staffing requirements are evaluated
on a periodic basis by using appropriate benchmarks,
comparative statistics, and other performance measures
from the private sector and/or other Departmental
management and operating contractors.
 
MANAGEMENT REACTION
 
     The Assistant Secretary for Fossil Energy indicated that
corrective actions would be taken to address each of the report
recommendations.  The Assistant Secretary did not agree with the
estimated savings cited in this report because of major
reservations concerning the scope and methodology used to develop
staffing needs.  For this reason, the Reserve planned to conduct
additional analysis to arrive at what it considers to be
appropriate staffing levels.  Details on managements comments
along with our response, are included in Appendix C of the
report.
 
 
                        DETAILS OF FINDING
 
INITIATIVES TO IMPROVE STAFF EFFICIENCY AND REDUCE COSTS
 
     Many companies in the private sector have undertaken
aggressive programs to redesign work processes to improve their
competitiveness and cost effectiveness.  An integral part of
these initiatives is the "benchmarking" of staffing practices and
performance levels with those of other companies to identify and
adapt successful approaches and practices of these other
companies.  Work processes are streamlined by using benchmarks
and other work process redesign techniques.  Further, a current
trend in the staffing practices of many companies is to
decentralize operations by delegating responsibility and
accountability and then reducing the layers of management and
managers.
 
     In recent years, similar initiatives were undertaken by the
Federal Government to improve the efficiency and economy of
Federal programs.  To illustrate, in April 1994 the Secretary
issued a strategic plan entitled Fueling a Competitive Economy.
This plan included goals and strategies relating to the manner in
which the Department will conduct operations, including
management practices.  One of the goals for management practices
was that the Department and its contractors embrace the best
management practices in industry and other Government departments
and agencies.  The objective was to improve processes and
customer satisfaction, prevent defects, and eliminate waste.
Moreover, the National Performance Review report stated that a
goal of the Federal Government was to reduce the number of
managers by about 50 percent in order to prune unnecessary layers
of management.
 
     For Federal Government agencies to fully realize the same
benefits as those attained by the private sector it may be
necessary to revise or obtain waivers from selected Federal or
agency regulations.  The need for such revisions or waivers is
demonstrated by the experiences of the Bonneville Power
Administration.  This Federal agency had identified 250
regulations which slowed production and provided no value to
customers.  The estimated annual cost of meeting the requirements
in these regulations was $6 million and required over 90
full-time employees.  As of mid-1994, the Bonneville Power
Administration had obtained waivers to 163 of the 250
regulations.  We concluded that the current emphasis on Federal
Government reinvention may provide a unique window of opportunity
to obtain those waivers needed to make Reserve operations more
cost effective without compromising safety, security, and the
overall strategic plan for this Department.
 
APPLICATION OF INDUSTRY PRACTICES COULD REDUCE STAFFING NEEDS
 
     For the most part, the Reserve's staffing practices and
performance levels did not compare favorably with industry and
other organizations.  We compared Reserve performance levels and
staffing practices with those in industry for 11 functional
areas.  We found that the Reserve's staffing levels exceeded
those considered necessary by other companies and organizations
for the accomplishment of similar functions.  This is most
evident from our comparison of performance levels and the span of
management control.  Concerns in these areas were recognized by
DynMcDermott in its proposal on the current contract, in which it
stated that gains in productivity and reductions in the span of
management control were key factors to realizing improved
efficiencies.
 
     Performance measures and benchmark data from various
companies for 8 of the 11 functional areas was of sufficient
detail and substance to warrant immediate/near term action
(within 1 year) by Reserve management to reduce staff.  Our
analysis indicated that Reserve staffing levels in these eight
functional areas exceeded average industry staffing levels by
about 329 positions, including 45 management positions.  (See
Appendix D for details by functional area.)
 
     Our analysis showed that additional long term reductions of
over 400 positions are possible.  For instance, staffing
reductions involving another 303 positions may be warranted in 10
of the 11 functional areas.  However, additional analysis by
management will be necessary to determine which of these
potential staffing reductions are appropriate.  Furthermore, we
estimated that the Reserve could eliminate another 139 management
positions by increasing the span of management control to that
being obtained by other companies and organizations. (See
Appendix D for details by functional area.)
 
     For example, DynMcDermott's operations compared unfavorably
with two other Departmental management and operating contractors
for selected support functions.  This conclusion provides another
basis for the staffing reductions proposed in this report.
DynMcDermott's support staff was significantly larger, as a
percent of total staff, than those of two other Department of
Energy contractors as shown in Table 2.
 
      +--------------------------------------------------------------+
      |                                                              |
      |                           Table 2                            |
      |                                                              |
      |                Comparison of Staffing For                    |
      |                Selected Support Functions                    |
      |                                                              |
      |                                       Reynolds    EG&G       |
      |                         DynMcDermott  Electric  Rocky Flats  |
      |                                                              |
      |   Total Support Staff @      174         262        232      |
      |                                                              |
      |   Total Staff              1,349       3,087      6,337      |
      |                                                              |
      |   Support Staff As                                           |
      |     Percent of Total Staff  12.9%       8.49%      3.66%     |
      |                                                              |
      |   Note:  @  Support staff includes human resources, finance  |
      |             and administration, project planning and control,|
      |             and procurement and property.                    |
      +--------------------------------------------------------------+
 
     Details on our findings relating to performance levels for
the eight functional areas cited above, and the span of
management control are discussed in the following sections of the
report.
 
Performance Levels
 
     Security
 
     The Reserve had a significantly higher number of security
personnel for Reserve facilities than was experienced by
industry.
 
     The Reserve had 291 personnel involved in the physical
security of Reserve facilities, of which 268 were employed by
Wackenhut, a subcontractor of DynMcDermott.  Of the 268 Wackenhut
employees, 227 were guards with the remaining 41 employees being
responsible for training, management, and support functions.  All
but 26 of the guards were located at the six field sites.
Twenty-three Department and DynMcDermott personnel were involved
in program administration and oversight functions.  Security
staffing requirements are essentially directed by the Reserve's
Site Security Plan.  This plan delineates the potential threats
to Reserve facilities and the staffing to counter potential
threats.
 
     The Reserve employed about 3.6 times more guards than the
average number employed by industry.  The Reserve had 227 guards
at seven locations for an average of 32.4 guards per location.
For comparison with industry practices, we relied upon data
obtained by Security Magazine in 1992 from an extensive survey of
security management practices in industry.  The 150 companies
participating in the Security Magazine survey had an average of 9
guards per site.
 
     The average staffing levels reflected in the results of the
Security Magazine survey were higher than those at seven
petroleum facilities.  We contacted six petroleum refineries and
a petrochemical plant and determined that these facilities had an
average of 5.5 guards.
 
     Moreover, the logic behind concentrating large numbers of
guards at Reserve crude oil storage sites requires careful
scrutiny.  This policy provided only limited assurance that crude
oil stocks may be successfully transferred and used by petroleum
refineries.  Under the current arrangement, should drawdown
occur, the Reserve's crude oil was subject to major
vulnerabilities for which the Reserve's security force did not or
could not provide protection.  Because of security factors we are
precluded from describing these vulnerabilities in this report.
However, current staffing of guards at the Reserve's sites is
highly questionable.
 
     The Pacific Northwest Laboratory, a Department of Energy
facility, operated by Battelle Memorial Institute, conducted a
vulnerability assessment of Reserve sites in 1993 and concluded
that the level of site security should be reduced.  The report
recommended that the level of protection be made consistent with
an industrial security program and Departmental Order 5632.6,
"Physical Protection of DOE Property and Unclassified
Facilities," which would enable the Reserve to reduce the number
of overhead and protective force positions.  The report did not
indicate the specific number of positions that could be
eliminated.
 
     We concluded that the Reserve could reduce guard staffing
levels to an average of 11 per site, which is still substantially
higher than industry averages.  As a consequence, 150 guard
positions could be eliminated (includes 21 manager positions).
The proposed staffing level would permit the continuation of full
time rovers for each shift.  With a smaller guard staff,
complementary reductions should also be possible in the
administration, oversight and support areas of the security
function.
 
     Procurement and Property
 
     The productivity of the personnel who staff the procurement
and property function was from 25 to nearly 90 percent below that
of petroleum industry companies and other major Departmental
management and operating contractors.
 
     The Reserve had 132 personnel involved in procurement and
property functions.  The bulk of the procurement and property
personnel, 113 individuals, were employed by DynMcDermott, of
which 63 employees were located in New Orleans and 50 were
located at field sites.
 
     Three external sources of benchmark data were used for our
comparisons of industry and Reserve staffing levels for the
procurement and property function.  One involved a study
conducted by Arizona State University's Center for Advanced
Purchasing Studies of 20 petroleum companies.  The second source
was a consultant study of four petroleum companies.  The third
source involved data obtained as part of Office of Inspector
General audits involving other Departmental management and
operating contractors.
 
     Our comparisons showed that DynMcDermott had five times as
many procurement personnel as the average number of procurement
personnel for 20 petroleum companies included in the Arizona
State University study (for our comparisons we included the 56
DynMcDermott employees assigned to procurement functions).  Yet
it only purchased about 11 percent of the average dollar value
procured per employee (for a 12-month period) by these 20
companies -- $.95 million versus $8.5 million.
 
     We also evaluated the productivity of DynMcDermott's
employees with that of employees from petroleum companies.  In
all cases, the productivity of the petroleum companies was
significantly higher than that of DynMcDermott with respect to
the purchase orders processed, inventory maintained, and line
items received by procurement and storeroom employees.  The
results of our comparisons are shown in the following table:
 
 
  +-----------------------------------------------------------+
  |                                                           |
  |                         Table 3                           |
  |                                                           |
  |             Comparison of Performance Between             |
  |           DynMcDermott and Petroleum Companies            |
  |                                                           |
  |                                               Petroleum   |
  |                               DynMcDermott    Companies   |
  |                                                           |
  |  Purchase orders per employee      173 @        1,531     |
  |  Blanket purchase orders                                  |
  |    per employee                      6 @           16     |
  |  Inventory (Line items)                                   |
  |    per employee                    321 @        2,751     |
  |  Line items received                                      |
  |    per employee                    278 *        2,355     |
  |                                                           |
  |  Note:  @ Based on total number of procurement employees. |
  |         * Based on total number of storeroom employees.   |
  |                                                           |
  +-----------------------------------------------------------+
 
 
     In addition, we compared DynMcDermott's performance in this
functional area with that of other Departmental management and
operating contractors, which are more similarly situated in terms
of procurement requirements than companies in the private sector.
We found that the performance levels of five other Departmental
management and operating contractors also exceeded that of
DynMcDermott, in some cases by a very wide margin, as shown in
Table 4.
 
 
 
 +-------------------------------------------------------------+
 |                                                             |
 |                           Table 4                           |
 |                                                             |
 |                  Comparison of Performance                  |
 |          Between DynMcDermott and Other Contractors         |
 |                                                             |
 |                                        Per Employee         |
 |                                  Procurement   Procurement  |
 |         Contractor                 Actions       Dollars    |
 |                                               (in millions) |
 |   DynMcDermott                       173          $ .95     |
 |   Martin Marietta Energy Systems   1,536           3.30     |
 |   EG&G Rocky Flats                   748           3.25     |
 |   Reynolds Electrical & Engineering  307           1.50     |
 |   Westinghouse Waste Isolation Div.  237           1.36     |
 |   Westinghouse Savannah River Co.    232           2.50     |
 |                                                             |
 +-------------------------------------------------------------+
 
     Energy Systems appeared to be the most productive of the
management and operating contractors we evaluated.  Two factors
contributing to the productivity level of Energy Systems were the
extent of automation and differences in procurement processes.
Energy Systems used an automated procurement system that
significantly reduced the amount of time required by buyers to
process individual procurement actions.  Also, Energy Systems
used a large number of blanket purchase orders and had a high
dollar threshold for competitive procurements, which reduced the
amount of paperwork and manpower required to process procurement
actions.
 
     If the Reserve attained the same level of productivity as
Energy Systems and the other petroleum companies it could
eliminate 64 procurement and property positions (includes 15
manager positions).  Such a reduction would require increased
automation; streamlined and revised procurement policies
including increased use of blanket purchase orders and multiple
year subcontracts; reduced reporting requirements; and
consolidated storerooms.  All of these actions represent
significant improvements over existing processes.
 
     Maintenance and Materials
 
     The Reserve's staffing of the maintenance and materials
function exceeded by up to five times those of a refinery and
petrochemical plant for similar activities.  One exception was
the number of instrument and control technicians and electricians
employed by the petrochemical plant.
 
     The maintenance and materials function had primary
responsibility for maintenance programs, logistics support,
on-site technical assistance, and inventory management.  Of the
322 positions in this function, 308 were staffed by DynMcDermott
employees and 14 by Departmental employees.
 
     The following table summarizes the results of our
comparisons with a refinery and petrochemical plant.
 
 
  +-----------------------------------------------------------+
  |                                                           |
  |                         Table 5                           |
  |                                                           |
  |                Comparison of Staffing for                 |
  |                  Maintenance Functions                    |
  |                                                           |
  |                                              Petrochemical|
  |                            Reserve  Refinery     Plant    |
  |                                                           |
  |  Maintenance Planning Staff                               |
  |  Planning Staff as                                        |
  |    percent of total                                       |
  |    maintenance staff          9%        4%        5%      |
  |                                                           |
  |  Mechanics                                                |
  |  Pumps and motors                                         |
  |    maintained per employee    13        70        51      |
  |                                                           |
  +-----------------------------------------------------------+
 
     As Table 5 shows, the refinery and petrochemical plant used
in our study were able to function with a much smaller
maintenance planning staff, in proportion, than was the Reserve.
The private sector companies also were able to assign maintenance
responsibilities for pumps and motors to fewer employees than the
Reserve.  We believe these are important indicators of Reserve
overstaffing.  If the Reserve could obtain the same level of
productivity for the planning staff and mechanics as that
attained in industry the Reserve could eliminate 35 positions in
the maintenance and materials function.
 
     Operations
 
     If the Reserve followed industry practices for the staffing
of operations shift teams it could reduce staffing levels.
 
 
     The operations function is primarily responsible for
managing site operations to maintain drawdown readiness and to
ensure that crude oil meets required specifications.  Two hundred
forty six individuals were assigned to this function, including
207 DynMcDermott employees, 30 Departmental employees and 9 other
contractor employees.
 
     Reserve practices relating to the size, number, and
composition of operations shift teams resulted in increased
staffing compared to those practices generally followed in the
petroleum industry (excludes supervisory positions).  This
conclusion was reached based on the following comparisons of
Reserve and industry practices:
 
     o  The Reserve used full-size shift teams for all shifts and
for all days of the week.  Such a practice is not
followed by petroleum refineries.  The operations shift
teams at refineries are smaller in size after daylight
hours or on weekends even though the process runs
continuously.  Minimum staff is provided at the
refineries until the day shift returns.
 
     o  The Reserve had five operations shift teams with one of
the teams being a relief team, whereas, industry normally
operates with four shift teams, including the relief
shift team.  While the use of five teams reduces total
overtime costs, such savings are more than offset by the
increased costs of salaries and fringe benefits for the
members of the fifth shift team.
 
     o  Staffing levels for the Reserve relief teams were about
50 percent greater than for industry relief teams.  About
16 percent of the Reserve's operations staff were
assigned to the fifth or break shift team, whereas in
industry the break shift accounted for about 5.5 to 8.5
percent of the total operations staff.
 
     o  Each relief shift had a shift supervisor and control room
operator.  This overlap is redundant and not found in
industry.
 
     o  It is questionable whether rovers are needed at the sites
since all systems are electronically monitored from the
control room and security guards rove the sites and
should be able to easily spot any major fluid leaks.
 
     If the Reserve followed industry practices for the staffing
of operations shift teams it could eliminate 31 positions,
including 6 manager positions.
 
     Project Planning and Control
 
     Certain project planning and control activities were also
staffed in excess of that normally found in industry.
 
     Included in the project planning and control function were
such activities as support and operation of computer equipment
and systems, office services, program scheduling, publications,
mail room, and communications.  Included in the 145 employees
assigned to this function, 90 were DynMcDermott or DynMcDermott
subcontractor employees, 15 were Departmental employees, and 40
were employees of other contractors or subcontractors.
 
     Staffing of project planning and control functions could be
reduced by 23 positions (including one manager) through the
consolidation of common support activities, increased reliance on
commercial sources for computer software, and changes in the
tracking of program activities.
 
     Consolidation of activities.  Both the Project Management
Office and DynMcDermott operated mail distribution and
graphics activities.  The consolidation of these activities
would enable the Reserve to eliminate four positions.
 
     Reliance on commercial software.  About 50 percent of the
staff of the Management Information Systems group was
dedicated to computer applications software and software
development and upgrade efforts.  Much of the current
programming workload is for systems where commercial
packages are available or could be satisfied through the
outsourcing of such work to commercial vendors.  Such
changes in the software area would enable the Reserve to
eliminate 14 positions in the Management Information Systems
group.
 
     Tracking of programs.  An excessive amount of time and money
is devoted by the Reserve to the tracking of detailed
milestones.  DynMcDermott tracked about 900 separate
milestones.  Such detailed tracking exceeded normal industry
practices.  If the number of milestones to be tracked were
reduced and/or the tracking was delegated to the responsible
management level, we estimate that about five positions
could be eliminated.
 
 
 
 
 
     Quality Assurance
 
     The Reserve had devoted a greater number of resources to the
quality assurance function than that normally found in the
private sector.
 
     The quality assurance function is responsible for
developing, managing, and overseeing the implementation of
quality assurance criteria, procedures, and techniques by other
Reserve organizations.  Included in the 68 individuals assigned
to this function are 51 DynMcDermott employees, 7 Departmental
employees, and 10 from another Federal agency.  Of the 51
DynMcDermott employees, 27 were located at field sites.
 
     The trend in quality management over the past 10 years has
been to reduce quality assurance staffs and to integrate quality
practices into the planning and execution of each organizational
level.  Such integration of quality is called "internalized
quality".  Many oil and gas companies had successfully
internalized quality, and quality departments were typically very
small central units consisting of quality specialists.  These
quality specialists are responsible for:
 
     o  Setting quality standards and guidelines in consultation
with operating units;
 
     o  Providing expertise and advise to operating units; and
 
     o  Conducting periodic reviews and audits of quality related
practices and flagging problem areas;
 
     We found that the Reserve had made significant progress in
internalizing quality practices.  This should allow the Reserve
to operate with fewer quality personnel.  Based on industry
practices and our activity analysis, two quality assurance
personnel at each field site, or 12 employees, plus 6 chemists/
laboratory technicians should be sufficient for Reserve
requirements.  This would result in the elimination of nine
quality assurance positions at field sites.
     Finance and Administration
 
     The Reserve could improve its performance levels based on
our comparison with the performance level of companies in the
private sector.
 
     The Reserve had 76 employees involved with finance and
administration functions.  Of this number, 42 were employed by
DynMcDermott and its subcontractors, and 34 were assigned to the
Project Management Office and Headquarters (18 were Departmental
employees, and 16 were employees of another contractor).
 
     For comparison purposes, we used a benchmark study completed
in 1994 by KPMG Peat Marwick LLP based on inputs from 130
commercial entities.  Based on our comparisons, the Reserve's
productivity for finance activities was substantially below the
average for companies in the KPMG Peat Marwick LLP study.
Further, the cost per processed unit was significantly higher
than those reflected in the study.  The following are
illustrative of the results of our comparisons between the
Reserve and companies included in the KPMG Peat Marwick LLP
study.
 
 
  +--------------------------------------------------------+
  |                                                        |
  |                         Table 6                        |
  |                                                        |
  |             Comparison of Performance Levels           |
  |            Between the Reserve and KPMG Study          |
  |                                                        |
  |                                                        |
  |                                            KPMG Study  |
  |                                              of 130    |
  |                               Reserve       Companies  |
  |  Finance staff as percent                              |
  |   of total staff                4.5%           3.4%    |
  |                                                        |
  |  Project Management Office -                           |
  |     cost per unit                                      |
  |     Accounts payable           $89.31         $3.17    |
  |     Travel vouchers             43.47          5.95    |
  |                                                        |
  |  DynMcDermott - cost per unit                          |
  |     Accounts payable           $32.22         $3.17    |
  |     Travel vouchers             26.32          5.95    |
  |     Payroll                      4.48          3.04    |
  |                                                        |
  +--------------------------------------------------------+
 
     If the Project Management Office and DynMcDermott were able
to attain the same performance levels as the average companies in
the study, we estimate that 11 finance positions could be
eliminated.  The 11 positions did not include any supervisory
positions.
 
     Human Resources
 
     Our comparison of the Reserve's staff for human resources
functions with industry performance levels also indicated
inefficiencies.
 
     The Reserve has 22 individuals involved in such human
resources functions as employee relations, compensation and data
services, employee benefits, public affairs, and training and
developmental activities.  Of the 22 positions, 7 are filled by
Departmental employees, and 15 by DynMcDermott and a
subcontractor.
 
     Reserve officials contended that DynMcDermott needed a large
human resources staff to develop basic human resource policies
and procedures because DynMcDermott was a new corporation
specifically created to manage the Reserve.  Such a need appears
questionable based on the size and experience of the companies
that comprise DynMcDermott and their prior dealings with the
Federal Government, including the Department of Energy.
DynMcDermott was owned by four large and mature corporations
which undoubtedly have extensive human resource capabilities.
Moreover, three of the four companies had previously done
extensive work for the Department.
 
     The Reserve staffing levels exceeded the average staffing
levels in the Bureau of National Affairs Survey No. 59 of Human
Resources Activities, Budgets, and Staffs for the years 1993 and
1994.  The number of human resources employees per 100 employees
was 2.4 for the Project Management Office and 1.4 for
DynMcDermott.  The Bureau of National Affairs survey showed an
average ratio 1.5 for an organization the size of the Project
Management Office and 1.0 for DynMcDermott.
 
     If the Project Management Office and DynMcDermott attained
the same level of performance as that of the average companies in
the Bureau of National Affairs survey it could eliminate six
positions in the human resources functional area.  The six
positions included two manager positions.
 
 
 
Span of Management Control
 
     The current trend in industry and the Federal Government is
to reduce the layers of management as well as the numbers of
managers with the objective of lowering costs and improving
quality.
 
     Layers of Management
 
     The Reserve had about twice as many layers of management as
the petroleum industry.  The Reserve's layers of management
averaged about 13 and reached from the Deputy Assistant Secretary
for Strategic Petroleum Reserve to the lowest level of management
at the storage sites.  This compared to an average of about seven
layers for a large, multi-site, integrated oil company.  The
number of management layers for a typical integrated oil company
was computed from the chief executive officer to the lowest level
of management at a refinery.
 
     The major factor contributing to the high number of layers
of management was that multiple organizations were involved in
the operations, management, and oversight of Reserve operations.
The three major organizations being the Department, DynMcDermott,
and Wackenhut.  Because of the differing responsibilities and
contractual relationships it would be difficult to reduce the
number of layers of management to the average number in the
petroleum industry.  However, such obstacles do not exist with
respect to reducing the numbers of managers within each of the
organizations as discussed in the following section of the
report.
 
     Number of Managers
 
     The Reserve also had an excessive number of managers
compared to the petroleum industry and other organizations.  The
average ratio of managers to subordinates in the petroleum
industry was about 1 to 6, with leading edge companies moving
towards a ratio of 1 to 10.  A world class company with
world-wide organizations had ratios that significantly exceeded 1
to 10.  Seven other Departmental management and operating
contractors had ratios ranging from 1 to 7 to 1 to 18.  Further,
the National Performance Review had established a goal of 1
manager for each 15 subordinates for Federal departments and
agencies.  In contrast, the average ratio of managers for the
Reserve was 1 to 3.8.  Ratios for individual elements were: 1 to
3.2 for Departmental activities; 1 to 3.5 for Wackenhut; and 1 to
4 for DynMcDermott.
 
 
     DynMcDermott exceeded the average number of employees
supervised by managers of seven other Departmental management and
operating contractors by 75 to 350 percent as shown in Table 7.
One of the contractors with a ratio of 1 to 7 was moving towards
a ratio of 1 to 10.
 
 
 +--------------------------------------------------------------+
 |                                                              |
 |                           Table 7                            |
 |                                                              |
 |                 Comparison of Span of Control                |
 |             For Selected Departmental Contractors            |
 |                                                              |
 |                                                              |
 |                                 Average Number    Percent    |
 |                                  of Employees   Higher than  |
 |         Contractor                Supervised    DynMcDermott |
 |                                                              |
 |   DynMcDermott                        4                      |
 |   Westinghouse Waste Isolation Div    7             75       |
 |   Sandia National Laboratories        7             75       |
 |   Martin Marietta Energy Systems      7             75       |
 |   EG&G Rocky Flats                    7             75       |
 |   Westinghouse Hanford                8            100       |
 |   Reynolds Electrical & Engineering   9            125       |
 |   EG&G Idaho Falls                   18            350       |
 |                                                              |
 +--------------------------------------------------------------+
 
 
     A significant portion of the Reserve's 295 managers
(Department, DynMcDermott, and Wackenhut) supervised small
numbers of subordinates.  For example, over 60 percent of
DynMcDermott's 197 managers supervised 5 or fewer employees.
 
     We believe that an average ratio of 1 manager to 10
subordinates is a reasonable and attainable goal for the Reserve.
Some managers would have fewer subordinates while most would have
a greater number of subordinates.  The implementation of this
average ratio would result in a significant reduction in the
number of Reserve managers.  We estimate that the application of
such a ratio would eliminate 184 managers (includes 45 manager
positions discussed in the preceding section of the report
dealing with performance levels) and lead to reductions in
overall staffing of the Reserve.
 
 
 
     Besides inflating staff and costs, excessive numbers of
managers and layers of management contribute to inefficient
operating practices which could lead to:
 
     o   Unreasonable delays in the decision-making process;
 
     o   Duplication of work effort by two or more organizations;
 
     o   Proliferation of paperwork to provide higher level
managers with information needed to make decisions; and,
 
     o   Lack of accountability.
 
FACTORS CONTRIBUTING TO HIGHER THAN NEEDED STAFFING LEVELS
 
     These inefficiencies existed because Reserve staffing needs
were not compared with industry management practices, management
control over operations was overly centralized, and inadequate
contract incentives existed to improve staff performance and
lower costs.
 
Comparisons with Industry
 
     Neither the Department nor DynMcDermott had validated or
evaluated current staffing levels for Reserve activities with
industry practices, benchmarks, or other performance data for
similar functions.  The only detailed analysis of Reserve
staffing requirements was conducted in 1990 by Boeing which was
limited to staffing needs of the Reserve management and operating
contractor.  No evidence existed that this analysis considered
management practices or performance levels in industry in
evaluating the reasonableness of current and planned staffing
levels.
 
Highly Centralized Management Control
 
     The trend in the private sector is to decentralize the
decision-making process.  Such initiatives have contributed to
improved quality of products, increased efficiency and
productivity, and reduced operating costs.
 
     The Reserve has moved in an opposite direction by overly
centralizing management over Reserve operations.  This is evident
from the fact that over 50 percent of the Reserve employees (874
out of 1,692) were located in Department headquarters activities
in Washington, D.C., and New Orleans, and DynMcDermott
headquarters activities in New Orleans.
 
     The centralized control was a primary factor contributing to
unnecessary layers of management and excessive staff.  This
centralized control had evolved into a process whereby Department
activities issued detailed work guidance to contractors who
prepared detailed implementing guidance.  The Department then
monitored the implementation and frequently requested the
contractor to provide the Department with detailed reports.
DynMcDermott was required to submit 317 different types of
reports to the Department (See Appendix E).  Many of these
reports covered minor or inconsequential matters and flowed from
the lowest level at field sites, up through DynMcDermott and the
Project Management Office headquarters to the Project Manager.
Examples of such reports are discussed below:
 
     o   A recent weekly maintenance and operations report for
the Project Manager contained information on a spill of
one quart of oil, a subcontractor employee who tripped
over a shovel, and an employee who was stung by an
insect.
 
     o   Daily security reports provided to the Project Manager
and other senior Project Management Office and
DynMcDermott executives included information on the
denial of access to a sales representative because she
was not a U.S. citizen, a guard who had a flat tire, and
a fight between two subcontractor employees.
 
     The preparation and processing of such reports increases
workload of senior Reserve managers and contributes little, if
anything, to the efficient operations of the Reserve.
 
     The centralized management philosophy also resulted in a
pervasive culture of multiple reviews, committees and approvals
that not only hinders decision-making, but also dilutes
accountability for decisions.  Simple tasks had become complex
processes.  Compared to industry where a telephone call could
obtain needed services or materials, in the case of the Reserve
such services or materials would require the submission of
multiple forms and approval by several management levels.
Approvals by up to eight DynMcDermott employees were required to
purchase a non-stock item, even one costing only $1.50.
Incentives to Eliminate Staff and Lower Costs
 
     The Department had not provided DynMcDermott with sufficient
financial incentives to improve staff efficiency and lower costs.
To the contrary, Departmental contracting practices tended to
encourage the management and operating contractor to increase or
maintain current staffing levels.  This is evident from the
following two examples.
 
     o   The Department's request for proposal on the current
Reserve management and operating contract required that
the successful contractor hire the entire incumbent
Boeing work force except for a few key managers.  As a
result, the Department lost a unique opportunity to
critically evaluate Reserve staffing needs and realize
substantial reductions in staffing levels and program
costs.
 
     o   We were told by a senior Reserve management official
that if any Reserve field sites were leased the staff
currently assigned to those sites would not be
terminated but, instead, would be reassigned to another
Reserve field site.
 
     Although DynMcDermott had reduced its staff since April 1,
1993, most of these reductions were offset by increases in
subcontractor staff.  In its proposal on the current management
and operating contract, DynMcDermott stated that it planned to
reduce staffing by 78 positions no later than October 1, 1993.
DynMcDermott did eliminate 78 positions from its organization
and, at May 31, 1994, its total staff was 978.  However, at the
same time, it increased the subcontractor staff by 54 positions,
so that the net reduction in staffing was 24, not 78.
 
     Moreover, the contract performance award fee criteria for
the Departmental contract with DynMcDermott did not contain
sufficient potential rewards or additional fees for staffing
reductions realized by DynMcDermott.  For example, one of the
award fee criteria for the first half of Fiscal Year 1994 was for
DynMcDermott to "Continue to maintain staffing levels to meet the
average headcount for FY 1994 of 978."  The use of
cost-plus-award fee contracts provides little incentive for
DynMcDermott to control costs and staffing levels, especially
since the fee is based in part on the estimated contract costs.
 
POTENTIAL SAVINGS
 
     Implementation of higher performance levels and an increase
in the span of management control would enable the Reserve to
realize significant reductions in salary and benefit costs.  We
estimate that if the Reserve attained the performance levels of
other companies and Departmental contractors for eight functional
areas it could eliminate approximately 329 positions in the
near-term and save about $16 million in annual salaries and
benefits.  The savings during the period of employee separations
would be reduced by any severance pay or unemployment benefits
received by the separated employees.  Table 8 shows a breakout of
the potential staffing and cost savings.
 
 
        +---------------------------------------------------------------+
        |                                                               |
        |                           Table 8                             |
        |                                                               |
        |                     Summary of Potential                      |
        |             Staffing Reductions and Cost Savings              |
        |                                                               |
        |                                Staff         Cost             |
        |                              Reductions     Savings           |
        |                                          (in millions)        |
        |                                                               |
        |    Security                     150        $ 5.982            |
        |    Procurement & Property        64          3.649            |
        |    Maintenance and Materials     35          1.996            |
        |    Operations                    31          1.767            |
        |    Project Planning and Control  23          1.292            |
        |    Finance & Administration      11           .627            |
        |    Quality Assurance              9           .513            |
        |    Human Resources                6           .371            |
        |                                                               |
        |      Totals                     329        $16.197            |
        |                                 ---        -------            |
        |                                                               |
        +---------------------------------------------------------------+
 
 
     Opportunities existed for further staffing reductions in the
future, possibly involving over 400 positions (see Appendix D for
details).  The realization of these staffing reductions would
require further increases in the span of management control and
the implementation of other industry practices and performance
levels.  However, more detailed analysis of these opportunities
by program officials is needed to validate these potential
reductions.
 
 
 
 
CONCLUSIONS
 
     This audit of staffing requirements for the Reserve has
identified a number of areas in which significant near term
reductions in staffing are possible.  We have also identified
other programmatic areas in which additional reductions are
possible based on further analysis by Reserve management.  If the
recommendations in this report are adopted by management,
fundamental changes in Reserve operations will be necessary,
requiring the active involvement of Departmental officials in
Headquarters, at the Reserve's Project Management Office in New
Orleans, and at the various other Reserve sites.  The Reserve's
major contractors will also play an important role in
implementing such changes.  Change is difficult in any
organization.  For that reason, we recognize that the actual
staffing reductions realized by the Reserve from the
implementation of the recommendations in this report will be
heavily influenced by several factors.  These include: the levels
of proficiency attained by the Reserve work force; the manner in
which the recommendations are implemented; the degree of success
in obtaining waivers from selective Departmental and other
Federal regulations; and the extent to which the organizational
alignments and operating systems are streamlined.
 
 
                             PART III
 
                 MANAGEMENT AND AUDITOR COMMENTS
 
     The Assistant Secretary for Fossil Energy, in responding to
a draft of this report, indicated that corrective actions were
underway or planned for each of the report recommendations.  The
Assistant Secretary did not agree with the staffing reductions
and related savings set forth in the report because of serious
reservations as to the adequacy of audit coverage and the
applicability of external benchmarks to the unique nature of the
Reserve's mission and operations.  For this reason, the Reserve
had undertaken a streamlining initiative to provide the
additional analysis needed to arrive at appropriate staffing
levels.  The Assistant Secretary stated that the information
contained in this report would be used as supporting information
for the streamlining study.
 
     The corrective actions outlined by the Assistant Secretary
are responsive to the intent of the report recommendations.
However, we do not agree with the management statements
concerning the deficiencies in audit coverage or the
applicability of the benchmarks used to compare with Reserve
activities.  Adequate consideration was given to definitive
current and future mission requirements and benchmarks used from
industry and other DOE contractors provided highly conservative
and reasonable estimates of the Reserve's staffing needs.
 
     The complete text of the Assistant Secretary's summary
comments on the audit methodology and recommendations is
contained in Appendix C, along with our comments.  The Assistant
Secretary provided additional detailed comments which we
considered in preparing this report and, where appropriate,
revisions were made to the report.
 
                                                       APPENDIX A
 
 
                   STRATEGIC PETROLEUM RESERVE
                        ORGANIZATION CHART
 
 
                                                       APPENDIX B
 
 
                        ABBREVIATIONS
 
 
    Abbreviations                  Title of Function
 
        PM                  Project Management
        PP&C                Project Planning and Control
        OPS                 Operations
        M&M                 Maintenance and Materials
        E&C                 Engineering and Construction
        ES&H                Environmental, Safety and Health
        QA                  Quality Assurance
        P&P                 Procurement and Property
        F&A                 Finance and Administration
        HR                  Human Resources
        SEC                 Security
        DOE HQ              Department of Energy Headquarters
        SPRPMO              Strategic Petroleum Reserve Project
                              Management Office
        DCMC                Defense Contract Management Command
        Tucker              Tucker and Associates, Inc.
        Wackenhut           Wackenhut Services, Inc.
        Walk Haydel         Walk, Haydel and Associates
        Mitre               Mitre Corporation
 
 
 
APPENDIX C
                                                    Page #=1  of 19
 
 
 
 
            ASSISTANT SECRETARY'S SUMMARY COMMENTS
 
                  ON OFFICIAL DRAFT REPORT
 
 
 
 
 
 
 
SUMMARY MANAGEMENT COMMENTS AND OFFICE OF INSPECTOR GENERAL REPLY
 
     Management took issue with the Office of Inspector General
approach and characterization of the findings.  Below are
management's verbatim comments and our reply thereto.
 
 
Management Comments
 
     Management questioned the consistency between the stated
objectives of the audit and what the audit actually accomplished.
Specifically, management stated that:
 
"Stated objectives of the audit were to 'assist...in evaluating
the human resources required to meet Reserve program
requirements' and 'to determine whether current staffing
levels...were necessary to effectively and efficiently accomplish
current and anticipated future mission requirements.'
 
The report does not address, in sufficient detail, the current
and future anticipated requirements of the SPR, nor does it
demonstrate that an in-depth analysis of 'requirements' was
performed to arrive at the staffing recommendations.  Rather, the
report relies extensively on a 'numbers' comparison of industry
staffing practices and performance levels to those of the SPR,
the comparability of which is not fully established, without a
discussion of the 'requirements' that underline these statistics.
Therefore, the audit did not achieve its stated objective of
matching staffing levels with mission requirements.  Staff
reductions are advocated on questionable grounds leaving it to
the SPR to redefine its mission requirements to be that which is
achievable with the recommended staffing levels.  Most changes to
the SPR mission requirements would necessitate policy changes
requiring Presidential, Congressional, and/or Secretarial
approval.
 
The report also states that 'the audit was requested...for the
purpose of assisting Departmental Management in ensuring that
human resources were properly aligned with program priorities...'
However, the report does not address program priorities or relate
staffing considerations to them."
 
 
Auditor Reply
 
     We disagree.  The review effort expended on this audit was
comprehensive and of sufficient scope to satisfy the purpose and
objective of the audit.  Details on the scope and methodology of
the audit are set forth on pages 3 through 5 of the report.
 
     We fully considered current and known future requirements
impacting upon the mission of the Reserve in developing our
estimates of staffing needs.  Also, we performed sufficient
"in-depth" analyses.  For example, we:
 
     o  Conducted interviews with over 100 senior Department and
DynMcDermott officials to gain an in-depth understanding
of Reserve requirements;
 
     o  Visited Department and DynMcDermott offices in
Washington, D.C., New Orleans, and  four Reserve field
sites;
 
     o  Reviewed about 80 major documents covering regulations,
orders, studies, and plans impacting upon the Reserve;
 
     o  Utilized management consultants from a major public
accounting firm which had conducted over 150 studies of
the organizational structure and staffing of major
petroleum and petrochemical companies; and
 
     o  Analyzed, in detail, a 1990 staffing study by the prior
management and operating contractor at the Reserve.
 
                        *   *   *   *   *
 
 
Management Comments
 
     Management questioned the comparability of Reserve
activities with the petroleum and petrochemical industries and
said that:
 
"Without any significant comparative requirements analysis in the
report, there is questionable validity of the IG's comparisons of
the benchmark industry staffing practices and performance levels
to those of the SPR given the many differences between industry
and SPR requirements and operating environment.  Organizations
which are driven by a different set of requirements will exhibit
different performance characteristics.  Comparison of the SPR and
its mission to commercial oil business can be misleading and
presents the following comparability issues that were not
addressed by the report:
 
1.  The SPR is a 'Strategic' Federal facility in a unique role of
long-term storage of large volumes of oil as opposed to a
private commercial production facility with routine daily
operations.  The SPR has mission readiness requirements to be
capable, within 15 days of a Presidential declaration, to
move approximately 50 times the throughput of the benchmark
facilities (4.5 million barrels of crude oil per day and 4.5
million barrels of water per day) that is far in excess of
the capability of any one oil company's facilities in the
United States.  In a drawdown, the SPR sells and distributes
oil to numerous buyers at numerous locations, in more
compressed time frames than industry, whereas a commercial
oil business would be responsible for far fewer plant
locations, with daily operations that are familiar and
routine.  The benchmark facilities adjust staffing based on
fluctuating workloads and business conditions, whereas the
SPR must staff to achieve a continuous state of operational
readiness at six geographically dispersed sites, and 315
miles of large diameter pipelines.
 
2.  The SPR is a unique National Security Asset and therefore,
    its security posture should not be necessarily compared to a
    profit-based 'industry standard.'  The SPR security program
    is based on a Department-approved threat statement and an
    approved Site Security Plan that established the overall
    security posture, staffing, and physical protection systems
    necessary to reasonably protect the Reserve's mission
    capability, personnel, facilities and equipment from
    malevolent acts such as sabotage, vandalism, and theft.  The
    auditors recommended staffing reduction would not allow the
    SPR to conduct its currently-approved security mission.  It
    is questionable whether an industry standard can be
    legitimately applied to the SPR in light of its
    Congressional-mandated mission and operational readiness
    requirements.
 
3.  A major portion of the SPR and its contractor staffs are
    devoted to monitoring cavern integrity, analyzing cavern and
    mine data, scheduling, supervising, and performing
    workovers, and associated sampling of the oil storage
    caverns and brine disposal wells.  None of these functions
    are preformed by the benchmark industries that the IG used
    for staffing comparisons.  The IG report does not address
    these Cavern Operations and Cavern Engineering functions of
    the SPR staff.
 
4.  SPR, as a Federal Facility, is not only subject to all the
    laws and regulations governing private industry activities,
    but is also subject to additional Federal Government
    regulations and policies designed to promote a wide variety
    of public interests such as compliance with the National
    Environmental Policy Act and use of Small and Disadvantaged
    business.  These additional requirements add resource
    requirements to SPR operations, however, the report appears
    to ignore them.  Unlike private enterprises, SPR does not
    operate with the 'measuring stick' of the profit line as it
    pursues effective programs that are in accordance with the
    Federal Government regulations and policies."
 
 
Auditor Reply
 
     We normalized benchmarking data from industry to reflect
the Reserve's unique characteristics so that comparisons with
industry would include explicit adjustments for unique Reserve
requirements.  Reserve operations are more comparable to the
commercial sector than most other major Departmental facilities.
The benchmarks used were not for those companies considered to
be "Best-in-Class" but rather, they were for the average or
median companies.  Therefore, the benchmarks used were
conservative with respect to comparisons with the Reserve.
 
     While it is often desirable to use similar companies or
industries for benchmarking purposes, seemingly dissimilar
companies can be where organizations have similar functions. To
illustrate, Xerox Corporation, an information technology
company, benchmarked its operations with performance data from
L. L. Bean, a clothing distributor, to identify opportunities
for improving the efficiency of its distribution and logistics
systems.  The key in benchmarking is to identify a common
denominator (such as major items of equipment maintained) and to
compare similar job descriptions.  While end products and/or
services may vary, the process to manufacture products or
provide services is very similar allowing for realistic
benchmarking.
 
     We agree with management that differences do exist between
an oil refinery/chemical plant and Reserve facilities
(management item number 1 above).  But it is the similarities
that count.  Both facilities maintain similar items of
equipment, such as, valves, transmitters, motors, and pumps.
Mechanics at an oil refinery repair valves and pumps as do
mechanics at Reserve facilities.  Also, both facilities
maintained equipment of differing age, manufacturer, and size,
but the types of maintenance performed on the equipment was
basically the same.  Our comparison focused on the number of
items of major equipment maintained per mechanic at the oil
refinery and petrochemical plant with the number maintained by
mechanics at Reserve facilities.  Although the Reserve
facilities were designed to transfer 4.5 million barrels of
crude oil a day, as stated on page 6 of the report, various
problems had reduced the current drawdown capability to about 2
million barrels.
 
     Commercial facilities face similar threats and have similar
physical protection requirements (management item number 2).
Oil refinery facilities can also be considered as a National
Security Asset.  Without refineries, the crude oil stored in
Reserve facilities is of no value or use.  It is reasonable to
assume that managers of oil refineries are equally concerned
about sabotage, vandalism, and theft.  Further, world conditions
and threats have significantly changed since the Site Security
Plan referenced by management was published.
 
     We did consider the Cavern Operations and Cavern
Engineering functions discussed in item number 3 as part of our
analysis of staffing needs.  Specific reference is made to these
functions in the detailed report prepared by KPMG Peat Marwick
LLP and furnished to Reserve management.
 
     The impact of Federal laws and regulations were considered
in determining staffing needs (management item number 4).  The
Reserve initially contended that its performance level was lower
than industry in procurement because it was subjected to
regulations that were more restrictive than those imposed on oil
refineries.  Subsequently, we developed comparative statistics
showing that DynMcDermott's performance in the procurement area
was also significantly below that of other DOE contractors who
were subject to the same laws and regulations as the Reserve
(see pages 14 through 16 of this report).
 
                      *    *    *    *    *
 
 
Management Comments
 
     Management contended that the audit team did not provide
Reserve management with sufficient data to independently
evaluate the benchmarks for the reasons stated below:
 
"The report states that a detailed analysis of work tasks or
activities was the primary basis used to determine staffing
requirements for most SPR functions.  The report further
indicates that assessments were made by comparing SPR activities
to those of other agencies, companies, or industries to identify
more efficient methods to accomplish these activities.  For the
SPR to have a complete understanding and appreciation of the
useful application of the audit conclusions and recommendations,
additional information would be necessary on what industry
staffing practices and performance data were used for
comparison, what considerations, including any staffing
adjustments, was given to governmental and unique SPR
requirements, and what specific methods were identified for SPR
to more efficiently and effectively accomplish its activities.
The request for this additional information was made to the
audit team in meetings held in New Orleans during October 11D12,
1994.  The auditors could not adequately answer such questions
then, and this draft report provides little additional
information that addresses such questions.  In particular,
industry performance data, referred to by the auditors for
validating staffing estimates resulting from activity analyses,
is not made available for review in this report."
 
 
Auditor Reply
 
     The performance data or benchmarks used to arrive at the
near-term staffing reductions of 329 positions are discussed
on pages 4 and 5 of the report and additional details were
included in the KPMG Peat Marwick consultant's report provided
to Reserve management.  Moreover, additional details on the
review methodology were provided to Reserve officials subsequent
to the October 11-12, 1994, meeting and at a follow-on meeting
on November 10, 1994.  As stated in a draft of this report, the
names of companies used for some of the performance data were
not included in the report because the companies considered such
performance data to be proprietary (see page 5 of this report).
 
                      *    *    *    *    *
 
 
Management Comments
 
     Management contended that the report did not recognize the
efficiencies and effectiveness benefits to be realized from the
Reserve's Life Extension Program and indicated that:
 
"The SPR's Life Extension Program and its potential for enhanced
efficiency and effectiveness was not considered in the report.
Life Extension Program replacements and modernizations will not
only extend the useful life of the SPR, but will extensively
simplify its systems and facilities (e.g., elimination of many
components now found in the SPR), leading to substantial
economies in operations and maintenance, along with related
support functions.  This program will make significant
contribution to streamlining because it is requirements driven
and mission oriented.  The IG report should recognize the value
of this near-term investment of funds and manpower resources to
achieve long-term efficiencies in SPR operations."
 
 
Auditor Reply
 
     Contrary to management's contention, the benefits of the
Life Extension Program were considered in evaluating staffing
needs and we concluded that the program would enhance efficiency
and effectiveness.  For example, we recognized that this program
would reduce staffing needs in the procurement and property
areas.  Details on this issue were included in the KPMG Peat
Marwick consultant's report provided to Reserve management.
 
                     *    *    *    *    *
 
 
Management Comments
 
     Management questioned the management layers the auditors
had computed because of the following factors.
 
"In the report's discussion of span of management control, it is
not clear what constitutes a management layer, particularly the
13 layers purported for the SPR.  During meetings with the
auditors, the auditors acknowledged that the SPR chain of
command and the nature of its various contractual relationships
were not fully understood, and were overstated in the report.
The "industry standard" often referred to in the IG report
applies to a typical industrial site generally, like a process
manufacturing facility (refinery) or a discrete manufacturing or
distribution operation (a terminal, a steel mill) which does not
directly compare to a seven-site crude oil storage operation."
 
 
Auditor Reply
 
     Rather than overstated, the number of management layers in
the Reserve was understated.  The layers of management cited for
the petroleum industry were based on the number of layers from
the chief executive officer to the lowest level of management at
a refinery plant for an average large, multi-site, integrated
oil company.  The chief executive officer would be comparable to
the Secretary of Energy.  To be conservative, we started from
the Deputy Assistant Secretary for Strategic Petroleum Reserve.
If we had started at the Secretary this would have added about
three more management layers.  The integrated oil companies were
of equal or greater functional complexity than the Reserve.
 
                      *    *    *    *    *
 
 
Management Comments
 
     Management disagreed with the auditor's conclusions
regarding the impact of the centralization of functions and
stated that:
 
"The report's discussion of 'highly centralized management
control' is anecdotal rather than analytical.  The report seems
to confuse the difference between centralized management control
and the centralization of like functions.  The number of SPR
employees located in Washington and New Orleans represent the
centralization of functions commonly practiced to achieve
organizational efficiencies in industry and Government."
 
 
Auditor Reply
 
     We disagree that the issue of centralized management
control is more anecdotal than actual or analytical.  Our
position is based on the following analytical evidence.
 
     o  161 DOE employees were involved in the oversight of
1,349 DynMcDermott and subcontractor employees.  A ratio
of about one DOE employee for every eight DynMcDermott
and subcontractor employees.
 
     o  DynMcDermott was required, by contract, to submit 317
different types of reports to DOE on their activities.
Many of the reports included minor activities that
should not be reported directly to the DOE's Project
Manager.
 
     o  More DOE and DynMcDermott employees were located in
Washington, D.C. and New Orleans than at the field
sites.
 
     o  Minor decisions or minor procedural changes are reviewed
by multiple layers of management or by committees.
 
                      *    *    *    *    *
 
 
Management Comments
 
     Management advanced the following data to support its
contention that the audit report did not accurately reflect the
objectives of the the Fiscal Year 1994 award fee criteria.
 
"The report asserts, regarding contracting practices, that one
of the award fee criteria for the first half of FY 1994 was for
DM to 'Continue to maintain staffing levels to meet the average
headcount for FY 1994 of 978' reveals a profound
misunderstanding of what was being required of the contractor.
The M&O contractor headcount in the award fee criteria was
associated with a multiyear orderly staffing reduction that has
been in progress since 1991 when the 750 million barrel capacity
was completed.  This particular headcount goal was associated
with a fiscal year reduction of 50 full-time staff in one year
(approximately 5 percent) in spite of new workload associated
with Life Extension, hot/gassy oil, and the Weeks Island sink
hole."
 
 
Auditor Reply
 
     The referenced statements were included in the report to
demonstrate two conditions.  First, although DynMcDermott had
decreased its staffing levels the reductions were largely offset
by increases in the staffing of DynMcDermott's subcontractors.
Second, the contract did not provide any incentives for
DynMcDermott to reduce staffing levels in excess of that
included in its contract proposal.
 
RECOMMENDATIONS
 
Recommendation Number 1:  Direct that actions be taken to
implement the staffing reductions described in Part II of this
report for eight functional areas by improving performance
levels through redesign of work processes, revisions in
organizational operating policies and procedures, further
automation of systems, and obtaining appropriate waivers from
Departmental orders and other regulations.
 
 
Management Comments
 
     Management agreed that performance levels could be improved
but did not agree with the number of positions recommended for
elimination.  As a result, management had initiated a new study
to identify the appropriate staffing levels.  Specifically,
management stated the following:
 
"We agree that performance levels can be improved through
redesign of work process, revisions in organizational operating
policies and procedures, further automation of systems, and
obtaining appropriate waivers from Departmental Orders and other
regulations.  In fact, we consider such an undertaking to be
very compatible with Departmental initiatives already being
pursued by the SPR (e.g., National Performance Review
recommendations, contract reform, and Total Quality Management).
 
The recommendation states simply that direction be given by the
Assistant Secretary to reduce the total staffing to a purported
industry level for 8 of the 11 functional areas used by the IG,
without benefit of any further analysis other than the IG's
benchmark review.  We cannot agree that a near-term reduction of
the specific target of 329 FTEs in eight functional areas can be
achieved based on the very limited information in this report.
Although the recommendation suggests means for accomplishing the
reductions, significantly more analytical work will be required
before any specific level cuts can be made responsibly.  While
the draft report is useful for establishing pertinent lines of
inquiry, it does not provide definitive answers in many
functional areas.
 
Major reorganization and staffing reductions should be
undertaken with a requirements based analysis emphasizing the
SPR mission, streamlining, and the benefits of Life Extension
investments to ensure that the SPR can meet its current mission
requirements and expectations of its internal and external
customers and stakeholders.  These requirements include: SPR
organizational requirements (Level I criteria), DOE and
Executive Orders, statutes, regulations, and other Federal and
Departmental policy and procedural requirements.
 
The SPR has already embarked on a requirements based analysis of
its operations, staffing practices and performance levels.
Attached is the Deputy Assistant Secretary for the Strategic
Petroleum Reserve memorandum, dated December 9, 1994, which
commissioned this SPR streamlining initiative.  As part of this
initiative, the SPR will arrive at an appropriate staffing
profile with an objective of responsible reduction in staffing
for the SPR by the end of 1996 with a potential further
adjustment in staff requirements as decommissioning of Weeks
Island is completed.  This analysis and recommendation will be
completed by July, 1995.
 
Also, it is important to note that the SPR staffing levels for
those functional areas recommended by the IG to be addressed in
the near-term, have already decreased from a total of 1,308 at
May 31, 1994, to a total of 1,258 at November 30, 1994.  This
reduction of 50 represents about a 15 percent overall
achievement of the total IG near-term recommendations of 329.
 
Obtaining appropriate waivers from Departmental orders and other
regulations would be necessary for the SPR to achieve a
significant degree of staff reduction.  The appropriateness of
exemptions can only be determined after a thorough review of
each specific requirement to ensure that noncompliance would not
impact on the operational availability of the SPR to meet its
mission or violate a legal or regulatory requirement such as an
OSHA standard or National Environmental Policy Act requirement.
Furthermore, it should be recognized that many DOE requirements
are based on sound needs and good practices.  Therefore, even if
the SPR were exempted from all DOE orders, it is still not
readily apparent that SPR could achieve the significant staff
reduction envisioned in this report since there would still be a
requirement for effective programs associated with operations
and maintenance, cost control, procurement, etc.  The careful
examination of requirements should also be expanded from DOE
orders to include statutes, Executive Orders, regulations, and
other Federal and Departmental policy and procedural
requirements.  However, staffing should not be the only factor
when addressing the need for waivers.  The appropriateness of
any such waiver must also be fully investigated to ensure that
it is compatible with Federal, Departmental, and programmatic
policies, goals, and objectives.  Since many waivers must be
granted by authorities outside of Fossil Energy, our request for
waivers that we believe to be justified does not ensure success.
On this note, we do take issue with the reports statement on
Page 11 that the example of Bonneville Power Administration's
success in obtaining waivers is a sign of unique opportunity for
SPR to obtain waivers.  The Bonneville experience is not
comparable to SPR since Bonneville has been designated in the
National Performance Review as a 'Reinvention Laboratory' and as
such has unique authority to seek waivers.  The assessment we
are undertaking, to be completed in July, 1995, will identify
those orders, directives, and other regulations that can be
proposed for elimination."
 
 
Auditor Reply
 
     The management actions undertaken as part of the Reserve's
Streamlining Initiative are responsive to the intent of the
recommendation.
 
     The management comments regarding the waivers obtained by
the Bonneville Power Administration, however, appear to be
contradictory.  In the first place, management states that the
Bonneville experience is not comparable to the Reserve because
it was a "reinvention laboratory".  We are not aware of any
restrictions that would preclude the Reserve from requesting a
status similar to that afforded to Bonneville.  In another part
of the management response it is stated that the recommended
actions are very compatible to Departmental initiatives being
pursued by the Reserve as part of the National Performance
Review recommendations.  One of the recommendations of the
National Performance Review was that all Federal agencies be
required to review internal Government regulations over the next
2 years with a goal of eliminating 50 percent of those
regulations.  Specifically, management states that "The
assessment we are undertaking to be completed by July 1995, will
identify those orders, directives, and other regulations that
may be proposed for elimination."   How this action differs from
that undertaken by Bonneville is left unexplained.
 
                      *    *    *    *    *
 
 
Recommendation Number 2: Implement a 3 year goal to reduce
overcentralization and increase the span of control for Reserve
managers to an average of one manager for each 10 subordinates,
and to reduce total staffing levels by the number of supervisory
positions so eliminated.
 
 
Management Comments
 
     Management agreed that a 1 to 10 ratio of managers to
subordinates was reasonable but did not agree that managers
could be eliminated on a one for one basis.  Specifically,
management stated:
 
"The one manager for each 10 subordinates is considered a
reasonable goal for increasing the management control in Fossil
Energy programs.  The SPR Headquarters office, the PMO, and DM
have all taken steps to improve the supervisor/employee ratio.
These efforts to increase the ratio are continuing.  SPR
achievement of this goal will need to be evaluated as progress
is made to ascertain if the goal can be met without a change in
Departmental and OPM personnel policy.
 
However, we cannot agree to the portion of this recommendation
which advocates a reduction of total staffing levels by the
number of supervisory positions eliminated since most SPR
supervisors perform significant technical duties as well as
supervisor duties.  Therefore, the elimination of supervisory
positions will not provide a one to one reduction in overall
staffing levels in each case.
 
Also, we are not in agreement regarding the report's contention
regarding SPR overcentralization.  Most of the centralization
referred to in the report represents efficient and effective
consolidation of similar crosscutting functions as opposed to
centralization of authority.  Making each SPR location
self-sufficient in all functional areas would increase several
staffing requirements, reduce efficiency, and result in the loss
of advantages from the advantages from the standardization among
SPR sites."
 
 
Auditor Reply
 
     Management comments are responsive to the intent of the
audit recommendation.
 
                      *    *    *    *    *
 
 
Recommendation Number 3: Require further research and analysis
of the potential long term staffing reductions listed in
Appendix D of the report to determine the specific number of
positions that should be eliminated to improve efficiency,
productivity, and operating costs.
 
 
Management Comments
 
     Management stated that the long-term reductions would be
considered as part of the streamlining initiative as discussed
below:
 
"We agree that further research and analysis will be required to
ascertain the potential for the long-term staffing reductions
addressed in the draft report.  Since we see no practical
distinction between the data supporting the near-term and
long-term reductions in the report, we will integrate
implementation of this recommendation with the SPR streamlining
initiative mentioned in our response to Recommendation No. 1."
 
 
Auditor Reply
 
     Management comments are responsive to the intent of the
audit recommendation.
 
                      *    *    *    *    *
 
 
Recommendation Number 4:  Provide contract incentives for the
management and operating contractor and Federal managers to
reduce staff and operating costs for the Reserve.
 
 
Management Comments
 
     As stated below, management planned to take steps to
implement additional contract incentives.
 
"We agree that the use of appropriate incentives is an important
management tool of improving the management and operation of the
SPR.  The Award Fee Determination Plan for the SPR M&O
contractor includes a criterion for the effective, efficient,
and economical use of resources (people, funds, equipment, and
facilities) to carry out contract activities.  A formal cost
reduction program is in place.  In addition, Fossil Energy,
including the SPR, has participated in Departmental efforts to
implement the action recommended by the Contract Reform Team in
the report entitled 'Making Contracting Work Better and Cost
Less.'  At the core of the contract reform initiative is the
development of performance criteria, measures, benchmarks, and
related incentives.  SPR will take appropriate steps to
implement these elements of contract reform.  It must be
recognized, however, that any incentive program must be
balanced.  Overemphasis on one attribute such as reducing staff
can work to the detriment of other important considerations such
as satisfying the basic mission requirements of customers and
stakeholders."
 
 
Auditor Reply
 
     Management comments are responsive to the intent of the
audit recommendation.
 
                      *    *    *    *    *
 
 
Recommendation Number 5: Ensure that Reserve staffing
requirements are evaluated on a periodic basis by using
appropriate benchmarks, comparative statistics, and other
performance measures from the private sector and/or other
Departmental management and operating contractors.
 
 
Management Comments
 
     Management agreed with the recommendation and stated:
 
"We agree that staffing requirements should be evaluated
periodically using comparative information to the extent that
meaningful data is available for that purpose.  Such evaluations
must also give full consideration to the valid requirements of
customers and stakeholders.  SPR would seek appropriate
benchmarks, comparative statistics, and other performance
measures."
 
 
Auditor Reply
 
     Management comments are responsive to the intent of the
audit recommendation.
 
POTENTIAL SAVINGS
 
Management Comments
 
     Management did not agree with the projected audit savings
for the following reason.
 
"Due to our disagreement with the primary report finding that
329 Full Time Equivalents can be reduced within one year, we do
not agree that the projected annual savings of $16 million can
be realized since this estimate is tied to the assumptions for
the targeted reduction of 329 Full Time Equivalents in the eight
functional areas used by the report."
 
 
Auditor Reply
 
     Significant opportunities exist for the Reserve to improve
the efficiency of its operations.  The near-term staffing
reductions cited in this report were based on the application of
benchmarks or performance data from organizations considered to
be "average" performers, not the "Best-in-Class".  The Reserve's
goal should be to attain staffing reductions in excess of
projected staffing reductions computed from the application of
the conservative benchmarks used on this audit.
 
 
 
 
                                                      APPENDIX D
 
                     PROJECTIONS OF NEAR-TERM
                AND LONG-TERM STAFFING REDUCTIONS
 
 
                              Staffing    Potential Reductions
         Function            at 5-31-94   Near-Term@  Long-Term@
 
Maintenance and Materials       322          35            70
Engineering and Construction    294           0           119
Security                        291         150            45
Operations                      246          31            68
Project Planning and Control    145          23            60
Procurement and Property        132          64             5
Finance and Administration       76          11            20
Environment, Safety and
  Health                         71           0            25
Quality Assurance                68           9            19
Project Management               25           0            11
Human Resources                  22           6             0
 
 
     Total                    1,692         329           442
                              -----        ----          ----
 
Notes:  @  Near-term is defined as those staffing reductions that
the Reserve should be able to implement within 1 year.
Those requiring over a year to implement due to the
need for further analysis are listed under long-term
staffing reductions.
 
 
                                                       APPENDIX E
 
 
           DEPARTMENT REPORTING REQUIREMENTS FOR
               STRATEGIC PETROLEUM RESERVE
 
 
 
 
                EXAMPLE OF CUSTOMER RESPONSE FORM
 
                                                  IG Report No. DOE/IG-0370
 
                      CUSTOMER RESPONSE FORM
 
     The Office of Inspector General has a continuing interest in improving
the usefulness of its products.  We wish to make our reports as respon-
sive as possible to our customers' requirements, and therefore ask that
you consider sharing your thoughts with us.  On the back of this form,
you may suggest improvements to enhance the effectiveness of future
reports.  Please include answers to the following questions if they are
applicable to you:
 
     1.   What additional background information about the selection,
scheduling, scope, or procedures of the audit or inspection would
have been helpful to the reader in understanding this report?
 
     2.   What additional information related to findings and recommenda-
tions could have been included in this report to assist management
in implementing corrective actions?
 
     3.   What format, stylistic, or organizational changes might have made
this report's overall message more clear to the reader?
 
     4.   What additional actions could the Office of Inspector General have
taken on the issues discussed in this report which would have been
helpful?
 
     Please include your name and telephone number so that we may contact you
should we have any questions about your comments.
 
     Name                                   Date
 
     Telephone                              Organization
 
     When you have completed this form, you may telefax it to the Office of
Inspector General at (202) 586D0948, or you may mail it to:
 
          Office of Inspector General (IG-1)
          Department of Energy
          Washington, D.C. 20585
          ATTN: Customer Relations
 
     If you wish to discuss this report or your comments with a staff member
of the Office of Inspector General, please contact Rob Jacques at (202)
586D3223.
 
 
 
 
 
 
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