U.S. Department of Energy 

Office of Inspector General 

Office of Audit Services 

Audit Report 

Office of Secure Transportation DC-9 

Aircraft Refurbishment 

DOE/IG-0815 May 2009 
Department of Energy 

Washington, DC 20585 

May 6, 2009 

MEMORANDUM FOR THE SECRETARY 

 

FROM: Gregory H. Friedman 

 Inspector General 

SUBJECT: INFORMATION: Audit Report on "The Office of Secure 

 Transportation DC-9 Aircraft Refurbishment" 

BACKGROUND

The National Nuclear Security Administration's (NNSA) Office of Secure Transportation 

(OST) maintains a fleet of seven aircraft to transport sensitive items, equipment and 

security personnel. Based on increasing requirements for transporting components and 

security personnel, OST decided to add a heavy transport aircraft to meet the 

Department's weapons surety and emergency response missions. In 2004, as a 

replacement following the sale of a portion of its fleet, OST acquired a DC-9 cargo 

aircraft that had been excessed by the U.S. military. Prior to integrating the DC-9 into its 

fleet, NNSA ordered a refurbishment of the aircraft. This refurbishment project was to 

permit the aircraft to be certified to civil air standards so that it could transport passengers 

for site visits, training and other travel. The NNSA Service Center (Service Center) 

awarded a contract for the refurbishment of the aircraft in December 2004. 

In recent years, the Office of Inspector General has addressed a number of issues relating 

to the Department's aircraft management activities and services. As part of our ongoing 

review process and because of the national security importance of its fleet of aircraft, we 

conducted this review to determine whether OST had an effective and efficient aviation 

management program. 

RESULTS OF AUDIT

The Department had improved aspects of its aviation management program. Yet, our 

review revealed problems with OST's aircraft refurbishment process. In OST's most 

recent acquisition and refurbishment of the DC-9 aircraft, we found that cost increases of 

about $1 million and four separate work stoppages associated with contract modifications 

could have been avoided. Specifically, 

• NNSA entered into a firm-fixed-price contract for the refurbishment even though, 

at the time of the award, it could not determine the extent of work or full cost 

necessary to complete the project; and, 
2 

• Rather than using interim contracting instruments that could have permitted work 

to continue, officials suspended work for extended periods to negotiate changes to 

the original fixed-price contract as the extent of refurbishment work became 

known. 

Knowledgeable Department officials informed us that although they advised the Service 

Center that a firm-fixed-price contract was inappropriate for this project, the Service 

Center determined that no other contracting option was possible. Prior to commencing 

the refurbishment, Departmental aviation management officials advised NNSA that 

because of the significant number of uncertainties with the project, they believed that a 

time and materials contract would provide the flexibility necessary to monitor costs and 

control performance. NNSA contracting officials, however, believed that the scope of 

work was sufficiently defined to proceed with a fixed-price instrument. They also 

believed that the refurbishment was a contract for a commercial item and concluded that 

the Federal Acquisition Regulation required a fixed-price contract for this project. 

However, as noted by aviation management officials and as confirmed by our review, 

fixed-price contracts are not specifically required for refurbishment projects such as this. 

In fact, other hybrid contracting options were available that would have allowed better 

control over projects with significant unknowns such as this particular effort. 

The lengthy refurbishment process to get the aircraft modified and certified to civil air 

standards had a negative impact on OST's mission. Mission critical work by the OST was, 

in some cases, curtailed. Approximately four years after the project began the aircraft had 

not been certified to civil air standards, as originally planned. A contracting official 

stopped / started work on four occasions to negotiate contract modifications rather than 

using a non-definitized contracting arrangement that would have permitted work to 

continue during negotiations. Additional issues associated with the work stoppages and 

contract modifications increased project costs by approximately $1 million. 

Fixed-Price Contracting Considerations

The issues raised in this report address the sensitive topic of fixed-price contracting. We 

recognize that, in general, fixed-price contracts provide greater value to the Government 

and that they minimize the cost to the taxpayer for a wide variety of commercial items 

and other activities. Ensuring that the Department receives the best value from its 

contracting activities is, in fact, critical to achieving the goals of the recently enacted 

American Recovery and Reinvestment Act of 2009. However, fixed-price contracts are 

not the most effective procurement instrument in certain situations. For the DC-9 

refurbishment effort, there were so many uncertainties that a fixed-price instrument was 

not in the Government's best interest. In our view, the refurbishment work effort should 

have been segmented in such a way as to recognize the uncertainties yet to rely, to the 

extent practical, on fixed-price principles. For example, contracting officials could have 

used fixed-price contracts to acquire components, services or items for which a scope of 

work could be adequately defined. For other portions of the work for which clearly 

defined specifications were not available at the outset, a non-definitized contracting 
3 

mechanism could have been used to bridge gaps between fixed-price segments and avoid 

the extensive delays associated with the multiple contract modification negotiations that 

occurred in this case. 

Response to IG Reports

In response to recommendations in our prior reports, the Department had taken steps to 

centralize certain functions within its aviation management program. It established the 

Office of Aviation Management to review aircraft operations, monitor costs and approve 

acquisitions and disposals of aircraft. These positive steps were responsive to our 

recommendations. However, with respect to aircraft acquisitions, additional action is 

necessary to strengthen management controls and improve efficiency and effectiveness of 

refurbishment efforts. Accordingly, we made recommendations in this report designed to 

address the remaining weaknesses. Addressing these recommendations is critical in light 

of future plans by OST to replace its entire fleet of DC-9 aircraft with 737s starting as 

early as Fiscal Year 2010. These plans will likely require additional refurbishment 

projects to bring these aircraft up to the specifications needed for OST to complete its 

unique mission. If fully implemented, our recommendations should help the Department 

avoid similar problems as it embarks on these additional planned refurbishment projects. 

MANAGEMENT REACTION

NNSA generally agreed with the report, concurred with our recommendations and agreed 

to take appropriate action. NNSA, however, continued to support its original contracting 

decision and did not agree with what it viewed as the report's presumption that the scope 

of the project was unknowable, thereby precluding development of more definitive 

specifications and the use of a fixed-price contract. 

As noted by the aviation experts we consulted, the full scope of the work required for this 

refurbishment could not have been known until the aircraft was disassembled and fully 

inspected. Our findings and the opinion of these experts are consistent with an internal NNSA 

review of the refurbishment which concluded that the work required was not sufficiently defined 

prior to the contract being awarded. 

Management's summarized comments and our responses are contained in the body of the 

report. Management's comments, in their entirety, are included as Appendix 3. 

Attachment 

cc: Office of the Deputy Secretary 

 Office of the Under Secretary of Energy 

 Chief of Staff 

 Assistant Deputy Administrator for Secure Transportation, NA-15 

 Program Manager, Office of Secure Transportation (OST), Albuquerque 

 Director, Office of Management, MA-1 

 Director, Office of Aviation Management, MA-30 
AUDIT REPORT ON THE OFFICE OF SECURE 

TRANSPORTATION DC-9 AIRCRAFT REFURBISHMENT 

TABLE OF 

CONTENTS 

Aviation Management at the Office of Secure Transportation 

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

Recommendations ............................................................................5 

Comments......................................................................................6 

Appendices

1. Objective, Scope, and Methodology...................................................7 

2. Prior Reports..............................................................................9 

3. Management Comments.................................................................10 
AVIATION MANAGEMENT AT THE OFFICE OF SECURE 

TRANSPORTATION 

________________________________________________________________________ 

Page 1 Details of Finding

Cost and Scope The National Nuclear Security Administration 

Uncertainties (NNSA) entered into a fixed-price contract to 

refurbish a DC-9 aircraft that it acquired from the 

U.S. Navy even though it lacked sufficient 

information to develop the full cost and scope of the 

work necessary to complete the project. Because 

the fixed-price contract was based on an uncertain 

scope of work that was subject to change, time 

consuming modifications to the original contract 

had to be made as the extent of work necessary to 

refurbish the aircraft became known. According to 

aviation management officials, NNSA could have 

avoided many of the extensive disruptions and 

delays that plagued this project. 

Contract Uncertainties

The contract for the refurbishment of the DC-9 

aircraft did not reflect the significant uncertainties 

that were known to exist at the time it was awarded. 

Normally, Federal procurement regulations indicate 

that firm-fixed-price contracts should be awarded 

when the scope of a project is well-defined and total 

costs can be reasonably established. In the case of 

this refurbishment, an initial independent cost study 

estimated that the project would cost $3.25 million. 

However, the limited scope of the cost study was 

not sufficient to ascertain the full extent of the 

refurbishment. Officials knew, in advance of the 

award, that the scope of the refurbishment project 

was uncertain and NNSA's Office of Secure 

Transportation (OST) had estimated that the total 

cost could be as much as $4.5 million. Despite the 

uncertainties and the assumption that the cost could 

be much higher, NNSA concluded that the scope of 

work was sufficiently defined and awarded a firmfixed-price contract to an aircraft refurbishment 

contractor for $2.4 million. 

When the full extent of repairs and modifications 

became known as the aircraft was disassembled and 

inspected, officials were required to make a number 

of modifications to the original contract. Aviation 

management officials told us that they recognized 

the full extent of refurbishment could not be known 

until work began on components such as 

replacement of engines, upgrades to the interior,
 

________________________________________________________________________ 

Page 2 Details of Finding

removal of the auxiliary fuel system, corrosion 

elimination and sheet metal replacement. In spite of 

that knowledge, however, NNSA elected to use a 

contracting method that was based on a specifically 

defined scope of work. As a consequence, when an 

issue that fell outside the work scope surfaced 

during the project, modifications to the contract had 

to be negotiated. Instead of using a non-definitized 

work scope contract modification that would have 

permitted work to continue during negotiations, 

NNSA chose to stop the refurbishment effort on 

four separate occasions. Only after the new scope 

of work and additional costs were approved was the 

refurbishment contractor permitted to resume work. 

Alternative Contracting Methods Available

According to aviation officials within the Office of 

Aviation Management (OAM) and OST who were 

experienced with aircraft refurbishments, 

modifications to the contract and the corresponding 

delays would not have been necessary with a time 

and materials type of contract. Based on our 

conversations with OAM and OST officials, we 

learned that they had advised the Service Center 

that a firm-fixed-price contract was inappropriate 

for this project. OAM indicated that a time and 

materials contract could have allowed NNSA to 

challenge every task being accomplished on the 

aircraft. According to OST, once each task and 

parts order is approved under a time and materials 

contract, work can begin immediately. If the cost of 

a part or a service appears too high, it can be 

negotiated on the spot. With a time and materials 

contract or the use of a non-definitized contract 

modification, OST indicated that it could have 

avoided the approximately eight months of delays 

that were encountered just in processing the four 

contract modifications. Additionally, disruptions in 

the flow of work from stopping and re-starting work 

likely resulted in additional delays. 

Consideration of Other Cost increases and delays associated with the 

Contracting Methods refurbishment of the DC-9 occurred, in part, because 

officials at the NNSA Service Center did not fully 

evaluate available contracting methods or heed the 

advice of the Department's aviation experts. 
 

________________________________________________________________________ 

Page 3 Details of Finding

Although officials in the Service Center believed 

that a fixed-price contract was their only option, 

other contract types or a combination of different 

types of contracts are allowed under the Federal 

Acquisition Regulation (FAR) when a reasonable 

basis for firm pricing does not exist. Additionally, 

while officials knowledgeable of aircraft 

refurbishment projects believed and specifically 

advised NNSA that a time and materials contract 

would better ensure the success of this project, the 

Service Center believed that it did not have any 

other alternatives. 

Contracting Options

Service Center officials based their opinion that a 

fixed-price contract was necessary on the FAR, 

which states that contracts for commercial items 

should be fixed-price. According to the FAR, a 

firm-fixed-price contract is suitable for acquiring 

commercial items when prices can be established at 

the outset, such as when there have been prior 

purchases of similar items or when uncertainties can 

be identified and reasonable estimates of their cost 

impact can be made. Firm-fixed-price contracts are 

tailored toward instances where there is a specific, 

defined scope of work and a benchmark to establish 

that the price is reasonable. In this case it turned 

out that a firm-fixed-price contract type was not 

optimum for the numerous unknowns associated 

with an aircraft refurbishment effort, as evidenced 

by the award of four modifications to the original 

contract for the DC-9 refurbishment. 

In this case, the contract in question was for a 

refurbishment, not the purchase of a commercially 

available item, and other options were available. 

Because it was a refurbishment, prices could not be 

reasonably estimated at the time of the award. Only 

after the project was started, panels and components 

were removed, and the interior structure of the 

aircraft was exposed could uncertainties be 

resolved, additional components and/or repairs be 

identified and cost estimates made. In situations 

such as this, Department of Energy contracting 

officials outside of NNSA indicated that the FAR is 

flexible with respect to contract types. Time and 
 

________________________________________________________________________ 

Page 4 Details of Finding

materials or hybrid contracts are allowed, 

instruments which would have provided OST with 

the opportunity to issue small, controllable and 

measureable task orders for specific pieces of the 

refurbishment effort and thus avoid the lengthy 

contract modification process. Even with a fixedprice contract, officials could have used available 

contracting flexibilities to avoid work stoppages 

during negotiations for contract modifications. 

Expert Opinions

Despite recommendations to the contrary, NNSA 

believed that the FAR did not allow for other 

options. Officials from OAM and OST understood 

that there were too many uncertainties for a firmfixed-price contract and concluded that a time and 

materials contract would have been more 

appropriate. The Service Center, however, did not 

follow OAM and OST's advice and relied on its 

interpretation that the FAR did not allow for 

anything other than a firm-fixed-price contract. 

Excessive Cost and The lengthy process adopted by NNSA to refurbish 

Delays, Unmet Mission the DC-9 aircraft resulted in additional costs and 

Requirements excessive delays, and negatively affected OST's 

ability to carry out its mission. Officials at both 

OST and OAM agreed that significant time and 

money could have been saved if contracting 

flexibilities available to NNSA had been used. 

Although the total amounts of actual excessive costs 

and delays in time for this contract are difficult to 

quantify, the Technical Representative at OST that 

was in charge of this project estimated that 

approximately $1 million could have been saved by 

using a time and materials contract. For example, 

an OST official told us that a time and materials 

contract would have allowed them to negotiate 

individual tasks for each phase of the refurbishment 

and save approximately $583,000. OST added that 

during the period when the fourth modification was 

being negotiated it incurred storage costs of $50,000 

for the aircraft, and costs of $400,000 for storing 

aircraft components and moving the component 

inventory to and from the hangar. In addition, 

because the DC-9 was critical to NNSA's mission, 

delays in completing the project resulted in the 
 

________________________________________________________________________ 

Page 5 Recommendations

acquisition of additional charter services to meet 

some of its critical missions. OST also indicated 

that some mission needs were not met at all. 

As of the date of this report, total costs have more 

than doubled, the duration of the project has 

approximately tripled, and the project has yet to 

meet its original civil air standards requirement for 

transporting passengers. The original estimate for 

this contract was $3.25 million in costs and six to 

eight months to complete, including four months for 

the refurbishment contractor to complete its work. 

However, actual costs of this project totaled 

approximately $6.8 million, including 

approximately $6 million for the refurbishment 

contractor. The refurbishment contractor ultimately 

took about 21 months to perform its work. 

Additionally, almost four years after this 

refurbishment project began, the DC-9 has yet to be 

certified to civil air standards for transporting 

passengers as was originally intended because it 

lacks a hardened cockpit door. The OST official 

responsible for this refurbishment told us that the 

aircraft is now capable of meeting 90 percent of the 

originally specified requirements. As such, the 

additional costs to install the door would be 

excessive and would delay the project even further. 

Officials at OAM believed that the installation of 

the hardened cockpit door would complete the 

refurbishment project and allow OST to better 

utilize its entire fleet for the intended mission. A 

final decision on whether or not to install the door 

had not yet been made by the time our audit report 

was published. 

RECOMMENDATIONS The issues cited in this report point to weaknesses 

that should be addressed in light of future plans by 

OST to replace its entire fleet of DC-9 aircraft with 

737s starting as early as Fiscal Year 2010. These 

plans will likely require additional refurbishment 

projects to bring these aircraft up to the 

specifications needed for OST to complete its 

unique mission. The use of proper contracting 

methods should help minimize the costs and 

duration of these projects. Accordingly, for future 

aircraft acquisitions and refurbishments we 

recommend that the Senior Procurement Executive, 

NNSA ensure that:
 

________________________________________________________________________ 

Page 6 Comments

1. Uncertainties are minimized for all types of 

contracts and to the maximum extent 

practicable, the full scope of work necessary 

to complete a project is developed before a 

firm-fixed-price contract is awarded; 

2. All available contracting options are 

considered in instances where project 

requirements cannot be defined with an 

acceptable degree of certainty or sufficient 

information is not available to award a firmfixed-price contract; and, 

3. Advice and recommendations from the 

OAM are obtained as part of the contract 

award process. 

MANAGEMENT Management generally concurred with the report 

REACTION and agreed to implement the recommendations. In 

commenting on our official draft report, the NNSA 

Associate Administrator for Management and 

Administration stated that NNSA continued to 

support the original determination that the 

refurbishment project was commercial work, and as 

such, a fixed-price contract was required. In 

addition, NNSA did not agree with the presumption 

that the scope of the project was unknowable, 

precluding the development of a more definitive 

specification and the use of a fixed-price contract. 

Management's comments, in their entirety, are 

included as Appendix 3 of this report. 

AUDITOR Management's comments are responsive to our report. 

COMMENTS As noted by the aviation experts we consulted, the 

full scope of the work required for this refurbishment could 

not have been known until the aircraft was disassembled 

and fully inspected. Our findings and the opinion of these 

experts are consistent with an internal NNSA review of the 

refurbishment which concluded that the work required was 

not sufficiently defined prior to the contract being awarded. 

Contrary to NNSA's assertion, we do not believe the extent 

of the work required could not have been known; only that 

it was not known or developed prior to awarding a fixedprice contract designed to accomplish the entire 

refurbishment. While we agree that a fixed-price contract 

was one option for this project, it was not the only option, 

and in this case, it turned out not to be the most efficient 

vehicle available. 
Appendix 1 

________________________________________________________________________ 

Page 7 Objective, Scope, and Methodology 

OBJECTIVE The objective of our audit was to determine whether 

the Office of Secure Transportation (OST) had an 

effective and efficient aviation management 

program 

SCOPE This review was performed between June 2008 and 

December 2008 at Headquarters and at the Office of 

Secure Transportation, Albuquerque, New Mexico. 

METHODOLOGY To accomplish the audit objective, we: 

• Reviewed Federal, Department of Energy 

(Department) and site specific aviation 

related policies and procedures; 

• Interviewed key personnel at this site; 

• Assessed the selected site's compliance with 

the applicable federal guidance, internal 

aviation policies and Departmental 

contracts; 

• Reviewed the acquisition and refurbishment 

process of a new aircraft that occurred in 

2003;

• Reviewed internal audit reports and findings 

provided by the Office of Aviation 

Management (OAM) for the Fiscal Years 

2004 through 2007; and, 

• Interviewed key personnel in the OAM. 

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. Because 

our review was limited, it would not necessarily 

have disclosed all internal deficiencies that may 

have existed at the time of our audit. During the 

audit, we assessed the Department's compliance 
Appendix 1 (continued) 

________________________________________________________________________ 

Page 8 Objective, Scope, and Methodology 

with the Government Performance and Results Act 

of 1993 and found that the Department had 

established specific performance measures. We did 

not rely on computer processed data. We held our 

exit conference with NNSA representatives on 

April 9, 2009. 
Appendix 2 

________________________________________________________________________ 

Page 9 Prior Reports 

PRIOR OFFICE OF INSPECTOR GENERAL REPORTS

The Office of Inspector General (OIG) has previously reported on management of the 

Department of Energy's (Department) aviation program. 

• The U. S. Department of Energy's Aircraft Activities (DOE/IG-0435, January 1999). 

A review of the Department's aircraft activities was requested by the Secretary. The 

OIG noted a need for increased Departmental management oversight of aviation 

activities. Independent reviews of the continuing need for aircraft were only 

performed on a limited basis, operating costs at the Albuquerque Operations Office 

(Albuquerque) were significantly higher than other locations, Headquarters did not 

validate mission needs when acquiring aircrafts, and information reported to General 

Services Administration significantly understated the Department's use of aircraft 

rentals and charters. 

• Aircraft and Air Service Management Programs (DOE/IG-0437, January 1999). An 

audit was conducted to determine whether costs to operate Albuquerque's aircraft 

were excessive and if individual aircraft in the fleet were justified. The OIG found 

that costs to operate aircraft at Albuquerque were excessive because of the number of 

personnel employed by the air service contractor. In addition, the retention of one 

aircraft by Albuquerque that was used to transport passengers between Albuquerque, 

NM and Amarillo, TX was not justified. 

• Audit of Aircraft Management at the Bonneville Power Administration (CR-B-94-06, 

September 1994). An audit was conducted to determine whether the Bonneville 

Power Administration (Bonneville) established and implemented policies, 

procedures, and controls to manage their aircraft activities efficiently, effectively, 

economically, safely, and in accordance with applicable laws and regulations. The 

OIG found that Bonneville could satisfy its workload with five rather than six 

helicopters and one rather than two airplanes. The OIG recommended that 

Bonneville dispose of one helicopter and one airplane. 

.
Department of Energy
 

National Nuclear Security Administration
 

Washington, DC 20585 

April 29, 2009 

MEMORANDUM FOR:	 Rickey R. Hass 

Deputy Inspector General 

for Audit Services ~/

FROM:	 Michael C. Kane~ "'/r---­

Associate Administrator 

For Management and Administration 

SUBJECT:	 Comments to Draft Report on Aviation Management; 

Project No. A08TG060; IDRMS No. 2009-01087 

The National Nuclear Security Administration (NNSA) appreciates the opportunity to 

review the Inspector General's (IG) draft Report, "Management Controls over the 

Department's Aviation Management Program - Office of Secure Transportation." We 

understand that this audit was conducted to determine whether the Office of Secure 

Transportation (OST) had an effective and efficient aviation management program. 

NNSA generally agrees with the report with the following exceptions: 

1.	 NNSA supports the Contracting Officer's determination that the 

refurbishment of the DC-9 aircraft was "commercial work." 

2.	 The Agency supports the Contracting Officer's original determination to 

contract for the refurbishment services on a fixed-price basis. The fact that 

the work turned out to be more complex than originally thought does not 

negate the validity of the decision. 

3.	 The Agency does not agree with the presumption that the scope ofthe 

refurbishment was unknowable precluding development of a more definitive 

specification and the use of a fixed-price contract type. 

NNSA agrees with the recommendations and will take appropriate action. We will 

provide detailed corrections to the recommendations during the Management Decision 

process. 

Should you have any questions about this response, please contact the Cathy Tullis, 

Acting Director, Policy and Internal Controls Management, at 202-586-3857. 

cc:	 David Boyd, Senior Procurement Executive 

Joseph Waddell, Head of Contracting Activity 

Jeffrey Harrell, Acting Associate Deputy Administrator for Secure Transportation 

Karen Boardman, Director, Service Center 

* Printed with soy ink on recycled paper 
IG Report No. DOE/IG-0815__

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