AUDIT REPORT

Audit of NRC’s Management of 

Agreements with Department of

Energy Laboratories

OIG-10-A-12 April 23, 2010

All publicly available OIG reports (including this report) are accessible through

NRC’s Web site at: 

http:/www.nrc.gov/reading-rm/doc-collections/insp-gen/
UNITED STATES

NUCLEAR REGULATORY COMMISSION

WASHINGTON, D.C. 20555-0001

OFFICE OF THE

INSPECTOR GENERAL

April 23, 2010

MEMORANDUM TO: R. William Borchardt

Executive Director for Operations

FROM: Stephen D. Dingbaum /RA/

Assistant Inspector General for Audits

SUBJECT: AUDIT OF NRC’S MANAGEMENT OF AGREEMENTS 

WITH DEPARTMENT OF ENERGY LABORATORIES

(OIG-10-A-12)

Attached is the Office of the Inspector General’s (OIG) audit report titled, Audit of NRC’s

Management of Agreements With Department of Energy Laboratories.

The report presents the results of the subject audit. Agency comments provided at the 

March 12, 2010, exit conference have been incorporated, as appropriate, into this 

report.

Please provide information on actions taken or planned on each of the 

recommendations within 30 days of the date of this memorandum. Actions taken or 

planned are subject to OIG followup as stated in Management Directive 6.1.

We appreciate the cooperation extended to us by members of your staff during the 

audit. If you have any questions or comments about our report, please contact me at 

415-5915 or Kathleen Stetson, Team Leader, Financial and Administrative Audit Team, 

at 415-8175.

Attachment: As stated 
Electronic Distribution

Edwin M. Hackett, Executive Director, Advisory Committee on Reactor

 Safeguards

E. Roy Hawkens, Chief Administrative Judge, Atomic Safety and

 Licensing Board Panel

Stephen G. Burns, General Counsel

Brooke D. Poole, Jr., Director, Office of Commission Appellate Adjudication 

James E. Dyer, Chief Financial Officer

Margaret M. Doane, Director, Office of International Programs 

Rebecca L. Schmidt, Director, Office of Congressional Affairs

Eliot B. Brenner, Director, Office of Public Affairs

Annette Vietti-Cook, Secretary of the Commission

Bruce S. Mallett, Deputy Executive Director for Reactor 

 and Preparedness Programs, OEDO

Martin J. Virgilio, Deputy Executive Director for Materials, Waste, Research, 

 State, Tribal, and Compliance Programs, OEDO

Darren B. Ash, Deputy Executive Director for Corporate Management 

 and Chief Information Officer, OEDO 

Nader L. Mamish, Assistant for Operations, OEDO

Kathryn O. Greene, Director, Office of Administration

Patrick D. Howard, Director, Computer Security Officer

Roy P. Zimmerman, Director, Office of Enforcement

Charles L. Miller, Director, Office of Federal and State Materials 

 and Environmental Management Programs

Cheryl A. McCrary, Director, Office of Investigations 

Thomas M. Boyce, Director, Office of Information Services

James F. McDermott, Director, Office of Human Resources

Michael R. Johnson, Director, Office of New Reactors

Michael F. Weber, Director, Office of Nuclear Material Safety and Safeguards 

Eric J. Leeds, Director, Office of Nuclear Reactor Regulation 

Brian W. Sheron, Director, Office of Nuclear Regulatory Research

Corenthis B. Kelley, Director, Office of Small Business and Civil Rights 

James T. Wiggins, Director, Office of Nuclear Security and Incident Response 

Samuel J. Collins, Regional Administrator, Region I

Luis A. Reyes, Regional Administrator, Region II

Mark A. Satorius, Regional Administrator, Region III

Elmo E. Collins, Jr., Regional Administrator, Region IV
Audit of NRC’s Management of Agreements with Department of Energy Laboratories

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EXECUTIVE SUMMARY

BACKGROUND

The Energy Reorganization Act of 1974 authorized the Nuclear Regulatory 

Commission (NRC) to use the Department of Energy’s (DOE) research 

facilities and services to assist NRC in conducting its mission. In 1978, 

NRC and DOE executed a Memorandum of Understanding (MOU) that 

established the policy governing the relationship between NRC and DOE 

for NRC-funded research at DOE laboratories.

There are currently 17 DOE laboratories nationwide and all are managed 

and operated by non-Government entities under contract with DOE. As of 

July 13, 2009, NRC had 186 active agreements with DOE laboratories 

totaling approximately $365 million. 

NRC Management Directive (MD) 11.7, NRC Procedures for Placement 

and Monitoring of Work with the U.S. Department of Energy, specifies the 

interagency responsibilities, authorities, and procedures for placing and 

monitoring work at DOE laboratories. 

The Division of Contracts is responsible for oversight of NRC work placed 

with DOE labs, though responsibility for awarding, administering, and 

managing DOE lab agreements is decentralized at NRC. The various 

program offices handle and track their own lab agreements with little 

involvement by other NRC offices. 

Project managers manage the DOE lab agreements for their respective 

offices; this includes preparing the office’s justification for placing work 

with DOE laboratories. The Office of the General Counsel reviews, 

provides advice and counsel, and makes recommendations regarding 

organizational conflict of interest (OCOI) concerns. 

PURPOSE

The audit objective was to determine whether NRC has established and 

implemented an effective system of internal control over the placement 

and monitoring of work with DOE laboratories. Appendix A contains 

information on the audit scope and methodology.
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RESULTS IN BRIEF

NRC complies with its OCOI requirements prescribed by Section 170A of 

the Atomic Energy Act of 1954, as amended, and is consistent in 

assessing and resolving potential OCOIs prior to and after awarding work 

to a DOE lab.

OIG identified opportunities for program improvements in the following 

areas:

• Source selection justifications.

• Audit coverage.

• Delegation of authority.

Source Selection Justification 

MD 11.7 requires that project managers develop convincing justifications 

for using a DOE lab rather than a commercial source. However, 20 of 38 

lab agreement justifications reviewed by auditors did not effectively 

demonstrate why a DOE lab was preferred. Furthermore, 32 of the 

justifications lacked indication that commercial firm capabilities were 

assessed or considered as part of the decisionmaking process. 

Justifications were inadequate because (1) MD 11.7 guidance is unclear 

with regard to consideration of commercial sources, (2) offices typically do 

not include supporting background information and rationale in their DOE 

lab agreement files, and (3) NRC does not require independent review of 

all justifications by someone outside the originating office. Without 

adequately considering whether commercial firms can perform the work 

awarded to DOE labs, the agency cannot be certain that it is obtaining 

best value on these acquisitions.

Audit Coverage 

To ensure the propriety of payments to DOE laboratories, NRC should 

receive the results of audits performed on the laboratories. To date, NRC 

has not received results of audits of DOE labs because the MOU between 

DOE and NRC does not address audit coverage. Consequently, NRC 

lacks assurance regarding the propriety of amounts paid for work 

performed by DOE labs.

Delegation of Authority

The NRC is authorized to use DOE research facilities and services to 

assist NRC in conducting its mission. Currently, the Office of International 

Programs (OIP) is one of the NRC offices that avails itself of this overall 

authority. Office of Management and Budget Circular A-123 states that 
Audit of NRC’s Management of Agreements with Department of Energy Laboratories

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management must clearly define and appropriately delegate areas of 

authority and responsibility. Currently, OIP is operating without a signed 

delegation of authority to award and administer DOE lab agreements 

because MD 11.7 does not include OIP as having the authority. 

Consequently, the agency is not fully adhering to the delegation of 

authority requirements contained in MD 11.7, which creates the potential 

for ineffective management of certain agreements.

RECOMMENDATIONS

This report makes recommendations to improve the agency’s 

management of agreements with DOE laboratories. A consolidated list of 

these recommendations appears in Section V of this report.

AGENCY COMMENTS

At an exit conference on March 12, 2010, agency management stated

their agreement with the findings and recommendations in this report. 

Management also provided information that has been incorporated into

this report as appropriate.
Audit of NRC’s Management of Agreements with Department of Energy Laboratories

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ABBREVIATIONS AND ACRONYMS

DOE Department of Energy

DC Division of Contracts

FSME Office of Federal and State Materials and Environmental 

Management Programs

MD NRC Management Directive

MOU Memorandum of Understanding

NMSS Office of Nuclear Material Safety and Safeguards

NRC Nuclear Regulatory Commission

NRO Office of New Reactors

NRR Office of Nuclear Reactor Regulation

NSIR Office of Nuclear Security and Incident Response

OCOI Organizational Conflict of Interest

OIG Office of the Inspector General

OIP Office of International Programs

RES Office of Nuclear Regulatory Research
Audit of NRC’s Management of Agreements with Department of Energy Laboratories

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TABLE OF CONTENTS

EXECUTIVE SUMMARY ........................................................................ i

ABBREVIATIONS AND ACRONYMS................................................... iv

I. BACKGROUND..............................................................................1

II. PURPOSE......................................................................................4

III. FINDINGS ......................................................................................5

A. NRC ASSESSES AND RESOLVES POTENTIAL 

OCOIS FOR LAB AGREEMENTS .....................................5

B. SOURCE SELECTION JUSTIFICATIONS.........................7

C. AUDIT COVERAGE.........................................................13

D. DELEGATION OF AUTHORITY ......................................14

IV. AGENCY COMMENTS.................................................................16

V. CONSOLIDATED LIST OF RECOMMENDATIONS.....................17

APPENDICES

A. SCOPE AND METHODOLOGY................................................18

B. SOURCE JUSTIFICATION ANALYSIS.....................................20
Audit of NRC’s Management of Agreements with Department of Energy Laboratories

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I. BACKGROUND

The Energy Reorganization Act of 1974 authorized the Nuclear Regulatory 

Commission (NRC) to use the Department of Energy’s (DOE) research 

facilities and services to assist NRC in conducting its mission. In 1978, 

NRC and DOE executed a Memorandum of Understanding (MOU) that

established the policy governing the relationship between NRC and DOE 

for NRC-funded research at DOE laboratories. The MOU, last updated in 

1998, states that NRC may order and pay for services from DOE 

laboratories and includes an amended organizational conflict of interest 

(OCOI) provision. In this report, such arrangements are referred to as 

DOE lab agreements.

There are currently 17 DOE laboratories nationwide and all are managed 

and operated by non-Government entities under contract with DOE.

Management Directive 11.7

NRC Management Directive (MD) 11.7, NRC Procedures for Placement 

and Monitoring of Work with the U.S. Department of Energy, specifies the

interagency responsibilities, authorities, and procedures for placing and 

monitoring work at DOE laboratories. MD 11.7 objectives are to ensure

that:

• Procedures for negotiating and managing agreements with DOE 

are consistent with sound business practices and contracting 

principles.

• An agencywide standard of contract management is uniformly 

applied to projects placed with DOE.

 A framework exists for program management control, 

administration, monitoring, and closeout of projects placed with 

DOE.

As of July 13, 2009, NRC had 186 active agreements with DOE

laboratories totaling approximately $365 million. Table 1 presents a 

breakdown of the active agreements by office.
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Most of NRC’s DOE lab agreements are for work 5 years or less in 

duration (see Table 2). The longest agreement, an umbrella agreement 

with multiple task orders, has been active since 1997. Under that 

agreement, Pacific Northwest Laboratory performs environmental review 

and other activities for license renewal applications submitted to NRC. 

Table 2. Duration of Agreements

Agreement Length No. of Agreements

> 10 years 1

> 5 years, ≤ 10 years 20

>1 year, ≤ 5 years 158

≤ 1 year 7

Total 186

 1 See “Acronyms and Abbreviations” section of this report for full program office names.

Table 1. Distribution by Office

Program Office1 No. of Agreements Total Value

FSME 8 17,284,100

NMSS 4 9,172,000 

NRO 11 147,159,010 

NRR 31 28,317,500 

NSIR 10 9,408,999 

OIP 3 2,300,000 

RES 119 151,490,290 

Total 186 $365,131,899
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Managing DOE Lab Agreements

Responsibility for awarding, administering, and managing DOE lab 

agreements is decentralized at NRC. The various program offices handle 

and track their own lab agreements with little, if any, involvement by other 

NRC offices. Offices manage their agreements through a collaborative 

effort among project managers, associate competition advocates, 

technical assistant project managers, and office directors.

Project managers manage the DOE lab agreements for their respective 

offices. This includes preparing the office’s justification for placing work 

with DOE laboratories and providing oversight for technical and 

administrative aspects of the agreement, including the budget. Project 

managers maintain “agreement files” that contain relevant documentation

for each lab agreement. 

The associate competition advocate performs an independent review of 

both the project manager’s justification and the project statement of work

to determine whether the facts and rationale presented support the criteria 

for placement of work with DOE. Based on the review, the associate 

competition advocate recommends that the office director or designee 

approve or disapprove the proposed agreement.

Technical assistant project managers assist the project managers in 

administering agreements, and office directors are responsible for

ensuring that DOE laboratory projects are properly executed, monitored, 

and closed out.

Non-program office entities that are sometimes involved in the process 

include NRC’s Procurement Oversight Committee, the Office of the 

General Counsel, and the Division of Contracts (DC).

The Procurement Oversight Committee – composed of seven individuals 

representing the Offices of the Chief Financial Officer, Executive Director 

for Operations, General Counsel, and Administration – reviews proposed 

lab agreement projects exceeding $1 million to facilitate streamlining the 

Chairman review process.2

 2 A project or project modification with a value equal to or greater than $1 million, or a 

modification that will result in a project with a total value equal to or greater than 

$1 million, requires preparation of a Chairman paper. These papers are submitted to the 

Chairman for a written response, and the Chairman's written approval is required prior to 

initiating procurement action. The Chairman paper review process was directed by the 

Commission in 2005 to keep the Chairman informed of program activities supported 

through the use of procurements. To facilitate the process, the Procurement Oversight 

Committee reviews Chairman papers for all proposed procurements, including lab 

agreements. 

 
Audit of NRC’s Management of Agreements with Department of Energy Laboratories

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The Office of the General Counsel reviews, provides advice and counsel,

and makes recommendations regarding organizational conflict of interest 

(OCOI) concerns. An OCOI may occur when a laboratory or an operator 

of a DOE facility has past, present, or planned interests or work that either 

directly or indirectly relates to the proposed work to be performed under 

an NRC project. For example, if a laboratory or an operator of a

laboratory provides advice and recommendations to NRC in the same 

technical area where it is also providing consulting assistance to any 

organization regulated by NRC, this is a circumstance that may give rise 

to an OCOI. 

MD 11.7, states that DC is responsible for oversight of NRC work placed 

with DOE labs. As part of the oversight, DC conducts periodic reviews of 

selected agreement files maintained by project managers in the NRC 

program offices. In 2008, a DC contractor reviewed agreement files using 

a file review checklist from MD 11.7. The contractor reviewed 

80 agreement files and produced separate reports containing 

recommendations pertaining to information clarity, documentation

adequacy, and adherence to sound contract management practices for

each NRC program office. NRC’s DOE Users Group3 is responsible for 

resolution of the recommendations. 

II. PURPOSE

The audit objective was to determine whether NRC has established and 

implemented an effective system of internal control over the placement 

and monitoring of work with DOE laboratories. Appendix A contains 

information on the audit scope and methodology.

 3 The DOE Users Group consists of representatives from DC and the program offices that award and 

administer DOE lab agreements. The DOE Users Group was established to keep program offices 

informed of new issues and to assist the offices in sharing information. 
Audit of NRC’s Management of Agreements with Department of Energy Laboratories

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III. FINDINGS

NRC complies with its OCOI requirements prescribed by Section 170A of 

the Atomic Energy Act of 1954, as amended, and is consistent in 

assessing and resolving potential OCOIs prior to and after awarding work 

to a DOE lab.

OIG identified opportunities for program improvements in the following 

areas:

• Source selection justifications.

• Audit coverage.

• Delegation of authority.

Addressing these areas will improve the effectiveness of internal control 

over the award and administration of agreements with DOE laboratories.

A. NRC Assesses and Resolves Potential OCOIs for Lab Agreements

NRC complies with its OCOI requirements prescribed by Section 170A of 

the Atomic Energy Act of 1954, as amended, and is consistent in 

assessing and resolving potential OCOI issues relative to DOE lab 

agreements.

MD 11.7 requires that prior to awarding DOE lab work, NRC must 

determine whether an OCOI exists between a DOE laboratory and the 

NRC. To accomplish this, project managers must first identify, from the 

lab’s proposal and other information sources, whether the potential for an 

OCOI exists in conjunction with an NRC project placed at a DOE lab. If 

the project manager becomes aware of a potential conflict, the project 

manager is expected to discuss the matter with their managers, DC, and 

the Office of the General Counsel to determine steps to eliminate or 

mitigate the OCOI. If NRC determines that an OCOI cannot be mitigated, 

but the DOE lab is the only available source, the Executive Director for 

Operations may approve a waiver, prepared by the cognizant office, to 

allow the lab to perform the work.4

OIG auditors selected and reviewed a random sample of 37 agreement 

files (representing approximately 20 percent of the 186 NRC active 

agreements as of July 13, 2009), to determine:

 4 The Energy Policy Act of 2005 proposes that should a project reflecting extraordinary circumstances 

require placement at a DOE lab under circumstances where an OCOI cannot be mitigated, the project 

may be placed nonetheless at the lab, provided a determination of adequate justification is executed. 
Audit of NRC’s Management of Agreements with Department of Energy Laboratories

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(1) Whether the proposals addressed OCOI.

(2) If actual or potential OCOIs were resolved. 

Of the 37 files reviewed, 35 files (95 percent) indicated that OCOIs had 

been addressed.

5

 Of these 35 files, 6 files (16 percent) were identified as 

having a potential OCOI and the paperwork in the agreement folder 

identified that the project managers took the appropriate steps to resolve

the OCOI or obtain a waiver signed by the Executive Director for 

Operations. Of the six files identified as having a potential OCOI, three 

had a waiver.

 5 Of the 37 files reviews, 2 did not contain documentation indicating that OCOI was addressed. The first 

file contained template language found in MD 11.7, requesting the DOE laboratory to identify whether 

there is a conflict or not. However, there was no response from the lab documented in the file. The 

second file did not contain the DOE lab proposal, which would have addressed OCOI. Therefore,

auditors were unable to assess OCOI for this file.
Audit of NRC’s Management of Agreements with Department of Energy Laboratories

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B. Source Selection Justifications

MD 11.7 requires that project managers develop convincing justifications 

for using a DOE lab rather than a commercial source. However, 20 of 386

lab agreement justifications reviewed by auditors did not effectively 

demonstrate why a DOE lab was preferred. Furthermore, 32 of the 

justifications lacked indication that commercial firm capabilities were 

assessed or considered as part of the decisionmaking process. 

Justifications were inadequate because (1) MD 11.7 guidance is unclear 

with regard to consideration of commercial sources, (2) offices typically do 

not include supporting background information and rationale in their DOE 

lab agreement files, and (3) NRC does not require independent review of 

all justifications by someone outside the originating office. Without 

adequately considering whether commercial firms can perform the work 

awarded to DOE labs, the agency cannot be certain that it is obtaining 

best value on these acquisitions.

Criteria for Award to a DOE Lab

MD 11.7 requires offices to develop convincing justifications for using a 

DOE lab instead of a commercial firm to perform work for NRC. The MD 

directs project managers to prepare justifications that cite and support one 

or more of the following five criteria for using a DOE lab as opposed to a 

commercial source:

• “Unique technical disciplines or combinations of disciplines.” 

Only a laboratory possessing the unique technical capabilities or a 

unique combination of technical skills and highly specialized 

experience can undertake and successfully complete the project. 

 

• “Specialized facilities or equipment” may be required to complete 

the project.

• “Use of patents, copyrights, proprietary information, or secret 

processes.” Sometimes, one or a combination of these items is 

essential to the project and the requirement cannot be revised to 

permit competition and open disclosure in the commercial sector.

• “Accrued knowledge and equipment or facilities” may necessitate 

timely placement of work with DOE when another source cannot 

realistically perform the necessary work without expending significant 

time and effort to understand previous work and achieve results.

 6 The Office of the Inspector General (OIG) reviewed a random sample of 37 agreement files. One of the 

files contained two justifications, both of which OIG reviewed, for a total of 38 justifications reviewed. 
Audit of NRC’s Management of Agreements with Department of Energy Laboratories

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• “Urgent requirements” may necessitate immediate initiation of work 

under a project to fulfill the office mission.

Additionally, MD 11.7 requires that when reasonable doubt remains as to 

whether a commercial firm can perform the work, a “sources-sought 

announcement”

7

Inadequate Justifications and Documentation of Consideration of 

Commercial Sources

should be initiated. This requirement aligns with the 

prudent business practice of exploring all available options before making 

a purchase decision. 

More than half of the DOE lab agreement justifications reviewed did not 

effectively demonstrate why work was placed with DOE labs instead of a 

commercial firm. Furthermore, most of the justifications lacked indication 

that commercial firm capabilities were assessed or considered as part of 

the decisionmaking process.

Inadequate Justifications

Auditors reviewed 38 justifications for using a DOE lab. More than half of 

the justifications – 20 of 38 – were weak or inadequate and did not 

effectively demonstrate why a DOE lab was more qualified to perform the 

work than a commercial firm. In addition, the agreement files contained 

little indication that commercial sources had been considered. Some 

justifications stated that DOE labs had unique capabilities when it 

appeared that there was a strong likelihood that organizations other than 

DOE labs also had the capabilities to perform the work. For example, one 

justification stated that a particular DOE laboratory should receive an

award because the DOE lab has a radiologically protected hot shop and 

machining and metallurgical analysis capabilities.

8

 However, these 

capabilities exist in organizations other than DOE labs.

9

 

7 A sources-sought announcement is a tool for surveying the market to determine if there are potential 

contractors that can satisfy Government requirements. NRC publishes these announcements on 

FedBizOpps, a Web site that publicizes Federal Government procurement opportunities.

 Another 

justification for a non-competitive award to a DOE lab stated that the lab 

had the unique ability to perform a state-of-the-art survey in technology 

areas within the instrumentation and control discipline as well as identify

8 This work involved the metallurgical examination of a radioactive metallic specimen from a salvaged 

nuclear power plant reactor vessel head. Special facilities were needed due to the radioactivity of the 

head and to perform the metallurgical tests.

9 Organizations that have the capability to perform the analysis in this example include private research 

and development companies, non-profit research and development companies, and private sector 

companies.
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emerging technologies applicable to the nuclear industry when, in fact, 

many organizations could have performed the same tasks. Other 

justifications stated that the work should be awarded to a DOE lab 

because proprietary information was required to perform some of the 

work. However, auditors learned that companies routinely establish 

confidentiality agreements with other companies to allow them to release 

proprietary information to other companies without fear it will be 

improperly disclosed. 

Figure 1 illustrates which criteria NRC offices used (for the 38 justifications

reviewed) to justify selection of a DOE laboratory to perform work for the 

agency. In many cases, more than one criterion was used. The red bars 

reflect the number of times a criterion was used but did not, in OIG’s view, 

justify placement of the work with a DOE lab. The grey bars indicate the 

number of times a criterion was effective in justifying placement of work 

with a DOE lab.

Figure 1. Criteria for Placement of Work with DOE

0 2 4 6 8 10 12 14 16

Unique Technical Disciplines or Combinations of

Disciplines

Specialized Facilities or Equipment

Use of Patents, Copyrights, Proprietary Inofrmation, or

Secret Processes

Accrued Knowledge and Equipment or Facilities

Urgent Requirements

Weak or Inadequate Justifications

Well Supported Justifications

OIG interviewed executives of a private organization with capabilities to 

conduct research in engineering and physical sciences and presented 

18 categories of work that NRC has awarded to DOE laboratories based 

on “unique abilities” of the laboratories. The executives confidently 
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represented that their organization has the capability to perform the work 

in 12 of the 18 areas discussed. See Appendix B for a listing of the 

12 areas. OIG notes that the executives’ confidence does not prove that 

their organizations could fulfill NRC’s specific needs. It does, however,

indicate that other organizations warrant serious consideration as part of 

the decisionmaking process.

Consideration of Commercial Sources Inadequately Documented

Most of the justifications reviewed by OIG lacked documentation that NRC

considered capabilities of commercial firms. Specifically, during OIG’s

review of agreement files, auditors determined that 32 of the 37 files 

reviewed (86 percent) lacked documentation demonstrating why the 

agency selected a DOE laboratory over a commercial contractor. 

References to commercial organizations simply asserted, without analysis 

or other basis, that an entity other than a DOE lab would expend greater 

time and effort than the selected DOE lab. However, the files lacked

detailed documentation to indicate that commercial sources were 

considered or explored as a possible option.

Causes of Inadequate Justifications

Justifications were inadequate because (1) MD 11.7 guidance is unclear 

with regard to consideration of commercial sources, (2) office DOE lab 

agreement files typically do not include supporting background information 

and rationale, and (3) NRC does not require independent review of all 

justifications by someone outside the originating offices. 

Unclear Guidance 

Although MD 11.7 states that one of five criteria must be used to support 

choosing a DOE lab over a commercial source, the guidance does not 

specify what such support should include.

Last year, DC attempted to implement a sources-sought initiative to 

encourage consideration of commercial sources, but the effort has stalled. 

As part of this initiative, DC asked program offices to identify projects that 

would normally be awarded directly to DOE. DC’s plan was to assist 

program offices in preparing a sources-sought announcement to post on 

FedBizOpps to help ensure that offices obtained information on 

commercial options before choosing a DOE lab to perform the work. 

While many of the program offices have not actively participated in 

identifying work to initiate sources-sought notices, three offices have 

recently posted sources-sought announcements.
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Justifications Lack Supporting Background Information and 

Rationale

MD 11.7 specifically assigns responsibility for preparing and reviewing the 

justifications to the office project managers and associate competition 

advocates. The project managers are responsible for developing and 

writing the justification, and gathering the necessary supporting 

background information. The associate competition advocate is 

responsible for reviewing the project manager’s written justification to 

determine whether the facts and rationale presented by the project 

manager support the criteria for placement of work with DOE. Despite 

these requirements, offices typically do not include in their DOE lab 

agreement files supporting background information and rationale. Instead, 

in many cases there is simply a statement identifying one of the five 

criteria without any background information or rationale provided.

Not All Justifications Are Reviewed Outside Originating Office

NRC does not require all lab agreement justifications to be reviewed 

outside of the originating office. Only agreements that are greater than 

$1 million are reviewed by other NRC entities. As noted in the 

Background section of this report, the Procurement Oversight Committee

and DC review all proposed agreements exceeding $1 million as part of 

the Chairman Paper review process, but there is no similar, independent 

review of justifications for agreements below $1 million. 

Nearly 80 percent (146) of the 186 lab agreements active as of July 2009 

did not receive an independent review prior to award. OIG contends that 

an independent review for all agreements, including those costing less 

than $1 million, would help to ensure the appropriateness of placing work 

with a DOE lab.

NRC May Not Be Obtaining Best Value

The majority of work assigned to DOE laboratories results from a noncompetitive process, foregoing tools such as a sources-sought 

announcement to allow for a competitive bid process. Without a more 

thorough process that includes issuing a sources-sought announcement 

and independent review of justifications, NRC may be missing out on cost 

savings opportunities and may not be obtaining best value.
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Recommendations

OIG recommends that the Executive Director for Operations:

1. Revise MD 11.7 to require NRC offices to consider the use of 

commercial sources through market research (e.g., sources-sought 

announcements, procurement history, expert knowledge) as part of 

the decisionmaking process in choosing to use a lab, and fully 

document the results/conclusions in the agreement files.

2. Clarify MD 11.7 to emphasize the requirement to fully document the 

rationale and basis for using a DOE lab.

3. Revise MD 11.7 to require independent review of justifications by DC 

personnel to ensure that commercial sources were fully considered.

4. Issue interim guidance to address recommendations 1 - 3 pending 

revision of MD 11.7.

5. Direct DC to work with agency program and support offices to 

develop and implement milestones for more robust market research 

requirements prior to awarding DOE lab agreements.
Audit of NRC’s Management of Agreements with Department of Energy Laboratories

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C. Audit Coverage

To ensure the propriety of payments to DOE laboratories, NRC should 

receive the results of audits performed on the laboratories. To date, NRC 

has not received results of audits of DOE labs because the MOU between 

DOE and NRC does not address audit coverage. Consequently, NRC 

lacks assurance regarding the propriety of amounts paid for work 

performed by DOE labs.

The Cooperative Audit Strategy implemented by DOE OIG in 1992 

supports DOE’s Acquisition Guide that requires labs to maintain an 

internal audit function. DOE OIG, in turn, is required to provide guidance 

on the sufficiency of the design and operation of the internal audit 

activities. DOE OIG provides oversight of the DOE laboratories’ internal 

audit activities. 

OIG reviewed eight DOE OIG reports pertaining to DOE laboratories’

internal control structure and its impact on cost allowability. The eight 

reports covered various periods during FYs 2004 through 2007 and 

revealed a total of $11,149,31910 in questioned and unresolved costs. Of 

these costs, $2,719,875 has been recovered or resolved and $8,429,444 

remains outstanding. Some of these questioned and unresolved costs 

could be applicable to NRC agreements, which NRC could potentially 

recover.

NRC does not receive DOE lab audit results because the MOU between 

NRC and DOE, last updated in 1998, does not provide for this to occur. 

Without access to audit information, NRC cannot assure the propriety of 

amounts paid for work performed by the DOE laboratories. The lack of 

audit coverage limits NRC’s ability to effectively monitor and make 

decisions regarding agency funding of work at DOE labs. 

Recommendation

OIG recommends that the Executive Director for Operations:

6. Initiate efforts with the Department of Energy to update the MOU 

to provide NRC with timely audit reports.

 10 The portion of this total that pertains to NRC work is unclear based on the level of detail contained in 

the reports.
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D. Delegation of Authority

As previously indicated, the NRC is authorized to use DOE research 

facilities and services to assist NRC in conducting its mission. Currently,

the Office of International Programs (OIP) is one of the NRC offices that 

avails itself of this overall authority. OMB Circular A-123 states that 

management must clearly define and appropriately delegate areas of 

authority and responsibility. Currently, OIP is operating without a signed

delegation of authority11 to award and administer DOE lab agreements 

because MD 11.7 does not include OIP as having the authority. 

Consequently, the agency is not fully adhering to the delegation of 

authority requirements contained in MD 11.7, which creates the potential 

for ineffective management of certain agreements.

OIP has been awarding and managing DOE lab agreements for the past 

15 years; prior to 2007, the office had the appropriate delegation of 

authority to do so based on wording in the then-current version of 

MD 11.7. That version of MD 11.7 generally delegated to all NRC office 

directors, regional administrators, and their designees the authority to 

enter into such agreements. However, in March 2007, NRC issued a 

revised MD 11.7, which did not provide for a general delegation of this 

function, but instead listed specific offices to which the function was 

delegated. OIP was not included in the list; however, the revised MD 11.7 

states that other specific delegations may be issued at the discretion of 

the Chairman and the Executive Director for Operations.

OIP managers recognized this change, and in March 2008 contacted the 

previous Chairman’s office to point out the omission and request that a 

delegation of authority be granted to them. A member of the thenChairman’s staff responded to OIP that the revised MD did not limit an 

office’s authority if the office had already placed work with DOE labs and 

informed the office that a signed delegation of authority was not needed. 

Consequently, a delegation of authority was never signed.

OIG contends that to avoid confusion and achieve full compliance with the 

MD, a written delegation of authority is necessary. Without agency staff 

successfully following all agency guidance, the NRC cannot be assured 

that all offices are taking appropriate and consistent actions with regard to 

the administration of agreements. Potentially, this could lead to 

inconsistencies and confusion among staff.

 11 A delegation of authority gives authority to offices to award, extend, modify, and terminate DOE 

laboratory agreements. 
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Recommendation

OIG recommends that the Chairman:

7. Issue a delegation of authority to OIP to award, extend, modify, 

and terminate DOE lab agreements.
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IV. AGENCY COMMENTS

At an exit conference on March 12, 2010, agency management stated 

their agreement with the findings and recommendations in this report. 

Management also provided information that has been incorporated into 

this report as appropriate.
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V. CONSOLIDATED LIST OF RECOMMENDATIONS

OIG recommends that the Executive Director for Operations:

1. Revise MD 11.7 to require NRC offices to consider the use of 

commercial sources through market research (e.g., sources-sought 

announcements, procurement history, expert knowledge) as part of 

the decisionmaking process in choosing to use a lab, and fully 

document the results/conclusions in the agreement files.

2. Clarify MD 11.7 to emphasize the requirement to fully document the 

rationale and basis for using a DOE lab. 

3. Revise MD 11.7 to require independent review of justifications by 

DC personnel to ensure that commercial sources were fully 

considered.

4. Issue interim guidance to address recommendations 1 through 3 

pending revision of MD 11.7.

5. Direct DC to work with agency program and support offices to 

develop and implement milestones for more robust market research 

requirements prior to awarding DOE lab agreements. 

6. Initiate efforts with the Department of Energy to update the MOU to 

provide NRC with timely audit reports. 

OIG recommends that the Chairman:

7. Issue a delegation of authority to OIP to award, extend, modify, and 

terminate DOE lab agreements.
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Appendix A

SCOPE AND METHODOLOGY

Auditors evaluated NRC’s management of agreements with the DOE 

laboratories to determine whether NRC has established and implemented 

an effective system of internal control over the placement and monitoring 

of work with DOE.

The audit team reviewed the following documents and others to identify 

criteria for managing DOE lab agreements: 

• Management Directive (MD) 11.7, NRC Procedures for Placement 

and Monitoring of Work With the U.S. Department of Energy (DOE),

March 2, 2007. 

• The Energy Reorganization Act of 1974, NUREG-0980, Volume 1, 

No. 6.

• The 1998 Memorandum of Understanding between NRC and DOE 

governing NRC funded work performed at the DOE Laboratories. 

Auditors conducted interviews with NRC staff and managers from DC,

OIP, the Office of the General Counsel, the Office of Nuclear Security and 

Incident Response, the Office of Federal and State Materials and 

Environmental Management Programs, the Office of Nuclear Regulatory 

Research, the Office of New Reactors, the Office of Nuclear Material 

Safety and Safeguards, and the Office of Nuclear Reactor Regulation. 

Auditors also interviewed the DOE Office of the Assistant Inspector 

General for Audit Services to determine audit coverage of DOE 

laboratories.

Auditors reviewed a random sample of agency agreement files 

representing 20 percent of active agreements as of July 13, 2009, for 

compliance with applicable requirements. 

This audit did not cover the closeout of DOE lab agreements; this area will 

be addressed in an audit planned for initiation during FY 2010.

This work was conducted from March 2009 through December 2009 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 
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conclusions based on our audit objectives. The work was conducted at 

NRC headquarters in Rockville, MD, by Steven Zane, Team Leader; 

Kathleen Stetson, Audit Manager; Kevin Nietmann, Technical Advisor; 

Andrea Ferkile, Analyst; and Jason Brodsky, Summer Intern.
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Appendix B

SOURCE JUSTIFICATION ANALYSIS

OIG audit team members interviewed executives of an organization that appeared to have the capability to 

perform work similar to that reviewed in the lab agreement justifications for non-competitive work awards to 

DOE laboratories described in the “Inadequate Justifications" section of this audit report. OIG reviewed 

18 different types of work with the executives. The executives had responsibility for those divisions of their 

organization that would perform the work disciplines reviewed. OIG asked them if they felt their organization 

had the facilities, experience, and expertise to perform the work. OIG found that the executives expressed 

confidence that they could perform the work successfully in 12 of the 18 work areas. The 12 work areas and 

the executives’ comments are listed below.

Work Area Executives’ Comments

Examination of nozzles and J groove welds 

(destructive and nondestructive examination (NDE)) of 

salvaged reactor vessel head sections to better 

characterize cracking.

Have broad NDE expertise and have done preand in-service reactor pressure vessel 

inspection for critical welds.

Time Domain Soil-Structure-Interaction Modeling. Have done such work for a private spent fuel 

storage facility and NRC.

Evaluation of severe accident mitigation effectiveness. Have technical expertise to do this work.

Probabilistic Risk Assessment (PRA), dose, and risk 

calculations for radiation from low level waste.

Have done lots of PRA dose calculation work. 

Survey of state of the art technology in the

instrumentation and control (I&C) field.

Have done analog and digital work in the I&C 

field.

Validate residual weld stress models for stress 

corrosion cracking flaw evaluation in pressurizer nozzle 

dissimilar metal butt welds.

This was an area of strength and they could do 

this kind of work.

Input Equipment Performance and Information 

Exchange data into the Reactor Operating Experience 

Database (RxOpED) and maintain the RxOpED.

Have a division that works on databases and 

that they could not only do the work, but 

probably improve the input and output code.
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Thermal and structural analysis of spent fuel storage

(SFS) and transportation casks using COBRA SFS 

code.

A "strong yes."

Provide technical support for NRC to advise the 

Department of Transportation on international 

transportation of radioactive materials.

Have done lots of calculations for radioactive 

material transport, domestic and international.

Technical support of new reactor design certification. Yes, they could do this work.

Maintain Nuclear Power Plant effluent database per 

reporting requirements in Regulatory Guide 1.21.

Could do this database work and also have the 

ability to do effluent plume modeling.

Develop annual report to Congress on statistically 

adverse trends.

Yes, could do this work.