DOE F 1325.8
      (8-89)
EFG (07-90)
 
United States Government                           Department of Energy
 
MEMORANDUM                                                                    
        
DATE:  March 10, 1997
      
REPLY TO
ATTN OF: IG-1
        
SUBJECT:  INFORMATION: Report on "Inspection of the Performance Based
          Incentive Program at the Richland Operations Office"
        
   TO:    The Acting Secretary
      
 
BACKGROUND:
 
The subject final report is provided for your information.
While conducting other inspection work at the Richland
Operations Office (Richland), the Office of Inspector
General identified the Fiscal Year 1995 Richland
Performance Based Incentive (PBI) Program as an area of
concern.  Specifically, we were unable to identify any
written policies describing implementation procedures or
program controls for this $14.22 million program.  As a
result, we initiated an inspection to review (1) the
Department's policies and guidance for the establishment
and implementation of PBI Programs at the Department's
Operations Offices, (2) the guidance developed by the
Richland Operations Office for the administration of the
Fiscal Year 1995 PBI Program, (3) the process used by
Richland to nominate and select projects for the PBI
Program, and (4) the establishment of PBI objectives at
Richland and the justification for specific PBI award
amounts.
 
DISCUSSION:
 
The Richland PBI Program for Fiscal Year 1995 was comprised
of 34 PBIs with 86 separate Performance Objectives that
totaled $14.22 million in potential incentive fees that
could be earned by the Management and Operating (M&O)
Contractor.  This program was established by Richland as
one part of the Department's Contract Reform Initiative
implemented at the Hanford Site in Fiscal Year 1995.  A
July 5, 1994, "DECISION MEMORANDUM," prepared by the
Contract Reform Executive Committee and signed by the
former Secretary of Energy, required that the Richland
Operations Office and the M&O Contractor at that time, the
Westinghouse Hanford Company, incorporate the full range
of applicable contract reform provisions into the existing
M&O contract at Richland by the beginning of October 1994.
 
We found that the Fiscal Year 1995 Performance Based
Incentive Program at Richland has not always made the best
use of incentive dollars paid to the M&O Contractor.  For
example, we found:  (1) an instance where the fee paid was
excessive when compared with the cost of labor and
material to perform the PBI work; (2) instances where PBI
fees were paid for work that was accomplished prior to the
establishment of the PBI Program at Richland; (3)
instances where PBI fees were paid for work that was not
completed; (4) instances where PBI fees were paid for work
that was easily achieved by the M&O Contractor; and, (5)
an instance where quality and safety were compromised by
the M&O Contractor in order to achieve a PBI fee.
Specific examples include the payment of $225,000 to the
M&O Contractor to procure and install a ventilation fan
with a total Fiscal Year 1995 project cost of only
$24,766; the payment of $225,000 to the M&O Contractor to
complete the installation of alarm panels in seven tank
farms when all the work was not completed prior to the PBI
completion date as claimed by the contractor; the payment
of $185,870 to the M&O Contractor for the replacement of
compressed air systems in 10 tank farms when all the work
was not completed prior to the PBI completion date as
claimed by the contractor; and, the payment of a $100,000
PBI incentive fee to the M&O Contractor for the
implementation of laboratory software when, in fact, the
software installation was completed prior to the
establishment of the incentive agreement.  We also
identified $950,000 in penalties that should be assessed
against the M&O Contractor for incomplete work.  We have
recommended that action be taken to recover fees paid for
incomplete work and associated penalties, and to recover
fees paid for work that was performed prior to the
establishment of the PBI Program.
 
In addition, we found numerous PBI Program weaknesses in
the implementation of the Fiscal Year 1995 PBI Program at
Richland.  For example, this program was established
without any specific written policies or procedures for
the management and administration of an incentive fee
program.  As a result, the rationale for the selection of
PBI Performance Objectives was unclear, the justification
for specific PBI fee amounts could not be determined, the
scope of the PBI work and the criteria for acceptance was
not always clearly defined, and the expected financial and
operational benefits from individual projects selected
under the PBI Program were undefined in most cases.  In
addition, an audit trail did not exist for the Richland
PBI process which identified who authored specific PBIs,
who reviewed specific PBIs prior to issuance, or who
approved the establishment of specific PBI fees.
 
In commenting on this report, Departmental managers from the
Office of Environmental Management and the Richland
Operations Office concurred with all 19 recommendations to
improve the PBI Program.
 
 
 
                                 (Signed)
 
                              John C. Layton
Inspector General
 
 
Attachment
 
cc:  Deputy Secretary
     Under Secretary
     Assistant Secretary for Environmental Management
     Acting Associate Deputy Secretary for Field Management
     Manager, Richland Operations Office
                 
                 
                 U.S. DEPARTMENT OF ENERGY
                             
                OFFICE OF INSPECTOR GENERAL
                             
                             
                  REPORT ON INSPECTION OF
                             
          THE PERFORMANCE BASED INCENTIVE PROGRAM
                             
             AT THE RICHLAND OPERATIONS OFFICE
 
 
 
 
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addresses:  PLEASE NOTE THAT ATTACHMENTS 1-4 OF THIS
REPORT CAN BE OBTAINED BY CALLING THE INSPECTOR GENERAL
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1924.
 
 
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           This report can be obtained from the
                 U.S. Department of Energy
      Office of Scientific and Technical Information
                        P.O. Box 62
                Oak Ridge, Tennessee  37831
 
 
 
Report No.  DOE/IG-0401                      
Office ofInspections
Date Issued:  March 10, 1997
Washington D.C. 20585
 
                  REPORT ON INSPECTION OF
          THE PERFORMANCE BASED INCENTIVE PROGRAM
             AT THE RICHLAND OPERATIONS OFFICE
 
 
                    TABLE OF CONTENTS
PAGE
 
  I.  INTRODUCTION AND PURPOSE. . . . . . . . . . . . .  1
 
 II.  SCOPE AND METHODOLOGY. . . . . . . . . . . . . . . 2
 
III.  SUMMARY RESULTS OF INSPECTION. . . . . . . . . . . 3
 
IV.  BACKGROUND. . . . . . . . . . . . . . . . . . . . . 6
 
 V.  RESULTS OF INSPECTION. . . . . . . . . . . . . . . 19
 
     A.  PBI FEE WAS EXCESSIVE . . . . . . . . . . . .  19
 
     B.  PBI FEES PAID FOR WORK THAT WAS ACCOMPLISHED
          PRIOR TO THE PBI PROGRAM BEING ESTABLISHED
          AT RICHLAND. . . . . . . . . . . . . . . .    24
 
     C.  PAYMENT MADE BY RICHLAND FOR INCOMPLETE
          PBI WORK. . . . . . . . . . . . . . . . .     36
 
     D.  PBI PERFORMANCE OBJECTIVES APPEAR TO BE
          EASILY ACHIEVED. . . . . . . . . . . .  .     45
 
     E.  QUALITY AND SAFETY WERE COMPROMISED TO
          ACHIEVE A PBI FEE. . . . .. . . . . . . .     59
 
     F.  RICHLAND PBI PROGRAM ADMINISTRATIVE
          WEAKNESSES. . . . . . . . . .  . . . . .      62
 
     G.  INSPECTION OBSERVATIONS ON OTHER RICHLAND PBI
          PROGRAM ISSUES. . . . . . . . . . . . .       82
 
Appendix A:  Fiscal Year 1995 Richland Operations Office
             Performance Based Incentives
 
Attachments:  Copies of Management Comments
 
          1.  December 23, 1996, Memorandum from the
              Assistant Secretary for Environmental Management
          2.  December 23, 1996, Memorandum from the
              Manager, Richland Operations Office
          3.  February 19, 1997, Memorandum from the
              Assistant Secretary for Environmental Management
          4.  February 24, 1997, Memorandum from the
              Manager, Richland Operations Office
                
                
                OFFICE OF INSPECTOR GENERAL
                   OFFICE OF INSPECTIONS
                  WASHINGTON, D.C. 20585
                             
                         REPORT ON
       INSPECTION OF THE PERFORMANCE BASED INCENTIVE
         PROGRAM AT THE RICHLAND OPERATIONS OFFICE
 
 
I.   INTRODUCTION AND PURPOSE
 
The Fiscal Year (FY) 1995 Performance Based Incentive
(PBI) Program at the Department of Energy's (DOE) Richland
Operations Office (Richland) was initiated by Richland as
one part of the broader DOE Contract Reform Initiative
being implemented at the Hanford Site in FY 1995.  This
program was identified as an area of concern by the Office
of Inspections as a result of previous inspection work.
Specifically, during a limited review of the construction
of an Effluent Treatment Facility at the Hanford Site, we
were unable to identify any written policies describing
PBI Program controls or implementation procedures.  We
were told that Richland Operations Office Program
Management personnel were not directly involved in the
selection of the Effluent Treatment Facility project for
the PBI Program, or in the determination that this
particular PBI would be established with a potential fee
of $1 million.
 
The PBI Program at Richland implemented certain elements
of the Departmentms Contract Reform Initiative and allowed
the Management and Operating (M&O) Contractor to earn (or
forfeit) fee from a Performance Based Incentive Fee Pool
for work performed under the Management and Operating
Contract.  This fee was payable to the M&O Contractor upon
the completion of certain PBI objectives, and after
approval of payment by the Contracting Officer.  The
Richland PBI Program for FY 1995 was comprised of 34
separate PBI projects that totaled more than $14 million
in potential incentive fees.
 
The purpose of this inspection was to review the processes
used by the Department of Energy's Richland Operations
Office in implementing and administering a Performance
Based Incentives Program at the Hanford Site.  In
reviewing the PBI Program at Richland, we evaluated:
 
     1.  The Department of Energy's policies and guidance
         on the establishment and implementation of PBI
         Programs at the Department's Operations Offices.
 
     2.  The guidance developed by the Richland Operations
         Office for the administration of the Richland PBI
         Program.
 
     3.  The process used by Richland to nominate and
         select projects for the PBI Program.
 
     4.  The PBI objectives established for specific
         projects and the justification for specific PBI 
         award amounts.
 
 
II.  SCOPE AND METHODOLOGY
 
This inspection included a general review of 34
Performance Based Incentives with 86 separate Performance
Objectives issued to the Westinghouse Hanford Company in
FY 1995.  As part of our inspection, we reviewed:  (1) the
PBI contract files for the 34 Performance Based Incentives
issued in FY 1995; (2) the "PERFORMANCE BASED INCENTIVES"
provisions of the Management and Operating Contract with
the Westinghouse Hanford Company under Modification M-111
dated January 25, 1995; (3) the "PERFORMANCE, OBJECTIVES,
MEASURES, EXPECTATIONS AND FEE DISTRIBUTION" provisions of
the follow-on Fluor Daniel Hanford Contract dated October
1, 1996; (4) selected portions of the Multi-Year Program
Plan for the Hanford Site; (5) selected Milestone
Description Sheets for projects that were selected under
the Performance Based Incentive Program; and, (6) DOE
Acquisition Letter 94-14 on performance based management
contracts.
 
In addition, this inspection also included a review of two
reports prepared by the Richland Operations Office which
discussed the results of two Richland Operations Office
reviews of seven FY 1995 PBI performance objectives.  The
first of these reviews resulted in a report dated August
5, 1996, titled "Special Assessment Report" for the "241-A-
701 Air compressor Upgrade." This review was initiated by
the DOE Richland Tank Waste Remediation System (TWRS)
organization after a June 10, 1996, "near miss" incident
involving work that had been certified as complete by the
Management and Operating Contractor under a FY 1995 PBI
for the replacement of compressed air systems in 10 tank
farms.  The second of these reviews resulted in a report
dated September 24, 1996, titled "REVIEW OF TANK WASTE
REMEDIATION SYSTEM (TWRS) FISCAL YEAR 1995 PERFORMANCE
BASED INCENTIVES."  This review was also initiated by the
TWRS organization in order to identify any systematic and
program weaknesses associated with the award of TWRS PBIs
in FY 1995.
 
As part of our review, the Office of Inspections obtained
information at the Richland Operations Office and the
Westinghouse Hanford Company.  We also interviewed
Department of Energy Headquarters officials, Richland
Operations Office officials, and Westinghouse Hanford
Company personnel.  This inspection was conducted between
September 1995 and December 1996.
 
This inspection was conducted in accordance with the
"Quality Standards for Inspections"issued by the
President's Council on Integrity and Efficiency.
 
 
III.  SUMMARY RESULTS OF INSPECTION
 
Our inspection found that the Performance Based Incentive
Program at Richland has not always made the best use of
incentive dollars paid to the Management and Operating
Contractor.  For example, we found:  (1) an instance where
the fee paid was excessive when compared with the cost of
labor and material to perform the PBI work; (2) instances
where PBI fees were paid for work that was accomplished
prior to the establishment of the PBI Program at Richland;
(3) instances where PBI fees were paid for work that was
not completed; (4) instances where PBI fees were paid for
work that was easily achieved by the Management and
Operating Contractor; and, (5) an instance where quality
and safety were compromised by the Management and
Operating Contractor in order to achieve a PBI fee.
 
We also found numerous PBI Program weaknesses in the
implementation of the FY 1995 PBI Program at Richland.
For example, this program was established without any
specific written policies or procedures for the management
and administration of an incentive fee program.  As a
result, the rationale for the selection of PBI performance
objectives was unclear, the justification for specific PBI
fee amounts could not be determined, the scope of the PBI
work and the criteria for acceptance was not always
clearly defined, and the expected financial and
operational benefits from individual projects selected
under the PBI Program were undefined in most cases.  In
addition, since the PBI document did not contain an audit
trail, we could not determine who authored specific PBIs,
who reviewed specific PBIs prior to issuance, or who
approved the establishment of specific PBI fees.  We
attempted to obtain this information through discussions
with Richland Operations Office personnel responsible for
monitoring the contractorms PBI performance.  However,
these individuals could not provide the information in
many cases.
 
We believe that the FY 1995 PBI Program at Richland did
not always provide incentives to the Management and
Operating Contractor in an efficient manner to accomplish
tasks at the Hanford Site.  Some examples include the
payment of $225,000 to the M&O Contractor to procure and
install a ventilation fan with a total FY 1995 project
cost of only $24,766; the payment of $225,000 to the M&O
Contractor to complete the upgrade of alarm panels in
seven tank farms, when the contractorms Milestone
Description Sheet indicated that the upgrade requirement
for six of the seven alarm panels were completed prior to
the PBI being established, and a Richland Review Team
found that all the work was not completed prior to the PBI
completion date as claimed by the contractor; the payment
of $185,870 to the M&O Contractor for the replacement of
compressed air systems in 10 tank farms, when the
contractorms Milestone Description Sheet indicated that
seven of the 10 systems were completed prior to the
establishment of the PBI Program, and a Richland Review
Team found that all the work was not completed prior to
the PBI completion date as claimed by the contractor; and,
the payment of a $100,000 PBI incentive fee to the M&O
Contractor for the implementation of laboratory software,
when in fact the software installation was completed prior
to the incentive fee being offered.  We believe that the
use of PBI dollars as described above had the impact of
reducing the effectiveness of the PBI Program and reduced
the dollars available for other potential PBI activities
at the Hanford Site.
 
As shown in the "BACKGROUND" section of this report, the
Management and Operating Contractor earned almost as much
in PBI fees in FY 1995 as was earned in award fees in the
three previous fiscal years combined, when no similar
incentive program was in effect.  In those previous three
fiscal years, the Management and Operating Contractor
earned a total of $13.7 million in award fees compared
with an available award fee pool of $62.4 million.  In FY
1995, the Management and Operating Contractor earned $11.5
million in incentive fees compared with an available
incentive fee pool of $14.22 million.  Under the FY 1995
PBI Program, the percentage of available fee earned
increased significantly when compared with prior year
award fee programs, from an average of 22 percent under
the award fee structure in FYs 1992, 1993, and 1994, to
80.9 percent under the PBI structure in FY 1995.
 
This increase in the percentage of available fee earned
was due in part to several FY 1995 PBI fee payments that
were inappropriate or questionable.  As discussed in this
report, we found through discussions with Richland
officials and through the review of Richland documentation
that $910,870 in PBI fees was paid for incomplete work.
This documentation included the results of the two
Richland Operations Office reviews of seven FY 1995 PBI
Performance Objectives as described in the lSpecial
Assessment Reportn for the "241-A-701 Air compressor
Upgrade" dated August 5, 1996, and the "REVIEW OF TANK
WASTE REMEDIATION SYSTEM (TWRS) FISCAL YEAR 1995
PERFORMANCE BASED INCENTIVES" dated September 24, 1996.
The TWRS review teams reported that work required under
three of seven FY 1995 PBI Performance Objectives was not
completed by the Management and Operating Contractor, even
though the contractor had certified that the work was
completed and had been paid $910,870 in PBI fees
associated with that work.
 
We also found that $950,000 in penalties was not assessed
against the contractor for the PBI work that was not
completed.  Each PBI contained a penalty provision where
the contractor would forfeit fee if the PBI task was not
completed.  In the case of the PBIs discussed in this
report where work was not completed, the contractor would
have been subject to the forfeiture of the maximum
available fee, or $950,000.  We believe that the $910,870
in PBI fees paid for incomplete work should be recovered
from the contractor, and that $950,000 in penalties should
be assessed against the contractor consistent with the fee
terms of the PBIs involved.  This action has been proposed
by the Richland Office of Tank Waste Remediation System in
a September 26, 1996, letter to the Richland Director of
the Procurement Services Division.
 
In addition, we have identified $111,000 in PBI fees paid
for PBI work that was completed prior to the establishment
of the PBI Program at Richland.  We are recommending that
the Richland Operations Office recover this amount since
the PBI work was accomplished without an approved
performance incentive in place.  We are also recommending
that the DOE Richland Contracting Officer review the
circumstances surrounding the modification of a PBI after
the work was completed to ascertain if a $843,333 payment
made by Richland to the M&O Contractor was appropriate.
 
Management Comments:
 
In comments to the Initial Draft Report, the Manager,
Richland Operations Office, stated that:
 
     "We were aware of deficiencies in our FY 1995
     Performance-based Incentive (PBI) program, and
     had begun to take preliminary steps to address
     deficiencies prior to the receipt of your report.
     Your report has clearly confirmed some of the
     same problems we found in earlier reviews of the
     Tank Waste Remediation System safety initiatives.
     
     "Based on our review of your draft report, the
     cumulative amount of incentive fees that have
     been questioned is seven percent of the total fee
     available to the contractor.  We plan to review
     FY 1995 and FY 1996 incentives and work
     aggressively to recover incentive fees that were
     inappropriately paid."
     
In comments to the Official Draft Report, the Manager
stated that:
     
     "Since our December 23, 1996, response to the
     initial draft report, we have initiated actions
     to implement your recommendations and resolve
     concerns about DOE Richland Operations Officems
     (RL) performance based incentives (PBIs).
     Westinghouse Hanford Company (WHC) was directed
     on January 17, 1997, to reimburse $410,870 for
     the fee paid to WHC in error and the penalty due
     to RL for PBI 95-011(d).  In addition, a Contract
     Incentive Review Team, co-chaired by the
     Directors of the Procurement and Contract Finance
     and Review Divisions, was established to review
     each of WHCms FY 1995 and FY 1996 PBIs.
     
     "The purpose of the Contract Incentive Review is
     to:  1) ensure that each contract incentive was
     adequately and appropriately validated and
     documented, 2) assemble the information necessary
     to close out the WHC contract, and 3) apply
     lessons learned from the experience with WHC
     contract incentives to the RL fee administration
     process.  This review is scheduled to be
     completed by February 28, 1997."
 
The Manager also stated that:
 
     "Our comments regarding the report's
     recommendations have not changed since our
     previous response.  However, we currently are not
     in full agreement with all of the findings and
     conclusions regarding the specific PBIs cited in
     the draft report and will be better able to
     respond to those findings and conclusions after
     the Contract Incentive Review is completed."
 
 
IV.  BACKGROUND
 
Richland Mission and Work Scope
     
According to the DOE "Field Fact Book" dated February
1996, the mission of the Richland Operations Office is to
manage waste products, including the researching,
developing, applying, and commercializing technologies
related to waste management, cleanup, and environmental
restoration.  Additionally, engineering, scientific, and
research programs are conducted on environmental
restoration, tank waste remediation, waste management,
nuclear energy, and energy research.  In February 1996,
the Richland Operations Office monitored the activities of
13,186 contractor personnel with 531 DOE employees.  The
major contractors included the Westinghouse Hanford
Company (WHC) with 6,351 employees who performed the
function of the Hanford Site Management and Operating
(M&O) Contractor, Battelle Memorial Institute with 3,169
employees who managed Pacific Northwest Laboratories, and
Kaiser Engineering Hanford (KEH) with 1,896 employees who
provided Hanford Site engineering services in support of
WHC.
 
 
The FY 1996 environmental research and restoration
activities managed by the Richland Operations Office were
funded in the amount of $1.487 billion (as of February
1996).
 
Fees Payable to the M&O Contractor
     
                     FIGURE 1
 
           FY 1995 RICHLAND/WHC FEE STRUCTURE
 
BASE FEE     $6,000,000
 
AWARD FEE   $10,150,000
 
PBIs        $14,320,000
 
OTHER FEES  $10,530,000
 
A feature of the M&O contract with the Westinghouse
Hanford Company has been the payment by the Department of
Energy to WHC of base, award, and incentive fees.  The FY
1995 allocation of the $41 million in potential fees
payable to WHC is shown in Figure 1.  The Base Fee of
$6,000,000 for the entire year was established and payable
to the contractor in evenly divided monthly installments
for the first six months of FY 1995 to cover unallowable
costs.  An Award Fee pool of $10,150,000 was established
where the contractor could earn this fee amount for
meeting Performance Evaluation Plan goals.  PBI incentive
fees of $14,320,000 were established as part of the DOE
Contract Reform Initiative where the contractor could earn
this fee amount for meeting objective criteria.  Other
fees of $10,530,000 were also established as part of the
DOE Contract Reform Initiative where the contractor could
earn this fee amount for meeting cost reduction goals such
as those under the Challenge 170 program.
 
According to a document provided by the Richland
Operations Office, base fees paid to the contractor for
Fiscal Years 1992-1994 were as follows:  $4,200,000 in FY
1992; $10,750,000 in FY 1993; and $12,500,000 in FY 1994.
It should be noted that the base fee paid to the
contractor in FY 1995 was only $6,000,000, a significant
reduction compared to FY 1993 and FY 1994.  Richland
Operations Office officials told us the reduction in the
FY 1995 base fee amount was made to implement the new
performance based contract negotiated at Richland for FY
1995 as part of the DOE Contract Reform Initiative.  These
officials told us the dollars that were taken out of the
base fee were allocated to the PBI incentive fees.  This
had the effect of reducing a fixed fee, which the
contractor automatically received, and increasing the
amount of fee "at risk."
 
Payment of Award Fees
 
Payments of award fees to the contractor were made through
an award fee cycle which consists of two, six month award
fee periods in a single fiscal year.  The Manager of the
Richland Operations Office was designated as the
Government Fee Determining Official (FDO), and, as part of
the DOE M&O contract with the Westinghouse Hanford
Company, the contractor agreed that the determination of
the award fee earned would be made by the FDO, and that
such determination was binding on both parties.  The
contract also stated that the evaluation of contractor
performance would be in accordance with an Award Fee
Performance Evaluation Plan that would be unilaterally
established by the Government, and upon which the
determination of the award fee earned would be based.
 
The Award Fee Evaluation Plan included the criteria to be
considered under each performance area to be evaluated,
and the percentage of award fee available for each area.
As stated in the WHC Award Fee Evaluation Plan for the
Award Fee Period of April 1, 1995, through September 30,
1995, performance areas included the following:
Environment, Safety and Health (51 percent of award fee);
Planning Productivity, Efficiency and Responsiveness (9
percent of award fee); and a "Program Section" (40 percent
of award fee), which contained performance objectives for
Tank Waste Remediation, Facilities Transition, Waste
Management, Spent Fuel, and the Waste Encapsulation and
Storage Facility.
 
In an interview with the Richland Operations Office Deputy
Manager, the Deputy Manager said that the M&O Contractor
was not being motivated by the previously used award fee
structure, but that the contractor had performed well with
the implementation of the PBI Program in FY 1995.
 
According to the Westinghouse Hanford Company Acting
Manager for Contracts Administration, WHC assisted in
establishing the PBI process at the Richland Operations
Office due to dissatisfaction with flaws in the award fee
process.  Specifically, the WHC Acting Manager for
Contracts Administration said, while expressing an
opinion, that the past award fee process was very
subjective, and had unfairly denied WHC award fees that
they had earned, due, in part, to DOE Headquarters
intervention in downgrading scores so that reduced award
fees were earned by WHC.  The WHC Acting Manager for
Contracts Administration also said an award fee process
needed to be implemented that would focus on deliverables,
and that the PBI process was part of several such
programs, where the question of whether you did or did not
achieve your stated performance goals was readily
apparent.
 
 
                         FIGURE 2
 
             AWARD FEES PAYED BY RICHLAND TO WHC
 
FY 92 Award Fee Pool:$15.9 Million   FY 92 Award Fee Paid:$8.5 Million
 
FY 93 Award Fee Pool:$21.5 Million   FY 93 Award Fee Paid:$2.7 Million
 
FY 94 Award Fee Pool:$25 Million     FY 94 Award Fee Paid:$2.5 Million
 
 
As depicted in Figure 2, WHC had received a fractional
amount of the allocated award fee pool during the three
fiscal years prior to the establishment of the PBI Program
at the Richland Operations Office in FY 1995.
 
Management Comments:
 
In comments to the Official Draft Report, the Assistant
Secretary for Environmental Management stated that:
 
      "DOE's position is that WHC was not unfairly
       denied award fee they had earned.  Award fee
       earnings are determined by the Government based 
       on a comprehensive evaluation of the contractor's
       accomplishments and deficiencies in specified
       performance areas.  Fifty-one percent of the
       potential fee was historically allocated to
       environment, safety and health.  Systemic safety
       problems leading to fatalities at the site in 1992
       and 1993 significantly affected the award fee
       earned.  All fee determinations were made in
       accordance with established procedures and
       contractual provisions."
 
FY 1995 Performance Based Contract Implementation
 
As part of the Contract Reform Initiative, the Department
recognized that many of the unique contracting systems and
practices that served the Department in the past were no
longer suitable for the effective and efficient
accomplishment of the Department's changing mission:
managing the nation's remaining warheads, strengthening
non-proliferation efforts, environmental restoration, and
pursuing science and energy initiatives.  In February
1994, the Department's Contract Reform Team (formed by the
Secretary of Energy in June 1993 to evaluate the
contracting practices of DOE) issued a report titled
"Making Contracting Work Better and Cost Less" which
outlined basic elements of contract reform.  We were told
that Performance Based Incentives evolved from three of
the basic elements of contract reform:  (1) Performance
Criteria and Measures; (2) Performance Based Incentives
(incentives that encourage and reward achievement of
stated performance requirements); and, (3) Results-
Oriented Statement of Work.
 
In a July 5, 1994, "DECISION MEMORANDUM" prepared by the
Contract Reform Executive Committee and approved by the
Secretary of Energy, the Richland Operations Office and
the Westinghouse Hanford Company were required to
incorporate into the existing Management and Operating
contract at Richland the full range of applicable contract
reform provisions by the beginning of October 1994.  On
January 25, 1995, the existing Management and Operating
contract at Richland was modified to include provisions of
contract reform.  The incorporation of contract reform
provisions resulted in the establishment of the Richland
Operations Office's Performance Based Incentive program.
 
     DOE Wide Implementation
          
According to DOE Acquisition Letter 94-14, dated September
28, 1994, "performance-based management contracts" were to
be used by the Department of Energy for the operation of
DOE Government owned or controlled laboratories, and
weapons production facilities, where the use of such
contracts would reflect the Department's policy and intent
to convert traditional Management and Operating contracts
to the new form of contract called for in the Contract
Reform Team Report.  As stated in DOE Acquisition Letter
94-14:
 
     "The Department of Energy's Contract Reform Team
     Report concluded that the Department's policies
     and practices regarding the extension of its
     management and operating contracts needed to be
     revamped.  The Contract Reform Team found that
     existing policies favored indefinite extensions
     of incumbent contractors and that in practice,
     few competitions for management and operating
     contracts were undertaken.  Such policies and
     practices effectively precluded the introduction
     of best management practices into the
     Department's laboratory and weapons production
     complex."
     
Section II.  Contract Term and Options to Extend  (b)
of DOE Acquisition Letter 94-14 stated that:
 
     "Contracts awarded prior to the effective date of
     this Acquisition Letter using competitive
     procedures may be modified to incorporate an
     option to extend the term of the contract for a
     period not to exceed 5 years where:
 
   *      *      *     *   *   *     *            
     (3) the contractor has also agreed to a
     contract modification necessary to
     implement other performance-based management
     contract provisions."
          
     Richland Implementation
          
In an interview with the Richland Operations Office Deputy
Manager, the Deputy Manager said that the Richland
Operations Office PBI Program was developed to support the
Department of Energy's contract reform initiatives.  He
said that DOE Headquarters officials asked for input from
Richland in the form of a proposal with measurable
parameters for work accomplishment as part of the M&O
contract.  He said that the PBIs submitted to DOE
Headquarters were reviewed by the Office of the Assistant
Secretary for Environmental Management.
 
The Deputy Manager said that beginning in the Summer of
1994, the Richland Operations Office established a team to
implement the PBI Program at Richland, with a goal of
having the PBI Program in place by October 1, 1994.
However, the Deputy Manager said that it was recognized by
September 1994 that the team had reached an impasse, and
that DOE Headquarters had returned the first round of 13
draft PBIs from Richland as being insufficient for a
contract incentive program effort.  The Deputy Manager
also said that DOE Headquarters officials indicated to
Richland management that the PBI fee pool should be
increased along with the number of PBIs, and required that
the PBI Program be in place at Richland by December 1994.
In response to the Official Draft Report, the Assistant
Secretary for Environmental Management stated that the
guidance to Richland was to allocate more of the available
fee pool dollars to objectively measured performance based
incentives, and to reduce the amount of the subjective
award fee portion of the fee pool.
 
The Deputy Manager said that, after receiving DOE
Headquarters input regarding modifying the existing M&O
contract with the Westinghouse Hanford Company, WHC balked
at the proposed contractual terms which included PBI
provisions.  The Post Negotiation Summary for the contract
modification indicates that WHC was concerned about, among
other things, the ratio of performance incentives to the
award fee pool included in the proposed contract.  In
January 1995, following a meeting between DOE Headquarters
officials, Richland officials, and Westinghouse Corporate
officials, a DOE official gave a deadline of 5:00 P.M. on
January 25, 1995, as the time and date that the contract
modification would be signed or the process of competing
for the site Management and Operating contract would
begin.
 
Management Comments:
 
In response to the Official Draft Report, the Assistant
Secretary for Environmental Management stated that:
 
     "Given the Secretary's July 5, 1994, Decision
      Memorandum announcing an extension of the WHC
      contract conditioned on 'the full range of
      applicable contract reform provisions' being
      incorporated into the contract by October 1994, a
      negotiating deadline was necessary to determine
      whether an immediate competition would be
      required."
 
As stated in the "Postnegotiation Summary" for this
contract, "WHC submitted numerous PBIs for RL's
consideration, which were reviewed and revised up until
the last minute prior to signature."  The Postnegotiation
Summary also stated that the PBI fee pool was raised from
$11,000,000 to $14,320,000, and that the PBIs were agreed
to on January 25, 1995.  Appendix A provides a summary of
the PBIs established by Richland in FY 1995, showing the
PBI descriptions, the dates the PBIs were established and
completed, the FY 1995 cost of the PBI work, and the PBI
fees available and earned.  As stated in the previous
section of this report, contracts awarded prior to the
effective date of Acquisition Letter 94-14 could be
modified to incorporate an option to extend the term of
the contract for a period not to exceed 5 years where the
contractor has also agreed to a contract modification
necessary to implement other performance based management
contract provisions.  The DOE Richland contract with WHC
was extended for a period of one year effective with
Contract Modification M-111 which included performance
based management provisions.
 
Clause H-15, "PERFORMANCE BASED INCENTIVES," of Contract
Modification M-111 to Contract DE-AC06-87RL10930, signed
January 25, 1995, established the PBI Program at the
Richland Operations Office and stated that:
 
      "The Government may, at its sole discretion,
      establish Performance Based Incentives which will
      be described and provided to the Contractor in
      writing annually or at other times as determined
      by the Government.  The Contractor may present
      input, which the Government may consider and
      discuss with the Contractor, as part of the
      establishment of the Performance Based
      Incentives.  The Contractor's input must be
      received by July 1 of each year.  The Performance
      Based Incentives will provide for the Contractor
      to earn or forfeit fee as described therein from
      a Performance Based Incentive fee pool.  While
      the Contractor may earn or forfeit fee as a
      result of performance on the individual
      incentives described, the net fee earned from the
      pool cannot be less than zero."
 
     PBI Document Format
 
The PBI document is an extension of the DOE Richland M&O
contract with the Westinghouse Hanford Company resulting
from Clause H-15, of Contract Modification M-111.  The
format of the PBI document describes the task and the
amount of the incentive.  There are four different
information sections to the FY 1995 PBI document that
prescribe how the contractor may earn the PBI specific
incentive fee.
 
Each PBI contains an identification section which states
the PBI Number (e.g. 95-010), the PBI Owner organization
at Richland, and the date that the PBI was established.
Each PBI also contains a "Performance Objective" section
which describes what the contractor is to accomplish to
qualify for payment of the PBI award amount.
Additionally, each PBI contains a "Contract Performance
Measures" section that specifies what level of performance
will qualify the contractor for incentive fee payment at
either an "Excellent,"Satisfactory," or "Unsatisfactory"
level, and the potential fee associated with each level.
As stated in Contract Clause H-15, the contractor may
either earn or forfeit fee.  An "Excellent" rating allows
the contractor to earn a fee, a "Satisfactory" rating does
not allow the contractor to earn a fee, while an
"Unsatisfactory" rating requires the contractor to forfeit
fee from the incentive fee pool.  However, the net fee
earned from the pool cannot be less than zero.
 
The last section on the PBI document is the "Basis for
Measurement" section which describes conditions associated
with the payment/forfeiture of incentive fee, such as the
amount of fee available per day during the PBI performance
period.  The PBI performance period is the time frame
described within each PBI, in which the contractor must
accomplish the Performance Objective in order to receive
an incentive fee payment.
 
A review of PBI documents that implemented the FY 1995
Richland PBI Program has revealed similarities between
many of the PBIs regarding incentive fee calculations and
periods of performance.  Specifically, many PBIs specify a
schedule date that will result in a "Satisfactory" quality
level where no incentive fee is provided for meeting that
date.  These PBIs also state a period of time for PBI task
performance which is usually 30 days in advance of the
"Satisfactory" date.  The 30 day performance "window" is
the period of time in which the contractor may earn a
prorated portion of the incentive fee for "Excellent"
performance, or the maximum (entire) fee if the
performance date is achieved 30 days or more in advance of
the "Satisfactory" date.  Conversely, the contractor would
be penalized and forfeit fee if the PBI task completion
was later than the "Satisfactory" date.  The amount of
incentive fee penalized would then be calculated based
upon the number of days that the task was late, up to the
maximum fee amount at the "Unsatisfactory" level.
 
The PBI total fee is usually prorated among the
performance days in the "window," e.g., a total incentive
fee of $300,000 would be paid to the contractor for
completing the PBI 30 days or more ahead of the
"Satisfactory" date, or $150,000 for completing the work
15 days ahead of schedule.  If the contractor completed
the work 15 days past the "Satisfactory" date, the
contractor would be required to forfeit $150,000 from PBI
fee amounts otherwise earned under this incentive program.
If the contractor completed the work 30 days or more past
the "Satisfactory" date, the contractor would be required
to forfeit the maximum of $300,000.
 
Completion of PBI Performance Objectives and the PBI
Payment Process
 
Following the completion of a PBI performance objective, a
payment process is initiated by the contractor through a
notice of completion package.  During our inspection, we
found that after a PBI performance objective was
satisfied, the contractor manager responsible for
completing that work would document this condition with a
"Notice of Completion" letter that would be addressed to
the DOE Richland Operations Officer.  The "Notice of
Completion" letter would describe the performance
objective that was completed, the date the work was
completed, and the amount of the incentive fee claimed.
This letter is also used as an attachment to a "Notice of
Completion" package which is originated by the respective
contractor manager and forwarded to the appropriate DOE
Richland Programmatic Assistant Manager and/or Director,
the Richland Operations Officer, and the Richland
Contracting Officer for concurrence.  The process is
completed with authorization from the DOE Contracting
Officer for the contractor to draw down the appropriate
amount of earned incentive fee from the contractorms
letter of credit account.
 
PBI Fees Paid by Richland to WHC Compared to WHC's Award
Fee Experience
 
At the time of our Inspection, FY 1995 PBI fees had been
paid by Richland to WHC that greatly exceeded the past
award fees earned by WHC over the prior three fiscal
years.  Specifically, by the end of FY 1995, Richland had
established 34 different PBIs with WHC that contained 86
different performance objectives.  As of March 5, 1996,
$11,485,572 in PBI fees had been paid to the M&O
Contractor for PBI work under the FY 1995 PBI Program,
compared to a three year annual average (FY 1992 - FY
1994) of only $4,577,916 in award fees paid to WHC.
Figure 3 shows a comparison of base fees, award fees, and
incentive fees earned by WHC in FY 1992 - FY 1995.
 
                             
                        FIGURE 3
                                
  Base, Award and Incentive Fees Paid by Richland to WHC
                   (Millions of Dollars)
                             
FY 95  PBIs       $11.5 Million          
FY 95  Award Fee  $l.5 Million
FY 95  Base Fee      $6 Million
 
FY 94  Award Fee  $ 2.5 Million
FY 94  Base Fee   $12.5 Million
 
FY 93  Award Fee  $2.7 Million
FY 93  Base Fee   $10.75 Million 
 
FY 92  Award Fee  $8.5 Million    
FY 92  Base Fee   $4.2 Million
 
Per a document titled "History of Westinghouse Hanford
Company Award Fee," provided by the DOE Richland
Operations Officer, "'Contract Reform' was implemented via
a modification to WHC's contract which was effective
October 1, 1994.  The entire base fixed fee for FY 1995
was paid during the first six months of the fiscal year;
the base fixed fee for the second six months was zero.
The contract modification also established a revised fee
structure which includes several fee incentive features
for specific accomplishments.  As a result, this award fee
evaluation was not a comprehensive evaluation of WHC's
performance, and it is not directly comparable to award
fee performance for prior periods."
 
Management Comments:
 
In comments to the Initial Draft Report, the Manager,
Richland Operations Office, stated that:
     
    "Changing old ways of doing business at Hanford
     has been a difficult process that required a
     continuous improvement approach.  DOE recognized
     that a negotiated contract extension in 1995 with
     the Westinghouse Hanford Company was an interim
     step;  full competition of the management
     contract and privatization of the Tank Waste
     Remediation System are examples of the steps we
     have taken to improve contractor accountability
     and performance.
     
    "Performance-based incentives were an essential part
     of the negotiated contract extension with the
     Westinghouse Hanford Company.  A fundamental change
     in contracting methodology was initiated to correct:
     
       poor performance on environment, safety, and health
       (ES&H) activities;
     
       unacceptable performance in meeting regulatory and
       project commitments;
     
       pervasive business-as-usual thinking; and
       lack of effectiveness in using an award fee to
       motivate improved contractor performance.
     
    "Our basic approach for the performance-based
     incentives was to define specific, measurable
     objectives; place performance risk on the contractor
     and apply upward and downward adjustments to the fee
     based on actual performance.  A new fee structure was
     established in the contract extension, reducing base
     fees by one-half, reducing available award fees, and
     placing all fees (except reduced base fee) at risk
     for unacceptable performance.
     
    "Even though problems were experienced with some of
     the FY 1995 Performance-based incentives, significant
     contractor performance improvements were realized
     during FY 1995, including:
     
       improved performance on ES&H activities,
       demonstrated by the downward trend in accident
       severity rates, a key measure of improved safety;
     
       improved performance and productivity in meeting
       regulatory and project commitments, evidenced by our
       ability to exceed original scope objectives during a
       period of major budget shortfalls;
     
       re-engineered processes, with a cost reduction
       initiative resulting in more than $300M of savings
       (validated by Arthur Anderson); and
       improved overall contractor performance."
     
The Manager provided additional information on contractor
performance improvements in comments to the Official Draft
Report.  The Manager stated that these improvements
included a 67 percent reduction in accident severity rates
and completion of 94 percent of the enforceable regulatory
milestones on or ahead of schedule.
     
In further comments to the Initial Draft Report, the
Manager, Richland Operations Office, also stated that:
 
         "The draft report's comparison of the prior
          years award fee payments with the FY 1995 PBI
          payments does not include an assessment of the
          contractor's overall performance during the
          period covered by the PBIs.  During that period
          the contractor initiated numerous management
          changes and re-engineering initiatives and was
          able to improve both safety and efficiency as a
          result of RL [Richland] direction and the fee
          incentives.  This improved performance would
          have substantially increased the contractor's
          award fees had we retained the prior years award
          fee structure."
 
In comments to the Official Draft Report, the Manager,
Richland Operations Office, stated that:  "the questioned
FY 1995 PBI amounts are only half of the $6.0 million
reduction in base fee and only 7 percent of the total
available fee."  The Manager also stated that Richland
feels that:  "the reduction in base fee is an important
issue when evaluating the inefficiencies and lessons
learned from the initial year of the PBI Program, and that
the contractor's total base plus earned PBI fees were
probably comparable to what they would have earned under
the previous base plus award fee arrangement."
 
Inspector Comments:
 
At this time, we have no analytical basis for assessing
how improved performance under the PBI Program, or through
other Richland direction in FY 1995, would have
substantially increased the contractor's award fees had
Richland retained the prior years award fee structure.  It
is clear, based on our inspection, that PBI fee incentives
in FY 1995 targeted activities relating to site
management, safety, and projects that would have impacted
the efficiency of operations at the site.  However, these
incentives did not cover the entire work scope of the
contractor in FY 1995.  As shown in Appendix A, these
incentives involved projects and activities whose total
cost in FY 1995 was only $162 million compared with the
total $1.381 billion budgeted for the contract in FY 1995.
As discussed in a February 1996 independent audit report
prepared for Richland, the contractor claimed more than
$300 million in cost savings for FY 1995 under the
Challenge 170 Program.  However, the contractor received
additional fee over and above that received for the PBI
Program for achieving these savings.
 
Management Comments:
 
In comments to the Official Draft Report, the Manager,
Richland Operations Office, stated that:
 
     "The report's comparison of prior years'award
      fee payments with the FY 1995 PBI payments . . .
      appears to be a misleading comparison of the costs
      for the work covered by PBIs to the total contract
      cost.  The $162 million cost for the PBIs does not
      include any costs for six safety PBIs that are
      crosscutting across the entire contract scope, and
      the report does not acknowledge that RL continued
      to have an award fee program concurrent with the
      PBI Program.  It should also be noted that the
      award fees were not evenly applied to the total
      contract in FY 1995 and prior years and a majority
      of the award fees were often applied to only a
      portion of the total contract scope.  The use of
      PBIs did not significantly decrease the scope of
      work that would have to be performed in order for
      the contractor to earn fee."
 
Inspector Comments:
 
As stated in Appendix A, we determined that a total of
$162 million was the dollar value of the work scope that
was incentivized for Performance Objectives as part of the
FY 1995 PBI Program at Richland.  As shown in Appendix A,
we recognized that the FY 1995 project cost for the six
safety PBIs (PBIs 95-003 through 95-008) was not available
from Richland Operations Office personnel.  However, we do
not believe that the lack of specific cost information for
these six PBIs results in a misleading comparison of the
costs for the work covered by PBIs to the actual contract
cost.  It should be noted that the safety PBIs were
crosscutting across the contract work scope in that they
sought to achieve lost workday incident and case rates
below the DOE average, sought to reduce radiological
contaminated areas, and sought to reduce the number of
detectable personnel contamination events.  However, these
PBIs only incentivized the safety objectives, and did not
incentivize contractor performance relating to projects
and other activities included in the contract work scope.
 
As acknowledged in the "BACKGROUND" section of this
report, Richland did have an Award Fee pool of $10,150,000
in FY 1995 that the contractor could earn for meeting
Performance Evaluation Plan goals.
 
V.   RESULTS OF INSPECTION
 
The results section of this report is divided as follows:
 
     A.  PBI FEE WAS EXCESSIVE
 
     B.  PBI FEES PAID FOR WORK THAT WAS ACCOMPLISHED
         PRIOR TO THE PBI PROGRAM BEING ESTABLISHED AT
         RICHLAND
 
     C.  PAYMENT MADE BY RICHLAND FOR INCOMPLETE PBI WORK
 
     D.  PBI PERFORMANCE OBJECTIVES APPEAR TO BE EASILY
         ACHIEVED
 
     E.  QUALITY AND SAFETY WERE COMPROMISED TO ACHIEVE
         A PBI FEE
 
     F.  RICHLAND PBI PROGRAM ADMINISTRATIVE WEAKNESSES
 
     G.  INSPECTION OBSERVATIONS ON OTHER RICHLAND PBI
         PROGRAM ISSUES
 
 
A.  PBI FEE WAS EXCESSIVE
 
Our inspection found that a PBI fee paid to the Richland
M&O Contractor for the installation of a ventilation fan
was excessive.  Specifically, we found that the Richland
M&O Contractor earned a fee of $225,000 to install a waste
storage tank ventilation fan in a tank at the SY Tank Farm
at the Hanford Site.  However, the total Fiscal Year 1995
project cost for the ventilation fan replacement totaled
only $24,766.
 
     Replacement of SY Tank Farm Ventilation Fan
     
As part of the Hanford Site tank farm maintenance
operations, one activity identified under the FY 1995
Richland PBI Program was the replacement of a ventilation
fan in the SY Tank Farm.  This activity had been
identified as a Secretarial Safety Initiative in 1993 when
the Secretary of Energy directed that DOE officials at
Richland develop a list of action items to improve safety
at the Hanford Site tank farms.  The PBI 95-011(g)
Performance Objective, designated as "Replace ventilation
fan in SY farm to further reduce spark potential by August
31, 1995 (SI 2k),"was established on January 27, 1995.
This PBI stated that the M&O Contractor would receive up
to $225,000 for completing this action 30 days ahead of
schedule.  According to the WHC TWRS Milestone Description
Sheet dated September 22, 1994, tasks within this scope of
work included the design, fabrication, and delivery of a
spark resistant replacement fan; installation of the new
fan; and acceptance testing.
 
WHC certified that the work required under PBI 95-011(g)
was complete, and was paid a fee of $225,000.  In a
Westinghouse Hanford Company letter from the WHC Director,
Tank Farm Transition Projects, to the DOE Richland
Director, Tank Safety Analysis Division, dated July 17,
1995, subject:  "COMPLETION OF SAFETY INITIATIVE: REPLACE
VENTILATION FAN IN SY FARM TO FURTHER REDUCE SPARK
POTENTIAL BY AUGUST 31, 1995 (SI 2K)," the WHC Director
stated that:  "The milestone was completed on July 6, 1995
as evidenced by the signed off Work Order. . . ."  As
shown on the "FY 95 Performance Based Incentives
Westinghouse Hanford Company (WHC)" data sheet provided by
the Richland Operations Officer, WHC was paid $225,000 for
completing the ventilation fan project at least 30 days
ahead of schedule.
     
     Statement by Richland Project Manager
     
The FY 1995 cost to complete the replacement of the
ventilation fan in the SY tank farm was significantly less
than the PBI fee that was received by WHC for completing
the work.  During an interview with the DOE TWRS Flammable
Tanks Project Manager, the Project Manager said that he
had reviewed a Budgeted Cost for Work Planned schedule
chart associated with the SY Tank Farm ventilation fan PBI
where he found that the total cost of labor and materials
to complete this PBI work was in the order of $40,000.
When asked by the Office of Inspections about the
relatively high incentive fee for a $40,000 task, the
Project Manager said that the incentive fee amount must
either be a mistake or representative of the importance of
completing the Secretarial Safety Initiative on time.  Our
review of the PBI contract file found no documentation to
support the rationale used for the establishment of a
$225,000 fee for this PBI Performance Objective.
 
     Cost Documentation Provided By WHC
 
Documentation provided by WHC verified that the FY 1995
cost to complete the replacement of the ventilation fan in
the SY Tank Farm was significantly less than the PBI fee
that was received by WHC for completing the work.
Specifically, a WHC "Financial Data System" report dated
February 29, 1996, shows that the Budgeted Cost of Work
Scheduled for the replacement of the ventilation fan in
the SY Tank Farm was $63,400.  However, this report also
shows that the Actual Cost of Work Performed was only
$14,800.  A WHC "CAPITAL EQUIPMENT (CENRTC) CLOSURE
REQUEST" dated October 2, 1995, shows that the 
"Authorized Total" for this project was $65,000 and the 
"Actual Cost Total" was $14,861.85.
 
Additional information provided by the Richland Operations
Office showed that the total FY 1995 project cost for the
ventilation fan project was $24,766.  Specifically,
Richland provided three WHC "Financial Data System"
reports dated October 27, 1995, and identified costs
associated with the ventilation fan project of $710.24,
$21,906.64, and $2,149.54 on these three reports which
total $24,766.42.
 
Conclusions
 
We believe that incentive fees should be structured in
such a way as to motivate the contractor while taking into
consideration the cost of the work to be performed, the
significance of the work, the impact that the work has on
other operations, the level of difficulty in accomplishing
the work, and the risk to the contractor.  However, we
found no documentation to show that these factors were
considered when the PBI amount of $225,000 was established
for the replacement of the ventilation fan in the SY Tank
Farm.  As discussed later in this report, the work under
this PBI objective appeared to be ahead of schedule and
easily achieved.  In addition, the PBI contract file
contained no documentation to support the rationale used
for the establishment of a $225,000 fee for an objective
that had been identified as a Secretarial Safety
Initiative as early as 1993.  Therefore, we believe that,
in this instance, a fee of $225,000 for the accomplishment
of an objective that cost the contractor only $24,766 to
perform was excessive and represented an inefficient use
of available PBI dollars.
 
Recommendation
 
We recommend that the Manager, Richland Operations Office:
 
1.  Develop guidance for the determination of incentive
    fees paid to contractors at Richland that considers the
    cost of the work to be performed, the significance of
    the work, the impact that the work has on other
    operations, the level of difficulty in accomplishing the
    work, and the risk to the contractor.
 
Management Comments:
 
In comments to the Initial Draft Report, the Manager,
Richland Operations Office, concurred with Recommendation
1, stating that:
 
         "Recommendation 1:  RL will develop
          procedures, guidelines, and additional training
          for the initiation, administration, and payment
          of new and current performance incentives.  The
          procedures, guidelines, and training will
          incorporate the views and recommendations
          expressed in this report and incorporate lessons-
          learned from the previous incentive fee
          programs, other RL reviews, and the upcoming
          recommendations of the Fee Incentives and
          Analysis Team."
 
The Manager offered additional comments, stating that PBI
95-011(g) was one of eight PBI 95-011 performance
objectives selected to complete TWRS Secretarial Safety
Initiatives.  The Manager stated that it had been
determined that when tank 101-SY, and to a lesser extent
tank 103-SY, periodically vented flammable concentrations
of gases, the exhauster presented a serious safety risk.
The Manager stated that the carbon-steel fan, could, under
a variety of failure modes (e.g., blade separation,
bearing failure, etc.), strike the housing and create
sparks.  The Manager said that this sparking could serve
as the initiator of a deflagration or explosion if it took
place during a gas vent event.  The Manager stated that
the deflagration could propagate backwards into the tank
with extremely serious consequences.  The Manager stated
that, as a result, the replacement of this fan with one
which would control this potential spark source was
identified as a key improvement to the Hanford safety
posture.
 
The Manager also stated that the FY 1995 total cost to
complete replacement of the ventilation fan was $24,811
(later adjusted to $24,766 during a discussion with the
Office of Inspections).  The Manager stated that the
replacement of the ventilation fan was part of a three-
year workscope which was originally estimated to cost
$654,000.  The Manager stated that this initiative was
selected for an incentive fee because of the overall
importance of the entire work scope.  The Manager stated
that an objective cost basis methodology to determine the
incentive fee was not available and the fee of $225,000
was calculated by dividing the $1,800,000 fee available
for PBI 95-011 by the eight performance objectives.
 
Inspector Comments:
 
We agree that the identification of the ventilation fan
project as a Secretarial Safety Initiative was an
important improvement to the Hanford safety posture as
stated by the Manager.  However, the basic point we were
addressing in our Initial Draft Report was that incentive
fees should be structured in such a way as to motivate the
contractor while taking into consideration the cost of the
work to be performed, the significance of the work, the
impact that the work has on other operations, the level of
difficulty in accomplishing the work, and the risk to the
contractor.  In the case of PBI 95-011(g), it is clear
that the incentive fee was not structured in this manner,
but was simply determined by dividing the total PBI
dollars available by the number of performance objectives
associated with the PBI.
 
During a return trip to Richland the week of December 2,
1996, we noted other cases where incentive fee amounts
were paid for FY 1995 PBI activities that exceeded the FY
1995 cost of the work performed.  For example, Appendix A
shows that a PBI fee of $400,000 was assigned and paid for
PBI 95-024, "PUREX - Transfer of D5/E6 Solution."
However, we were told that the majority of the cost of
this activity was incurred in FY 1994, and we were
provided documentation showing that the FY 1994 cost was
$303,500.  Although the FY 1995 cost was not tracked in
the contractorms Financial Data System, we were told that
the FY 1995 cost was "relatively minor" and that the
actual cost of this activity in FY 1995 was probably in
the range of $30,000.
 
We also noted several cases where the cost of the FY 1995
PBI work was nearly equal to or only slightly greater than
the incentive fee paid.  We believe that management needs
to be aware of these situations and fully consider cost as
one of the factors in determining fee in order to avoid
any perception that incentive fees are excessive, and to
assure that incentive fee dollars are used efficiently.
We also believe that management needs to clearly document
the rationale for establishing fees, and assure that any
fees which greatly exceed the contractor's cost are
supported by other considerations.
 
Management Comments:
 
In comments to the Official Draft Report, the Manager,
Richland Operations Office, stated that:
 
         "The comments . . . regarding the FY 1995 cost to
         complete PBI 95-024, "PUREX - Transfer of D5/E6
         Solution' are generally accurate.  However, the
         report should also acknowledge the cost benefit of
         completing this activity and that the activity was a
         significant contributing factor to accelerating the
         overall project schedule.  PUREX had been costing
         between $100,000 and $200,000 a day in surveillance
         and maintenance costs.  We were able to accelerate
         the project by 10 months and save over $37 million by
         incentivizing the critical path activities."
 
Inspector Comments:
 
We do not dispute Richland's position that the early
shutdown of the PUREX facility resulted in significant
savings to the Department.  Nor do we dispute that the
completion of PBI 95-024 was necessary to effect the
shutdown.  However, as previously discussed, the basic
point we were addressing is that incentive fees should be
structured in such a way as to motivate the contractor
while taking into consideration the cost of the work to be
performed, the significance of the work, the impact that
the work has on other operations, the level of difficulty
in acomplishing the work, and the risk to the contractor.
In this case, the payment of $400,000 in incentive fees
was made for a project that was substantially completed in
a prior fiscal year.  The work scope to complete the
performance objective in FY 1995 was described as
"relatively minor" by project personnel with an FY 1995
cost in the range of $30,000.
 
 
B.  PBI FEES PAID FOR WORK THAT WAS ACCOMPLISHED PRIOR TO
    THE PBI PROGRAM BEING ESTABLISHED AT RICHLAND
 
Our inspection found several instances where PBI fees were
paid for work that was accomplished prior to the PBI
Program being established at Richland.  Specifically, the
PBI Program at Richland was established under the M&O
contract by a contract modification dated January 25,
1995.  However, the M&O Contractor was paid $821,870 for
work that was either completed or substantially completed
prior to the contract modification date.
 
     Upgrade Alarm Panels in Seven Tank Farms
          
As part of Hanford Site tank farm operations, one activity
identified under the FY 1995 Richland PBI Program was the
upgrade of alarm panels in seven tank farms.  The PBI 95-
011(c) Performance Objective, designated as "Upgrade alarm
panels in 7 tank farms by March 31, 1995 (SI 4a)," was
established on January 27, 1995.  This PBI stated that the
M&O Contractor would receive up to $225,000 for completing
this action 30 days ahead of schedule.  According to the
WHC TWRS Milestone Description Sheet dated September 16,
1994, tasks within this scope of work included an
engineering evaluation to identify obsolete alarm panel
windows, and to identify alarms to be retained and
upgraded.  Other tasks in this scope of work included the
consolidation of alarm panel windows in seven control
rooms, the elimination of obsolete windows, and the
upgrade of selected obsolete hardware.
 
However, documentation available to Richland prior to the
establishment of this PBI showed that the upgrade
requirements for six of the seven alarm panels were
completed prior to the establishment of the PBI Program at
Richland.  Specifically, the WHC TWRS Milestone
Description Sheet stated that:  "All control room
upgrades, except the 242-S Evaporator, were completed
prior to or during FY 1994."  In an interview with a DOE
Richland TWRS Project Engineer, the Project Engineer
confirmed that six of the seven alarm panel upgrades had
been completed in prior years by WHC.  As discussed in
Section C of this report, "PAYMENT MADE BY RICHLAND FOR
INCOMPLETE PBI WORK," however, a TWRS review team issued a
report dated September 24, 1996, that documented that only
two alarm panel upgrades had actually been completed
before the PBI completion date.
 
WHC certified that the work required under PBI 95-011(c)
was complete.  In a Westinghouse Hanford Company letter
from the WHC Director TWRS Plant Tank Waste Remediation
System to the DOE Director, Tank Operations Division,
dated February 24, 1995, subject:  "COMPLETION OF SAFETY
INITIATIVE SI-4A," the WHC Director stated that:
 
       "TWRS Plant has completed all authorized work
        for Safety Initiative SI-4a.  Authorized alarm
        panel upgrades have been completed in tank farms A,
        AN, AW, BX, BY, CR, 242-S, and U.  The 242-S alarm
        panel functional test was completed on February 23,
        1995, and completes the work specified as
        Performance Based Incentive work."
 
Upon certification by WHC that the work was completed, WHC
was paid a fee of $225,000.  As shown on the "FY 95
Performance Based Incentives Westinghouse Hanford Company
(WHC)" data sheet provided by the Richland Operations
Officer, WHC was paid $225,000 for completing the alarm
panel project at least 30 days ahead of schedule.
 
     Replace Compressed Air Systems in 10 Tank Farms
          
As part of Hanford Site tank farm maintenance operations,
one activity identified under the FY 1995 Richland PBI
Program was the replacement of compressed air systems in
10 tank farms.  The PBI 95-011(d) Performance Objective,
designated as "Replace compressed air systems in 10 tank
farms by March 31, 1995 (SI 4b)," was established on 
January 27, 1995.  This PBI stated that the M&O Contractor 
would receive up to $225,000 for completing this action 30 
days ahead of schedule.  According to the WHC TWRS Milestone
Description Sheet dated September 16, 1994, tasks within
this scope of work included the replacement of compressor
systems within existing facilities, the upgrade of
compressor cooling systems, providing a dryer system for
the compressed air systems, acceptance and operational
testing, and the return of the hardware to WHC Hanford
Site Operations.
 
However, documentation available to Richland prior to the
establishment of this PBI showed that seven of the 10
compressed air systems were already completed prior to the
establishment of the PBI Program at Richland.
Specifically, the WHC TWRS Milestone Description Sheet
stated that seven of the 10 compressed air systems were
already completed prior to FY 1995.  In an interview with
the DOE Richland TWRS Waste Storage Division Manager, the
Manager said that he did not know why the PBI was written
to include work that was completed prior to the PBI being
established.
 
Other WHC documentation also showed that seven of the 10
compressed air systems were already completed prior to the
establishment of the PBI Program at Richland.  In a
Westinghouse Hanford Company letter from the WHC Manager,
TWRS Life Extension and Transition Tank Waste Remediation
System, to the DOE Director, Tank Operations Division,
dated March 5, 1995, subject:  "COMPLETION OF SAFETY
INITIATIVE SI-4B, MILESTONE NUMBER T2C-95-115, REPLACE
COMPRESSED AIR SYSTEM IN TEN TANK FARMS, A PERFORMANCE
BASED INCENTIVE ACTIVITY," the WHC Manager stated that
seven compressor systems were completed in prior years,
while three compressor systems were completed in FY 1995.
This letter identified the air compressor completion dates
as follows:
 
            1.  AW Farm upgrade was completed on
                1/15/93.
 
            2.  SX Farm upgrade was completed on
                5/26/93.
 
            3.  T Farm upgrade was completed on
                3/26/93.
 
            4.  241-CR upgrade was completed on
                5/21/93.
 
            5.  242-S Evaporator upgrade was completed
                on 9/30/92.
 
            6.  U Farm upgrade was completed on
                5/25/94.
 
            7.  B/BX/BY Farm upgrade was completed on
                8/24/94.
 
            8.  AP Farm upgrade was completed on
                2/23/95.
 
            9.  242-T Evaporator/TX Farm/TY Farm
                upgrade was completed on 2/23/95.
 
          10. The 701-A upgrade was completed on
              3/5/95.
 
WHC certified that the work required under PBI 95-011(d)
was complete.  In a Westinghouse Hanford Company letter
from the WHC Director, TWRS Plant Tank Waste Remediation
System, to the DOE Assistant Manager, Office of Tank Waste
Remediation System, dated March 7, 1995, subject:
"COMPLETION OF PERFORMANCE BASED INCENTIVE 95-011(d)," the
WHC Director stated that:
 
      "This letter provides notice that Performance
       Based Incentive 95-011(d), replacement of ten tank
       farm compressed air systems, was completed on March
       5, 1995.  Your concurrence on the attachment is
       required for Performance Based Incentive
       completion."
 
Upon certification by WHC that the work was completed, WHC
was paid a fee of $185,870.  As shown on the "FY 1995
Performance Based Incentives Westinghouse Hanford Company
(WHC)" data sheet provided by the Richland Operations
Officer, WHC was paid $185,870 for completing the
compressed air system project 19 days ahead of schedule.
 
          Shutdown of Fast Flux Test Facility Group 1
          Systems
          
The shutdown of the Fast Flux Test Facility (FFTF) Group 1
systems was a planned activity that was designated as a
PBI.  The PBI 95-026 Performance Objective, designated as
"FAST FLUX TEST FACILITY - Complete the shutdown of Group
1 systems," was established on January 27, 1995.  This PBI
stated that the M&O Contractor would receive up to
$300,000 for achieving the goals of:  "Greater than 50
percent of the Group 1 systems are shut down prior to
April 1, 1995, and all Group 1 systems are shut down prior
to August 10, 1995."  This had the effect of establishing
two performance standards for the FFTF shutdown.
 
However, a review of WHC FFTF shutdown related
documentation indicated that many of these actions had
taken place prior to the establishment of the PBI Program
at Richland.  We found that seven of the 11 tasks required
to be completed to qualify WHC for payment of the PBI fee
by meeting the first performance standard were completed
prior to the PBI being established.  The other four tasks
were completed by February 22, 1995, within 26 days of the
PBI being established.
 
Specifically, WHC certified that the work required under
PBI 95-026 was complete.  In a Westinghouse Hanford
Company letter from the WHC Director, FFTF Transition
Projects, to the DOE Director, Transition Program
Division, dated May 23, 1995, subject:  "PERFORMANCE BASED
INCENTIVE COMPLETION NOTICE," the WHC Director stated
that:
 
         "On May 19, 1995, the Fast Flux Test Facility
          Transition Project completed the shutdown of all
          twenty-one Group 1 systems per the applicable
          work documents.  The completion of this activity
          constitutes Westinghouse Hanford Company's
          meeting of the 'excellent' performance quality
          level of the Performance Based Initiative titled,'
          Fast Flux Test Facility - Complete the shutdown
          of Group 1 systems.'"
 
Attached to the May 23, 1995, WHC letter was a "validation
statement" showing the 21 Group 1 systems and the dates
when these systems were shut down.  The systems and the
shutdown completion dates as of May 19, 1995, were
identified as follows:
 
                
                SYSTEM              COMPLETION DATE
            
           1.  PDS Computer           9/28/94
           2.  PDS Multiplexers       9/28/94
           3.  CIS                   10/10/94
           4.  ZTO's                   1/3/95
           5.  PPS                     1/6/95
           6.  EDS/DAS                 1/6/95
           7.  Failed Fuel Monit       1/12/95
           8.  DHX Controls            2/1/95
           9.  EDS/CALC                2/2/95
          10.  Rx Flux Control         2/13/95
          11.  Diesel Generators       2/22/95
          12.  NASA                    3/13/95
          13.  RSB & AEB-W H&V         3/13/95
          14.  CTMT Margins            3/17/95
          15.  MOTA                    4/4/95
          16.  CTMT H&V                4/10/95
          17.  HTS & DHX H&V           4/14/95
          18.  Control/AEB-E H&V       4/24/95
          19.  Cover Gas Sampl.        4/28/95
          20.  RAPS                    5/10/95
          21.  DG Fuel Oil             suspended 5/19/95
 
This documentation shows that systems 1 through 7 were
completed prior to the PBI being established, and systems
8 through 11 were completed within 26 days of the
establishment of the PBI.
 
Upon certification by WHC that the work was completed, WHC
was paid a fee of $300,000.  As shown on the "FY 95
Performance Based Incentives Westinghouse Hanford Company
(WHC)" data sheet provided by the Richland Operations
Officer, WHC was paid $300,000 for completing the FFTF
Group 1 systems shutdown more than 30 days ahead of
schedule.
 
     EPCRA 311 Material Safety Data Sheet List
          
As part of ongoing environmental reporting requirements,
Richland approved a PBI for producing several
environmental reports.  The PBI 95-028 Performance
Objective, designated as "Complete Annual Environmental
Reporting Requirements," was established on January 27,
1995.  This PBI stated that the M&O Contractor would
receive up to a total of $120,000 for environmental
reports in which the:  "Reports are completed at least one
week ahead of schedule and within budget."  There were a
total of 11 reports stipulated in the PBI "Basis for
Measurement" where it was also stated that WHC would
receive $11,000 per report if the report was completed at
least one week ahead of schedule and within budget.
 
Each of the 11 reports included under PBI 95-028 had
separate completion dates established for the achievement
of a PBI fee.  One of these reports, the EPCRA 311
Material Safety Data Sheet List, was required by PBI 95-
028 to be completed by January 25, 1995, in order to
receive the maximum fee of $11,000.
 
However, this report was completed prior to the
establishment of the PBI Program at Richland.  In a letter
dated January 24, 1995, from the WHC Director of
Environmental Services to the DOE Acting Program Manager,
Office of Environmental Assurance, Permits, and Policy,
subject:  "MATERIAL SAFETY DATA SHEET REPORTING, EMERGENCY
PLANNING AND COMMUNITY RIGHT-TO-KNOW ACT, SECTION 311,"
the WHC Director stated that:
 
    "As required by the Emergency Planning and
     Community Right-To-Know Act of 1986 (EPCRA),
     Section 311, a revised Material Safety Data
     Sheet (MSDS) listing of hazardous chemicals for
     the Hanford Site has been prepared and is
     attached for your action. . . .  The required
     revisions to the November 1994 listing were
     identified on January 23, 1995.  Draft cover
     letters for the submittals are also attached for
     your use."
 
The completion of the EPCRA 311 MSDS PBI Performance
Objective was also documented on a PBI work sheet.
Specifically, a Westinghouse Hanford Company Fee/Penalty
Calculations worksheet dated February 6, 1995, and
subject: "EPCRA 311 MSDS list - 95/1 quarter update,"
stated that the event (completion) date for this PBI was
on January 24, 1995.
 
WHC certified that this task was completed on January 24,
1995.  This certification occurred one day prior to the
establishment of the PBI Program at Richland, and three
days prior to the establishment of this specific PBI.
Upon certification by WHC that the work was completed, WHC
was paid a fee of $11,000.  As shown on the "FY 95
Performance Based Incentives Westinghouse Hanford Company
(WHC)" data sheet provided by the Richland Operations
Officer, WHC was paid $11,000 for completing the "EPCRA
311 MSDS list (2nd Qtr)" at least one week ahead of
schedule.
 
The Richland Operations Officer, the Contracting Officer's
Representative for WHC award fees and performance based
incentives, was interviewed by the Office of Inspections
concerning the payment of an incentive fee for the EPCRA
311 MSDS list.  The Operations Officer said that the PBI
fee was earned before the PBI establishment date because
it took a long time to negotiate Contract Modification M-
111 that established the PBI Program at Richland, and that
the work described by this PBI was ongoing prior to the
contract modification being signed.  The Operations
Officer said that the contractor was completing the work
in expectation of DOE honoring the PBI.
 
    Certification of Laboratory Software
          
As a part of the Hanford Site Analytical Services Program,
a PBI was established for implementing a new laboratory
computer software program.  The PBI 95-029 Performance
Objective, designated as "Implement LABCORE LIMS Release
2.0," was established on January 27, 1995.  This PBI
stated that the M&O Contractor would receive $3,571 per
day, up to $100,000 for completing this action by February
28, 1995.  Acknowledgment by Richland that all
certifications for LABCORE LIMS Release 2.0 had been
achieved before February 28, 1995, was required in order
for WHC to receive the PBI fee.
 
As stated in PBI 95-029 "Basis for Measurement," there
were four requirements that had to be completed by
February 28, 1995, as part of the implementation of
Release 2.0 of the LABCORE LIMS system.  These four
requirements were:
 
    1.  Complete and document user acceptance testing for
        the two (X bar and Y bar) moving average range charts.
    
    2.  Issue a letter report to the Manager, Information
        Systems of the 222-S LABCORE system performance 
        evaluation.
    
    3.  Complete and document a user acceptance test for
        the transfer of data between the 222-S Organic 
        instrument system and the 222-S LABCORE system.
    
    4.  Complete and document a user acceptance test for
        the transfer of data from the 222-S Applied 
        Research Inductively Coupled Plasma (ICP)
        instrument system and the 222-S LABCORE test
        system.
    
WHC submitted a letter to Richland stating that the PBI
objectives were met.  As stated in a Westinghouse Hanford
Company letter from the WHC Director, Analytical Services
Projects and Site Services, to the DOE Richland Director,
Waste Programs Division, dated January 31, 1995, subject:
"COMPLETION OF LABCORE/LIMS RELEASE 2.0, AS MILESTONE AS-
95-001," the WHC Director stated that:  "This letter
constitutes the completion of AS-95-001 due February 28,
1995."  The WHC Directorms letter detailed the actions
taken by WHC to satisfy the requirements of PBI 95-029,
but did not mention the completion dates for these four
requirements.
 
However, WHC LABCORE LIMS Release 2.0 documentation
indicated that the requirements of the PBI were satisfied
prior to the PBI being established.  This documentation,
provided by a DOE Richland Project Engineer, indicated
that each of the four PBI "Basis for Measurement"
requirements were completed before the PBI was established
on January 27, 1995.  Specifically, user acceptance
testing for the two (X bar and Y bar) moving average range
charts was completed on January 13, 1995; a letter report
to the Manager, Information Systems of the 222-S LABCORE
system performance report was released on November 21, 1994; 
a user acceptance test for the transfer of data between the 
222-S Organic instrument system and the 222-S LABCORE system 
was completed on October 31, 1994; and, a user acceptance 
test for the transfer of data from the 222-S Applied 
Research Inductively Coupled Plasma (ICP) instrument system 
and the 222-S LABCORE system was completed on October 31,1994.
 
Upon certification by WHC that the work was completed, WHC
was paid $100,000.  As shown on the "FY 95 Performance
Based Incentives Westinghouse Hanford Company (WHC)" data
sheet provided by the Richland Operations Officer, WHC was
paid $100,000 for completing the implementation of
LABCORE LIMS Release 2.0 ahead of schedule.
 
     DOE Statements on Work Accomplished Prior to PBI
     Implementation
 
Several WHC and DOE officials that were knowledgeable of
the specifics of PBI 95-026, PBI 95-028 ,and PBI 95-029
Performance Objectives were interviewed regarding the
payment for work that was completed prior to the
establishment of the PBI Program (on January 25, 1995,
under Contract Modification M-111).  Some officials said
that the PBIs had been in a development status for a
considerable period of time, and that the contractor began
working on completing the PBI Performance Objectives in
anticipation of the PBIs being incorporated into the M&O
contract.  However, other DOE officials said that, in some
cases, it was their belief that PBIs were written to
include work that was already accomplished because PBI
Performance Objectives were simply copied from documents
which included the Secretarial Safety Initiatives for the
Hanford Site developed in 1993.
    
     Statements by WHC and Richland Officials on PBIs that
     were to be Approved
     
We found that WHC management was uncertain which PBIs
would in fact be approved by DOE Richland as late as
January 23, 1995.  In a letter from the WHC Executive Vice
President to the DOE Richland Deputy Manager dated January
13, 1995, the WHC Executive Vice President stated in part
that:
 
      ". . . This attachment represents 13 PBIs worth
      $9.15 million spread over the remaining portion of
      the fiscal year.  We recognize that any potential
      positive or negative first quarter fiscal year (FY)
      1995 incentives associated with the attached 13
      PBIs have been eliminated as a result of not having
      a signed/approved contract in place."
 
        *    *   *   *   *     *     *       *
 
      "Represented in Attachment 3 are 21 additional
       PBIs worth $9.12 million.  Many of these have been
       previously discussed between the program staff at
       WHC and RL."
 
In a letter from the WHC Executive Vice President to the
DOE Richland Deputy Manager dated January 23, 1995, the
Executive Vice President stated that:
 
      "We would appreciate your assistance in quickly
       obtaining copies of the complete set of Performance
       Based Incentives (PBIs).  A complete set of PBIs
       was provided to the U.S. Department of Energy,
       Richland Operations Office (RL) on January 13,
       1995, and we have not had an opportunity to review
       changes made subsequent to our submittal."
 
DOE Richland affirmed which PBIs were included in the
contract modification one week after the modification was
signed.  In a letter from the Richland Operations Office
Contracting Officer to the President of the Westinghouse
Hanford Company, dated February 3, 1995, and subject:
"CONTRACT DE-AC06-87RL190930, PERFORMANCE-BASED
INCENTIVES,"  the Contracting Officer stated that:
 
     "The recent modification number M111 to the
      subject contract, incorporated clause number H-
      15, titled:  Performance Based Incentives.
      Pursuant to clause H-15, the twenty-nine (29)
      currently established Performance-Based
      Incentives (PBIs) are forwarded herewith.
      Additions, deletions, and/or changes to
      existing PBIs shall be provided in accordance
      with the terms of the subject contract."
 
Conclusions
 
We believe that PBI dollars were not effectively used in
the instances described here because we found substantial
portions of the work performed to achieve PBI fees
totaling $821,870 was actually performed prior to the
establishment of the PBI Program at Richland on January
25, 1995.  In the case of PBI 95-011(c), the PBI objective
was written to imply that the alarm panels in seven tank
farms were to be upgraded in order to achieve a PBI fee of
$225,000.  However, documentation shows that the upgrades
to the alarm panels in six of the seven tank farms had
already been completed prior to or during FY 1994.  In the
case of PBI 95-011(d), the PBI objective was written to
imply that the compressor air systems in 10 tank farms
were to be replaced in order to achieve another PBI fee of
$225,000.  However, the replacements of the compressor air
systems in seven of the 10 tank farms were completed
between January 1993 and August 1994.  In the case of PBI 
95-026, the PBI objective was written to imply that the 
contractor would have to shut down more than 50 percent of 
the Group 1 systems for the Fast Flux Test Facility by 
April 1, 1995, and all of the Group 1 systems by August 10, 
1995, in order to achieve a PBI fee of $300,000.  However, 
seven of the 11 tasks required to qualify the contractor for 
the April 1, 1995, performance measure were actually completed
between September 28, 1994, and January 12, 1995.
 
We believe that PBIs should clearly reflect the work that
is to be performed.  In the case of PBI 95-011(c), the
work to be performed should have been stated as "Upgrade
an alarm panel in 1 tank farm," rather than "Upgrade alarm
panels in 7 tank farms."  In the case of PBI 95-011(d),
the work to be performed should have been stated as
"Replace Compressed Air System in Three Tank Farms,"
rather than "Replace Compressed Air System in Ten Tank
Farms."
 
Similar conditions exist for PBIs 95-028 and 95-029 where
PBI objectives were completed prior to the establishment
of the PBI Program at Richland.  In the case of PBI 95-
028, a fee of $11,000 was paid for completing the EPCRA
311 MSDS List.  However, this PBI objective was met one
day prior to the establishment of the PBI Program at
Richland.  In the case of PBI 95-029, a fee of $100,000
was paid for completion of four activities associated with
implementation of Release 2.0 of the LABCORE LIMS program.
However, three of these four activities were completed in
October and November of 1994, and the fourth activity was
completed 12 days prior to the establishment of the PBI
Program at Richland.
 
We believe that any work done prior to the signing of
Contract Modification M-111 on January 25, 1995, was
accomplished without an approved performance incentive in
place, and was accomplished under the prior award fee
system at Richland.  This position is consistent with the
WHC Executive Vice President's January 13, 1995, letter to
the DOE Richland Deputy Manager where he stated that:  "We
recognize that any potential positive or negative first
quarter fiscal year (FY) 1995 incentives associated with
the attached 13 PBIs have been eliminated as a result of
not having a signed/approved contract in place."  Since
Contract Modification M-111 does not address the payment
of fees retroactive to the signature date, and since the
PBIs themselves do not address the payment of retroactive
fees, we believe that the $111,000 in fees for PBIs 95-028
and 95-029 should be recovered since all of the work
required was performed prior to the establishment of the
PBI Program at Richland.
 
Recommendations
 
We recommend that the Manager, Richland Operations Office:
 
2.  Direct the Contracting Officer to review PBI Numbers
    95-011(c), 95-011(d), and 95-026 to determine if there
    is any contractual basis for recovering a prorated
    portion of the PBI fees that were paid for work that was
    accomplished prior to the establishment of the PBI
    Program at Richland.
 
3.  Direct the Contracting Officer to take action to
    recover $111,000 under PBIs 95-028 and 95-029 for fees
    paid where all of the work required was performed prior
    to the establishment of the PBI Program at Richland.
 
4.  Develop policy that requires that the work defined in
    the PBI document reflects the work that is actually to
    be accomplished in order to achieve the PBI fee.
 
5.  Develop policy that assures that PBI dollars are used
    to provide incentives to the contractor for future
    performance rather than reward the contractor for past
    accomplishments.
 
Management Comments:
 
In comments to the Initial Draft Report, the Manager,
Richland Operations Office, concurred with Recommendations
2, 3, 4, and 5, stating that:
 
         "Recommendation 2:  The Contracting Officer
         has been directed to review PBIs 95-011(c), 95-
         026, and 95-027 to determine the extent to which
         fee recovery is warranted and the contractual
         basis to accomplish recovery.  DOE has taken
         action, and the contractor has agreed, to the
         return of previously paid fees on PBI 95-011(d).
 
         "Recommendation 3:  The Contracting Officer
         has been directed to review PBIs 95-028 and 95-
         029 to determine the extent to which fee
         recovery is warranted and the contractual basis
         to accomplish recovery.
 
         "Recommendations 4 and 5:  RL will develop
         procedures, guidelines, and additional training
         for the initiation, administration, and payment
         of new and current performance incentives.  The
         procedures, guidelines, and training will
         incorporate the views and recommendations
         expressed in this report and incorporate lessons-
         learned from the previous incentive fee
         programs, other RL reviews, and the upcoming
         recommendations of the Fee Incentives and
         Analysis Team."
 
The Manager offered additional comments.  With regard to
PBIs 95-011(c) and 95-011(d), the Manager stated that:
"We concur that some of the actions in the PBI safety
initiatives had already been completed when the PBI was
developed, however, the contractor did not receive any
additional fees for the already completed work."  The
Manager stated that:  "The PBIs were written to include
completed work so that the PBI language would be
consistent with the Secretarial Safety Initiatives."
 
With regard to PBI 95-026, the Manager stated that
completing the shutdown of the Fast Flux Test Facility
(FFTF) Group 1 systems was a planned activity in the
Richland approved FY 1995 Advanced Reactors Transition
Multi-Year Program Plan.  The Manager stated that in
October 1994, the planned activity for completing the
shutdown of Group 1 systems was submitted to Richland by
Westinghouse Hanford Company (WHC) as "a potential
candidate for FY 1995 Performance-Based Initiatives
(PBI)."  The Manager stated that over the next three
months, negotiations on the PBI took place at various
levels in both WHC and Richland.  Finally, on January 27,
1995, PBI 95-026 was formally approved.
 
The Manager also stated that the designation of systems as
Groups was established early in calendar year 1994 when
the FFTF Shutdown Project Plan was initially developed.
The Manager stated that individual systems were grouped
into 12 distinct Groups based upon their need to be
operational as major shutdown activities were completed.
The Manager stated that Richland staff knew that a few of
the Group 1 systems had already been shut down prior to
establishing the PBI; however, the Group 1 designation
was used for convenience in developing the PBI.  The
Manager stated that the objective of the PBI was to
deliver an integrated system.  The Manager stated that,
while three of 21 of the individual systems were known to
be complete at the time the PBI was developed, delivery of
the completed integrated system was the incentivized
outcome.  The Manager also stated that many of these
system shutdown actions were completed between the time
the PBI was introduced to Richland and the time it was
formally approved.
 
With regard to PBI-029, the Manager said that the report
states that contract negotiations were concluded and the
PBI Program was officially approved on January 27, 1995,
and that PBI 95-029 was declared complete on
January 31, 1995.  The Manager stated, however, that the
importance of the LABCORE LIMS Release 2.0 to the success
of the Analytical Services Program was recognized well
before that date.  The Manager stated that identification
of the "LIMS" as an important milestone began in August
1994 with the early planning for the FY 1995 Multi-Year
Program Plan (MYPP).  The Manager stated that this
activity was considered high priority and work began on
October 1, 1994.  The Manager stated that, without the FY
1995 LABCORE LIMS upgrades, the 222-S could not have
doubled its production from FY 1994 to FY 1995 and again
doubled production in FY 1996.
 
Inspector Comments:
 
There was a four month delay between the time that the PBI
Program at Richland was intended to be placed into effect
(October 1994), and the time when the PBI Program was
actually established (January 25, 1995).  During this
period of time, DOE Richland Operations Office and WHC
officials were aware that contractor efforts were focused
on projects that had been proposed as FY 1995 PBI
performance objectives.  However, as detailed in this
section of the report, it was uncertain which of the
proposed PBIs would be included in the contract
modification as late as January 23, 1995.
 
The basic point we were addressing in our Initial Draft
Report was that all or substantial portions of the work
performed to achieve the PBI fees under PBIs 95-026 and
PBI 95-029 was actually performed prior to the
establishment of the PBI Program at Richland on January
25, 1995.  We believe that providing an incentive fee for
work by the contractor that is accomplished prior to the
establishment of the Incentive Fee Program constitutes
work that was done outside of the incentive program, and
is work that would not be eligible for incentive fee
payment.  Additionally, any negotiations on incentive fee
arrangements between the contractor and Richland officials
made prior to the establishment of the PBI Program would
not be binding until formal agreement was reached.  It
should be noted that the Richland Operations Office
eliminated some potential PBI performance objectives from
the FY 1995 PBI Program because the work intended was
completed during the period when the four month delay
occurred.
 
 
C.  PAYMENT MADE BY RICHLAND FOR INCOMPLETE PBI WORK
 
Our inspection found instances where Richland paid fees
for PBI work that was not complete.  Specifically, we
found three instances where fees were paid to the M&O
Contractor for work that was certified by the M&O
Contractor as complete; however, Richland documentation
shows that the PBI work was not completed in accordance
with the provisions of the PBIs.
 
     Upgrade Alarm Panels in Seven Tank Farms
          
As previously discussed, the PBI 95-011(c) Performance
Objective, described as "Upgrade alarm panels in 7 tank
farms by March 31, 1995 (SI 4a)," was established on
January 27, 1995.  This PBI stated that the M&O Contractor
would receive up to $225,000 for completing this action 30
days ahead of schedule.  The Performance Objective also
stated that the M&O Contractor would be penalized up to
$225,000 for completing this action 30 days or more behind
schedule.  According to the WHC TWRS Milestone Description
Sheet (MDS) dated September 16, 1994, tasks within the
scope of work included an engineering evaluation to
identify obsolete alarm windows, and to identify alarms to
be retained and upgraded.  Other tasks within the scope of
work included the consolidation of alarm panel windows in
seven control rooms, the elimination of obsolete alarm
panel windows, and the upgrade of selected obsolete
hardware.  The WHC TWRS MDS stated that deliverables for
these tasks included completion of the design package,
installation of the required hardware, and returning the
equipment to operation.
 
WHC certified that the work required under PBI 95-011(c)
was complete.  In a Westinghouse Hanford Company letter
from the WHC Director, TWRS Plant Tank Waste Remediation
System, to the DOE Richland Director, Tank Operations
Division, dated February 24, 1995, subject:  "COMPLETION
OF SAFETY INITIATIVE SI-4A," the WHC Director stated that:
 
       "TWRS Plant has completed all authorized work
       for Safety Initiative SI-4a.  Authorized alarm
       panel upgrades have been completed in tank farms A,
       AN, AW, BX, BY, CR, 242-S, and U.  The 242-S alarm
       panel functional test was completed on February 23,
       1995, and completes the work specified as
       Performance Based Incentive work."
 
Upon certification by WHC that the work was completed, WHC
was paid a fee of $225,000.  Specifically, as shown on the
"FY 95 Performance Based Incentives Westinghouse Hanford
Company (WHC)" data sheet provided by the Richland
Operations Officer, WHC was paid $225,000 for completing
the "Upgrade alarm panels in 7 tank farms by March 31,
1995 (SI 4a)" project on March 1, 1995.  This was the
maximum fee award date, qualifying WHC for the maximum
award fee for this PBI.
 
However, a review of the tasks under PBI 95-011(c) by a
DOE Richland TWRS Project Engineer revealed that the
required tasks were in fact not completed by February 23,
1995, as claimed by WHC.  Specifically, the Office of
Inspections had requested the man-hours, material costs,
and dates associated with the work completed under this
PBI.  In responding to this request, the Project Engineer
identified documentation which showed that the work
required had not been completed.  The Project Engineer
summarized his findings, and provided a summary document
to the OIG on August 20, 1996, Subject: "Review of TWRS
Safety Initiative 4a, Upgrade Alarm Panels in 7 Tank Farms
by March 1995."  This summary document stated that:
 
     "Based on the description below and the work
     documents in the archives for A Farm, C Farm,
     and the 242-S Evaporator, my conclusion is
     that this SI was not completed by 2/23/95.
     
     "The problems noted with this SI are shown as
      bulletized items.
     
     *     *      *      *       *       *      *
     
    "Work package (2E-92-655) for the A Farm
     upgrade was not 'field work complete' or
     accepted by operations until 4/18/96, which is
     past the SI completion date of 2/23/95.
     Operations personnel stated that the upgrades
     at A Farm had many non-functional alarms
     following the KEH annunciator work.
     
    "Work package (2E-92-1217) for the C Farm/CR
     Vault upgrade was not functionally tested or
     accepted by operations until 11/22/95, which
     is past the SI completion date of 2/23/95.
     
    "Work package (2W-92-180) for the 242-S
     Evaporator upgrade was not 'field work
     complete' until 5/24/95 and was not accepted
     by operations until 2/7/96, which is past the
     SI completion date of 2/23/95."
     
This information was substantiated by a Richland review
team.  The Richland Operations Office established a review
team after a June 1996 "near miss" incident for the
purpose of examining six FY 1995 PBI awards.  The review
team was staffed with personnel primarily from the
Management Systems Division of TWRS.  The review team was
established because the Richland Operations Office was
concerned that the problems identified in a DOE Richland
"Special Assessment Report" for PBI 95-011(d), "241-A-701
Air Compressor Upgrade," could be indicators of systematic
and programmatic weaknesses.  The review team issued a
report on September 24, 1996, titled "REVIEW OF TANK WASTE
REMEDIATION SYSTEM (TWRS) FISCAL YEAR 1995 PERFORMANCE
BASED INCENTIVES."  In this report, the review team
addressed PBI 95-011(c) and found that "of the seven tank
farms, alarm panel upgrades were completed on only AN and
AW tank farms before the PBI completion date of
March 31, 1995."  The review team concluded that:  "The
PBI was inappropriately awarded and RL should request
return of the full PBI amount, $225,000."
 
Management Comments:
 
In comments to the Initial Draft Report, the Manager,
Richland Operations Office, suggested that the statement
regarding work package 2E-92-1217, "upgrade was not
functionally tested or accepted by operation until
11/22/95," be changed to "upgrade was not functionally
tested or accepted by operation until 7/14/95, and
continues to have functional problems."
 
Inspector Comments:
 
We did not change the statement referenced by the Manager
because a review of work package 2E-92-1217 for the C
Farm/CR Vault upgrade by the Office of Inspections found
that the "Operations Acceptance" date was 11/22/95 as
indicated in the Initial Draft Report, and that the "Field
Work Complete" date was 7/14/93.  We were told that the
7/14/95 date included in the Management Comments was in
error, and that the correct date was 7/14/93.  Since our
report was representing the "Operations Acceptance" date,
and not the "Field Work Complete" date, we made no change
to the report.
 
     Replace Compressed Air Systems in 10 Tank Farms
          
As previously discussed, the PBI 95-011(d) Performance
Objective, described as "Replace compressed air systems in
10 tank farms by March 31, 1995 (SI 4b)," was established
on January 27, 1995.  This PBI stated that the M&O
Contractor would receive up to $225,000 for completing
this action 30 days ahead of schedule. The Performance
Objective also stated that the M&O Contractor would be
penalized up to $225,000 for completing this action 30
days or more behind schedule.  According to the WHC TWRS
Milestone Description Sheet (MDS) dated September 16,
1994, tasks within this scope of work included replacement
of compressor systems within existing facilities, upgrade
of compressor cooling systems, providing a dryer system
for the compressed air system, acceptance and operational
testing, and the return of the compressed air systems to
WHC Hanford Site Operations for continued use.
 
WHC certified that the work required under PBI 95-011(d)
was complete.  In a Westinghouse Hanford Company letter
from the WHC Director, TWRS Plant Tank Waste Remediation
System, to the DOE Richland Assistant Manager, Office of
Tank Waste Remediation System, dated March 7, 1995,
subject:  "COMPLETION OF PERFORMANCE BASED INCENTIVE 95-
011(D)," the WHC Director stated that:
 
      "This letter provides notice that Performance
       Based Incentive 95-011(d), replacement of ten tank
       farm compressed air systems, was completed on March
       5, 1995.  Your concurrence on the attachment is
       required for Performance Based Incentive
       completion."
 
Upon certification by WHC that the work was completed, WHC
was paid a PBI fee.  As shown on the "FY 95 Performance
Based Incentives Westinghouse Hanford Company (WHC)" data
sheet provided by the Richland Operations Officer, WHC was
paid $185,870 for completing the project described as
"Replace compressed air systems in 10 tank farms" 19 days
ahead of schedule.
 
However, the work required under this PBI was not
completed as certified by WHC.  In an interview with the
DOE Richland TWRS Waste Storage Division Manager, the
Manager said that, in his opinion, the contractor was
required to complete an Acceptance Test Procedure (ATP) to
comply with DOE Order 4700.1 requirements and to be in
compliance with the PBI task.  The Manager said that an
Acceptance Test Report (ATR) was never issued by WHC to
show compliance with these requirements for the 241-A-701
air compressor upgrade, yet WHC accepted the facility and
the PBI as being complete.  The Manager also said that the
ATP is supposed to be followed by an Operational Test
Procedure (OTP) which verifies whether the system works as
specified, and that WHC never completed the OTP as
required by DOE Order 4700.1.
 
This information was confirmed by a DOE Richland "Special
Assessment Report," for the "241-A-701 Air Compressor
Upgrade," dated August 5, 1996.  This report stated, in
part, that:
 
    "Acceptance testing was fast tracked (10-hour
     days, seven days a week for six weeks) and
     accepted for the PBI fee associated with
     upgrading the tank farm compressors.  A
     handwritten entry on the Acceptance Test
     Procedure (ATP) Acceptance of Test Results page
     states 'the PBI milestone portion of this test
     has been completed and the results, including red-
     line changes, have been reviewed.  Any exceptions
     discovered during the PBI milestone of the test
     have been satisfactorily recorded and resolved.
     The results of the PBI milestone portion of the
     acceptance test of the 241-A-701 compressed air
     system accepted by the undersigned.'  Additional
     construction and ATP activities continued until
     September 1995, six months after construction was
     'complete' for the PBI.  The result of acceptance
     testing, the ATR (Acceptance Test Report) was
     documented as complete but cannot be produced."
 
The "Special Assessment Report" stated that the test
procedures prepared for the 241-A-701 Air Compressor
Upgrade included the Acceptance Test Procedure (ATP) and
the Operational Test Procedure (OTP).  This report stated
that the system Acceptance for Beneficial Use (ABU) was
signed by East Tank Farm Operations in November 1995 with
a punchlist, which included the need to complete the OTP
and the "as-built field condition" of associated drawings.
However, this report noted that the ABU contained errors
and omissions such as reference to an Acceptance Test
Report which would document the ATP that could not be
produced by the M&O Contractor, and that the ABU was not
performed in accordance with WHC procedures.
 
In addition, the "Special Assessment Report" stated that
the system had not completed OTP and "is currently locked
out" by WHC management.  This report stated that the OTP
was started in late August 1995 (approximately six months
after the PBI was reported as complete) and suspended on
September 30, 1995.  This report stated that air supply
for the 701-A complex "is currently provided by a
temporary mechanical compressor."
 
The "Special Assessment Report" stated that the ATP
contains two different dates, "The first was on March 5,
1995, when WHC engineering personnel claimed completion of
the 'Performance Based Incentive' (PBI) portion of the
ATP, "and "The second completion date was on July 19-27
1995, which includes both WHC engineering and QA
personnel."  However, the "Special Assessment Report"
noted that the test as written did not distinguish between
those portions dedicated to the PBI and those sections not
PBI related, and that test documentation contained several
incomplete and unsigned ATP test steps.  The assessment
team concluded that, since the ATP and the OTP were not
completed, the equipment was unacceptable and did not meet
acceptance criteria.
 
The "Special Assessment Report" stated that WHC declared
the ATP successful to the extent necessary to claim a PBI
without completing all steps of the ATP.  This report
noted that no steps in the ATP denoted or indicated which
acceptance criteria satisfied the accomplishment of the
PBI.  The report also stated that the signatures for "PBI
Acceptance" were handwritten on the completion and
acceptance page of the ATP, but were not part of the
initial approved ATP, and that this significant revision
to the ATP "was not reviewed and approved as required by
WHC-CM-4-2 and DOE 5700.6C/10 CFR 830.120."  The report
noted that WHC management stated that:  "WHC field
personnel understood completion of the PBI to mean
kinstallation of the compressed air system.' "However,
the report concluded that:  "Even though some mechanical
equipment was set and some electrical hardware installed,
this work does not represent a completed construction
activity nor an acceptable system as represented in the
ABU."
 
     TWRS Corrective Maintenance Backlog Reduction
     
As part of ongoing tank farm maintenance operations, one
activity identified under the FY 1995 Richland PBI Program
was the reduction in the TWRS corrective maintenance
backlog.  The PBI 95-018 Performance Objective, described
as "TWRS Corrective Maintenance Backlog Reduction," was
established on January 27, 1995.  This PBI stated that the
M&O Contractor would receive up to $500,000 for completing
this action.  Specifically, the contractor, to receive an
"Excellent" rating for this contract performance measure,
was to "Reduce the overall Corrective Maintenance Backlog
by more than 5% from the January 1, 1995, level, while
maintaining preventative maintenance actions within
acceptable performance parameters."  The PBI "BASIS FOR
MEASUREMENT" stated, in part, that "WHC shall neither
receive nor be penalized fee for impacting the backlog by
+5%.  WHC shall receive a prorated amount of the incentive
fee for reducing the CM backlog from 5% to 10% by
September 30, 1995, with a maximum fee of $500,000 for
achieving a 10% or greater reduction."
 
WHC certified that the work required under PBI 95-018 was
complete.  In a Westinghouse Hanford Company letter
entitled "Completion of Tank Waste Remediation System
Corrective Maintenance Backlog Reduction Performance Based
Incentive," WHC claimed to have achieved the excellent
performance objective by reducing the corrective
maintenance backlog by 10 percent on March 1, 1995.  As
shown on the "FY 95 Performance Based Incentives
Westinghouse Hanford Company (WHC)" data sheet provided by
the Richland Operations Officer, WHC was paid $500,000 for
completing this PBI.
 
However, we found evidence that the work required under
PBI 95-018 had not been completed.  In an interview with a
DOE Richland Project Engineer, the Project Engineer said
that, in his opinion, many of the corrective actions which
were claimed to be accomplished by the contractor as part
of PBI 95-018 were in fact eliminated by paperwork because
of downscoping of TWRS work tasks, which included the
closure or mothballing of facilities and equipment.  The
Project Engineer also said that the corrective maintenance
backlog files had not been purged for several years, and
that the reduced operations had not been taken into
account when the PBI was written.  Additionally, a DOE
Richland TWRS Maintenance Program Project Engineer said
that DOE does not get involved with the decision making
process for individual corrective actions, and that the
way that the PBI was written, it is possible that the
contractor could do the easy work first to get credit for
complying with the terms of the PBI.
 
The September 24, 1996, Richland review team report,
titled "REVIEW OF TANK WASTE REMEDIATION SYSTEM (TWRS)
FISCAL YEAR 1995 PERFORMANCE BASED INCENTIVES," also
raised concerns about the completion of the work required
under this PBI.  With regard to PBI-95-018, the review
team found that the corrective maintenance backlog
actually increased by 1,305 maintenance packages over the
January 1995 level of 1,495 maintenance packages.  The
review team concluded that, rather than being reduced by
10 percent, the corrective maintenance backlog actually
increased by 87 percent over the January 1995 corrective
maintenance backlog level.  The review team concluded
that:  "The PBI was inappropriately awarded and RL should
request return of the $500K paid to WHC previously for
this PBI."
 
     TWRS Recommendation for Recovery of PBI Fees
 
TWRS has requested that action be taken to recover PBI
fees that were inappropriately paid to WHC and assess PBI
penalties for incomplete work.  Specifically, in a letter
dated September 26, 1996, from the Richland Assistant
Manager, Office of Tank Waste Remediation System, to the
Richland Director, Procurement Services Division, the
Assistant Manager stated that TWRS found PBIs 95-011(c),
95-011(d), and PBI-018 to be incomplete.  The Assistant
Manager stated that:  "TWRS is requesting reimbursement of
the $910,870.00 paid to WHC on the three PBIs."  The
Assistant Manager also stated that:  "In addition, WHC
should be assessed the negative fee of $950,000.00 on
these PBIs." The total reimbursement requested by TWRS is
$1,860,870.
 
Conclusions
 
We believe that it is clear, based on our review and the
documentation obtained from the Richland Operations
Office, that the work required under PBI 95-011(c),
"Upgrade alarm panels in 7 tank farms by March 31, 1995,"
PBI 95-011(d), "Replace compressed air systems in 10 tank
farms by March 31, 1995," and PBI 95-018, "TWRS Corrective
Maintenance Backlog Reduction," was not completed in the
time periods necessary to achieve the PBI fees of
$225,000, $185,870, and $500,000 respectively.
 
Contrary to WHC's statement on February 24, 1995, that all
work was completed on PBI Number 95-011(c), documentation
provided by the Richland Operations Office shows that work
on two alarm panels was not completed until
April 18, 1995, and May 24, 1995, respectively, and that a
third alarm panel was not functionally tested or accepted
for operations until November 22, 1995.
 
In addition, contrary to WHC's statements on March 7,
1995, that all work was completed on PBI 95-011(d),
documentation provided by the Richland Operations Office
shows that the acceptance testing required under the
Acceptance Test Procedure and the Operational Test
Procedure was never completed for the 241-A-701 air
compressor upgrade.  Richland documentation shows that the
system is currently locked out and that a temporary
compressor is being used to provide an air supply.  The
Richland documentation notes that:  "Even though some
mechanical equipment was set and some electrical hardware
installed, this work does not represent a completed
construction activity nor an acceptable system. . . ."
 
Also, contrary to WHC's statements that all work was
completed on PBI 95-018, documentation provided by the
Richland Operations Office shows that the corrective
maintenance backlog was not reduced by 10 percent, but
actually increased by 87 percent.
 
We believe that, based on the requirements of these three
PBIs, the contractor would not have been entitled to any
fee under the circumstances describe here.  We believe
that $910,870 should be recovered from WHC.  The Richland
review team report titled "REVIEW OF TANK WASTE
REMEDIATION SYSTEM (TWRS) FISCAL YEAR 1995 PERFORMANCE
BASED INCENTIVES" supports this position for PBI 95-011(c)
in the amount of $225,000, and PBI 95-018 in the amount of
$500,000.  The Richland "Special Assessment Report" for
the "241-A-701 Air Compressor Upgrade" supports this
position for PBI 95-011(d) in the amount of $185,870.
 
We also believe that it is clear, based on our review and
the documentation obtained from the Richland Operations
Office, that the work required under PBI 95-011(c),
"Upgrade alarm panels in 7 tank farms by March 31, 1995,"
PBI 95-011(d), "Replace compressed air systems in 10 tank
farms by March 31, 1995," and PBI 95-018, "TWRS Corrective
Maintenance Backlog Reduction," was not complete on the
dates when the contractor would have been penalized
$225,000, $225,000, and $500,000 for completing these
actions 30 days or more behind schedule.  We believe that
the penalty provisions of these three PBIs should be
implemented, and that $950,000 in penalties be collected
from WHC.
 
We concur in the position taken by TWRS in the September
26, 1996, letter to the Director, Procurement Services
Division, requesting reimbursement of the PBI fees paid
and reimbursement of penalties due.  However, we believe
that Richland should also evaluate the potential for
collecting an appropriate figure for the interest on the
PBI fees of $910,870 that were paid for incomplete work,
and evaluate the potential for collecting the interest
income earned by WHC on the PBI fees of $910,870.
 
Recommendations
 
We recommend that the Manager, Richland Operations Office:
 
 6. Consistent with our findings and the TWRS letter of
    September 26, 1996, direct the Contracting Officer to
    take action to recover $225,000, $185,870, and $500,000
    from WHC for previous PBI fees that were paid under PBI
    95-011(c), PBI 95-011(d), and PBI 95-018.
 
 7. Consistent with our findings and the TWRS letter of
    September 26, 1996, direct the Contracting Officer to
    take action to assess the penalty provisions of PBI 95-
    011(c), PBI 95-011(d), and PBI-018, and collect a total
    penalty of $950,000 for these three PBIs.
 
 8. Direct the Richland Chief Financial Officer to
    evaluate the potential for collecting an appropriate
    figure for the interest on the PBI fees of $910,870 that
    were paid to WHC for incomplete work, and evaluate the
    potential for collecting the interest income earned by
    WHC on the PBI fees of $910,870.
 
 9. Initiate the review of all PBIs issued in FY 1995 and
    FY 1996 to determine if other PBI payments have been
    made for incomplete work, and take action to recover any
    fees that were paid for work that did not meet the terms
    of the PBIs and any penalties that were not collected
    for incomplete work or work completed late.
 
10. Develop policy that requires Richland personnel to
    verify that incentive work was accomplished prior to
    payment of incentive fees.
  
Management Comments:
 
In comments to the Initial Draft Report, the Manager,
Richland Operations Office, concurred with Recommendations
6, 7, 8, 9, and 10, stating that:
 
         "Recommendation 6:  The Contracting Officer
         has been directed to take actions to review and
         recover, if appropriate, the previously paid
         fees for PBIs 95-011(c), 95-011(d), and 95-018.
         DOE has taken action, and the contractor has
         agreed, to the return of previously paid fees on
         PBI 95-011(d).
 
         "Recommendation 7:  The Contracting Officer
         has been directed to take actions to review and
         assess, if appropriate, the penalty provisions
         of PBIs 95-011(c), 95-011(d), and 95-018.  DOE
         has assessed, and the contractor has agreed, to
         the $225,000 penalty associated with PBI 95-
         011(d).
 
         "Recommendation 8:  The RL Chief Financial
         Officer (CFO) will evaluate the options for
         collecting interest from the contractor on the
         PBI fees that were inappropriately paid for
         incomplete work.
 
         "Recommendation 9:  RL will initiate actions
         to review the FY 1995 and FY 1996 PBIs and
         perform a root cause analysis.
 
         "Recommendation 10:  RL will develop
         procedures, guidelines, and additional training
         for the initiation, administration, and payment
         of new and current performance incentives.  The
         procedures, guidelines, and training will
         incorporate the views and recommendations
         expressed in this report and incorporate lessons-
         learned from the previous incentive fee
         programs, other RL reviews, and the upcoming
         recommendations of the Fee Incentives and
         Analysis Team."
 
 
D.  PBI PERFORMANCE OBJECTIVES APPEAR TO BE EASILY
    ACHIEVED
     
Our inspection found several PBI Performance Objectives
established by Richland which appear to have been easily
achieved.  Specifically, we found PBI Performance
Objectives which included completion dates that
represented little challenge to the M&O Contractor.
Richland documentation shows that, in these instances, the
M&O Contractor was in the process of completing these
objectives ahead of schedule without any PBI incentive.
In addition, we found that $250,000 in available fee was
paid to the M&O Contractor for three PBIs that were
completed within two days of their establishment.  We also
found a PBI where the performance objectives and the basis
for measurement were significantly modified after the work
was certified as complete by the M&O Contractor.
 
     Replacement of SY Tank Farm Ventilation Fan
     
As previously discussed, the PBI 95-011(g) Performance
Objective, described as "Replace ventilation fan in SY
farm to further reduce spark potential by August 31, 1995
(SI 2k)," was established on January 27, 1995.  This PBI
stated that the M&O Contractor would receive up to
$225,000 for completing this action 30 days ahead of
schedule, or $9,783 for each day this initiative was
completed more than seven days ahead of the scheduled
date.  As shown on the "FY 95 Performance Based Incentives
Westinghouse Hanford Company (WHC)" data sheet provided by
the Richland Operations Officer, WHC was paid $225,000 for
completing the ventilation fan project on July 6, 1995.
 
However, the establishment of the $225,000 PBI Performance
Objective for the replacement of the ventilation fan in
the SY Tank Farm represented little challenge to the
contractor.  Specifically, before the PBI Performance
Objective was established, WHC had established a
completion date for this project of April 28, 1995, 
approximately four months ahead of the PBI performance 
date of August 31, 1995.  A WHC TWRS Milestone
Description Sheet (MDS) dated September 22, 1994, and
signed by WHC and DOE Richland officials, showed that a
completion date of April 28, 1995, was established for the
ventilation fan Acceptance Test Procedure.  The MDS also
stated that the "Acceptance Criteria" includes the
"Successful completion of the ATP" with a deliverable
being a "Letter to RL documenting installation of spark-
resistant fan in the 241-SY Tank Farm and successful
completion of ATP" by August 31, 1995.  In an interview
with a DOE Richland Project Manager, the Project Manager
said that he did not know why a four month delay was built
into the schedule between the ATP completion date and the
"deliverable" letter to DOE.
 
In addition, the replacement of the ventilation fan was
significantly ahead of schedule at the time the PBI was
established.  Specifically, we found that a "TWRS
Department of Energy Safety Initiatives" status chart was
issued at approximately the same time that the ventilation
fan PBI Performance Objective was being written.  The
chart indicated that, as of January 1, 1995, the
ventilation fan performance objective was three months
ahead of the August 31, 1995 schedule date.
     
     High-Level Waste Melter Assessment
     
The selection of a high-level waste melter technology was
a goal of the Richland Operations Office, with the
completion of the assessment report for this project
included under the Richland PBI Program.  The PBI 95-015
Performance Objective, described as "Provide final high-
level waste melter assessment report," was established on
January 27, 1995.  This PBI stated that the M&O Contractor
would receive up to $200,000 for completing this action 37
days ahead of schedule, or $6,666 for each day this
initiative was completed between 8 to 37 days ahead of the
scheduled date of March 24, 1995.  As shown on the "FY 95
Performance Based Incentives Westinghouse Hanford Company
(WHC)" data sheet provided by the Richland Operations
Officer, WHC was paid $200,000 for completing the Final
High-Level Waste Melter Report ahead of schedule.
 
PBI 95-015 contained specific language for measuring the
performance of the M&O Contractor.  The Basis for
Measurement for PBI 95-015 stated that:
 
     "Report will document the melter assessment process.
 
     "Report will provide recommendation and basis for
      recommendation.
 
     "Report will define path forward for high-level
      melter development and testing, and provide cost, 
      schedule, and technical requirements.
 
     "Final report will include disposition/incorporation 
      of comments from DOE review."
 
However, the PBI scheduled date of March 24, 1995, was
actually established nearly one month after this project
was planned to be completed without any incentive.
Specifically, a WHC TWRS Division Milestone Description
Sheet (MDS) dated September 23, 1994, and signed by WHC
officials, provided information on the completion date for
the report, the content of the report, and the deliverable
required.  The MDS stated that February 28, 1995, was
established as the completion date for issuing a Melter
Evaluation/Assessment Final Report.
 
In addition, the date of February 15, 1995, established
for the M&O Contractor to achieve a PBI fee of $200,000
was only 13 days ahead of the completion date for this
project as established under the WHC TWRS Milestone
Description Sheet, and 19 days after the PBI was
established.
 
WHC certified that the work required under PBI 95-015 was
complete 13 days after the PBI was established.  In a
Westinghouse Hanford Company letter dated February 9,
1995, subject:  "COMPLETION OF PERFORMANCE BASED
INCENTIVE, 95-015," WHC stated that:  "Attached is the
final report, 'High-Level Waste Melter Alternative
Assessment Report.' All DOE RL comments were
dispositioned to the satisfaction of your staff."
 
In an interview with the DOE Richland Deputy Director for
TWRS Waste Storage, the Deputy Director said that this PBI
was established by Richland because it described tasks
that were very important to Richland at that time.  He
said the PBI Performance Objective negotiation with the
contractor began in September 1994, and he was aware that
the contractor had begun working on the PBI task for
several months in anticipation of the PBI being
established.  The Deputy Director also said he could not
recall why it was important to receive this report more
than two weeks in advance of the completion date stated in
the Milestone Description Sheet.
 
     Contractor Received $250,000 in PBI Fees for Work
     that was Completed within Two Days
 
In August 1995, the Westinghouse Hanford Company submitted
two letters to DOE Richland proposing the establishment of
three new PBIs, which had been drafted by the Richland
Operations Office and agreed to by WHC.  Richland
management stated that WHC agreed to these new PBIs in
early August, even though the negotiations were not
formally completed until August 28, 1995.  The rationale
for these WHC proposals were the cancellation of other PBI
objectives which resulted in available incentive fees.
These two WHC PBI proposals, which were approved by
Richland, resulted in the establishment of three new PBIs
valued at $400,000.  Of the $400,000, the contractor
received $250,000 in PBI fees for work that was completed
within two days under these three PBIs.
 
In the first letter, which was addressed to the DOE
Richland Operations Officer, Site Operations Division, and
dated August 24, 1995, the Westinghouse Hanford Company
Acting Manager for Contracts Administration proposed the
following:
 
     "Westinghouse Hanford Company (WHC) requests
     approval of the attached Performance Based
     Incentive (PBI) in accordance with the subject
     contract clause.  We are submitting for the
     Contracting Officer's approval PBI Number 95-032,
     Meet Tri-Party Agreement (TPA) Milestone M-41-17
     by September 30, 1995; Remove the Supernatant from
     the Tank by December 31, 1995; and Begin Pumping
     Tank 241-T-107 and Remove the Supernatant so that
     No More than 1,000 Gallons of Supernatant Remains.
 
     "PBI 95-032 is necessitated by the deletion of
     Tank 241-BY-105 from PBI 95-019-M2 in the amount
     of $150,000.  The total available WHC PBI fee
     remains the same, $14,320,000.  PBI 95-019-M2 will
     be modified accordingly to delete Tank 241-BY-105
     and transfer fee eligibility to PBI-032."
 
PBI 95-032-R2 was established on August 28, 1995, with an
incentive fee of $150,000 to pump tank 241-T-107.  As
stated in PBI 95-032-R2, the Performance Objective was to:
"Begin pumping tank 241-T-107."  The Contract Performance
Measure stated that "Pumping of 241-T-107 begins by
September 1, 1995, and at least 1,500 gallons is pumped
within 30 days of pumping start" to achieve an "Excellent"
performance quality level and the $150,000 maximum award
fee.  The Basis for Measurement stated that:  "WHC shall
receive $5,000 for each day pumping commences in single-
shell tank (SST) 241-T-107 by September 30, 1995, provided
that at least 1,500 gallons of liquid is pumped within 30
days of pumping start, not to exceed $150,000."
 
The Contract Performance Measure for PBI 95-032-R2
required WHC to begin pumping tank 241-T-107 within four
days of the PBI establishment date, and to pump at least
1,500 gallons within 30 days of pumping start to achieve
an "Excellent" performance quality level and the $150,000
maximum award fee.  As shown on the "FY 95 Performance
Based Incentives Westinghouse Hanford Company (WHC)" data
sheet provided by the Richland Operations Officer, WHC was
paid $150,000 for completing PBI 95-032-R2 on August 30,
1995, two days after this PBI was established.
 
In the second letter, which was addressed to the DOE
Richland Contracting Officer, Procurement Services
Division, and dated August 29, 1995, the Westinghouse
Hanford Company Acting Manager for Contracts
Administration proposed the following:
 
     "Westinghouse Hanford Company (WHC) requests
      approval of the attached Performance Based
      Incentive (PBI) in accordance with the subject
      contract clause.  We are submitting for the
      Contracting Officer's approval PBI Number 95-033,
      Submission of the FY 1996 Multi-Year Program Plan
      (MYPP), and 95-034, Issue Double-Shell Tank Waste
      Consolidation Plan and Incorporate in the FY 96
      MYPP.
 
     "PBIs 95-033 and 95-034 are necessitated by the
     transfer of WHC fee eligibility from PBI 95-012 in
     the amount of $200,000 and $50,000 respectively.
     PBI 95-012, Projects W-211, W-236B, and W-378 will
     be modified accordingly."
     
PBI 95-033-R1 was established on August 29, 1995, with an
incentive fee of $200,000.  As stated in PBI 95-033-R1,
the Performance Objective was the "Submission of the FY
1996 Multi-Year Program Plan (MYPP)."  The Contract
Performance Measure stated that the contractor was to
"Submit the FY 1996 MYPP by August 31, 1995, and the final
MYPP by September 22, 1995. . . ." to achieve an
"Excellent" performance quality level and the $200,000
maximum award fee.  The PBI Basis for Measurement stated
that:  "WHC shall receive $50,000 upon submittal of the
final review draft MYPP by August 31, 1995, and receive
$150,000 upon submittal of the final MYPP for signature by
September 22, 1995, for the maximum of $200,000."
 
The Contract Performance Measure for PBI 95-033-R1
required WHC to submit the draft MYPP within two days of
the PBI establishment date to achieve the $50,000 award
fee.  As shown on the "FY 95 Performance Based Incentives
Westinghouse Hanford Company (WHC)" data sheet provided by
the Richland Operations Officer, WHC was paid $50,000 for
completing the Draft MYPP on August 31, 1995, two days
after this PBI was established.
     
PBI 95-034-R1 was established on August 29, 1995, with an
incentive fee of $50,000.  As stated in PBI 95-034-R1, the
Performance Objective was to:  "Issue Double-Shell Tank
Waste Consolidation Plan and Incorporate in the FY 96
MYPP."  The Contract Performance Measure stated that the
contractor was to "Issue and Incorporate Waste
Consolidation Plan in FY 96 MYPP by August 30, 1995" to 
achieve an "Excellent" performance quality level and the 
$50,000 maximum award fee.  The PBI Basis for Measurement 
stated that:  "WHC shall receive $1,667 for each day WHC 
issues and incorporates the Waste Consolidation Plan in the 
MYPP before September 29, 1995, up to a maximum of $50,000."
 
The Contract Performance Measure for PBI 95-034-R1
required WHC to issue and incorporate the Waste
Consolidation Plan in the FY 1996 MYPP within one day of
the PBI establishment date to achieve the $50,000 maximum
award fee.  As shown on the "FY 95 Performance Based
Incentives Westinghouse Hanford Company (WHC)" data sheet
provided by the Richland Operations Officer, WHC earned
$50,000 for completing this PBI task on August 30, 1995,
one day after this PBI was established.
 
Management Comments:
 
In comments to the Initial Draft Report, the Manager,
Richland Operations Office, stated that:  "It should be
noted that the overall fee was also reduced from $500,000
for the canceled PBIs to $250,000 for the three new PBIs."
 
Inspector Comments:
 
The Managerms comment was not incorporated into this
report.  A review of PBI documentation provided to the
Office of Inspections by Richland indicated that the fee
was reduced from $500,000 for the canceled PBIs, to
$400,000 for the three new PBIs.
 
     TWRS Tank Safety Screening Sample Analysis
          
As part of the Hanford Site TWRS Safety Screening Sample
Analysis Program, improvements to the safety screening
sample turnaround time were included as a PBI.  The PBI 95-
027 Performance Objective, designated as "Complete TWRS
Safety Screening Sample Turnaround within Specified Time
Duration for Tank Waste Samples Analyzed in the 222-S
Laboratory," was established on January 27, 1995.  This 
PBI stated that the M&O Contractor would receive up to 
$250,000 if:  "The average TWRS Tank Safety Screening 
Sample Analysis time is between 45 and 41 days for FY 
1995."
 
However, WHC had achieved the safety screening sample
analysis time of 45 days prior to the establishment of the
Richland PBI Program.  A review of a "SAFETY SCREENING (45-
DAY REPORT) TURN-AROUND TIME PERFORMANCE FISCAL YEAR 1995"
document provided by a DOE Richland Project Engineer
indicates that WHC had already achieved a less than 45 day
turnaround time on four different reports by December
1994.
 
WHC certified that the work required under PBI 95-027 was
complete.  In a Westinghouse Hanford Company letter from
the WHC Manager of Analytical Services, TWRS Tank Waste
Characterization Project, to the DOE Director, Waste
Programs Division, dated September 29, 1995, subject:
"PERFORMANCE BASED INCENTIVE 95-027/AMW-WPD - SAFETY
SCREENING FOR TANK WASTE SAMPLES ANALYZED IN THE 222-S
LABORATORY," the WHC Manager stated that:
 
        ". . . The Westinghouse Hanford Company (WHC)
        222-S Laboratory successfully completed this PBI
        with an 'Excellent' performance quality level for
        the maximum fee ($250,000).
 
        "The 'Excellent' performance quality level was
        achieved by completing safety screening sample
        analysis and data (report) turnaround time (TAT)
        to the Tank Waste Remediation System (TWRS) Tank
        Waste Characterization Project (TCP) with the
        daily average analysis time being less that 41-
        days . . . ."
 
Upon certification by WHC that the work was completed, WHC
was paid $250,000.  As shown on the "FY 95 Performance
Based Incentives Westinghouse Hanford Company (WHC)" data
sheet provided by the Richland Operations Officer, WHC was
paid $250,000 for completing the "TWRS Safety Screening
Sample Turnaround within Specified Time Duration for Tank
Waste Samples Analyzed in the 222-S Laboratory."
 
     PBI Modified After Work Was Completed
 
PBI 95-017 was established on January 27, 1995, with an
incentive fee of $1,000,000.  As stated in PBI 95-017, the
Performance Objective was to "Complete characterization of
30 tanks consistent with DNSFB 93-5 by providing 30
acceptable tank characterization reports for TWRS use and
submittal to WDOE [Washington Department of Ecology]
/EPA."  The Contract Performance Measure stated that "Up
to 30 acceptable reports are delivered by 09/01/95" to
achieve an 'Excellent' performance quality level and the
$1,000,000 maximum award fee.  The PBI Basis for
Measurement stated that:
 
    "Each report will integrate historical and new
     samples information [Emphasis Added] for each
     tank.  The waste analysis performed and reported
     will be dictated by the applicable and WDOE
     approved Tank Characterization Plan (TCP) for each
     tank. . . .  WHC shall be awarded $1,389 per
     report per day (with a ceiling of 24 days per
     report), for delivery of acceptable reports prior
     to 09/02/95, up to a maximum of $1,000,000."
 
As shown on the "FY 95 Performance Based Incentives
Westinghouse Hanford Company (WHC)" data sheet provided by
the Richland Operations Officer, WHC was paid $843,333 for
completing this PBI task on August 9, 1995.
 
However, PBI 95-017 was significantly modified by PBI 95-
017-M1 on August 14, 1995, five days after the completion 
of the PBI objective, and was approved by the DOE Richland WHC
Contracting Officer on October 3, 1995, nearly two months
after the PBI work was completed.  Specifically, the
Performance Objective was changed to state that:
 
    "Complete characterization of 30 tanks consistent
     with DNSFB 93-5 by providing 30 acceptable Tank
     Characterization Reports (TCRs) for TWRS use and
     submittal to Ecology/EPA,  Acceptability will be
     rated according to timeliness, quality of
     sampling event, and usefulness of reported
     information."  [Italics denote modified PBI
     language.]
 
The original Contract Performance Measure of "Up to 30
acceptable reports are delivered by 09/01/95" was replaced
by three new Contract Performance Measures which stated
that an 'Excellent' performance quality level and the
$1,000,000 maximum award fee could be earned by:
   
   "(A) Timeliness:  Up to 30 acceptable TCRs by
   09/01/95.  FEE: Up to $300K (see basis A)
   
   "(B) Quality:  Up to 10 (of the total 30) acceptable
   TCRs based on samples taken May 1989 or later from
   Watchlist tanks.  FEE: Up to $300K (see basis B)
   
   "(C)  Usefulness:  Up to 30 TCRs based on samples
   taken to meet Safety Screening DQO.  FEE: Up to
   $400K (see basis C)"
   
PBI 95-017-M1 differs significantly from the original,
January 27, 1995, version in that (1) the Contract
Performance Measures are separated into three components
with a separate fee structure for each, (2) up to 30 TCRs
are based on samples taken to meet a Safety Screening Data
Quality Objective, and, (3) up to 10 (of the total 30)
total acceptable TCRs are based on tank waste samples
collected on or after May 1989, from Watchlist Tanks,
whereas the original version of this PBI stated that all
reports must include "new samples information" [Emphasis
Added].
 
In an interview with the DOE Richland Lab Interfaces/System 
Development Program Manager, the Program  Manager said that 
the Basis for Measurement on the original, January 27, 1995, 
PBI was unclear, and would not have allowed the contractor 
to get an award for this PBI.  The Program Manager said that 
after the PBI was written, a major change in DOE TWRS staff 
occurred, and that after a review of PBI 95-017 by newly 
assigned DOE TWRS officials, it was determined that the PBI 
needed to be modified.  The Program Manager said that a 
significant problem with the original version of PBI 95-017 
was what constituted an acceptable report was not well defined, 
and the sample acceptance criteria was not spelled out.  He 
also said that DOE ended up with a number of reports that 
did not contain the data that DOE thought should be there.
However, he said that because of the vague quality
description in the PBI Basis for Measurement, it was felt
DOE had to give WHC some of the fee, but that WHC had not
earned all of the fee due to information missing from the
reports.  Additionally, the Program Manager said the
reason the PBI modification was issued so late in the
performance period was that DOE TWRS management realized
the paperwork required for the modification did not match
the guidance which was provided earlier to the contractor.
 
A letter from the DOE Richland Contracting Officer to the
President of the Westinghouse Hanford Company, dated
October 6, 1995, stated that it was the determination of
DOE Richland that WHC had earned $843,333 of the available
$1,000,000 PBI fee for PBI 95-017-M1, based upon the
modified Contract Performance Measures.
 
Conclusions
 
We do not believe that PBI dollars were effectively used
in the instances described here because the dates
established for the accomplishment of the PBI Performance
Objectives appear to have been easily achieved.  In the
case of PBI Number 95-011(g) for the replacement of a
ventilation fan in SY Tank Farm, the date of August 31,
1995, established for the M&O Contractor to achieve a PBI
fee of $225,000 was four months after the planned date of
April 28, 1995, for completion of this project as
established under a WHC TWRS Milestone Description Sheet
prepared in September 1994.  In the case of PBI Number 95-
015 for the provision of a final high-level waste melter
assessment report, the date of February 15, 1995,
established for the M&O Contractor to achieve a PBI fee of
$200,000 was only 13 days ahead of the completion date for
this project as established under a WHC TWRS Milestone
Description Sheet prepared in September 1994, and 19 days
after the PBI was established.  In the case of PBI 95-032-
R2 for the pumping of tank 241-T-107, WHC was paid a fee
of $150,000 for completing the performance objective just
two days after the PBI was established.  In the case of
PBI Number 95-027, WHC had demonstrated in four out of
four separate occasions between October and December 1994
that the PBI objective for the TWRS Tank Safety Screening
Sample Analysis Time could be met between 45 and 41 days.
And, in the case of PBI 95-017M1 for the completion of the
characterization of 30 tanks and the provision of 30
acceptable tank characterization reports, WHC was paid
$843,333 for completing the PBI objective based on a PBI
modification that made it easier to achieve the fee.  In
addition, this modification was issued five days after the
work was completed, and was approved nearly two months
after the work was completed.
 
We believe that performance based incentive objectives
should represent activities that are significant to the
operation of the Hanford Site and represent a challenge to
the contractor in terms of utilizing its management and
operational skills to achieve the substantial incentive
fees described here.  However, in these instances, we did
not see evidence of any significant challenge to the
management and operational skills of the contractor.  We
do not believe that the substantial performance based
incentive fees paid in these cases can be justified by the
PBI objectives.
 
The modification of PBI 95-017 for the completion of the
characterization of 30 tanks and the provision of 30
acceptable tank characterization reports gives the
appearance of a reduction in the scope of the PBI in order
to support the payment of a PBI fee.  We believe that the
circumstances surrounding the PBI modification should be
thoroughly reviewed by Richland to determine if the M&O
Contractor was capable of meeting the original terms of
the PBI, and that action be taken to recover the PBI fee
if it is determined that this modification was made only
after it became clear that the M&O Contractor could not
meet the terms of the original PBI.
 
Recommendations
 
We recommend that the Manager, Richland Operations Office:
 
11. Develop policy which assures that future contract
    incentives represent activities that are significant 
    to the operation of the Hanford Site and represent a
    challenge to the contractor in terms of utilizing its
    management and operational skills.
 
12. Direct the Contracting Officer to thoroughly review
    the circumstances surrounding the modification of 
    PBI 95-017 to determine if the incentive fee payment 
    of $843,333 was appropriate.
 
Management Comments:
 
In comments to the Initial Draft Report, the Manager,
Richland Operations Office, concurred with Recommendations
11 and 12, stating that:
 
         "Recommendation 11:  RL will develop
         procedures, guidelines, and additional training
         for the initiation, administration, and payment
         of new and current performance incentives.  The
         procedures, guidelines, and training will
         incorporate the views and recommendations
         expressed in this report and incorporate lessons-
         learned from the previous incentive fee
         programs, other RL reviews, and the upcoming
         recommendations of the Fee Incentives and
         Analysis Team.
 
         "Recommendation 12:  The Contracting Officer
         has been directed to thoroughly review the
         circumstances surrounding the modification to
         PBI 95-017-M1 to determine if the incentive fee
         payment of $843,000 was appropriate."
 
The Manager offered additional comments regarding PBI 95-
015, stating that the rationale to incentivize the High-
Level Waste Melter Assessment was to ensure delivery of a
critical report that would be used as the information
basis to make critical, multi-billion dollar decisions for
the tank waste disposal program.  The Manager stated that
this assessment report was an appropriate candidate for a
PBI "because it was extremely important to the TWRS
program to provide documentation on the melter assessment
process; a recommendation and basis; definition of a path
forward for high-level waste melter development and
testing; and cost, schedule and technical requirements."
The Manager stated that, due to the critical nature of the
report, Richland determined that a delivery date of
February 15, 1995, was desired, and an incentive fee of
$200,000 was appropriate.  The Manager stated that the
delivery date was in advance of the milestone description
sheet completion date of February 28, 1995.  The Manager
stated that the difference between the desired February
15, 1995, delivery date and the satisfactory performance
(no incentive fee) delivery date of March 24, 1995, was a
result of standardizing the FY 1995 PBI format and
establishing a midpoint date with incentives and
disincentives based on a 38-day range around the midpoint.
The Manager stated that the contractor submitted the
product on February 9, 1995, and that Richland
independently determined that the product fully met the
acceptance criteria in the PBI, and met delivery
requirements for the full incentive fee.
 
With regard to PBI 95-027, the Manager stated that the
purpose of this PBI was to sustain the capability to
meet/beat the 45-day turnaround times for safety screening
analyses consistently over the entire FY 1995 period.  The
Manager stated that the 45-day turnaround was essential to
establish the basis for safe storage of Hanford Tank
Waste.  The Manager stated that the contractor did achieve
a turnaround time of less than 45 days for four separate
safety screening analyses by December 1994, however, the
PBI was not completed and the incentive fee was not
approved until the end of FY 1995 to ensure that the
turnaround time was maintained throughout the entire
fiscal year.  The Manager stated that the importance of
this PBI was the need for the 222-S analytical laboratory
to deal with an increasing TWRS analytical workload, while
maintaining quick turnaround times on the data being
utilized to determine the safety status of individual
tanks.
 
With regard to PBI 95-017-M1, the Manager stated that the
rationale to incentivize the characterization reports was
to provide critical information to establish a basis for
safe storage, retrieval, treatment, and disposal of
Hanford Tank Waste.  The Manager stated that the
Contractor approached Richland for a more rigorous
definition of what constituted an "acceptable" tank
characterization report in the June 1995 time frame.
 
The Manager also stated that by mid-July 1995, the M&O
Contractor and Richland had verbal agreement on the
general form of the modified PBI.  He stated that: "due
to review cycle time, the PBI was submitted to the
contractor on September 1, 1995, and was signed by
September 15, 1995."  The Manager stated that the
modification did not reduce the requirements of the
original PBI, it rigorously defined and quantified the
original.  He stated that the original PBI stated "each
report will integrate historical and new samples
information for each tank," and that to rigorously define
"new samples information," Richland TWRS staff noted that
the characterization cycle (from sampling to reporting)
requires six to 12 months, depending on sample type; that
samples are required after May of 1989 to meet Tri-Party
Agreement requirements; and that most of the expected Tank
Characterization Reports were based on at least one sample
that was less than two years old.  The Manager stated
that:  "it was therefore decided that any post 5/89
samples would meet the intent of the PBI."  The Manager
stated that the criterion did NOT allow inclusion of old
samples, but incentivized the contractor to base at least
33 percent of the TCRs on Watch List Tanks.  In comments
to the Official Draft Report, the Manager stated that:
"As a result of TWRS' effort, TPA milestone M-44-08, Issue
30 TCRs by September 30, 1995, was successfully completed."
 
In addition, the Manager stated that the original PBI
required the contractor to "complete characterization of
30 tanks consistent with DNFSB 93-5 by providing 30
acceptable TCRs."  He stated that to rigorously define
lconsistent with DNFSB," Richland TWRS staff noted that
DNFSB 93-5 placed emphasis on applying safety-related data
quality objectives (DQO) to Watch List Tanks.  He stated
that it was therefore decided that at least one-third of
the TCRs should be on Watch List Tanks.  (At that time, 31
percent of the tanks were on watch lists.  These tanks
have been defined by Richland as hazardous waste storage
tanks that have the potential for release of radioactivity
due to increases in temperature or pressure).  He stated
that it was also decided that the safety screening DQO
should be applied to each tank on which a TCR was based in
order to collect the full fee.
 
The Manager stated that the modified PBI also increased in
scope.  He stated that the modified PBI clearly defines
acceptable deliverables, whereas the original did not.  He
stated that the modified PBI also clearly defines how
partial credit was assigned for TCRs that only partially
met performance criteria.  He stated that the original PBI
only required the contractor to submit TCRs by August 9,
1995; the modified PBI also required that the safety
screening DQO be applied to all TCRs, and required that at
least one-third of the TCRs be based on Watch List Tanks.
 
With regard to Milestone Description Dates, the Manager
stated that the contractor's agreement to the Milestone
Description Dates were not met in all cases with
successful product delivery by the milestone dates.  The
Manager stated that:  "in fact, the contractor's ability
to meet critical dates in the past had been less than
satisfactory and their inability to deliver quality and
timely products as agreed in the MYPP was one of the
primary reasons for converting from a subjective to a
performance-based contract."  The Manager stated that, in
addition, since the PBI fee pool amounts were offsets from
the base and award fee pools, PBI payments were not in
addition to award fees the contractor may have earned for
successful completion of MYPP milestones.
 
Inspector Comments:
 
With regard to PBI 95-015, we believe that delivery of the
High-Level Waste Melter Assessment Report to Richland
officials was important to the TWRS program.  However, the
basic point we were addressing in our Initial Draft Report
was that the PBI date established appeared to have been
easily achieved by the contractor.  Specifically, the PBI
accelerated the contractorms scheduled performance by only
13 days.  In addition, the contractor earned a fee of
$200,000 for this 13 day acceleration with no specific
documentation of the benefit to DOE identified for this
two week acceleration.  We believe that incentive fees of
this magnitude need to be clearly justified in situations
where the contractor performance objectives appears to be
easily achievable, and that the benefit to the Government
through the use of such significant incentive fees to
motivate the contractorms behavior be clearly documented.
 
With regard to PBI 95-027, we concur with managementms
comments that the intent of this PBI was to sustain a
level of performance already achieved prior to the PBI
being established, specifically a turnaround time not to
exceed 45 days.  The basic point we are addressing here is
that the incentive objectives should represent activities
that are significant to the operation of the Hanford Site
and that represent a challenge to the contractor in terms
of utilizing its management and operational skills to
achieve the substantial fees described here.  However, in
this instance, it is not clear that there was a
significant challenge to the management and operational
skills of the contractor associated with the $250,000 fee.
As stated in this report, the contractor had already shown
on four occasions prior to the establishment of the PBI
that the 45-41 day turnaround time was achievable.
 
With regard to PBI 95-017-M1, we agree with the management
comment that the modified PBI "rigorously defined and
quantified" the original PBI.  However, we do not
completely agree that the modification "did not" reduce
the requirements of the original PBI.  The basic point we
were addressing in the Initial Draft Report was that one
of the critical elements of the original PBI stated that:
"each report will integrate historical and new samples
information for each tank."  In "rigorously" defining "new
sample information," Richland eliminated the requirement
for "new sample information" and replaced it with "post
5/89 samples."  Richland has indicated that the
characterization cycle (from sample to reporting) requires
six to 12 months, but it should be noted that the term of
the PBI was only seven months.  We believe that this
change was significant in helping the contractor to
achieve the PBI fee of $843,333.
 
In addition, the modified PBI defined how partial credit
was assigned for Tank Characterization Reports that only
partially met performance criteria, whereas the original
PBI did not define an acceptable report in this manner.
We were told during our inspection that the Basis for
Measurement in the original PBI was unclear, and would not
have allowed the contractor to get a fee for this PBI.  We
were also told that because of the vague quality
description in the Basis for Measurement, it was felt that
DOE had to give the contractor some of the fee.  Our
concern here is that the contractor may not have been able
to completely meet the requirements of the original PBI,
and that, by modifying the PBI to allow "5/89 samples" and
partial credit for TCRs, it was easier for the contractor
to earn a substantial portion of the $1,000,000 maximum
fee.  It is clear that the modified PBI was approved on
October 3, 1995, nearly two months after the work was
certified as complete by the contractor on August 9, 1995.
We continue to believe that the circumstances surrounding
the PBI modification should be thoroughly reviewed by
Richland to determine if the contractor was capable of
meeting the original terms of the PBI, and that action be
taken to recover the PBI fee if it is determined that this
modification was made only after it became clear that the
contractor could not meet the terms of the original PBI.
 
 
E.  QUALITY AND SAFETY WERE COMPROMISED TO ACHIEVE A PBI
    FEE
 
Our inspection found that quality and safety were
compromised by the M&O Contractor in order to achieve a
PBI fee.  Specifically, in a report prepared by the
Richland Waste Storage Division, Tank Farms Operations,
the Tank Farms Operations Manager identified a condition
where the M&O Contractor had compromised quality and
safety in the installation of a tank farm air compressor
system.  The Manager reported that quality and safety had
been compromised to meet the project schedule and to
achieve the PBI fee, which had been established at
$225,000.
 
     PBI Scope of Work and Schedule
     
As previously discussed, the PBI 95-011(d) Performance
Objective, described as "Replace compressed air systems in
10 tank farms by March 31, 1995 (SI 4b)," was established
on January 27, 1995.  This PBI stated that the M&O
Contractor would receive up to $225,000 for completing
this action 30 days ahead of schedule.  According to the
WHC TWRS Milestone Description Sheet (MDS) dated September
16, 1994, tasks within this scope of work included
replacement of compressor systems within existing
facilities, upgrade of compressor cooling systems,
providing a dryer system for the compressed air system,
acceptance and operational testing, and the return of the
compressed air systems to WHC Hanford Site Operations for
continued use.
 
As shown on the "FY 95 Performance Based Incentives
Westinghouse Hanford Company (WHC)" data sheet provided by
the Richland Operations Officer, WHC was paid $185,870 for
completing the project described as "Replace compressed
air systems in 10 tank farms" 19 days ahead of schedule.
 
     Richland Special Assessment Report
 
A Richland "Special Assessment Report" found that quality
and safety had been compromised.  On June 10, 1996, WHC
personnel attempted a preventive maintenance activity on
the 241-A-701 glycol cooling system fans at Building 701-
A.  Problems encountered during that activity prompted the
identification of a "near miss" incident.  Specifically,
during the maintenance activity, four fans started,
including two fans the electricians believed had been
locked out.  This incident resulted in an investigation by
WHC and the initiation of a special assessment by the DOE
Richland Operations Office Tank Waste Remediation System
(TWRS) Waste Storage Division (WSD) Tank Farm Operations
management.  A DOE Richland "Special Assessment Report"
for the "241-A-701 Air Compressor Upgrade" was issued on
August 5, 1996, and stated that:
 
     "The results of this assessment indicate that
     quality and safety were compromised for schedule
     and to achieve the Performance Based Incentive
     (PBI) for the 241-A-701 Air Compressor Upgrade.
     For example, construction was started before the
     engineering and design efforts were
     satisfactorily completed.  Acceptance testing was
     fast tracked (10-hour days, seven days a week for
     six weeks) and accepted for the PBI fee
     associated with upgrading Tank Farm compressors."
     
This report specifically related deficiencies in the
management of the 241-A-701 Air Compressor Upgrade with
the "near miss" incident and stated that:
 
     "The assessment team determined that DOE
     requirements were not properly implemented during
     startup and acceptance of the system.  Several
     significant deficiencies were identified that led
     to the near miss event at 701-A, including
     improper acceptance and turnover of systems,
     improper configuration management control,
     incorrect labeling of equipment, improper
     lockout/tagout practices, and inadequate safety
     and quality oversight. . . .  Based on the fact
     that this assessment identified several
     weaknesses with worker safety impact, WHC should
     take immediate corrective actions to ensure safe
     and reliable performance and preclude recurrence
     of this event."
 
Specific quality and safety items that were reported to
have been compromised include:
 
     -  Acceptance testing of the 241-A-701 Air Compressor
        Upgrade Project did not ensure that the system would 
        meet established requirements and perform as specified 
        as required by Title 10, Code of Federal Regulations 
        (CFR), Part 830.120, "Quality Assurance Requirements,
        "and DOE Order 5700.6C,"Quality Assurance."
 
     -  The 241-A-701 Air Compressor Upgrade project was
        not verified as meeting specifications, with the 
        Operational Test Procedure complete and exceptions 
        corrected prior to acceptance as required by DOE 
        Order 4700.1, "Project Management System," and 10 CFR
        830.120/DOE Order 5700.6C.
 
     -  The labeling requirements of DOE Order 5480.19,
        "Conduct of Operations," and 29 CFR 1910.303 (f),
        "Identification of Disconnecting Means and Circuits,
        have not been successfully implemented at the
        East Tank Farm Facility.
 
     -  The assessment team found an absence of as-built
        drawings and specific written procedures, routine 
        walkdowns, or specific work package instructions 
        to identify all energy isolation points for
        equipment, machinery, and systems for the 241-A-
        701 Air Compressor Upgrade Project.  This resulted 
        in the inability of the East Tank Farm's management 
        to adequately afford protection of affected workers 
        and to ensure complete compliance with the requirements
        of 29 CFR 1910.147, "The Control of Hazardous Energy
        (lockout/tagout)," 29 CFR 1910.333, "Selection and 
        Use of Work Practices," and DOE Order 5480.19.
 
Conclusions
 
We believe the evidence developed by the assessment team
clearly shows WHC deviated from established procedures to
achieve the PBI fee of $185,870.  We believe that, based
on the DOE Richland "Special Assessment Report," the 241-A-
701 Air Compressor Upgrade project performed under PBI
Number 95-011(d) compromised quality and safety through
the failure of WHC to follow required procedures for the
testing and acceptance of the system.  Violations of DOE,
CFR, and WHC procedures contributed to the "near miss"
incident through incomplete acceptance and operational
testing, improper Acceptance for Beneficial Use, and the
lack of as-built drawings.  Even though WHC declared the
Acceptance Test Procedure successful to the extent
necessary to claim a PBI, all of the steps of the
Acceptance Test Procedure had not been completed.  As
discussed earlier in this report, the Acceptance Test
Procedure did not distinguish between those steps
dedicated to the PBI and those steps not PBI related.  The
use of the completion and acceptance page of the
Acceptance Test Procedure to indicate "PBI Acceptance" was
determined by the assessment team to be a significant
revision to the Acceptance Test Procedure which would have
required review and approval under WHC and DOE procedures.
However, no such review and approval was obtained.
 
Recommendations
 
We recommend that the Manager, Richland Operations Office:
 
13. Initiate a review of the other compressor upgrades
    performed under PBI Number 95-011(d) to determine if
    quality and safety problems exist which are similar to
    those identified for the 241-A-701 Air Compressor
    Upgrade.
 
14. Establish a procedure to verify that incentive work
    performed under future contracts at Richland complies
    with DOE and contractor acceptance testing procedures
    prior to the authorization of the payment of incentive
    fees.
 
Management Comments:
 
In comments to the Initial Draft Report, the Manager,
Richland Operations Office, concurred with Recommendations
13 and 14, stating that:
 
         "Recommendation 13:  RL will complete a
         safety review of other compressor upgrades
         performed under PBI 95-011(d) to determine if
         quality and safety problems exist which are
         similar to those identified for the 241-A-701
         Air Compressor Upgrade.
 
         "Recommendation 14:  RL will develop
         procedures, guidelines, and additional training
         for the initiation, administration, and payment
         of new and current performance incentives.  The
         procedures, guidelines, and training will
         incorporate the views and recommendations
         expressed in this report and incorporate lessons-
         learned from the previous incentive fee
         programs, other RL reviews, and the upcoming
         recommendations of the Fee Incentives and
         Analysis Team."
 
 
F.  RICHLAND PBI PROGRAM ADMINISTRATIVE WEAKNESSES
     
Our inspection found that there were many PBI Program
administrative weaknesses in the implementation of the FY
1995 Performance Based Incentive Program at the Richland
Operations Office.  The $14.22 million dollar PBI Program
was established by Richland without any specific written
policies or procedures for the management and
administration of an incentive fee program.  Additionally,
(1) an audit trail did not exist for the Richland PBI
process; (2) the rationale for the selection of
performance objectives was unclear; (3) the justification
for specific PBI fee amounts could not be determined; (4)
the scope of the PBI work and the criteria for acceptance
was not always clearly defined; and, (5) the expected
financial and operational benefits from individual
projects selected under the PBI Program were undefined in
most cases.
 
     Richland Directed to Implement PBI Program
 
The Richland Operations Office was formally given three
months to incorporate the provisions of Contract Reform
into the existing Management and Operating contract.  A
July 5, 1994, "DECISION MEMORANDUM," prepared by the
Contract Reform Executive Committee and approved by the
Secretary of Energy, shows that Richland was allowed three
months (July 1994 to October 1994) to include Contract
Reform Initiatives in the existing WHC contract.
Specifically, this document states under a header titled
"Hanford Reservation/Westinghouse Hanford Co." that:  "The
full range of applicable contract provisions, including
cost reduction, should be incorporated into the contract
by the beginning of October 1994."  The former Principle
Deputy Assistant Secretary for Environmental Management
(EM-2) told us that this short lead time was due to an
agreement between the Secretary and Contract Reform
Executive Committee members who were willing to extend the
WHC contract with the proviso that Contract Reform
Initiatives be included.  The Richland Contracting Officer
told us that there were two reasons for this short lead
time:  (1) EM wanted to have a site "up and going" with
the provisions of Contract Reform included in the
contract; and, (2) WHC was going through contract
negotiations for the extension of their existing
Management and Operating contract, and EM wanted to
improve the contract under negotiations.
 
     Lack of Written Procedures to Implement Richland PBI
       Program
     
We found that there was a lack of written procedures for
the implementation of the Richland PBI Program.  As part
of our inspection, we interviewed a number of DOE Richland
officials who established the FY 1995 PBI Program at the
Richland Operations Office.  During these interviews, the
Office of Inspections requested information regarding the
guidance that the Richland officials received from DOE
Headquarters with regard to how the PBI Program should be
established, the guidance that was provided by Richland to
Richland PBI implementation officials, and copies of any
policies or procedures that implemented the PBI Program at
Richland.  However, these requests failed to produce any
written procedures.
 
Specifically, in an interview with the Richland Operations
Office Deputy Manager, the Deputy Manager said that the
Richland PBIs were developed to support the Contract
Reform Initiative, and that most of the guidance he
received from DOE Headquarters was in the form of verbal
philosophy.  In an interview with the former Richland
Operations Officer, the former Operations Officer said
that DOE Richland had never received any written guidance
with regard to how the PBI Program should be administered.
He also said the Richland PBI Program began in the Summer
of 1994 as part of the Contract Reform Initiative, and
that the motivation to establish the PBI Program at
Richland was initiated at DOE Headquarters to implement
the Contract Reform Initiative.  He said he was not aware
of any Department of Energy Acquisition Regulation (DEAR),
DOE Order, Acquisition Letter, or other written
instruction provided by DOE Headquarters that served as
guidance for establishing the PBI Program at Richland.
 
We also interviewed a Management Analyst from the Office
of Field Services and Liaison, Office of the Associate
Deputy Secretary for Field Management, regarding any
guidance for the PBI Program promulgated by DOE
Headquarters.  The Management Analyst said that he was
unaware of any specific guidance from "Field Management"
that had been provided to the Richland Operations Office
regarding their PBI Program.
 
We also found that there was a lack of written procedures
for the implementation and administration of the Richland
PBI Program issued by the Richland Operations Office.
Specifically, in an interview with the former Richland
Operations Officer, the former Operations Officer said
that, to his knowledge, there were no written policies or
procedures that existed for the DOE Richland PBI Program.
We also interviewed the current DOE Richland Operations
Officer who is responsible for administering the Richland
PBI Program, and he said that there were no established
written procedures at Richland on how to administer the
PBI Program.  He did provide the Office of Inspections
with a document titled:  "PERFORMANCE-BASED INCENTIVES,
ADMINISTRATION OF."  The stated purpose of this document
was:  "To implement administration and execution of
Performance-Based Incentives (PBIs) established for
contracts managed by U.S. Department of Energy (DOE),
Richland Operations Office (RL)."  However, he stated that
this document "was drafted, but never formalized."  In
addition, he stated that this document was never put into
use by the Richland Operations Office.
          
     Lack of an Audit Trail
     
We found that there was a lack of an audit trail
associated with the Richland PBI process.  After a review
of the FY 1995 PBI documents, we could not determine who
the author of a given PBI was, what level of DOE
management review or concurrence had been established, or
when such reviews had occurred, if at all.  Specifically,
this situation developed because of the lack of a
signature or routing feature associated with the PBI
document.  During interviews with several DOE Richland
officials, we were often told that they did not know who
authored a given PBI, who reviewed specific PBIs prior to
issuance, or who authorized specific incentive fee
amounts.
 
The DOE Richland Operations Officer said there is no
record, that he knows of, regarding who authored or
reviewed the PBI documents.  He said he believed that the
initial PBIs were developed by DOE Richland division level
managers and their contractor counterparts.  He said his
understanding was that Richland was in a hurry to
establish the PBI Program, and that WHC probably proposed
the majority of the FY 1995 PBIs.  He said there was
probably no audit trail for the FY 1995 PBIs.  After
consultation with the former DOE Richland Operations
Officer and the DOE Richland Budget Officer who were
members of the FY 1995 PBI team at Richland, he said that
there was nothing in the PBI contract files which would
identify the author, reviewer, or approval persons for FY
1995 PBIs.  He said there were several iterations of draft
PBIs which went between Richland and WHC, but that these
draft documents no longer exist.  He concluded by saying
that the final PBIs were approved by the Deputy Manager.
However, he said that since there was no requirement in FY
1995 to maintain a record of the substantive reviews and
approvals that took place during negotiations with WHC, no
record of these reviews and approvals exist.
 
     Rationale for the Selection of Performance Objectives
     is Unclear
 
We found that the rationale for the selection of
performance based objectives was unclear.  As part of our
inspection, we interviewed many DOE Richland officials
regarding the basis for selecting specific performance
objectives for inclusion in the PBI Program.  However, we
could not identify a process which was used to justify or
select these performance objectives for a PBI incentive.
Specifically, the former DOE Richland Operations Officer
said that, after DOE Headquarters returned the originally
submitted group of 13 PBIs as being insufficient, DOE
Richland was given a short period of time to resubmit the
PBI package.  He said that, as a result, DOE Richland
Program Managers were under a lot of pressure to nominate
new projects as PBIs.  The former DOE Richland Operations
Officer also said that no supporting documentation was
provided by the Project Managers and that some business as
usual projects were nominated as PBIs.  During an
interview with the current DOE Richland Operations
Officer, the Operations Officer said that documentation
which would support the selection of the specific projects
which were originally included in the DOE Richland PBI
Program was not available.
 
     Lack of Justification for Specific PBI Fee Amounts
     
We found that there was a lack of justification for
specific PBI fee amounts.  Specifically, during our review
of the contract files for the 34 PBIs established in FY
1995, we found no documentation that justified the PBI
fees established for the PBI performance objectives.  As
part of our inspection, we interviewed many DOE Richland
officials regarding the justification for the established
PBI fee amounts, and we were told that no specific
justifications were prepared for individual PBIs.  During
an interview with the Richland Operations Officer who was
responsible for administering the PBI Program at Richland,
the Operations Officer said that there was no
documentation to justify specific PBI fee award amounts,
and that he was unaware of any cost benefit or similar
analysis that was used to justify specific PBI fees.
 
An example of the lack of a justification for specific PBI
fee amounts is PBI 95-011, "Completion of FY 95 Tank Waste
Remediation System (TWRS) safety initiatives."  This PBI
included eight separate performance objectives, such as
the replacement of a ventilation fan, installation of gas
monitoring equipment, completion of an engineering study,
and replacement of compressed air systems in various tank
farms.  The incentive fee amount of $1,800,000 assigned to
this PBI was divided evenly among the eight separate
objectives, resulting in an available fee of $225,000 for
each objective.  We found no evidence that this
distribution was based on any consideration for the
complexity of the tasks, the risks to the contractor, or
the difficulties in achieving the PBI performance dates.
The Manager of the Richland Operations Office stated that
an objective cost basis methodology to determine the
incentive fee was not available and that the fee of
$225,000 for each performance objective was calculated by
dividing the $1,800,000 fee available for PBI 95-011 by
the eight selected performance objectives.
 
During a return trip to Richland the week of December 2,
1996, we found other similar examples.  For instance, PBI
95-001, "FAST FLUX TEST FACILITY-Complete reactor vessel
defueling," and PBI 95-026, "FAST FLUX TEST FACILITY-
Complete the shutdown of Group 1 systems," were assigned
fee amounts of $500,000 and $300,000 respectively.  During
our return trip, we found no detailed consideration or
analysis that these fee amounts were based on any
consideration for the complexity of the tasks, the risks
to the contractor, or the difficulties in achieving the
PBI performance dates.  In fact, we were told that a total
of $800,000 had been allocated to the Fast Flux Test
Facility (FFTF) for PBIs in FY 1995, and since the FFTF
only had two PBI candidates, the $800,000 was divided
between the two.  We were told that PBI 95-001 was
assigned an available fee of $500,000 because it was the
more significant of the two FFTF PBIs, and that PBI 95-026
was assigned $300,000 in available fee because that was
the amount left over.  We were told that, in distributing
the $800,000, an attempt was made to proportion the amount
of fee based on the size of the two PBI tasks.  However,
we were also told that a cost benefit or similar analysis
was not used to justify the PBI award amounts.
 
     Scope of the PBI Work and the Criteria for Acceptance
       was not Always Clearly Defined
 
We found that the scope of PBI work and the criteria for
acceptance was not always clearly defined.  For example,
many PBIs did not identify the specific scope of work,
citing only the title of the project.  This was the case
for each of the eight PBI objectives identified under PBI
95-011, with $225,000 in incentive fee available for each
objective.  For example, the only reference to the scope
of work under PBI 95-011 was the statement of the specific
milestones to be accomplished under the Performance
Objective of "Timely completion of TWRS Safety Initiatives
scheduled for FY-95."  For PBI 95-011(c), the specific
milestone stated:  "Upgrade alarm panels in 7 tank farms
by March 31, 1995. (SI 4a)."  In this case, the specific
tasks to be performed were not identified on the PBI
document.  In order to determine the scope of work, one
would need to go to the WHC TWRS Milestone Description
Sheet for this project, a document that was not even
referenced on the PBI, or the Safety Initiative
Description Sheet, a document referenced only by inference
as SI-4a.
 
In addition, many PBIs did not identify the specific
acceptance criteria.  This was also the case for each of
the eight PBI objectives identified under PBI 95-011.  In
the case of PBI 95-011(d), the PBI document was silent on
the specific acceptance criteria, even though the work was
subject to the completion of acceptance and operational
testing under the provisions of 10 CFR 830 and DOE Order
5700.6C.  The "BASIS FOR MEASUREMENT" on the PBI document
only addressed the PBI fees and the time frames associated
with payments of fees or the assessment of penalties.
 
     The Expected Financial and Operational Benefits from
     PBI Program Implementation were Undefined in Most Cases
 
During our inspection, we reviewed the available PBI
documentation and interviewed several DOE Richland
officials regarding the expected financial or operational
benefits from the establishment of specific PBIs.  We
found there was no requirement to ascertain if a financial
or operational benefit would be derived from the
establishment of a PBI.  Specifically, in an interview
with the former DOE Richland Operations Officer, he said
there was no review or analysis of expected financial or
operational benefits that would be derived from the
completion of PBI projects, and that he could not identify
a reduction in personnel, operating budgets, or cost
savings that would directly result from projects being
included in the FY 1995 PBI Program at the time that the
PBIs were established.
 
We also interviewed the DOE Richland Budget Officer who
said the contractor was not required to demonstrate a cost
savings to receive a PBI award; and, regarding what the
proper incentive fee amounts should be, he said no cost
analysis other than a rough order of magnitude of what
would motivate the contractor was ever performed.  He also
said there is no specific process in place to deobligate
funding based upon accelerated program completion that may
result from PBI efforts, nor could he identify any
reduction in Full Time Employees (FTE), operating budgets,
or other cost savings that could directly result from
projects included in the FY 1995 PBI Program.
 
However, at the request of the Office of Inspections,
Richland was able to provide information on the benefits
of various PBIs after the PBI work had been completed.
Specifically, the Office of Inspections requested that the
DOE Richland Operations Officer provide an estimate of
benefits derived from the FY 1995 PBI Program.  In
response to this request, on July 15, 1996, the following
information regarding the benefits of PBIs was provided to
the Office of Inspections by the DOE Richland Operations
Officer:
 
PBI
Number Performance Objective    PBI Benefit Stated by Richland
 
95-001    Defuel FFTF              Defuel FFTF 5 months early,                                            
                                   $450,000 savings   
 
95-004    Lost workday incidence   46 percent improvement in lost work
          rates improved           day rate
 
95-007    Reduce radiological      Reduction exceeded goal by 20 percent
          contaminated areas
 
95-010    TEDF Pipeline tie-in     Completed 1 month early, $2.2 million
                                   under budget
 
95-023    Shipment of nitric acid  PUREX transition schedule decreased
                                   by 10 months, $37 million saved
 
95-025    Return of Cesium         $800,000 cost avoidance,
          Capsules                 funding reprogrammed
          
Additionally, there were many other examples of benefits
achieved that were provided by the Richland Operations
Officer, which included the following:
 
- Alarm Panel Installations:  Achieved consistency
  throughout the tank farms for improved maintenance
  efficiency.
 
- Continuous Temperature Monitoring:  Installation of new
  thermocouple trees more efficient than replacing as
  failures occurred.
 
- Sparkless Fan Installation:  Eliminated potential
  ignition source.
 
- Waste Characterization:  Vital to mission objectives.
 
- Corrective Maintenance Backlog Reduction:  Eliminated
  work scope, combined work scope, and reduced backlog
  often used to substantiate the need for additional staff.
 
     Richland Internal Assessment of the FY 1995 PBI
     Program
     
At the time of our inspection, the Richland Operations
Office did not have an internal assessment program or
similar process in place to monitor the effectiveness of
the FY 1995 PBI Program.   Specifically, we interviewed
the DOE Richland Operations Officer on September 26, 1995,
who said that at that time there had been no internal
assessments of the DOE Richland PBI Program.  We also
interviewed the DOE Richland Budget Officer on October 25,
1995, who told us that he was not aware of any internal
assessments conducted by DOE Richland of the PBI Program.
 
However, as previously stated, a DOE Richland Review Team
was established that conducted a limited review of FY 1995
Tank Waste Remediation System PBI activity, and issued a
report in September 1996 which documented the Review
Teamms findings.  The Review Team consisted primarily of
DOE Richland employees from the Management Systems
Division of TWRS, who were tasked to determine if certain
FY 1995 performance based incentives were awarded
appropriately.  The Review Team selected six fee awarded
PBIs for FY 1995, and evaluated them for completeness
expectations and timeliness; and included field
assessments to verify performance.  As previously
discussed, the results of the Review Teamms efforts were
stated in the lReview of Tank Waste Remediation System
(TWRS) Fiscal Year 1995 Performance Based Incentivesn
report, dated September 24, 1996.  In addition to
discussing the work actually performed under the PBIs
reviewed, the report also provided lLESSONS LEARNEDn and
stated that:  "The review team identified a number of
deficiencies in the PBI description and performance
objectives which would provide value-added in developing
future PBIs."  The deficiencies discussed in the report
included the following:
 
      - PBIs typically identify neither performance
        standard(s) for the deliverable nor acceptance
        criteria for evaluation of the award fee.  A PBI
        normally does not, at least directly, indicate
        the required scope of the study or an associated
        reference.
  
      - Major components of many PBIs are
        substantially developed at the time when the PBI
        comes into existence (e.g., the PBI is not based
        on substantially new work).  Clarification needs
        to be made how the PBI should interface with
        work in progress.
  
      - Potential fees may be quite large.  However,
        there may be no indication that the organization
        derives any operational or technical benefit
        from an acceleration to complete the work.  In
        general, it would assist in the evaluation of
        PBIs if the intended benefit to be derived by
        DOE is clearly identified.
  
      - Every PBI should have the period of
        performance clearly stated so there is no
        question how long the contractor has to complete
        the work (e.g. - period of performance was not
        defined on the corrective maintenance backlog
        PBI).
  
      - Upon review of the PBIs, the level of
        performance requested was too easily attained by
        the contractor.  In the case of the T-107
        pumping, this effort was accomplished in 48
        hours.  Was there significant value in pumping
        1,500 gallons since there was 10,000 gallons of
        pumpable solution?
  
      - PBIs need to be reviewed by a team prior to
        any payment to verify that the Government
        received the work requested.  Records and
        documentation should be collected at that time
        in the event of additional questions.  Without
        proper documentation, it is difficult to avoid
        future litigation in the event of questions.
        Also, PBIs should be reviewed prior to agreement
        with the contractor to verify the incentive,
        risk, etc.
     
     Department of Energy Headquarters Review of Richland
     FY 1995 PBIs
     
As indicated in the "BACKGROUND" section of this report,
DOE Headquarters directed the Richland Operations Office
to incorporate performance based incentives into the WHC
contract extension, and we were told that DOE Headquarters
was sent drafts of 13 FY 1995 PBIs prior to the
establishment of the PBI Program at Richland.  DOE
Headquarters directed changes to the Richland PBI Program,
requiring that the dollar size of the Richland PBI Program
be raised and that the number of individual PBIs be
increased.  However, the DOE Headquartersm review of
individual FY 1995 PBIs was of a general nature.  The
information received by DOE Headquarters on individual FY
1995 PBIs did not include data that would have allowed DOE
Headquarters to identify the types of weaknesses discussed
in this report, such as documentation on the cost of PBI
projects compared with proposed incentive fees or
documentation showing that proposed PBI work was already
complete.
 
Management Comments:
 
In comments to the Official Draft Report, the Assistant
Secretary for Environmental Management stated that the
guidance to Richland was to allocate more of the available
fee pool dollars to objectively measured performance based
incentives, and to reduce the amount of the subjective
award fee portion of the fee pool.  The Assistant
Secretary stated that the direction was to redistribute
the fee pool, not to increase the total dollar amount
available.  The Assistant Secretary stated that this
guidance is consistent with performance based management
contracting principles which dictate "pay-for-performance"
and transfer of performance risk to the contractor through
allocation of a higher proportion of the fee pool to
objective, results oriented performance incentives.
 
     Environmental Management Fee and Incentives Analysis
     Team
     
The Office of the Deputy Assistant Secretary for Site
Operations, Office of the Assistant Secretary for
Environmental Management, established a Fee and Incentives
Analysis Team (FIAT).  The "CHARTER" of this team as
approved by the "EM Corporate Forum" on March 6, 1996, is
stated as follows:
 
    "Identify and document best fee and incentive
     practices to promote significantly improved
     contractor performance.  Recommend guidelines
     for EM that may be adapted for local needs.
     Provide input to the development and
     implementation of Department-wide contract
     policy."
     
The FIAT developed draft guidelines dated June 19, 1996,
titled "DRAFT GUIDELINES FOR EM FEE AND INCENTIVES
DEVELOPMENT (PHASE I)."  In a July 10, 1996, briefing 
document titled "FEE GUIDELINES PROJECT PROGRESS REPORT," 
the team reported that "EM Guidelines will be written 
primarily for field line operating managers/procurement 
officers who establish performance expectations and are 
engaged in fee and incentive determinations."  The team 
also reported that "EM Guidelines and recommendations will 
be specific, but are not intended to be prescriptive."  
The team reported that the guidelines being developed 
incorporate "FEE STRUCTURE," "MULTI-YEAR PERFORMANCE 
OBJECTIVES," "ROLES AND RESPONSIBILITIES," and "FEE 
STRATEGIES."  The team reported that they anticipate 
distributing "Final Draft Guidelines" for coordination 
and review by November 1996.  In comments to the Initial 
Draft Report, the Assistant Secretary for Environmental 
Management stated that prompt action will be taken by the 
Office of Environmental Management to finalize the Guide-
lines of its Fee Analysis and Incentive Team.
     
     FY 1997 Richland Performance Based Management
     Contract Performance Agreements
     
Incentive contracting has continued at the Hanford Site
during FY 1997.  Effective October 1, 1996, a new contract
(DE-AC06-96RL13200) was entered into with Fluor Daniel
Hanford, Incorporated, performing the function of the
"Project Hanford Management Contractor."  As stated in
Part III, Section J, Appendix D, "PERFORMANCE OBJECTIVES,
MEASURES, EXPECTATIONS, AND INCENTIVES" of this contract,
Section 1 states in part that:
 
      "The fee earned is linked to the achievement of
       performance objectives and expectations to ensure
       that the Contractor is properly motivated
       consistent with DOE values, the achievement of
       strategic objectives, and the completion of
       milestone activities."
 
Section 1 of this contract also states that:
 
      "It is important that the Contractor also
       completes (in accordance with contract quality
       requirements) all contractually identified critical
       and non-critical milestones on schedule and within
       estimated costs.  The fee provisions in this
       contract are intended to motivate the contractor to
       deliver outcomes exceeding DOE and contract scope
       of work expectations but are done within approved
       schedules or budgets.  The fee pool system is also
       intended to reward the Contractor for successfully
       implementing technologies or processes which
       achieve results better, faster, and/or cheaper."
 
Conclusions
 
The Richland PBI Program was implemented in a three month
period and operated without any specific written policy or
procedural guidance for the management and administration
of an incentive fee program.  As a result, there was no
audit trail identifying the level of management review or
the authorization of incentive fee amounts.  In addition,
(1) the rationale for the selection of performance
objectives was unclear; (2) the justification for specific
PBI fee amounts could not be determined; (3) the scope of
the PBI work and the criteria for acceptance was not
always clearly defined; and, (4) the expected financial
and operational benefits from individual projects selected
under the PBI Program were undefined in most cases.
 
We believe that the lack of written policy or procedural
guidance issued by the Department's Headquarters or the
Richland Operations Office contributed to a Performance
Based Incentive Program at Richland that did not always
make the best use of incentive dollars paid to the
Management and Operating Contractor.  We believe that the
lack of specific written policy or procedural guidance
caused or contributed to the particular problems
identified in this report.  These problems include:  (1)
an instance where the fee paid was excessive when compared
with the cost of labor and material to perform the PBI
work; (2) instances where PBI fees were paid for work that
was accomplished prior to the establishment of the PBI
Program at Richland; (3) instances where PBI fees were
paid for work that was not completed; (4) instances where
PBI fees were paid for work that was easily achieved by
the Management and Operating Contractor; and, (5) an
instance where quality and safety were compromised by the
Management and Operating Contractor in order to achieve a
PBI fee.
 
The September 24, 1996, Richland Review Teamms report
titled "Review of Tank Waste Remediation System (TWRS)
Fiscal Year 1995 Performance Based Incentives" identified
similar weaknesses in the Richland PBI Program, citing a
lack of performance standards for the deliverables and
acceptance criteria for evaluation of the award fee, PBIs
that were not based on substantially new work, unclear
identification of the intended operational or technical
benefit to the Department, and levels of performance too
easily achieved by the contractor.
 
We believe that written policy and procedural guidance
needs to be developed in order to:  (1) provide for better
control over the incentive contracting program at
Richland; (2) increase the effectiveness of this program;
and (3) increase the dollars available for real incentive
opportunities that may need to be accomplished at the
Richland Site in the future.
 
Recommendations
 
We recommend that the Manager, Richland Operations Office:
 
15.  Develop written policies and procedural guidance for
     contract incentives programs at the Richland Site which
     focus on the rationale for the selection of performance
     objectives, the determination and justification for
     specific PBI fee amounts, the scoping of incentive work
     and the criteria for acceptance, and the expected
     financial and operational benefits from contract
     incentives.
 
16.  Ensure that future incentive fee contract documents
     contain an audit trail which details the level of
     management review and the authorization of incentive
     fee amounts.
 
17.  Ensure that future incentive fee contract documents
     contain the specific scope of the incentive work to be
     performed and the specific criteria to be used for
     acceptance of the incentive work.
 
We recommend that the Assistant Secretary for
Environmental Management:
 
18.  Assure that the fee and incentive policy and
     procedural guidance currently under development by the
     FIAT Team addresses:  (1) the selection of tasks for
     inclusion under a contract incentive; (2) the
     relationship between incentive fees and the difficulty
     and cost of the work to be included under an incentive;
     (3) the impact of the work to be included under an
     incentive on the operations of the site involved; (4)
     the risk to the contractor; (5) the scoping of work and
     the identification of acceptance criteria; and (6)
     verification of the work prior to payment of the
     incentive fee.
 
Management Comments:
 
In comments to the Initial Draft Report, the Manager,
Richland Operations Office, concurred with Recommendations
15, 16, and 17, stating that:
 
         "Recommendation 15:  RL will develop
     procedures, guidelines, and additional training
     for the initiation, administration, and payment
     of new and current performance incentives.  The
     procedures, guidelines, and training will
     incorporate the views and recommendations
     expressed in this report and incorporate lessons-
     learned from the previous incentive fee
     programs, other RL reviews, and the upcoming
     recommendations of the Fee Incentives and
     Analysis Team.
 
         "Recommendation 16:  RL will take actions
     during its review of the FY 1995 and FY 1996 PBIs
     to ensure that future incentive fee documentation
     contains an audit trail detailing the level of
     management review and the authorization of
     incentive fee amounts.
 
         "Recommendation 17:  RL will develop
     procedures, guidelines, and additional training
     for the initiation, administration, and payment
     of new and current performance incentives.  The
     procedures, guidelines, and training will
     incorporate the views and recommendations
     expressed in this report and incorporate lessons-
     learned from the previous incentive fee
     programs, other RL reviews, and the upcoming
     recommendations of the Fee Incentives and
     Analysis Team."
 
The Manager offered additional comments, stating that
prior to receipt of the Initial Draft Report, Richland
was aware of deficiencies in their FY 1995 PBI
Program.  The Manager stated that Richland's efforts
at establishing and administering PBIs were "hampered
by limited guidance and lessons-learned."  The Manager
also stated that Richland applied lessons-learned in
the development of current incentive fee programs, and
plans to review FY 1995 and FY 1996 performance based
incentives, identify problems, perform root cause
analysis, develop procedures, and provide necessary
training for future incentive fee programs.
 
In comments to the Initial Draft Report, the Assistant
Secretary for Environmental Management concurred with
Recommendation 18, stating that:  "With respect to
Recommendation # 18, I commit to prompt implementation."
The Assistant Secretary stated that the Department
recognized early in the performance based incentive
program that there were some significant process and
implementation issues to resolve.  The Assistant Secretary
stated that:  "As such, we have been working on these
issues for some time."
 
The Assistant Secretary offered additional comments,
stating that the very nature of contract reform is one
that is evolutionary and by necessity incorporates a
process of continuous improvement.  The Assistant
Secretary stated that:  "Lessons learned during our
initial contract reform effort have been factored in as
DOE fine tuned its policy and procedures."  The Assistant
Secretary stated that action items of the Contract Reform
Team Report, as well as the Guidelines of the FIAT,
represent some of DOE's efforts to improve its contract
reform and performance based incentive program over a
period of years.  The Assistant Secretary stated that:
"Nevertheless, we realize that in an undertaking like
this, there are going to be some weaknesses, a need for
continual self-assessment, and some need for improvement.
Therefore, we initiated our own assessment of what
contract reform has done to date in order to improve where
needed."  The Assistant Secretary stated that:  "We have
already identified performance based incentives as one of
the areas requiring further focus."
 
The Assistant Secretary stated that concerns about the
implementation of performance based incentives have
continued to be a focus of EM and Field senior management
since 1995.  The Assistant Secretary stated that these
concerns spurred the formation of the FIAT team by senior
management in March 1996.  The Assistant Secretary stated
that the charge to the team was to identify and document
best fee and incentive practices to promote significantly
improved contractor performance; recommend guidelines that
may be adopted for local needs; and support development
and implementation of Department-wide contracting
policies.  The Assistant Secretary stated that the
philosophy of the FIAT "Draft Guidelines For EM Fee and
Incentives Development (Phase I), of June 19, 1996," is
very consistent with Recommendation 18 of the Initial
Draft Report.
 
The Assistant Secretary stated that the Initial Draft
Report underscores the need for continued aggressive
action.  He stated that he has discussed these matters
with the Departmentms senior management, and that " . . .
we are committed to taking the following high priority
steps to improve our performance based contracting."  The
Assistant Secretary stated that these steps will include
prompt action:
 
      (1) by the Office of Environmental Management to
      finalize the Guidelines of its Fee and Incentives
      Analysis Team, including incorporation of the
      recommendations from the Office of Inspector 
      General's Initial Draft Report;
 
      (2) by the Contract Reform Project Office to publish
      its Contract Reform Self-Assessment, including lessons
      learned in performance based contracting;
 
      (3) by the Deputy Assistant Secretary for
      Procurement and Assistance Management to undertake 
      an assessment of the impact of Contract Reform on 
      Contract Administration which he initiated on 
      November 25, 1996; and,
 
      (4) by the Department to convene a focused workshop
      on performance based contracting, to supplement 
      previous training efforts.
 
Inspector Comments:
 
In comments to the Initial Draft Report, the Assistant
Secretary for Environmental Management stated that the
authors of the "Draft Guidelines For EM Fee and Incentives
Development (Phase I), of June 19, 1996," ("Guidelines")
as a result of their broad based DOE-wide experience,
"satisfies most of the suggestions contained in IG
Recommendation 18."
 
Specifically, with regard to item 1 under Recommendation
18, the Assistant Secretary stated that the "Guidelines"
addressed this suggestion in Chapter III, FEE STRUCTURE,
paragraph B. 3., "Objective Performance Incentives," in
the following manner:
 
      -  "Incentives should have traceability through the
     successive levels of strategic planning (i.e., DOE,
     EM, Government Performance and Results Act (GPRA),
     and [be] site specific.
 
      -  "Ideally, they should focus on a manageable
     number of high priority, results-oriented items that
     allow us to assess the contractor's accomplishments
     in key program goals and objectives."
 
The Assistant Secretary also stated that the "Guidelines"
addressed this suggestion in Chapter III, paragraph C.,
"Possible Emphasis Areas," in the following manner:
 
      -  "distribution of fee dollars should reflect site
    priorities. . . ."
 
We believe that these portions of the "Guidelines" are
partially responsive to item 1 of our recommendation.
However, in addition to these portions of the
lGuidelines,n we believe that the "Guidelines" should
specifically address and require the documentation of the
rationale for the selection of individual projects or
tasks under an incentive program, including any expected
financial or operational benefits associated with the
incentivized activities.  We believe that this will assist
management in the review of proposed incentive candidates
and reduce the possibility of incentivizing business-as-
usual projects.
 
With regard to items 2 and 4 under Recommendation 18, the
Assistant Secretary stated that the "Guidelines" addressed
this suggestion in Chapter I, OVERVIEW, paragraph C. 3.,
"Recognition of the Variation of Management and Technical
Risk Assumed by the Contractor," in the following manner:
 
      -  "Fee structure and amounts should be developed
     after considering the level of difficulty of contract
     work and the risks assumed by the contractor.
     Following are major risk factors that should be
     considered:
 
           -  Contractor acceptance of liability for
              environmental fines, penalties, and damage.
           -  Utilization of contractor resources.
           -  Level of contractor indemnification.
           -  Complexity of technical scope.
           -  Acceptance of zero or reduced base fixed fee.
           -  Potential for damage to human health.
           -  Potential for damage to the environment, workers 
              and the public."
 
We believe that these portions of the "Guidelines" are
partially responsive to items 2 and 4 of our
recommendation.  However, in addition to these portions of
the "Guidelines," we believe that the "Guidelines" should
specifically address the relationship between incentive
fees and the cost of the work to be performed so that fees
cannot be perceived as being excessive when compared with
the cost of the incentivized activity.  The "Guidelines"
clearly state that "EM should provide a consistent
standard for contractor performance which neither over or
under rewards contractors," but the "Guidelines" are
silent on what such a standard would consist of with
regard to the relationship between incentive fee and the
cost of the incentivized work.  We did note that Chapter I
of the "Guidelines," OVERVIEW, under "Philosophy," states
that one of the general concepts of performance incentives
is that:  "Cost parameters must be considered when
incentivizing scope and schedule."  However, this concept,
as discussed in Chapter III, FEE STRUCTURE, only addresses
cost in relation to "a cost incentive" or "a cost
constraint provision," and does not address cost in
relation to fee.  We also noted that Chapter I states
that:  "Firmly establishing a cost, schedule and technical
baseline is a necessary step in successful negotiation,
implementation, and administration of incentives," and
that:  "The confidence level in the baseline precision
(cost and schedule) should be considered in determining
performance objectives."  However, these principles are
not developed in the body of the "Guidelines" in terms of
the relationship between cost and fee.
 
We also believe that the "Guidelines" need to further
address the relationship between incentive fees, the
difficulty of the work, and the risk to the contractor in
terms of the contractor's ability to meet "Stretch Goals."
Richland's $14.22 million FY 1995 PBI Program that is
discussed in this report consisted primarily of incentives
that appear to incorporate the concept of "Stretch Goals"
(i.e. goals where the contractor was incentivized to meet
completion dates that were accelerated ahead of the
previously established schedule).  The "Guidelines" as
currently written discuss "Stretch Goals" in Chapter IV in
terms of setting expectations, and state that:  "Stretch
Goals should reflect performance expectations which are
difficult to achieve given the expected resources and
schedule. . . ."  However, the term "difficult to achieve"
is not defined, the relationship between fee and the
concept of "difficult to achieve" is not discussed, and
the risk to the contractor in terms of any performance
penalty for not achieving the "Stretch Goals" is not
addressed.  Our inspection found that, in many cases, what
appeared to be "Stretch Goals" at Richland were easy to
achieve, that there was little likelihood that the
contractor would be assessed a penalty, and that Richland
did not require the contractor to provide information on
the "expected resources" needed to meet the "Stretch
Goal."
 
We also believe that the "Guidelines" as currently written
send a conflicting message with regard to "Stretch Goals"
and the contractor's ability to meet such goals.
Specifically, Chapter IV under "Characteristics of Good
Incentives" discusses "Stretch Goals" and states that one
characteristic of a good incentive is one that
"Incorporates stretch goals that are achievable."
However, as discussed above, Chapter IV also states that:
"Stretch Goals should reflect performance expectations
which are difficult to achieve. . . ."  We believe that
the "Guidelines" need to make it clear what the
Departmentms expectations are with regard to the use of
"Stretch Goals" and the relationship between fee and the
ability of the contractor to meet such goals.  Clearly,
the more difficult a "Stretch Goal" is to achieve and the
more risk assumed by the contractor in terms of a penalty
for failing to meet a "Stretch Goal," the greater the
expectation would be for a higher fee.  We believe that
the lGuidelinesn need to address the relationship between
fee and "Stretch Goals" to reduce the potential for
assigning incentive fees which are not commensurate with
the level of difficulty and risk involved.
 
With regard to item 3 under Recommendation 18, the
Assistant Secretary stated that the "Guidelines" addressed
this suggestion in Chapter IV, SUBJECTIVELY EVALUATED
AWARD FEE AND OBJECTIVE INCENTIVE FEE PLANNING AND
EVALUATION STRATEGIES, paragraph B. 1., "Characteristics
of Good Incentives," in the following manner:
 
      -  "Reflects the highest priority items for the site
     suitable for specific incentives.
 
      -  "Ensures the value of the individual performance-
     based incentive amount is reasonable for the
     objective and relative to the proportional share of
     the budget performance-based incentive pool, adjusted
     for risk or priority."
 
We believe that these portions of the "Guidelines" are
partially responsive to item 3 of our recommendation.
However, in addition to these portions of the
"Guidelines," we believe that the "Guidelines" should
specifically address the impact of the work to be included
under an incentive on the operations of the site involved
in terms of any adverse impact on other site projects or
activities which are not included under an incentive fee
arrangement; such as deferment of other work, the
reallocation of resources from other projects or
activities, or the use of overtime.  Our inspection found
that, under Richlandms FY 1995 PBI Program, WHC was not
required to identify any deferment of other work,
reallocation of resources, or the use of overtime in their
plans to accomplish incentive work.
 
With regard to item 5 under Recommendation 18, the
Assistant Secretary stated that the "Guidelines" addressed
this suggestion in Chapter IV, SUBJECTIVELY EVALUATED
AWARD FEE AND OBJECTIVE INCENTIVE FEE PLANNING AND
EVALUATION STRATEGIES, paragraph B. 1., "Characteristics
of Good Incentives," in the following manner:
 
      -  "Contains a mutually understood baseline.
 
      -  "Ensures clear identification of dates and
          deadlines.
 
      -  "Contains incentives fee criteria that are
         objective, with the degrees of success easily
         measured and verifiable.
 
      -  "Contains a clear definition of successful
         completion standards and DOE requirements of
         performance including specific acceptance 
         criteria, and with established fee commensurate 
         with performance."
 
We believe that these portions of the "Guidelines" are
partially responsive to item 5 of our recommendation.
However, in addition to these portions of the
"Guidelines," we believe that the "Guidelines" should
specifically address the scope of work in terms of
requiring a clear and accurate description of the work to
be accomplished in order to avoid confusion with work that
was actually completed prior to the incentive, or work
that is not required to be completed in order to achieve
the incentive fee.
 
With regard to item 6 under Recommendation 18, the
Assistant Secretary stated that:  "A specific statement
assigning responsibility for verification of work
completed before award payment is made will be included in
the next iteration of the Guidelines."
 
Management Comments:
 
In response to the Official Draft Report, the Assistant
Secretary for Environmental Management stated that:
 
     "The guidance on performance-based contracting cannot
   accurately be described as "verbal philosophy."  In
   addition to oral discussions and verbal guidance, many
   written documents were developed and made readily
   available, including the following:
 
     "A government-wide policy letter on performance-based
   service contracting (Office of Federal Procurement
   Policy Letter 91-2) had been on the books since 1991.
 
     "The Contract Reform Team Report, published in
   February 1994, outlined the Departmentms change from
   the traditional management and operating contract
   construct to performance-based management contracting.
   Appendices I, J, K all contained performance criteria
   that were relevant to development of performance
   incentives at Richland.
 
     "In addition, the Office of Environmental Management
   on May 26, May 27, and June 22, 1994, circulated
   documents including examples of performance measures
   and criteria and 'General Guidelines for Developing
   Contract Performance Criteria."
 
Inspector Comments:
 
As stated in our report, the EM guidelines for fee and
incentives were not initiated until March 6, 1996, when
the "EM Corporate Forum" approved the "CHARTER" for the
Fee and Incentives Analysis Team.  The above listed
documents referenced by the Assistant Secretary, however,
were available to Richland in 1994.  These documents did
provide general guidelines for developing contract
performance measures and criteria, and appear to have kept
field elements informed about the evolution of the concept
of establishing performance measures and criteria within
EM program areas.  However, these documents did not
provide specific written policy or procedural guidance on
the management and administration of an incentive fee
program, or provide specific guidance on how performance
measures and criteria would be incentivized under a PBI
Program such as the one used by Richland in FY 1995.
 
Specifically, the Office of Federal Procurement Policy
Letter 91-2, dated April 9, 1991, established policy for
the acquisition of services by contract.  The intent of
this letter was to address problems involved with
contracting for services, including vague statements of
work, insufficient use of firmer pricing arrangements, the
lack of performance standards, and the inadequacy of
quality assurance surveillance.  This letter did address
contract incentives under a discussion on contract types,
stating that "contracts shall include incentive provisions
to ensure that contractors are rewarded for good
performance and quality assurance deduction schedules to
discourage unsatisfactory performance."  However, we do
not believe that this would constitute policies or
procedures for the management and administration of a
contract incentive program.
 
The Report of the Contract Reform Team, titled "Making
Contracting Work Better and Cost Less," issued by the DOE
Headquarters Contract Reform Team in February 1994,
identified a number of contracting improvements needed
within the Department and recommended numerous actions
that would reform contracting and contract management
techniques, and assigned responsibilities and deadlines
for accomplishment.  Appendices I, J, and K all contained
performance measures and criteria.  These appendices did
provide information on specific performance goals,
criteria, and measures, some of which were uniquely
relevant to Richland.  Appendix I provided some discussion
on incentive payments for specific goals, addressing
points such as:  "Contract payment incentives will be
based upon required completion of milestones . . . .;"
"Contract incentive payments will be based on:  Reductions
in lost-time injury rates and lost work day statistics . .
. .;" and, "Contract incentive payments will be based upon
contract-stated levels of improvement over preestablished
cleanup, cost, and milestone accomplishments."  However,
these appendices did not provide policy and procedural
guidance on the management and administration of a PBI
Program which would ensure that a field office
successfully implemented Headquarters' intent under
contract reform.
 
The May 26, 1994, EM document referred to by the Assistant
Secretary for Environmental Management was titled
"ENVIRONMENTAL MANAGEMENT PROGRAM - ILLUSTRATIONS OF
CONTRACT PERFORMANCE CRITERIA, MEASURES, AND INCENTIVES."
This document included:  (1) a diagram of the "TOP-DOWN
APPROACH TO PERFORMANCE MEASUREMENT;" (2) EM strategic
goals and commitments for 1994, 1995, and beyond; (3) EM
examples of contract performance criteria and measures
linked to incentives; (4) "General Guidelines for
Developing EM Contract Performance Criteria;" and, (5)
"General Guidelines for Developing EM Contract Performance
Measures."  The guidelines on performance measures and
criteria stated that:  "The criteria must be clearly
articulated, results oriented, and linked to program/site
goals and objectives;" and, "Performance measures should
be directly tied to incentives to encourage our
contractors to work effectively to meet program goals and
objectives, to control costs, and to improve timeliness
and quality of performance."  The EM examples showed
performance measures linked to incentives as a percent of
fee.  However, none of these documents addressed policies
or procedures for tying performance measures to
incentives, or policies and procedures for the management
and administration of an incentive fee program.
 
The May 27, 1994, EM document referred to by the Assistant
Secretary for Environmental Management was a letter sent
by the Assistant Secretary to field locations discussing
implementation plans for contract reform.  This letter
provided a matrix of contractor suggestions for contract
reform with related contract incentives.  The field
organizations were told that the "summary of general
reform information including related contract incentives
should be useful in your development of the specific
changes that are appropriate for your contracts," and
field organizations were asked to establish a schedule
"that will require during the next few months the
modification of those contracts where you determine that
reforms can have an immediate benefit."  The Assistant
Secretary requested that:  "As soon as you complete plans
to implement reforms for Environmental Management program
work I would like to receive a summary of the anticipated
contract changes and a timetable for completion of
negotiations."  However, even though the May 27, 1994,
letter included a format for submitting field summaries
and a description of "related award fee implementation"
prepared for the West Valley Project contract, it did not
include any Department policies or procedures for the
implementation of contractor suggestions for contract
reform or for the management and administration of an
incentive fee program.
 
The June 22, 1994, EM document referred to by the
Assistant Secretary for Environmental Management was a
letter sent by the Acting Deputy Assistant Secretary for
Management and Finance, Office of Environmental
Management, to field locations discussing contract
performance criteria and measures.  This letter requested
that field organizations submit "a representative cross-
section of high-priority contract level performance
criteria and measures that may be used to evaluate EM's
programmatic performance of our existing M&O . . .
contracts," and stated that:  "The measures should also be
suitable for use with incentives to motivate our
contractors to attain a high level of performance and to
achieve programmatic objectives."  Attached to this letter
were the "General Guidelines for Developing Contract
Performance Criteria," and the "General Guidelines for
Developing Contract Performance Measures" previously
discussed.  Also attached to this letter was a document
titled "Contract Performance Criteria and Measures Format
Instructions" which provided the format for field elements
to submit their contract level performance criteria and
measures to DOE Headquarters.  This format instruction
clearly laid out expectations for "CRITERIA DESCRIPTION"
and "CONTRACT PERFORMANCE MEASURES," but the guidance on
"INCENTIVES (FEES)" was limited to the statements that:
"The percentage of fee earned depending upon the
performance quality level is listed as TBD;" and, "The
percentage of fee will be determined when the Performance
Evaluation Plan is updated or the contract is
renegotiated."
 
As stated above, the development of guidelines for fee and
incentive development was not initiated by the Department
until March 6, 1996.  The "Draft Guidelines for EM Fee and
Incentives Development" were distributed to field
operations on August 26, 1996.  The memorandum
distributing these guidelines stated that:  "The
Guidelines are being developed primarily for field line
operating managers and procurement officers who establish
performance expectations and are engaged in fee and
incentive determinations;" and, "The intent is to provide
the user practical advice and examples of effective ways
to implement performance-based contracting."
 
 
G.  INSPECTION OBSERVATIONS ON OTHER RICHLAND PBI PROGRAM
    ISSUES
     
During our inspection, we observed other potential
Richland PBI Program management weaknesses.  Specifically,
we noted a condition where the Management and Operating
Contractor was not required to advise DOE of the means by
which the PBI objectives would be achieved or the program
impacts resulting from PBI implementation, such as the
deferment of other contractor required work that was not
included under a performance based incentive.  In
addition, we noted that the M&O Contractor was not
restrained from committing resources to achieve PBI fees
such as the procurement of capital equipment or the use of
overtime in order to achieve the PBI objectives.
 
     PBI Program Impacts and Contractor Resource
     Allocation
 
The Management and Operating Contractor was not required
to advise DOE of the means by which the PBI objectives
would be achieved, including program impacts and resource
allocations.  Specifically, during an interview with the
DOE Richland Operations Officer, the Operations Officer
said that the contractor was not required to identify to
DOE the means by which the PBI objectives would be
achieved, and that the contractor was allowed to defer
work from non-PBI projects to get the PBI work completed.
When asked by the Office of Inspections if it is possible
that the contractor could shift resources to a PBI project
at the detriment of another project that could become the
subject of an out-year PBI, the DOE Richland Operations
Officer said that this could happen.
 
In addition, the former DOE Richland Operations Officer
said that the M&O Contractor had not been receiving a
significant percentage of the available award fees, so it
was expected that they would shift personnel from non-PBI
projects to PBI projects.  He said that there was an
awareness that DOE Richland may be mortgaging the future
for today's PBI Performance Objectives.  The former DOE
Richland Operations Officer also said that there was an
apprehension among Richland managers that there would be
"dysfunctional behavior" on the part of the M&O Contractor
because of the incentive to focus on PBI driven tasks.
 
During an interview with a DOE Richland Project Director,
the Project Director said that the contractor was not
required to identify the means by which the PBI objectives
would be achieved prior to implementation.  He said it was
clear that the contractor was giving a high priority to
the PBI work.  However, he said he could not prove that
the contractor was neglecting other work and that this
was, in part, because there was generally a lack of good
work definition at the Hanford Site.  He said that it was
DOE Richlandms job to monitor the contractorms
performance, not manage them.  A Division Director for the
Waste Characterization Programs said that WHC could direct
resources "to get PBI fee which is all profit to them,"
and that because of this motivation, he said that other
non-PBI milestones would not be met.
 
During an interview with a WHC Waste Sampling Analysis
Manager, the WHC Manager said that in his experience, DOE
has a hard time determining whether a task being
considered for a PBI was significant or not, and that the
DOE level of involvement in the PBI process was very low.
The WHC Manager also said that the DOE personnel
interacted with upper level WHC management, and that the
level of detail was not available to do an effective job
of contractor oversight.  Additionally, the WHC Manager
said that WHC was not required to identify the means by
which the PBI would be accomplished prior to task
implementation, and that there was no consideration given
to the possibility that the contractor may defer work on
some projects to receive incentive fees on others.  It
should be noted that PBI incentives did not cover the
entire work scope of the contractor in FY 1995.  As shown
in Appendix A, these incentives involved activities whose
total cost in FY 1995 was only $162 million compared with
the total $1.381 billion budgeted for the site in FY 1995.
 
     Contractor Capital Equipment Procurement
 
We could not identify a process that would allow DOE to be
aware of the capital equipment procured by the contractor
in order to complete a PBI objective.  During our review
of the contract files for the 34 PBIs established in FY
1995, we found no documentation which identified the
equipment purchases necessary for the contractor to
perform the PBI work.  We found that the contractor was
not required to inform DOE of the nature of any such
purchases.  For example, during an interview with a WHC
Principal Scientist, the Principal Scientist told the
Office of Inspections that in order to meet the
requirements of a PBI, additional chemical analysis
instruments had to be procured.  He said it was a policy
that DOE did not become involved in the procurement
authorization for equipment if the cost was less than $1
million.  He also said that as long as WHC stayed within
the annual budget for equipment procurement, DOE would be
unaware of equipment procured for a specific task.
 
     Contractor Use of Premium Pay or Overtime to Achieve
     a PBI Fee
     
During our inspection, we found that the Management and
Operating Contractor was not restrained from using premium
pay or overtime to achieve a PBI fee.  Specifically, the
PBI document did not contain any provisions or
restrictions on the use of premium pay or overtime.  In
addition, the M&O Contractor was not required to inform
DOE of the intended use of premium pay or overtime.  A
review of the FY 1995 PBIs by the Office of Inspections
found that many of the PBI "Basis for Measurement"
requirements stated that the contractor was required to
complete the task within a specified period of
performance, usually 30 days ahead of the scheduled
completion date.  Additionally, PBI documents usually
contained terms in the "Basis for Measurement" section
which provide that the contractor would be paid/penalized
a portion of the incentive fee for each day that the
contractor completed the PBI task prior to or after the
scheduled completion date.  The payment of incentive fees
under these conditions could encourage an inefficient and
unnecessary expenditure of DOE funds by the contractor in
premium pay for shift differentials or overtime to earn
the incentive fees.  Although we did not analyze overtime
records associated with work performed to accomplish PBI
objectives, we did note instances during our inspection
where overtime was used by the contractor in performing
PBI work.
 
Conclusions
 
We believe that, based on our discussions with the
Richland Operations Office and WHC personnel, there was no
system in place to identify the means by which the PBI
objectives would be achieved by the contractor or the
impact on other non-PBI activities resulting from PBI
implementation.  We also believe that the PBI Program at
Richland did not include a process under which DOE
Richland would be aware of capital equipment purchases or
the use of premium pay or overtime by the contractor to
achieve a PBI fee.  We believe that future contract
incentive programs at Richland need to require the
contractor to clearly describe the work to be performed;
the impact that the work will have on other non-PBI
activities which are not included under an incentive fee
arrangement; and, any significant purchases of capital
equipment or significant use of premium pay and overtime.
 
Recommendations
 
We recommend that the Manager, Richland Operations Office:
 
19.  Require the contractor to clearly describe the work
   to be performed, the impact that the work will have on
   other activities which are not included under an
   incentive fee arrangement, and any significant
   purchases of capital equipment or significant use of
   premium pay and overtime prior to initiating and paying
   a fee under a contract incentive.
 
Management Comments:
 
In comments to the Initial Draft Report, the Manager,
Richland Operations Office, concurred with Recommendation
19, stating that:
 
         "Recommendation 19:  RL will develop
procedures, guidelines, and additional training for
the initiation, administration, and payment of new
and current performance incentives.  The procedures,
guidelines, and training will incorporate the views
and recommendations expressed in this report and
incorporate lessons-learned from the previous
incentive fee programs, other RL reviews, and the
upcoming recommendations of the Fee Incentives and
Analysis Team."
 
                                                                                 
         FISCAL YEAR 1995 RICHLAND
             OPERATIONS OFFICE
             PERFORMANCE BASED
                INCENTIVES
                                                                            
  PBI                                
NUMBER          DESCRIPTION        
                                                     
                PBI       PBI       PROJECT      INCENTIVE     INCENTIVE
                ESTAB.    COMP.     COST FY95    AVAILABLE     EARNED
 
95-001  Defuel FFTF Reactor Vessel  
               1/27/95    4/19/95   $2,465,000    $500,000      $500,000
                                                          
95-002  Stabilize PFP Pu Sludge Items
               1/27/95    6/13/95   $1,732,000    $400,000      $400,000
                                                    
95-003  Reduce Lost Work Cases-WHC/BCSR     
               1/27/95   *9/30/95       **        $650,000      $399,411
                                     
95-004  Reduce Lost Work Days-WHC/BCSR      
               1/27/95   *9/30/95       **        $650,000      $628,654
                                             
95-005  Reduce Lost Work Cases-ICF-KH 
               1/27/95   *9/30/95       **        $600,000      $138,419
                                      
95-006  Reduce Lost Work Days-ICF-KH  
               1/27/95   *9/30/95       **        $600,000      $519,032
                                      
95-007  Reduce Rad. Contamination Areas  
               1/27/95    9/30/95       **        $500,000      $475,672
                                    
95-008  Personnel Contamination Events    
               1/27/95   *9/30/95       **        $500,000      ($84,942)
                                                 
95-009  200 Area Effluent Treatment Facility          
               1/27/95    11/9/95   $6,506,000  $1,000,000         $0
                                                                   
95-010  Tie-in to 200 Area TEDF     
               1/27/95   *5/26/95  $12,431,000    $700,000      $700,000
                                                            
95-011a Thermo. Trees & Temp Monitoring Sys.        
               1/27/95    8/25/95     $438,000    $225,000      $225,000
                                         
95-011b Study to Stabilize Tank C-103  
               1/27/95    3/10/95     $458,000    $225,000      $136,957
                                         
95-011c Alarm Panels in 7 Tank Farms     
               1/27/95     3/1/95        ***      $225,000      $225,000
                                         
95-011d Compressed Air Sys. in 10 Tank Farms   
               1/27/95     3/5/95   $1,573,000    $225,000      $185,870
                                                             
95-011e Characterize Remaining Suspect Tanks    
               1/27/95    5/31/95     $399,400    $225,000      $225,000
                                             
95-011f Complete Cooling Tests in Tank C-106  
               1/27/95    5/30/95     $451,000    $225,000      $225,000
                                         
95-011g Replace Vent Fan in SY Farm     
               1/27/95     7/6/95      $24,766    $225,000      $225,000
                                         
95-011h Install Gas Monitoring Equipment    
               1/27/95    3/25/95     $418,000    $225,000      $225,000
                                            
95-012  TWRS Sys. Def. Projects     
               1/27/95   Canceled        $0           $0           $0
                                            
95-013  Tank Waste Sludge Washing Reports  
               1/27/95    9/14/95   $8,716,000    $400,000      $400,000
                                                           
95-014  Phase 2 LLW Melter Vendor Test   
               1/27/95    6/13/95   $8,400,000    $600,000      $600,000
                                                           
95-015  Final High-Level Waste Melter Report     
               1/27/95    2/14/95   $2,526,000    $200,000      $200,000
                                                            
95-016-M1 LLW Performance Assess. Tech. Report            
               3/23/95     8/8/95   $1,369,000    $150,000      $150,000
                                                              
95-017-M1 Characterize 30 Tanks       
               8/14/95     8/9/95  $81,544,000  $1,000,000      $843,333
                                                             
95-018  TWRS Corrective Maintenance Backlog 
               1/27/95    8/23/95   $5,822,000    $500,000      $500,000
                                                           
95-019-M2 Commence Pumping Tanks      
                4/6/95    *8/5/95   $1,723,000    $450,000      $428,333
                                                            
95-020  Complete Waste Vol. Campaign 95-1        
               1/27/95    7/25/95   $2,696,000    $250,000      $250,000
                                                              
95-021-M1 Fabrication of Inter-Farm Piping  
               4/27/95    9/28/95     $842,000    $200,000      $200,000
                                              
95-022  242-S Evaporator Project    
               1/27/95    5/16/95     $811,000    $200,000      $200,000
                                        
95-023-M1 PUREX Nitric Acid to BNFL England   
               5/24/95    8/21/95   $2,984,000    $400,000      $400,000
                                                              
95-024  PUREX - Transfer of D5/E6 Solution   
               1/27/95    4/12/95      $30,000    $400,000      $400,000
                                             
95-025  BUSS Cask Shipments - Baseline      
               1/27/95    3/22/95   $1,596,000    $125,000      $125,000
                                                             
95-025  Complete BUSS Cask Shipments         
               1/27/95     6/2/95 incl/in/baselne $125,000      $125,000
       
95-026  Shutdown FFTF Group 1 Systems      
               1/27/95    5/19/95     $392,000    $300,000      $300,000
       
95-027  TWRS Screening Sample Turnaround      
               1/27/95    9/29/95   $8,691,000    $250,000      $250,000
     
95-028  Complete Environmental Reports     
               1/27/95   *9/18/95     $893,000    $120,000      $114,500
     
95-029  LABCORE LIMS Release 2.0    
               1/27/95    1/31/95   $1,815,500    $100,000      $100,000
                    
95-030  Project W-058               
               6/13/95    7/25/95     $130,328     $83,333       $83,333
                               
95-031-R2 Collect K-Basin Sludge Samples     
               8/28/95    9/14/95   $1,302,000     $67,000       $67,000
 
95-032-R2 Pump Tank 241-T-107         
               8/28/95    8/30/95     $127,000    $150,000      $150,000
 
95-033-R1 Submit Draft FY 1996 MYPP   
               8/29/95    8/31/95   $3,000,000     $50,000       $50,000
 
95-033-R1 Submit Final FY 1996 MYPP   
               8/29/95    9/18/95 incl/in/draft   $150,000      $150,000
 
95-034-R1 Issue DST Waste Consolidation Plan            
               8/29/95    8/30/95      $60,000     $50,000       $50,000
 
               TOTALS:            $162,365,994 $14,220,333   $11,485,572
                                            
                                                                                 
 Notes:  * This PBI consists of several Performance Objectives, the last      
           of which was completed on this date.
 
        ** PBI performance objective (project) cost data not available 
           for these safety programs.
 
       *** PBI performance objective (project) cost data not available.
           Richland indicated that cost was probably charged to a general                                  
           maintenance account.
     
                             
                  CUSTOMER RESPONSE FORM for Report #IG-0401
                             
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