Audit Report 

Management Controls over Small 

Business Opportunities at Oak Ridge 

National Laboratory

OAS-M-08-08 July 2008 

U.S. Department of Energy 

Office of Inspector General 

Office of Audit Services 
Department of Energy 

Washington, DC 20585 

July 2, 2008 

MEMORANDUM FOR TH~~~ANAGER, OAK RIDGE OFFICE 

FROM: 

- ~ssistan~~ns~ector General for NNSA and Energy Audits 

Office of Inspector General 

SUBJECT: INFORMATION: Audit Report on "Management Controls 

over Small Business Opportunities at Oak Ridge National 

Laboratory" 

BACKGROUND 

In 2002, the President stated in his Small Business Agenda that the Federal government 

should break out functions to contract with small businesses wherever practicable. In the 

Small Business Act, Congress also declared its support of small businesses. In support of 

the President's small business agenda and congressional direction, the Department of 

Energy (Department) established a policy for small businesses to receive the maximum 

practicable opportunity to participate as subcontractors. 

UT-Battelle, LLC, a limited liability company consisting of the University of Tennessee 

and Battelle, manages and operates the Oak Ridge National Laboratory (Laboratory) for 

the Department. In its contract with the Department, UT-Battelle agreed to award small 

business subcontracts to the fullest extent consistent with efficient contract performance. 

The contract also includes a Federal Acquisition Regulation requirement that small 

business concerns have the maximum practicable opportunity to participate in performing 

contracts led by any Federal agency. 

The Laboratory met or exceeded nearly all of its small business goals established by the 

Department for Fiscal Year (FY) 2007. Additionally, the Laboratory's support for small 

business was recognized by the Small Business Administration's Francis Perkins 

Vanguard Award for excellence in utilization of women-owned small businesses, as well 

as the Department's Federal Management Contractors Small Business Innovation Award 

in FY 2007. 

While the Department met or exceeded nearly all of its 2007 goals, we initiated this audit 

to determine whether there were additional opportunities in the Laboratory's internally 

performed functions for small business subcontracting. 

RESULTS OF AUDIT 

Although the Laboratory had contracted about 58 percent of its procurements to small 

businesses, we determined that there remained many internally performed functions that 

could be practicably and cost effectively subcontracted to small businesses. Specifically, 

the Laboratory was performing functions such as custodian services, landscaping, and 

industrial hygiene, when small businesses were available to provide these services. For 

@ Printed with soy ink on recycled paper 
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example, 60 percent of the Laboratory's landscaping work was performed by its 

employees, although there were nine landscaping small businesses within the 

Laboratory's labor market. Additionally, other Federal facilities with similar labor 

markets and/or requirements were using small businesses to perform these functions at 

equal to or reduced cost. 

The Oak Ridge Office did not require that the Laboratory consider further small business 

outsourcing opportunities because the Laboratory had achieved most of the goals set by 

the Department. Additionally, Oak Ridge Office managers stated that outsourcing to 

small business requires considerable effort and can be difficult. They stated that 

challenges such as negotiating with bargaining units can delay efforts to provide 

opportunities to small business. However, we noted that another Federal entity in the 

same geographic area has successfully provided opportunities to a small business that 

also has bargaining unit employees. We also noted that the Laboratory's procedures do 

not require program managers to consult with the Small Business Programs Manager 

until after they decide to outsource internally performed functions. As a result, 

Laboratory managers may not have all available knowledge about addressing the 

challenges to small business contracting including information about local small business 

capabilities and opportunities. 

By giving small business concerns the maximum opportunity to contract at the 

Laboratory, the Department has the opportunity to reduce costs, and ensure that the 

President's Small Business Agenda is fully implemented. We estimated expanding small 

business opportunities at the Laboratory could potentially save about $2 million per year 

for custodial, landscaping, and industrial hygiene services. We made recommendations 

to expand the Laboratory's small business opportunities. 

MANAGEMENT REACTION AND AUDITOR COMMENTS

Management concurred in principle with the recommendations. Management stated that 

it has a continuous review process to identify small business outsourcing opportunities. 

Management stated that our review provided only a limited view of the work currently 

performed in house in that outsourcing decisions must consider factors, other than 

financial implications, such as labor relations and safeguards and security. Management 

agreed to perform further analyses of the three areas mentioned in the report for potential 

outsourcing. In addition, the Laboratory will include the Small Business Programs 

Manager in the planning and decision making of contracting actions. 

Management's comments were responsive to our recommendations. We recognize that 

outsourcing decisions must consider factors other than the financial implications. 

Accordingly, we used benchmarks in our analysis that considered labor relations and 

safeguards and security. Additional analyses and reviews of internally performed 

functions will also benefit from management's inclusion of the Small Business Programs 

Manager in future contracting decisions. In our opinion, the Small Business Manager 

will ensure that the best small business knowledge is available to address functional 

manager's concerns regarding small business capabilities. Management's comments are 

included in Appendix 4. 
3

Attachment 

cc: Acting Deputy Secretary 

 Under Secretary of Energy 

 Under Secretary for Science 

 Chief of Staff 

 Director, Office of Economic Impact and Diversity 

 Team Leader, Audit Liaison Team, CF-1.2 
REPORT ON MANAGEMENT CONTROLS OVER SMALL BUSINESS 

OPPORTUNITIES AT OAK RIDGE NATIONAL LABORATORY 

TABLE OF 

CONTENTS 

 

Small Business Opportunities

Details of Finding ....................................................................................1 

Recommendations....................................................................................4 

Comments ................................................................................................5 

Appendices

 

1. Common Small Business Functions ...................................................6 

2. Prior Reports .......................................................................................7 

3. Objective, Scope, and Methodology...................................................8 

4. Management Comments .....................................................................10 
SMALL BUSINESS OPPORTUNITIES 

Page 1 Details of Finding 

Laboratory Small Although Oak Ridge National Laboratory (Laboratory) identified 

Business Practices functions from its procurement base that could be subcontracted 

to small businesses, we found additional opportunities in 

Laboratory performed functions for small business contracting. 

Specifically, Laboratory employees were performing functions that 

are commonly performed by small businesses even though there 

were local small businesses available to perform them. 

Additionally, other Federal facilities with similar labor markets 

and/or requirements were using small businesses to perform these 

functions at equal or reduced cost, further supporting that 

contracting with small businesses was practicable and cost 

effective. 

Laboratory Functions

We compiled a list of 82 commonly outsourced functions at the 

Department of Energy's (Department) laboratories and evaluated 

the Laboratory's usage of small business in performing these 

functions. We found that the Laboratory had subcontracted out 30 

of these functions to small businesses and that the Department's 

Oak Ridge Office had directly subcontracted another three of these 

functions as prime contracts. However, we found that the 

Laboratory had not contracted with small businesses but was using 

internal personnel for the remaining 49 functions. These 49 

functions represent the potential for up to $101 million annually in 

small business contracting opportunities. 

 

We determined that utilizing small business at Oak Ridge is 

practicable because there were local small businesses to perform 

many functions currently being performed internally by the 

Laboratory. We judgmentally selected 14 functions including 

custodial, landscaping, and industrial hygiene services for further 

review (See Appendix 1 for a list of the functions). Based on a 

review of the Federal Central Contractor Registration Database, 

which lists qualified small businesses by function, we identified 

small businesses locally available to the Laboratory for all 14 of 

the functions. For example, there were seven custodial small 

business concerns within 30 miles of the Laboratory. 

We also found that other Federal facilities in the same labor market 

with similar requirements as the Laboratory had successfully 

contracted the functions to small business concerns.
______________________________________________________________________________ 

Page 2 Details of Finding 

We benchmarked three of the functions with other local Federal 

entities to determine whether subcontracting them to small 

businesses was cost effective. As discussed below, the 

Department's East Tennessee Technology Park (ETTP), and the 

National Aeronautics and Space Administration's (NASA) George 

C. Marshall Space Flight Center (both within the Tennessee 

Valley), successfully subcontracted work to small businesses in the 

areas of custodial, landscaping, and industrial hygiene at labor 

rates less than currently paid by the Laboratory. 

Custodial

Although the Laboratory performed custodial services at a cost of 

$6 million each year, another Federal facility included in our 

review subcontracted this function to a small business at reduced 

costs. Specifically, NASA's Marshall Space Flight Center relied 

on a small business for its custodial services. Custodial services at 

this facility are provided by a small business with custodians who 

are represented by a collective bargaining unit. The custodial labor 

rates paid under the NASA small business contract were 

approximately 37 percent less than the labor rates for Laboratory 

employees. A potential savings of about $1.3 million per year 

could result if the Laboratory were to award a similar contract. 

Laboratory management expressed concern over the difficulty of 

subcontracting out functions that are performed by bargaining unit 

employees. Although we recognize that subcontracting such work 

requires significant effort, it would result in significant long term 

savings. Our NASA benchmark organization also utilized union 

employees. 

Landscaping

Laboratory employees provided 60 percent of the landscaping 

services at a budgeted cost of about $700,000 per year. In contrast, 

the NASA Marshall Space Flight Center used a small business for 

its grounds maintenance and landscaping services at a significantly 

lower cost. The landscaping labor rate paid under the NASA small 

business contract was approximately 51 percent less than the labor 

rate for Laboratory employees. Had a similar landscaping small 

business contract been in place at the Laboratory, the Department 

could saved about $178,000 annually. 
______________________________________________________________________________ 

______________________________________________________________________________ 

Page 3 Details of Finding 

Industrial Hygiene

Industrial hygiene functions performed by the Laboratory also 

offer an opportunity to obtain small business services at reduced 

costs. Currently, all of the industrial hygiene functions are 

performed by 34 Laboratory employees, including services such as 

work area hazard identification and sampling, occupational hazard 

training and personal protective equipment training. In contrast, 

ETTP, which is also located in Oak Ridge, requires the same 

industrial hygiene services and has successfully used small 

business professionals and technicians to perform this function. 

Based on a comparison of the labor rates and fringe benefits, we 

calculated that the Laboratory could potentially save $527,000 per 

year using a similar small business contracting method. 

Although Laboratory managers expressed concerns about potential 

turnover, loss of legacy knowledge, and loss of training 

investment, ETTP avoided these problems by transitioning its 

existing work force directly over to the small business. The ETTP 

Subcontracting Manager stated that employee turnover was not a 

problem over the last ten years of the small business subcontract. 

Outsourcing Analysis Although the Laboratory's contract states that it is to award 

Procedures small business subcontracts to the fullest extent consistent 

with efficient contract performance, the Oak Ridge Office had not 

required the Laboratory to explore further opportunities for small 

business contracting. Specifically, the Oak Ridge Office believed 

that the Laboratory had met its contract requirements because it 

had achieved most of the goals set by the Department. We noted, 

however, that the Office of Small and Disadvantage Business 

Utilization recommended in 2004 that Department entities study 

internally performed functions such as maintenance and 

occupational safety and health as opportunities for expanded small 

business contracting. 

Oak Ridge Office management also stated that outsourcing to 

small business requires considerable effort and can be difficult. 

They stated that challenges such as negotiating with unions, 

identifying and qualifying small businesses, and performing 

national defense impact assessments can delay efforts to provide 

opportunities to small business. They cited one example where it 

took the Oak Ridge Office over four years to outsource an 

information technology function previously performed by a 

Laboratory large business subcontractor. The Oak Ridge Office 

also stated that outsourcing decisions must consider management 

controls, safeguards and security, and continuity of operations. 
______________________________________________________________________________ 

Page 4 Recommendations 

Neither the Oak Ridge Office nor the Laboratory could provide 

documentation showing how such factors and options for dealing 

with them were addressed in making decisions about outsourcing 

internally performed functions. Further, we noted that Laboratory 

procedures do not require program managers to consult with the 

Laboratory's Small Business Programs Manager until after they 

decide to outsource internally performed functions. As a result, 

Laboratory managers may not have all available knowledge about 

addressing the challenges to small business contracting including 

information about local small business capabilities and 

opportunities. 

Finally, while outsourcing to small businesses can take significant 

up-front effort, the Laboratory has demonstrated previous success 

in this area. For example, we noted that the Laboratory initiated a 

$20 million cost reduction process in Fiscal Year 2001 that 

resulted in the outsourcing of three functions that significantly 

contributed toward the cost reduction effort. These functions 

included secretarial support, animal care, and cafeteria operations. 

Small Business Although Oak Ridge Office management emphasized that cost 

Outsourcing savings is not the primary purpose for outsourcing to small 

 businesses, the Laboratory could save millions of dollars that could 

 be directed to mission-related activities. In addition, it would 

 provide small businesses with up to $101 million per year in 

additional small business contracts. For custodial, landscaping, 

and industrial hygiene services discussed previously, we found that 

the Laboratory could save about $2 million per year if it offered 

small business contracting opportunities to the maximum extent 

practicable. Unless additional small business contracts that are 

both practical and cost effective are realized, the Department may 

miss opportunities to ensure that the President's Small Business 

Agenda is implemented. 

RECOMMENDATIONS We recommend that the Manager, Oak Ridge Office: 

1. Ensure that the Laboratory review internally performed 

functions, including those discussed in this report, to 

determine whether they offer additional small business 

contracting opportunities; and, 
______________________________________________________________________________ 

Page 5 Comments 

2. Direct the Laboratory to establish a policy to include the 

Small Business Programs Manager during the resource 

planning and outsource decision process. 

MANAGEMENT Management concurred in principle with the recommendations and 

REACTION agreed that it is important that small businesses be considered for 

areas to be contracted out. However, management expressed the 

view that outsourcing decisions must consider not only financial 

implications, but must also consider mission or other critical 

functions such as labor relations and safeguards and security. With 

reference to the specific recommendations included in the audit 

report, management agreed to perform further analyses to 

reconfirm whether its current labor efficiency rates exceed industry 

averages for the three areas mentioned in the report for potential 

outsourcing. In addition, management stated that the Laboratory 

will include the Small Business Programs Manager in the planning 

and decision making of contracting actions. 

AUDITOR Management's planned actions are responsive to our 

COMMENTS recommendations. Further, we recognize that outsourcing 

decisions must consider factors other than the financial 

implications. As such, we used benchmarks in our analysis that 

considered labor relations and safeguards and security. 

Management's comments are included in Appendix 4. 
Appendix 1 

Page 6 Common Small Business Functions 

COMMON SMALL BUSINESS FUNCTIONS

Listed below are the 14 Laboratory functions that we judgmentally selected from a multi-site list 

of 82 commonly performed functions. In each of these functions, Laboratory employees were 

performing the work, in full or a substantial portion of the workload, even though local small 

businesses were available. 

• Internal and External Mail Sorting/Delivery 

• Printing and Copying Services 

• Creative Arts 

• Media Services 

• Custodial Services 

• Landscaping Services 

• Building Maintenance 

• Vehicle Acquisition and Maintenance 

• Payroll 

• Industrial Hygiene (which also covers Laboratory functions such as Instrument and 

Respiratory Services, Chemical Analysis of Radioactive and Waste Samples, and, 

Dosimetry Function). 

• Fire Protection Engineering Services 

• Medical Services 

• Physical Therapy 

• Low-Level Software Development
Appendix 2 

Page 7 Prior Reports 

PRIOR REPORTS

Office of Inspector General Reports

• Management Controls over Small Business Opportunities at Lawrence Livermore National 

Laboratory (OAS-M-06-08, August 2006). This audit found that although Lawrence 

Livermore National Laboratory (Laboratory) contracted many existing large subcontracts to 

small businesses, it had not identified internally performed functions that could be 

subcontracted to small business even though it was practicable and cost effective to do so. 

Specifically, the Laboratory was performing functions, such as custodian services, 

landscaping and occupational medical services, despite the availability of local small 

businesses to provide these services. Additionally, other Federal facilities with similar labor 

markets and/or requirements were using small businesses to perform these functions at equal 

to or reduced cost. 

• The Department's Management and Operating Contractor Make-or Buy Program (DOE/IG0460, February 2000). This audit found that three of four contractors reviewed had either not 

included all functions in their make-or-buy plans or had not scheduled cost-benefit analysis 

for many outsourcing candidates. A cost savings of $5.3 million was estimated if cost 

benefit analyses were conducted. The report recommended that the Department of Energy 

(Department) develop guidance for evaluating and monitoring contractor functions and 

make-or-buy efforts. 

Government Accountability Office Report

• DOE Contracting: Improved Program Management Could Help Achieve Small Business 

Goal, (GAO-06-501) – Issued April 7, 2006. The Government Accountability Office found 

that the Department had some success in redirecting to small business portions of contracts to 

manage large Departmental facilities, as well as in securing additional small business prime 

contracting opportunities. However, the Department was unable to meet its small business 

prime contracting goal in four of the past five years because it had not defined the necessary 

concrete steps nor collected sufficient small business program information to achieve it's 

prime contracting goal. The report also stated that other Federal agencies with missions 

similar to the Department periodically evaluated their programs and made changes intended 

to improve performance. 
Appendix 3 

Page 8 Objective, Scope, and Methodology 

OBJECTIVE To determine whether there were opportunities in Oak Ridge 

 National Laboratory's internally performed functions for small 

 business subcontracting. 

SCOPE The audit was performed between July 30, 2007 and 

March 6, 2008. Audit work was primarily performed at the 

Department of Energy's Headquarters in Washington, D.C., and 

Oak Ridge National Laboratory in Oak Ridge, Tennessee. Work 

was also performed at the East Tennessee Technology Park, in Oak 

Ridge, Tennessee; and NASA Marshall Space Flight Center, in 

Huntsville, Alabama. 

METHODOLOGY To accomplish the audit objective, we: 

• Identified and selected 82 common small business functions for 

 review; 

• Benchmarked laboratory functions performed by Laboratory 

 employees against other Federal facilities' practices; 

• Analyzed key documents related to small business utilization at 

 the Laboratory and various Federal and Departmental sites; 

• Interviewed key Departmental Headquarters, Oak Ridge Site 

 Office, and Laboratory personnel;

• Examined prior Office of Inspector General and Government 

 Accountability Office reports; and, 

• Reviewed applicable Public Laws, other Departmental 

 guidance, related correspondence, and contracts. 

We conducted this performance audit in accordance with generally 

accepted Government auditing standards. Those standards require 

that we plan and perform the audit to obtain sufficient, appropriate 

evidence to provide a reasonable basis for our findings and 

conclusions based on our audit objectives. We believe that the 

evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. The audit included tests 

of internal controls and compliance with laws and regulations to 

the extent necessary to satisfy the audit objective. Because our 

review was limited, it would not necessarily have disclosed all 

internal control deficiencies that may have existed at the time of 

our audit. Also, we evaluated the Department's implementation of 

the Government Performance and Results Act of 1993 as they 

related to the audit objective. Our review found that the 

Department had established performance measures for utilizing 
Appendix 3 (Continued) 

Page 9 Objective, Scope, and Methodology 

small business. Finally, since we did not rely upon automated data 

processing information to accomplish our audit objective, we did 

not conduct an assessment of the reliability of computer processed 

data. Management waived an exit conference. 
Appendix 4 

Page 10 Management Comments 
Appendix 4 (Continued) 

Page 11 Management Comments 
Appendix 4 (Continued) 

Page 12 Management Comments 
IG Report No. OAS-M-08-08

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