United States General Accounting Office

GAO Fact Sheet for the Subcommittee on

Oversight of Government Management

and the District of Columbia, Committee

on Governmental Affairs, U.S. Senate

December 1995 FEDERAL RESEARCH

Information on Fees

for Selected Federally

Funded Research and

Development Centers

GAO/RCED-96-31FS

GAO United States

General Accounting Office

Washington, D.C. 20548

Resources, Community, and

Economic Development Division

B-270271 

December 8, 1995

The Honorable William S. Cohen

Chairman

The Honorable Carl Levin

Ranking Minority Member

Subcommittee on Oversight

 of Government Management and the

 District of Columbia

Committee on Governmental Affairs

United States Senate

In July 1992, your Subcommittee reported that there were variations in

(1) the fees paid by sponsoring federal agencies for the management of the

Federally Funded Research and Development Centers, (2) the formulas

used to calculate the fees, and (3) the justifications for paying the fees

provided by the sponsoring federal agencies. Your Subcommittee also

reported that there were no governmentwide guidelines for setting the

fees, making it difficult to evaluate their reasonableness.

This report responds to your June 1995 request for current information on

federal policies and practices concerning the fees paid by the Department

of Energy, the Department of Defense, and the National Aeronautics and

Space Administration (NASA) for managing the Centers. We identified

(1) the extent to which the three agencies have regulations governing

these fees; (2) the annual amounts and purposes of the fees provided by

Energy, Defense, and NASA during fiscal year 1994; (3) the uses made by

Energy’s contractors of their total funds during fiscal year 1994; and

(4) the effect of Energy’s February 1994 contract reforms on the fees for

the Department’s Centers.

The Centers first came into existence during World War II to meet special

research needs that federal and private-sector facilities were unable to

provide. They are sponsored under a broad charter by a government

agency or agencies and receive 70 percent or more of their financial

support from the government. Currently, 39 Centers are sponsored by

eight federal agencies—Energy sponsors 18, Defense sponsors 11, and

NASA sponsors 1. The Centers are operated by educational institutions,

nonprofit organizations, and industrial firms. Within Energy, these

organizations may operate and manage a larger facility that includes a

Center.

Page 1 GAO/RCED-96-31FS Federal Research
B-270271 

In summary:

• Of the three agencies—Energy, Defense, and NASA—only Defense has

specific regulations for its Centers’ fees. Energy uses its regulations

covering the development of fees for the contractors that manage and

operate its facilities. These regulations differ from Defense’s. NASA uses the

general federal and NASA regulations that apply to its other contracts.

• Fees totaling $185.2 million were paid in fiscal year 1994 to Centers funded

by Energy, Defense, and NASA. Energy paid about $122.8 million; Defense,

about $45.9 million; and NASA, about $16.5 million. The purposes of the fees

varied by agency and by contract. Energy provided fees to compensate

contractors for a variety of overhead costs, fund contract performance

awards, and provide incentives. The fees for Defense’s Centers were used

for corporate research, capital equipment and facilities, working capital

requirements, contingencies, and unreimbursed costs. The fee for NASA’s

single Center was for a contract performance award.

• All of Energy’s Centers are operated under management and operating

contracts. In all but three cases, the contractors’ work covered more than

research and development. For example, during fiscal year 1994, nearly

100 percent of the funds for the Fermi National Accelerator Laboratory

were used for research and development activities, while only about

3 percent of the funds used to operate the Savannah River Laboratory and

Plant—which includes the Savannah River Technical Center—were used

for research and development.

• Under Energy’s 1994 contract reforms, revised contracts include objective

measures of performance. However, not all of the revised contracts link

earning the fee to the contractor’s performance. For example, the contract

for the Continuous Electron Beam Accelerator Facility contains pages of

performance criteria and measures but does not make Energy’s payment

of the fee dependent on the contractor’s meeting the criteria and

measures.

Section 1 describes the regulations covering the development of fees for

Energy’s, Defense’s, and NASA’s Centers. Section 2 identifies the amounts

and purposes of the fees paid by the three agencies during fiscal year 1994.

Section 3 identifies the uses made by Energy’s management and operating

contractors of their funds during fiscal year 1994. Section 4 compares the

fee structure for the contracts revised under Energy’s contract reforms to

the fee structure for the Department’s preceding contracts.

Page 2 GAO/RCED-96-31FS Federal Research
B-270271 

Agency Comments

and Our Evaluation

We transmitted a draft of this report to the Secretaries of Defense and

Energy and the Administrator of NASA for review and comment. The

Defense liaison told us that the Department did not find it necessary to

provide written comments or to hold a meeting to discuss the report. The

liaison did offer some technical comments that have been incorporated

into the report. Energy’s and NASA’s comments and our responses to them

appear in appendixes I and II. Energy clarified its position and provided

technical corrections. NASA indicated that the report accurately portrayed

the amount and purpose of the fee it had paid for its Center. In addition,

NASA clarified that it had formally approved a deviation of policy to

authorize the payment of this fee.

Scope and

Methodology

To develop information on the regulations governing the Centers’ fees, we

reviewed federal, Energy, Defense, and NASA regulations; identified any

specifically applicable to the Centers’ fees; and analyzed their

requirements.

To determine the amounts and intended purposes of the fees for Energy’s

and NASA’s Centers, we obtained and reviewed contracts, records of

contract negotiations, award-fee plans, or award-fee evaluation reports for

all of the fiscal year 1994 fees identified by the agencies. To determine the

amounts and actual uses of the fees for Defense’s Centers, we obtained

information for fiscal year 1994 compiled by Defense staff for the

Department’s 1995 report entitled Comprehensive Review of the

Department of Defense’s Fee Granting Process for Federally Funded

Research & Development Centers.

To determine how Energy’s contractors used their total funds during fiscal

year 1994, we obtained information from Energy’s financial information

system. To determine the amount spent on research and development, we

first identified Energy’s broad budget categories for research and

development and then identified the funds used for other efforts that

appeared to be related to research and development, such as technology

transfer activities.

To determine the effect of Energy’s 1994 contract reforms on the fees for

the Department’s Centers, we reviewed all contracts for Centers that had

been revised under the reforms at the time of our review and compared

them to the contracts they had replaced.

Page 3 GAO/RCED-96-31FS Federal Research
B-270271 

We conducted our review from July 1995 through October 1995 in

accordance with generally accepted government auditing standards.

As arranged with your offices, unless you announce its contents earlier,

we plan no further distribution of this report until 30 days after the date of

this letter. At that time, we will send copies to the Secretaries of Energy

and Defense and the Administrator of NASA. We will make copies available

to others upon request.

Please contact me on (202) 512-6543 if you or your staff have any

questions. Major contributors to this report are listed in appendix III.

Bernice Steinhardt

Associate Director, Energy and

 Science Issues

Page 4 GAO/RCED-96-31FS Federal Research
Page 5 GAO/RCED-96-31FS Federal Research
Contents

Letter 1

Section I 

Comparison of

FFRDC Fee

Regulations

8

Federal FFRDC Fee Regulations 8

DOE’s Regulation Used for FFRDC Fees 8

DOD’s FFRDC Fee Regulation 9

NASA’s Fee Regulation 10

Section 2 

Amounts and

Purposes of Fees Paid

to FFRDCs

12

Section 3 

Use of Funds During

Fiscal Year 1994 by

DOE’s FFRDC

Contractors

17

Section 4 

Effect of DOE’s

Contract Reform on

Fees

19

Appendix I 

Comments From the

Department of Energy

22

Page 6 GAO/RCED-96-31FS Federal Research
Contents

Appendix II 

Comments From the

National Aeronautics

and Space

Administration

26

Appendix III 

Major Contributors to

This Report

28

Tables Table 2.1: DOE’s FFRDCs—Purposes of Fees, Annual Costs, and

Amounts of Fees, Fiscal Year 1994

13

Table 2.2: DOD’s FFRDCs—Purposes of Fees, Annual Costs, and

Amounts of Fees, Fiscal Year 1994

15

Table 2.3: NASA’s FFRDC—Purpose of Fee, Annual Costs, and

Amount of Fee, Fiscal Year 1994

16

Table 3.1: Proportion of Management and Operating Contractors’

Total Costs Spent for Research and Development, Fiscal Year

1994

18

Table 4.1: Improvements Anticipated Under Performance-Based

Management Contracts

19

Table 4.2: Purposes of Fees or Management Allowances Under

Revised and Previous Contracts

20

Abbreviations

DOD Department of Defense

DOE Department of Energy

GAO General Accounting Office

NASA National Aeronautics and Space Administration

FFRDC Federally Funded Research and Development Center

Page 7 GAO/RCED-96-31FS Federal Research
Section I 

Comparison of FFRDC Fee Regulations

There are no governmentwide regulations to guide contracting officers in

developing fees specifically for Federally Funded Research and

Development Centers (FFRDC). Of the Department of Energy (DOE), the

Department of Defense (DOD), and the National Aeronautics and Space

Administration (NASA), only DOD has specific agency regulations for

developing FFRDC fees. DOE uses its management and operating contract

regulations for developing fees because all of its FFRDCs are operated by

management and operating contractors. NASA, with one FFRDC, uses the

general federal and NASA procurement regulations to develop its single

FFRDC fee.

Federal FFRDC Fee

Regulations

Governmentwide policy for establishing, using, periodically reviewing, and

terminating sponsorship of FFRDCs is included in the Federal Acquisition

Regulation, which is the governmentwide procurement regulation, and a

1984 Office of Federal Procurement Policy letter. Although the regulation

and the letter explain that the relationship between an FFRDC and its

sponsoring agency or agencies may be outlined in a sponsoring agreement,

contract, or other legal instrument, neither the regulation nor the letter

states how the FFRDC fee is to be developed by the sponsoring agency.

Furthermore, according to a Deputy Associate Administrator in the Office

of Federal Procurement Policy who deals with FFRDC issues, the Office is

waiting to review changes in procurement regulations proposed by DOE

and DOD before deciding on any further governmentwide guidance on

FFRDC fees.

DOE’s Regulation

Used for FFRDC Fees

Although DOE does not have specific regulations for developing FFRDC fees,

it uses its regulation for developing management and operating contract

fees because all of its FFRDCs are operated by management and operating

contractors. DOE’s regulation recognizes that the fees compensate

management and operating contractors for organizing and managing

resources, using their own resources, and assuming the risk that all

incurred costs may not be reimbursable. Under DOE’s management and

operating contract fee regulation, educational institutions are treated

differently from other organizations.

According to DOE’s regulation, the Department’s policy is generally not to

pay a fee to an educational institution for managing and operating a

facility. However, under special circumstances, a management allowance

Page 8 GAO/RCED-96-31FS Federal Research
Section I 

Comparison of FFRDC Fee Regulations

may be paid.1 The regulation does not explain how a management

allowance should be developed.

DOE’s regulation provides direction for developing fees for noneducational

organizations. Fees are developed through a structured approach that

includes evaluating and weighting significant factors, calculating a

contractor’s costs (referred to as a “fee base”), and using tables (called fee

schedules) showing the maximum allowable fees for production and/or

research and development. In developing a fee to use during negotiations

with a contractor, a contracting officer

• may consider 11 different factors listed in the regulation (such as the

management risk, the financial risk, the difficulty of the work, the use of

the contractor’s resources, and the project’s duration);

• develops the fee base (an estimate of the allowable costs needed to do the

contract work, excluding any costs whose magnitude or nature would

distort the technical and management effort actually required of the

contractor); and

• identifies the maximum allowable fee for the fee base from the

regulation’s schedules for production and/or research and development.

DOE also uses an award fee to encourage superior performance from its

contractors. To calculate an award fee, which includes a base fee and an

award, the contracting officer uses the previously calculated maximum

allowable fee as the base fee and multiplies it by 100 to 200 percent,

depending on the type of work and the risks of operating the facility, to

obtain the award fee. The maximum allowable fee and the award fee are

then used by the contracting officer as a negotiating position.

As a general policy, DOE pays fees to the nonprofit organizations that

manage its facilities. DOE’s regulation states that the maximum allowable

fee from the fee schedules should be reduced by at least 25 percent to take

into account the tax benefits of nonprofit organizations. However, the

regulation notes that, depending upon the circumstance and with

appropriate justification, the amount of the fee may vary from the reduced

amount to the maximum amount allowed under the fee schedule.

DOD’s FFRDC Fee

Regulation

All of DOD’s FFRDCs are operated by nonprofit organizations, and DOD’s

procurement regulation provides specific direction for developing FFRDC

1

Although not defined in DOE’s procurement regulation, management allowances are, in practice, paid

for certain costs expected to be incurred by the contractor or its parent organization.

Page 9 GAO/RCED-96-31FS Federal Research
Section I 

Comparison of FFRDC Fee Regulations

fees for nonprofit organizations, including educational institutions. DOD

defines a nonprofit organization as a business entity (1) that operates

exclusively for charitable, scientific, or educational purposes; (2) whose

earnings do not benefit any private shareholder or individual; (3) whose

activities do not involve influencing legislation or political campaigning;

and (4) that is exempt from federal income taxation.

DOD’s procurement regulation specifies that, in developing a fee for a

nonprofit organization operating an FFRDC for DOD, the contracting officer

should consider first whether any fee is appropriate. In making this

determination, the contracting officer is to consider the proportion of the

FFRDC’s retained earnings relating to DOD’s contracted effort; the facility’s

capital acquisition plans; the working capital funding as assessed on the

cash needs for the operating cycle; contingency funding; and

unreimbursed costs deemed ordinary and necessary to the FFRDC. The

contracting officer is then to use a structured approach, called the

modified weighted guidelines procedure, to develop DOD’s fee for

negotiations.

Under DOD’s modified weighted guidelines, a contracting officer develops a

fee by focusing on three factors—performance risk, risk due to type of

contract (i.e., fixed price or cost), and the facility’s capital (land, buildings,

and equipment) to be employed. DOD has found that, in actual practice,

when its use of the modified weighted guidelines produces a higher fee

than the fee requested by an FFRDC, the fee requested by the FFRDC

generally becomes DOD’s fee for use during contract negotiations.

In May 1995, a DOD task force studied DOD’s process for developing FFRDC

fees and recommended changes to DOD’s regulation. Among other things,

the task force recommended (1) requiring contracting officers to base

FFRDC fees on their assessment of whether an FFRDC should receive a fee

and (2) changing the weighted guidelines procedure. However, DOD

officials responsible for FFRDC oversight told us that actions to respond to

the task force’s recommendations have not been completed.

NASA’s Fee Regulation NASA has no FFRDC fee policy that covers its one FFRDC. However, NASA uses

the Federal Acquisition Regulation and its own procurement regulation to

develop the fee for its contract. Both the federal regulation and the

agency’s regulation authorize deviations from established policy to meet

specific needs and requirements. Although NASA’s regulation states that the

agency’s policy is not to pay a profit or a fee to an educational institution,

Page 10 GAO/RCED-96-31FS Federal Research
Section I 

Comparison of FFRDC Fee Regulations

the contracting officer for NASA’s FFRDC contract requested and was

granted a deviation from NASA’s regulation to provide a fee to the

educational institution managing its FFRDC.

Page 11 GAO/RCED-96-31FS Federal Research
Section 2 

Amounts and Purposes of Fees Paid to

FFRDCs

FFRDC contractors funded by DOE, DOD, and NASA were paid about

$185.2 million in fees and management allowances in fiscal year 1994. DOE

paid about $122.8 million; DOD, about $45.9 million; and NASA, about

$16.5 million in fiscal year 1994, the latest year for which data were

available. Fees and allowances were paid to the different categories of

FFRDC operators—educational institutions, nonprofit organizations, and

industrial organizations. Although DOE’s policy is generally not to pay fees

to educational institutions, 9 out of 11 such institutions received a fee or

management allowance. NASA, with a similar policy, authorized a deviation

from its procurement regulation to pay a fee to the educational institution

managing its sole FFRDC. Conversely, DOD paid no fees to two educational

institutions operating two of its FFRDCs. All of the industrial contractors

and all but one nonprofit contractor received fees.

As noted in section 1, the regulations DOE and DOD use in developing the

fees for their FFRDCs consider the use an FFRDC contractor makes of its own

resources. In general, DOE’s FFRDCs use the government’s facilities, while

DOD’s FFRDCs use their own facilities to perform their contract work. These

practices may affect the amounts of the fees and their uses. Although NASA

also considers the use a contractor makes of its own resources, this

approach is not required in developing the award fee for NASA’s FFRDC.

DOE, DOD, and NASA paid fees to FFRDCs for different purposes. DOE’s fees

covered a variety of overhead costs, contract performance awards, and

incentives, as well as recognized financial risks assumed by the

contractors. All of DOD’s fees were for corporate-sponsored research,

capital acquisition, working capital, contingencies, interest, or other

unreimbursed costs. NASA’s one FFRDC fee was for a performance award for

achieving mission objectives and other accomplishments.

For each of DOE’s FFRDCs, table 2.1 lists the contractor, by type; indicates

whether a fee or management allowance was paid and for what purpose;

and identifies the contractor’s annual costs and the amount of the fee for

fiscal year 1994. Table 2.2 lists the same information for each of DOD’s

FFRDCs, and table 2.3 lists this information for NASA’s FFRDC. It should be

noted that, for each contractor, (1) the tables for DOE and NASA show the

intended purpose of the fee set by the contracting officer and the

contractor and (2) the table for DOD shows the actual use of the fee made

by the FFRDC. For DOE and NASA, we obtained the intended purpose of each

fee from the contracting officer’s records of negotiation, the award fee

plan or evaluation, and/or the actual contract. For DOD, we obtained the

Page 12 GAO/RCED-96-31FS Federal Research
Section 2 

Amounts and Purposes of Fees Paid to

FFRDCs

purpose of each fee from the documents supporting a DOD study on the

FFRDCs’ actual uses of the fees.

Table 2.1: DOE’s FFRDCs—Purposes

of Fees, Annual Costs, and Amounts

of Fees, Fiscal Year 1994

Dollars in millions

FFRDC and

type of operator

Type and purpose of fee

or allowance

Annual

costs

Fee

amount

Ames Laboratory

(educational)

No fee or allowance $35.9 $0

Argonne National

Laboratory

(educational)

Management allowance in

lieu of payment for

university overhead

$609.1 $3.1

Brookhaven National

Laboratory

(educational)

Management allowance for

reasonable operational

needs that should not be

funded as contract costs

$408.7 $2.0

Continuous Electron

Beam Accelerator

Facility

(educational)

Management fee in

recognition of corporate

oversight responsibility,

financial risk, and home

office expenses

$75.4 $1.3

Fermi National 

Accelerator Laboratory

(educational)

Management allowance in

lieu of general corporate

expenses and management

services

$238.6 $1.4

Lawrence Berkeley

National Laboratory

(educational)

Fixed fee, paid to one

contractor for managing the

three laboratories, in

recognition of new financial

risks assumed by the

university, including the risk

that all incurred costs may

not be reimbursable

$258.4 $14.0

Lawrence Livermore

National Laboratory

(educational)

$921.0

Los Alamos National

Laboratory

(educational)

$1,099.5

Oak Ridge Institute for

Science and Engineering

(educational)

Fixed fee in recognition of

contractor’s management

and technical skills needed

for operations

$55.4 $1.5

Princeton Plasma

Physics Laboratory

(educational)

Management allowance in

lieu of indirect cost pool

allocations for the

university’s office support

and service activities

$108.1 $3.0

(continued)

Page 13 GAO/RCED-96-31FS Federal Research
Section 2 

Amounts and Purposes of Fees Paid to

FFRDCs

Dollars in millions

FFRDC and

type of operator

Type and purpose of fee

or allowance

Annual

costs

Fee

amount

Stanford Linear

Accelerator Center

(educational)

No fee or allowance $163.7 $0

Inhalation Toxicology

Research Institute

(nonprofit)

No fee or allowance $14.6 $0

National Renewable

Energy Laboratory

(nonprofit)

Award fee for performance

incentives in the areas of

institutional leadership;

environment, safety, and

health; institutional

management;

administrative and technical

services; and programmatic

management

$206.6 $6.1

Pacific Northwest

Laboratory

(nonprofit)

Fixed fee in recognition of

work’s complexity and

responsibilities, financial

risk, and home office

contributions

$378.3 $9.4

Energy Technology

Engineering Centera

(industrial)

Fixed fee for organizing and

managing resources, using

contractor’s resources, and

assuming the risk that all

incurred costs may not be

reimbursable

$35.8 $1.5

Idaho National

Engineering Laboratory

(industrial)

Award fee for performance

in areas such as operations;

programs; research and

development; environment,

safety, and health; quality

assurance; management

and administration; financial

management; and

consolidation transition

$799.9 $25.8

Oak Ridge Facilitiesb

(industrial)

Award fee for performance

incentives for operating and

managing the Oak Ridge

National Laboratory, Oak

Ridge and Paducah

Gaseous Diffusion Plants,

and the Y-12 Plant

$1,948.5 $38.0

Sandia National

Laboratory

(industrial)

Fixed fee in recognition of

research and development,

production, construction,

construction management,

and special equipment

$1,376.4 $10.6

(continued)

Page 14 GAO/RCED-96-31FS Federal Research
Section 2 

Amounts and Purposes of Fees Paid to

FFRDCs

Dollars in millions

FFRDC and

type of operator

Type and purpose of fee

or allowance

Annual

costs

Fee

amount

Savannah River

Laboratory and Plant

(industrial)

Award fee for performance

incentives for efforts in

administration; engineering;

the Savannah River

Technology Center; nuclear

waste management;

materials production;

environment, safety, and

health; and quality

assurance

$1,591.8 $32.8

aThis Center ceased to be an FFRDC on September 30, 1995.

bAnnual costs are for all of the facilities under the contract and not the national laboratory alone

because DOE does not routinely separate the costs in its accounting system.

Source: GAO’s analysis of DOE’s data.

Table 2.2: DOD’s FFRDCs—Purposes

of Fees, Annual Costs, and Amounts

of Fees, Fiscal Year 1994

FFRDC and

type of operator

Type and purpose of fee

or allowance

Annual

costs

Fee

amount

Lincoln Laboratory

(educational)

No fee or allowance $273.1 $0

Software Engineering

Institute

(educational)

No fee or allowance $20.0 $0

Aerospace Corporation

(nonprofit)

Fixed fee, of which 57

percent was for corporatesponsored research, 36

percent for capital

acquisition, and 7 percent

for unreimbursed costs

$370.2 $15.5

Arroyo Center

(nonprofit)

Fixed fee paid to one

contractor for operating the

three FFRDCs; of this fee,

62 percent was for capital

acquisition, 34 percent for

corporate-sponsored

research, 3 percent for

interest, and 1 percent for

unreimbursed costs

$65.4 $3.9

National Defense

Research Institute

(nonprofit)

Project Air Force

(nonprofit)

(continued)

Page 15 GAO/RCED-96-31FS Federal Research
Section 2 

Amounts and Purposes of Fees Paid to

FFRDCs

FFRDC and

type of operator

Type and purpose of fee

or allowance

Annual

costs

Fee

amount

Center for Naval Analyses

(nonprofit)

Fixed fee, of which 46

percent was for capital

acquisition, 37 percent for

working capital, 10 percent

for contingencies, and 7

percent for unreimbursed

costs

$49.6 $2.5

Mitre C3I Division

(nonprofit)

Fixed fee, of which 44

percent was for capital

acquisition, 35 percent for

corporate-sponsored

research, 11 percent for

unreimbursed costs, and 10

percent for working capital

$379.9 $17.9

IDA Studies and Analyses/

Operational Test and

Evaluation Center 

(nonprofit)

Fixed fee paid to one

contractor for managing

both FFRDCs; of this fee, 41

percent was for

contingencies, 24 percent

for capital acquisition, 23

percent for corporatesponsored research, and

12 percent for

unreimbursed costs

$107.2 $4.6

IDA C3I 

(nonprofit)

Logistics Management 

Institute

(nonprofit)

Fixed fee, of which 64

percent was for working

capital, 24 percent for

unreimbursed costs, and 12

percent for capital

acquisition

$33.9 $1.5

Source: DOD.

Table 2.3: NASA’s FFRDC—Purpose of

Fee, Annual Costs, and Amount of Fee,

Fiscal Year 1994

Dollars in millions

FFRDC and

type of operator

Type and purpose of fee

or allowance

Annual

costs

Fee

amount

Jet Propulsion

Laboratory

(educational)

Award fee for performance

incentives in programmatic

scientific, engineering,

management, and other

performance areas. $1,000.0 $16.5

Source: GAO’s analysis of NASA’s data.

Page 16 GAO/RCED-96-31FS Federal Research
Section 3 

Use of Funds During Fiscal Year 1994 by

DOE’s FFRDC Contractors

Spending over $10 billion in total funds for fiscal year 1994, the

management and operating contractors operating DOE’s FFRDCs varied

widely in their use of these funds. According to DOE’s financial data, DOE’s

19 contractors used from about 3 percent to nearly 100 percent of their

funds for activities related to research and development during fiscal year

1994. For example, at the Fermi National Accelerator Laboratory, nearly

100 percent of the funds were used for research and development. In

contrast, at the Savannah River Laboratory and Plant, which includes the

Savannah River Technical Center, only about 3 percent of the funds were

used for research and development. At 11 facilities, over 75 percent of the

funds were used for research and development, while at three facilities

less than 50 percent were used. As a whole, DOE’s management and

operating contractors used about 50 percent of their funds for activities

related to research and development.

The contractors used funds for various other purposes. Grouped into DOE’s

budget categories, the other purposes were (1) the environmental

restoration of facilities contaminated with hazardous and nuclear waste;

(2) weapons activities, such as the maintenance of nuclear weapons, that

did not involve research and development; (3) the production of nuclear

materials; and (4) various other activities, including some related to

sustaining nuclear weapons’ capabilities, as well as others unrelated to

this effort, such as the Strategic Petroleum Reserve.

Table 3.1 compares the total costs incurred by the management and

operating contractors operating FFRDCs with the costs incurred for

research and development. The information in table 3.1 is based on the

contract costs incurred during fiscal year 1994 by the contractors. We

obtained these costs from DOE’s financial information system and grouped

them into budget categories that were and were not related to research

and development. Under research and development, we included

research-, development-, and technology-related budget items from

various program areas. These include items such as fossil energy research

and development, energy supply research and development, energy

conservation research and development, general science and research,

Energy Research Development Administration technology transfer, clean

coal technology, alternative fuels, geothermal development, weapons

research and development and testing, environmental restoration and

waste management research and development and technology

development, materials production research and development and testing,

and research trust funds.

Page 17 GAO/RCED-96-31FS Federal Research
Section 3 

Use of Funds During Fiscal Year 1994 by

DOE’s FFRDC Contractors

Table 3.1: Proportion of Management

and Operating Contractors’ Total

Costs Spent for Research and

Development, Fiscal Year 1994

Dollars in millions

Management and operating

contractor Total costs

Research

and

development

costsa

Research and

development

as a percent of

total costsb

Ames Laboratory $35.9 $34.7 97

Argonne National Laboratory $609.1 $530.5 87

Brookhaven National Laboratory $408.7 $384.9 94

Continuous Electron Beam

Accelerator Facility

$75.4 $75.2 100

Energy Technology Engineering

Center

$35.8 $30.8 86

Fermi National Accelerator

Laboratory

$238.6 $238.4 100

Idaho National Engineering

Laboratory

$799.9 $163.9 20

Inhalation Toxicology Research

Institute

$14.6 $11.3 77

Lawrence Berkeley Laboratory $258.4 $238.3 92

Los Alamos National Laboratory $1,099.5 $564.8 51

Lawrence Livermore National

Laboratory

$921.0 $569.8 62

National Renewable Engineering

Laboratory

$206.6 $200.4 97

Oak Ridge Institute for Science and

Engineering

$55.4 $36.7 66

Oak Ridge Facilitiesc $1,948.5 $632.1 32

Pacific Northwest Laboratory $378.3 $219.8 58

Princeton Plasma Physics Laboratory $108.1 $107.7 100

Sandia National Laboratory $1,376.4 $731.7 53

Savannah River Laboratory and Plant $1,591.8 $41.6 3

Stanford Linear Accelerator Center $163.7 $159.4 97

Total $10,325.6 $4,972.0 48

aRounded to the nearest hundred thousand.

bRounded to the nearest whole percentage point.

cContract includes the management and operation of the Oak Ridge National Laboratory, the Oak

Ridge and Paducah Gaseous Diffusion Plants, and the Y-12 Plant.

Source: GAO’s analysis of DOE’s data.

Page 18 GAO/RCED-96-31FS Federal Research
Section 4 

Effect of DOE’s Contract Reform on Fees

DOE’s February 1994 contract reforms were intended to fundamentally

change management and operating contracts by converting them to what

DOE calls performance-based management contracts. Because all of DOE’s

FFRDCs are operated under management and operating contracts, these

reforms directly affect them. A key goal of the reforms is to enhance

contractors’ performance through changes in the fee and incentive

structure provided in contracts. At the time of our review, FFRDC contracts

had been revised for the Argonne National Laboratory, Brookhaven

National Laboratory, Continuous Electron Beam Accelerator Facility, and

Idaho National Engineering Laboratory.

In its February 1994 report, DOE’s Contract Reform Team identified the

weaknesses in the fee structure of the management and operating

contracts and the anticipated improvements in the intended fee structure

of the new performance-based management contracts. Table 4.1 provides

key elements of the team’s comparison.

Table 4.1: Improvements Anticipated

Under Performance-Based

Management Contracts Management and operating contract

Performance-based management

contract

Broad subjective statement of work Well-defined, objective performance

criteria and measures for program

activities; environmental, health, and safety

requirements; and financial and

management objectives

No meaningful incentives to reduce costs Incentives to reduce costs through such

measures as sharing costs and cost

savings and strictly enforcing performance

criteria and measures

Compensation based on criteria applied in

postperformance review process

Compensation based on measurable,

objective criteria established in the contract

Source: DOE.

Table 4.2 contrasts the purposes of the fees and incentives under the

revised contracts to those under the previous contracts for fiscal year

1994.

Page 19 GAO/RCED-96-31FS Federal Research
Section 4 

Effect of DOE’s Contract Reform on Fees

Table 4.2: Purposes of Fees or Management Allowances Under Revised and Previous Contracts

Previous contract Revised contract

Dollars in millions

Facility

Amount of fee

or allowance

Purpose of fee

or allowance

Amount of fee

or allowance

Purpose of fee

or allowance

Argonne National

Laboratory

$3,100,000 Management allowance in

lieu of reimbursement of

university’s overhead

From

$2,000,000

to

$6,700,000a

Management allowance of $2.0 million for

the university’s indirect expenses and

management costs; performance fee of up

to $4.7 million for performance of science

and technology and operation of facility; in

addition to the negotiated fees, up to 50

percent of any savings resulting from

cost-reduction proposals accepted by DOE

Brookhaven National

Laboratory

$2,020,000 Management allowance for

operational needs

considered essential but

not to be funded as

contract costs

$2,400,000 Fixed fee for contract work; in addition to

the contract fee, up to 50 percent of any

savings resulting from cost-reduction

proposals accepted by DOE

Continuous Electron

Beam Accelerator

Facility

$1,292,073 Management fee in

recognition of corporate

oversight responsibility,

financial risk, and home

office expenses

$2,264,110 Management fee for general and

administrative expenses, additional

corporate resources for oversight of

performance, self-assessment, liability,

and a “reserve” of “risk funds” to cover

potential unallowable costs, to be returned

to DOE at the end of the contract if not

used; in addition to the negotiated fee, up

to 50 percent of any savings resulting from

cost-reduction proposals accepted by DOE

Idaho National

Engineering

Laboratory

From

$14,718,000

to

$43,673,000

Award fee for performance

in areas such as operations;

programs; research and

development; environment,

safety, and health; quality

assurance; management

and administration; financial

management; and

consolidation transition

From

$2,810,201

to

$42,153,012

Award and incentive fees for performance

awards for overall operations and

incentives for cost reduction, operational

performance, and facility management;

additional potential incentive fees from a

share of any royalties, licensing fees, or

equity shares in a licensee derived from

commercializing contractor-developed

technologies

aThe contract provides for performance fees to cover 12-month periods from August 1 to July 31

and management allowances to cover 12-month periods from October 1 to September 30.

Source: GAO’s analysis of DOE data.

All four contracts revised in response to the 1994 contract reforms

incorporate some objective performance measures—one of the expected

benefits of the reforms. One such objective performance measure appears

in the Argonne National Laboratory’s contract in the area of cash and debt

Page 20 GAO/RCED-96-31FS Federal Research
Section 4 

Effect of DOE’s Contract Reform on Fees

management. Here, payment of invoices on time is used as an indicator of

success. Measurable goals include 100-percent on-time payment of salaries

and 95-percent on-time payment of vendors’ invoices. However, the

Brookhaven National Laboratory and Continuous Electron Beam

Accelerator Facility contracts do not link earning the fee to the actual

performance. Additionally, the original Idaho National Engineering

Laboratory contract did not contain the specific cost or performance

targets that the contractor needed to achieve in order to be awarded

incentive fees.

Page 21 GAO/RCED-96-31FS Federal Research
Appendix I 

Comments From the Department of Energy

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

Page 22 GAO/RCED-96-31FS Federal Research
Appendix I 

Comments From the Department of Energy

Page 23 GAO/RCED-96-31FS Federal Research
Appendix I 

Comments From the Department of Energy

The following are GAO’s comments on the Department of Energy’s letter

dated November 9, 1995.

GAO Comments 1. DOE notes that in some cases the funding and fee amounts paid reflect

the amounts provided to the entire facility and not just to the FFRDC.

However, as discussed in section 2 of the report, DOE’s financial

information system does not separate the funds expended at three

FFRDCs—Oak Ridge, Savannah River, and Idaho—from the funds for

managing and operating the larger facilities that contain the FFRDCs. The

dollar amounts provided in DOE’s comments represent DOE’s estimate of

the funding (budget amounts) and fees for the FFRDCs within these

facilities—not the actual contract costs incurred, which are shown in our

report. To prevent readers from confusing the funding from appropriations

with the actual costs incurred for fiscal year 1994, we changed the title of

table 2.1 to indicate that the dollar amounts represent incurred costs and

not funding, and we clarified that the Oak Ridge contract includes annual

costs for the various individual facilities.

2. DOE notes that the funding amounts and percentages in section 3 of the

report should be changed in accordance with DOE’s first comment. As we

explained in our discussion of DOE’s first comment, DOE’s figures represent

DOE’s estimate of the funding (budget amounts) for the FFRDCs and not the

actual costs incurred. Because DOE’s financial information system does not

distinguish the costs for the FFRDCs from any other management and

operating contract costs at these three facilities, we used the contract

costs.

3. DOE notes that our table does not provide a ready comparison of the

ratio of fees to funding. As section 1 explains, DOE, DOD, and NASA use

different regulations to determine the amounts of the fees for the

contractors operating their FFRDCs. We believe a simple comparison of fees

as a percent of costs incurred would not reflect the differences in the fee

regulations or the work performed by the contractors operating the

FFRDCs.

4. DOE notes that it has long believed the educational institutions are not

motivated by incentive fees in their performance of research and

development. However, as noted in section 4 of this report, the

February 1994 contract reforms direct a fundamental change in DOE’s

contracting practices by converting management and operating contracts

to performance-based management contracts. A key element of these new

Page 24 GAO/RCED-96-31FS Federal Research
Appendix I 

Comments From the Department of Energy

contracts is compensation based on performance. In its comments on this

report, DOE states that, in most cases, future fees paid to educational

institutions “will be a fixed fee and not tied to performance.” Such an

approach, however, would run counter to the 1994 contract reforms. In

section 4, we show that the revised contracts for the Continuous Electron

Beam Accelerator Facility and the Brookhaven National Laboratory are

performance-based management contracts but do not link earning the fees

to performance. As a result, these contracts are not consistent with the

intent of the 1994 contract reforms. Finally, as we point out in section 3 of

this report, DOE’s management and operating contractors conducting

research and development spend large portions of their funds on activities

that are not related to research and development. Such work may include

efforts such as environmental restoration for which DOE has provided

incentives in other revised contracts.

Page 25 GAO/RCED-96-31FS Federal Research
Appendix II 

Comments From the National Aeronautics

and Space Administration

Note: GAO comments

supplementing those in the

report text appear at the

end of this appendix.

Page 26 GAO/RCED-96-31FS Federal Research
Appendix II 

Comments From the National Aeronautics

and Space Administration

The following are GAO’s comments on the National Aeronautics and Space

Administration’s letter dated November 14, 1995.

GAO Comments 1. We agree with NASA’s comment and have clarified our report as

requested.

Page 27 GAO/RCED-96-31FS Federal Research
Appendix III 

Major Contributors to This Report

Resources,

Community, and

Economic

Development

Division, Washington,

D.C.

Jeffrey E. Heil, Assistant Director

Robert M. Antonio

David L. Brack

Casandra D. Joseph

National Security and

International Affairs

Division, Washington,

D.C.

Erin S. Noel

Maria B. Boyreau

(308680) Page 28 GAO/RCED-96-31FS Federal Research
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