Federal Research: Opportunities Exist to Improve the Management and Oversight of Federally Funded Research and Development Centers
Published: 2008-10-08T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: In 2006, the federal government spent $13 billion--14 percent of its research and development (R&D) expenditures--to enable 38 federally funded R&D centers (FFRDCs) to meet special research needs. FFRDCs--including laboratories, studies and analyses centers, and systems engineering centers--conduct research in military space programs, nanotechnology, microelectronics, nuclear warfare, and biodefense countermeasures, among other areas. GAO was asked to identify (1) how federal agencies contract with organizations operating FFRDCs and (2) agency oversight processes used to ensure that FFRDCs are well-managed. GAO's work is based on a review of documents and interviews with officials from eight FFRDCs sponsored by the departments of Defense (DOD), Energy (DOE), Health and Human Services (HHS), and Homeland Security (DHS). What GAO Recommends
section_title: What GAO Found
paragraphs: Federal agencies GAO reviewed use cost-reimbursement contracts with the organizations that operate FFRDCs, and three of the agencies generally use full and open competition to award the contracts. Only DOD consistently awards its FFRDC contracts on a sole-source basis, as permitted by law and regulation when properly justified. FFRDCs receive funding for individual projects from customers that require the FFRDCs' specialized research capabilities. Because FFRDCs have a special relationship with their sponsoring agencies and may be given access to sensitive or proprietary data, regulations require that FFRDCs be free from organizational conflicts of interest. DOD and DOE also have policies that prescribe specific areas that FFRDC contractors must address to ensure their employees are free from personal conflicts of interest. In a May 2008 report, GAO recognized the importance of implementing such safeguards for contractor employees. Currently, although DHS and HHS have policies that require their FFRDC contractors to implement conflicts-of-interest safeguards, these policies lack the specificity needed to ensure their FFRDC contractors will consistently address employees' personal conflicts of interest. Sponsoring agencies use various approaches in their oversight of FFRDC contractors, including: (1) Review and approval of work assigned to FFRDCs, or conducted for other agencies or entities, to determine consistency with the FFRDC's purpose, capacity, and special competency. In this process, only DOD must abide by congressionally imposed annual workload limits for its FFRDCs. (2) Conduct performance reviews and audits of contractor costs, finances, and internal controls. (3) Conduct a comprehensive review before a contract is renewed to assess the continuing need for the FFRDC and if the contractor can meet that need, based on annual assessments of contractor performance. Some agencies have adopted other agencies' FFRDC oversight and management practices. For example, DHS mirrored most of DOD's FFRDC Management Plan--an internal DOD guidance document--in developing an approach to FFRDC oversight, and DHS officials told us they learned from DOE's experience in selecting and overseeing contractors for laboratory FFRDCs. In addition, HHS plans to implement certain DOE practices, including rewarding innovation and excellence in performance through various contract incentives. While agency officials have acknowledged the potential benefits from sharing best practices, there is currently no formal cross-agency forum or other established mechanism for doing so.

section_title: Letter
paragraphs: In fiscal year 2006, the federal government spent $13 billion—14 percent  of all federal research and development expenditures—funding work at its  38 federally funded research and development centers (FFRDCs). These  centers are agency-sponsored entities that specialize in areas such as  military space programs, nanotechnology, advanced microelectronics and  semiconductors, nuclear warfare, biodefense countermeasures, and high- energy particle physics. Sponsoring agencies contract with nonprofit,  university-affiliated, or private industry organizations to operate the  FFRDCs. Based on your interest in how FFRDCs are managed, we  identified (1) how federal agencies contract with organizations that  operate FFRDCs and (2) the oversight processes agencies use to ensure  that FFRDCs are effectively and efficiently managed.
We used a case study methodology to conduct our review. We chose three  agencies with a long history of sponsoring FFRDCs—the departments of  Defense (DOD), Energy (DOE), and Health and Human Services (HHS)— as well as a fourth agency that has more recently established FFRDCs— the Department of Homeland Security (DHS). From the 29 FFRDCs that  these four agencies sponsor, we selected a nongeneralizable sample of  eight FFRDCs for in-depth review. We made our selections to achieve  variation, both among the type of FFRDC (scientific laboratories versus  other types) and the type of operating contractor (universities, nonprofits,  and private industry). For each of the four federal agencies, we  interviewed officials at the office that sponsors FFRDCs as well as those  officials who have contract management or audit roles. We analyzed  regulations, policies, guidance, contracts, sponsoring agreements, and  other documentation. For the eight FFRDCs in our case study, we  conducted site visits, interviewed key contractor personnel, and obtained  information and documentation on how they met sponsoring agencies’  research needs and adhere to requirements. For additional information on  our scope and methodology, see appendix I.
We conducted this performance audit from October 2007 to October 2008,  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.
subsections: section_title: Background
paragraphs: During World War II, the U.S. government partnered with academic  scientists in ad-hoc laboratories and research groups to meet unique  research and development (R&D) needs of the war effort. These efforts  resulted in technologies such as the proximity fuse, advanced radar and  sonar, and the atomic bomb. Those relationships were later re-structured  into federal research centers to retain academic scientists in U.S. efforts to  continue advancements in technology, and by the mid-1960’s the term  “federally funded research and development centers” was applied to these  entities. Since that time, the U.S. government has continued to rely on  FFRDCs to develop technologies in areas such as combating terrorism and  cancer, addressing energy challenges, and tackling evolving challenges in  air travel. For example, one of DOE’s laboratories was used to invent and  develop the cyclotron, which is a particle accelerator that produces high  energy beams, critical to the field of nuclear physics for the past several  decades.
Today, FFRDCs support their sponsoring federal agencies in diverse fields  of study. For example, DOE sponsors the most FFRDCs—16 in total—all  of which are research laboratories that conduct work in such areas as  nuclear weapons, renewable energy sources, and environmental  management. DHS recently established two FFRDCs: one to develop  countermeasures for biological warfare agents and the other to provide  decision makers with advice and assistance in such areas as analysis of the  vulnerabilities of the nation’s critical infrastructures, standards for  interoperability for field operators and first responders, and evaluating  developing technologies for homeland security purposes.
FFRDCs are privately owned but government-funded entities that have  long-term relationships with one or more federal agencies to perform  research and development and related tasks. Even though they may be  funded entirely, or nearly so, from the federal treasury, FFRDCs are  regarded as contractors not federal agencies. In some cases, Congress has  specifically authorized agencies to establish FFRDCs. For example, the  1991 appropriation for the Internal Revenue Service authorized the IRS to  spend up to $15 million to establish an FFRDC as part of its tax systems  modernization program.
According to the Federal Acquisition Regulation (FAR), FFRDCs are  intended to meet special long-term research or development needs that  cannot be met as effectively by existing in-house or contractor resources.  In sponsoring an FFRDC, agencies draw on academic and private sector  resources to accomplish tasks that are integral to the mission and  operation of the sponsoring agency. In order to discharge responsibilities  to their sponsoring agencies, the FAR notes that FFRDCs have special  access, beyond that which is common for normal contractual  relationships, to government and supplier data—including sensitive and  proprietary data—and other government resources. Furthermore, the FAR  requires FFRDCs to operate in the public interest with objectivity and  independence, to be free of organizational conflicts of interest, and to fully  disclose their affairs to the sponsoring agencies. FFRDCs may be  operated by a university or consortium of universities; other nonprofit  organizations; or a private industry contractor as an autonomous  organization or a separate unit of a parent organization.
Agencies develop sponsoring agreements with FFRDCs to establish their  research and development missions and prescribe how they will interact  with the agency; the agencies then contract with organizations to operate  the FFRDCs to accomplish those missions. At some agencies the  sponsoring agreement is a separate document that is incorporated into the  contract, and at other agencies the contract itself constitutes the  sponsoring agreement. The sponsoring agreement and contract together  identify the scope, purpose, and mission of the FFRDC and the  responsibilities of the contractor in ensuring they are accomplished by the  FFRDC.
Although the contract or sponsoring agreement may take various forms,  the FAR requires FFRDC sponsoring agreements to contain certain key  terms and conditions. For example, the agreement term may not exceed 5  years, but can be periodically renewed in increments not to exceed 5  years. Sponsoring agreements must also contain prohibitions against the  FFRDCs competing with non-FFRDCs in response to a federal agency  request for proposals for other than the operation of an FFRDC. The  agreement also must delineate whether and under what circumstances the  FFRDC may accept work from other agencies. In addition, these  agreements may identify cost elements requiring advance agreement if  cost-type contracts are used and include considerations affecting  negotiation of fees where fees are determined appropriate by sponsors.
The National Science Foundation (NSF), which keeps general statistics on  FFRDCs, identifies the following types of FFRDCs:    Research and development (R&D) laboratories: fill voids where in-house  and private sector R&D centers are unable to meet core agency needs.  These FFRDCs are used to maintain long-term competency in  sophisticated technology areas and develop and transfer important new  technology to the private sector.
Study and analysis centers: used to provide independent analyses and  advice in core areas important to their sponsors, including policy  development, support for decision making, and identifying alternative  approaches and new ideas on significant issues.
Systems engineering and integration centers: provide support for complex  systems by assisting with the creation and choice of system concepts and  architectures, the specification of technical system and subsystem  requirements and interfaces, the development and acquisition of system  hardware and software, the testing and verification of performance, the  integration of new capabilities, and continuous improvement of system  operations and logistics.
The NSF maintains a master list of the current FFRDCs and collects  funding data from their agency sponsors on an annual basis. According to  NSF data, R&D funding for FFRDCs has risen steadily across the federal  government, increasing 40 percent from fiscal year 1996 to 2005, from $6.9  billion to $9.7 billion. (See fig. 1 below.) This does not represent the full  amount of funding provided to FFRDCs by federal agencies, however,  since it does not include non-R&D funding. Nevertheless, it is the only  centrally reported information on federal funding for FFRDCs.
For a list of the 38 FFRDCs currently sponsored by the U.S. government,  see appendix II.
section_title: Most Agencies Compete Cost- Reimbursement Contracts for Operating Their FFRDCs, but Some Do Not Have Specific Personal Conflict-of- Interest Requirements
paragraphs: The four agencies we reviewed use cost-reimbursement contracts with the  organizations that operate their FFRDCs, and three of these agencies  generally use full and open competition in awarding these contracts. While  the agencies require that their FFRDCs be free from organizational  conflicts of interest in accordance with federal regulations, only DOD and  DOE have agencywide requirements that prescribe specific areas that  FFRDC contractors must address to ensure their employees are free from  personal conflicts of interest. DHS and HHS policies do not specifically  prescribe areas that contractors must include to address these conflicts.
subsections: section_title: Three Agencies Generally Compete FFRDC Contracts, While DOD Does Not
paragraphs: Federal law and regulations require federal contracts to be competed  unless they fall under specific exceptions to full and open competition.  One such exception is awarding contracts to establish or maintain an  essential engineering, research, or development capability to be provided  by an FFRDC. While some agencies we reviewed awarded FFRDC  contracts through other than full and open competition in the past,  including sole-source contracts, three have generally used full and open  competition in recent years.
Starting in the mid-1990’s, DOE took steps to improve FFRDC laboratory  contractors’ performance with a series of contracting reforms, including  increasing the use of competition in selecting contractors for its labs.  Subsequent legislation required DOE to compete the award and  extension of contracts used at its labs, singling out the Ames Laboratory,  Argonne National Laboratory, Lawrence Berkeley National Laboratory,  Lawrence Livermore National Laboratory, and Los Alamos National  Laboratory for mandatory competition because their contracts in effect at  the time had been awarded more than 50 years ago. In addition, according  to DOE officials, the Los Alamos contract was competed due to  performance concerns with the contractor, and Argonne West’s contract  was competed to combine its research mission with that of the Idaho  National Engineering and Environmental Laboratory to form the Idaho  National Laboratory. DOE now routinely uses competitive procedures on  contracts for its FFRDC laboratories unless a justification for the use of  other than competitive procedures is approved by the Secretary of Energy.  Of DOE’s 16 FFRDCs, DOE has used full and open competition in the  award of 13 contracts, is in the process of competing one contract, and  plans to compete the remaining two contracts when their terms have been  completed. For the 13 contracts that have been competed, in 2 cases the  incumbent contractor received the new contract award, in 8 cases a new  consortium or limited liability corporation was formed that included the  incumbent contractor, and in 3 cases a different contractor was awarded  the contract.
Other agencies also have used competitive procedures to award FFRDC  contracts:    HHS has conducted full and open competition on the contract for its  cancer research lab since its establishment in 1972, resulting in some  change in contractors over the years. Recently, however, HHS  noncompetitively renewed the contract with the incumbent contractor.  The last time it was competed, in 2001, HHS received no offers other than  SAIC-Frederick, which has performed the contract satisfactorily since  then. HHS publicly posted in FedBizOpps its intention to noncompetitively  renew the operations and technical support contract with SAIC-Frederick  for a potential 10-year period. Interested parties were allowed to submit  capability statements, but despite some initial interest none were  submitted.
DHS competed the initial contract awards for the start up of its two  FFRDCs, with the award of the first contract in 2004. DHS plans to  compete the award of the next studies and analyses FFRDC contract this  year.
In contrast, DOD continues to award its FFRDC contracts on a sole-source  basis under statutory exemptions to competition. In the early 1990s, a  report by a Senate subcommittee and a Defense Science Board task force  both criticized DOD’s management and use of its FFRDCs, including a lack  of competition in contract award. This criticism mirrored an earlier GAO  observation. GAO subsequently noted in a 1996 report, however, that  DOD had begun to strengthen its process for justifying its use of FFRDCs  under sole-source contracts for specific purposes. DOD plans to continue  its sole-source contracting for the three FFRDC contracts that are due for  renewal in 2008 and the six contracts to be renewed in 2010.
section_title: Agencies Use Cost- Reimbursement Contracts with Varying Types of Fee Structures, Primarily Funded through Program Offices
paragraphs: All of the FFRDC contracts we reviewed were cost-reimbursement  contracts, most of which provided for payments of fixed, award, or  incentive fees to the contractor in addition to reimbursement of incurred  costs. Fixed fees often are used when, according to the agencies we  reviewed, the FFRDC will need working capital or other miscellaneous  expense requirements that cannot be covered through reimbursing direct  and indirect costs. Fixed fees generally account for a small percentage of  the overall contract costs; for fiscal year 2007 fixed fees paid to the  FFRDCs we reviewed vary from a low of about 0.1 percent to a high of 3  percent. Award or incentive fees, on the other hand, are intended to  motivate contractors toward such areas as excellent technical  performance and cost effective management. These types of  performance-based fees ranged from 1 to 7 percent at the agencies we  reviewed.
Among agencies we reviewed, contract provisions on fees varied  significantly:    Most DOD contracts are cost-plus-fixed-fee, and DOD, as a general rule,  does not provide award or incentive fees to its FFRDCs. DOD’s FFRDC  management plan—its internal guidance document for DOD entities that  sponsor FFRDCs—limits fees to amounts needed to fund ordinary and  necessary business expenses that may not be otherwise recoverable under  the reimbursement rules that apply to these types of contracts. For  example, the FFRDC operator may incur a one-time expense to buy an  expensive piece of needed equipment, but the government’s  reimbursement rules require that this expense be recovered over several  future years in accordance with an amortization schedule. DOD’s  management plan indicates that fees are necessary in such instances to  enable the contractor to service the debt incurred to buy the equipment  and maintain the cash flow needed for the contractor’s business  operations. DOD officials told us they scrutinize these fees carefully and  do not always pay them. For example, the contract between DOD and the  Massachusetts Institute of Technology (MIT), which operates the Lincoln  Laboratory FFRDC, specifies that MIT will not receive such fees.
DOE and DHS use fixed fees, performance-based fees, and award terms,  which can extend the length of the contract as a reward for good  performance. For example, Sandia Corporation, a private company that  operates Sandia National Laboratories, receives both a fixed fee and an  incentive fee, which for fiscal year 2007 together amounted to about $23.2  million, an additional 1 percent beyond its estimated contract cost. In  addition, Sandia Corporation has received award terms that have  lengthened its contract by 10 years.
HHS provides only performance-based fees to the private company that  operates its one FFRDC.
Rather than receiving direct appropriations, most FFRDCs are funded on a  project-by-project basis by the customers, either within or outside of the  sponsoring agency, that wish to use their services by using funds allocated  to a program or office. FFRDC contracts generally specify a total  estimated cost for work to be performed and provide for the issuance of  modifications or orders for the performance of specific projects and tasks  during the period of the contract.
Congressional appropriations conferees sometimes directed specific  funding for some DHS and DOD FFRDCs in conference reports  accompanying sponsoring agencies’ appropriations. For example,  although according to DOD officials, 97 percent of its FFRDC funding  comes from program or office allocations to fund specific projects, half of  its FFRDCs receive some directed amounts specified in connection with  DOD’s annual appropriations process. Specifically, for fiscal year 2008, the  following DOD FFRDCs received conferee-directed funding in the DOD  appropriations conference report: MIT Lincoln Laboratory Research  Program, $30 million; the Software Engineering Institute, $26 million; the  Center for Naval Analyses, $49 million; the RAND Project Air Force, $31  million; and the Arroyo Center, $20 million. In addition, DOD officials  noted that the congressional defense committees sometimes direct DOD’s  FFRDCs to perform specific studies for these committees through  legislation or in committee reports. In fiscal year 2008, two DOD FFRDCs  conducted 16 congressionally requested studies.
section_title: All Four Agencies Address Organizational Conflicts of Interest but Vary in Addressing Personal Conflicts of Interest of FFRDC Employees
paragraphs: As FFRDCs may have access to sensitive and proprietary information and  because of the special relationship between sponsoring agencies and their  FFRDCs, the FAR requires that FFRDC contractors be free from  organizational conflicts of interest. In addition, we recently reported that,  given the expanding roles that contractor employees play, government  officials from the Office of Government Ethics and DOD believe that  current requirements are inadequate to address potential personal  conflicts of interest of contractor employees in positions to influence  agency decisions. While each agency we reviewed requires FFRDC  operators to be free of organizational conflicts of interest, DOD and DOE  prescribe specific areas that FFRDC contractors must address to ensure  their employees are free from personal conflicts of interest.
The FAR states that an organizational conflict of interest exists when  because of other interests or relationships, an entity is unable or  potentially unable to render impartial assistance or advice to the  government or the entity might have an unfair competitive advantage.  Because sponsors rely on FFRDCs to give impartial, technically sound,  objective assistance or advice, FFRDCs are required to conduct their  business in a manner befitting their special relationship with the  government, to operate in the public interest with objectivity and  independence, to be free from organizational conflicts of interest, and to  fully disclose their affairs to the sponsoring agency. Each sponsoring  agency we reviewed included conflict-of-interest clauses in its sponsoring  agreements with contractors operating their FFRDCs. For example, a DHS  FFRDC contract includes a clause that specifically prohibits contractors  that have developed specifications or statements of work for solicitations  from performing the work as either a prime or first-tier subcontractor.
In addition to organizational conflicts of interest requirements, DOD and  DOE have specific requirements for their FFRDC contractors to guard  against personal conflicts of interest of their employees. For purposes of  this report, a personal conflict of interest may occur when an individual  employed by an organization is in a position to materially influence an  agency’s recommendations and/or decisions and who—because of his or  her personal activities, relationships, or financial interests—may either  lack or appear to lack objectivity or appear to be unduly influenced by  personal financial interests. In January 2007, the Under Secretary of  Defense (Acquisition, Technology, and Logistics) implemented an updated  standard conflict-of-interest policy for all of DOD’s FFRDCs that requires  FFRDC contractors to establish policies to address major areas of  personal conflicts of interest such as gifts, outside activities, and financial  interests. The updated policy and implementing procedures now are  included in all DOD FFRDC sponsoring agreements and incorporated into  the DOD FFRDC operating contracts. This action was prompted by public  and congressional scrutiny of a perceived conflict of interest by the  president of a DOD FFRDC who then voluntarily resigned. As a result,  DOD’s Deputy General Counsel (Acquisition and Logistics) reviewed the  conflict of interest policies and procedures in place at each of its FFRDCs  and determined that although sponsoring agreements, contracts, and  internal policies were adequate, they should be revised to better protect  DOD from employee-related conflicts. DOD’s revised policy states that  conflicts of interest could diminish an FFRDC’s objectivity and capacity to  give impartial, technically sound, objective assistance or advice, which is  essential to the research, particularly with regard to FFRDCs’ access to  sensitive information. Therefore, the policy provides that FFRDC conflict  of interest policies address such issues as gifts and outside activities and  requires an annual submission of statements of financial interests from all  FFRDC personnel in a position to make or materially influence research  findings or recommendations that might affect outside interests.
DOE’s FFRDCs, which operate under management and operating (M&O)   contracts—a special FAR designation for government-owned, contractor- operated facilities such as DOE’s—have additional provisions for  addressing personal conflicts of interest. The provisions address such  areas as reporting any outside employment that may constitute a personal  conflict of interest. In addition, the National Nuclear Security  Administration (NNSA), which sponsors three of DOE’s FFRDCs, is  planning to implement additional requirements in its laboratory contracts  later this year requiring contractors to disclose all employee personal  conflict of interests, not just outside employment as is currently required.  An NNSA procurement official noted that other personal conflict of  interests may include any relationship of an employee, subcontractor  employee, or consultant that may impair objectivity in performing contract  work. NNSA officials stated that it plans to share the policy with the DOE  policy office for potential application across the department.
Currently, DHS and HHS policies do not specifically prescribe areas that  contractors must include to address employees personal conflicts.  However, DHS officials stated that they provided guidance to the two  contractors that operate DHS’s FFRDCs to implement requirements to  address some of their employees’ personal conflicts with DHS’s interests.  In addition, both DHS and HHS FFRDC contractors provide that their staff  avoid or disclose financial interests or outside activities that may conflict  with the interests of the company. For example, the contractor operating  the FFRDC for HHS requires about 20 percent of its employees to report  activities that may constitute a conflict with the company’s interests, but  allows the bulk of its staff to self-determine when they need to report.
In May 2008, we reported that officials from the Office of Government  Ethics expressed concerns that current federal requirements and policies  are inadequate to prevent certain kinds of ethical violations on the part of  contractor employees, particularly with regard to financial conflicts of  interest, impaired impartiality, and misuse of information and authority.  The acting director identified particular concerns with such conflicts of  interest in the management and operations of large research facilities and  laboratories. Our report noted that DOD ethics officials had generally the  same concerns. Therefore, we recommended that DOD implement  personal conflict-of-interest safeguards—similar to those for federal  employees—for certain contractor employees.
section_title: Agencies Vary in FFRDC Oversight Approaches and Do Not Regularly Share Best Practices
paragraphs: Sponsoring agencies take various approaches in exercising oversight of  their FFRDCs. The agencies determine appropriateness of work  conducted by their FFRDCs; perform on-going and annual assessments of  performance, costs and internal controls; and conduct comprehensive  reviews prior to renewing sponsoring agreements. Each agency develops  its own processes in these areas, and no formal interagency mechanisms  exist to facilitate the sharing of FFRDC oversight best practices.
subsections: section_title: Agencies Approve Research Plans and Work Conducted at Their FFRDCs
paragraphs: To ensure work remains within each FFRDCs purpose, mission, scope of  effort, and special competency, sponsoring agencies develop and approve  annual research plans for the FFRDCs and review and approve FFRDC  work assigned on a project-by-project basis. While the majority of each  FFRDC’s work is done for its sponsoring agency, FFRDCs may perform  work for other institutions, subject to sponsoring agency approval.
Officials at DOD, DOE, and DHS identified the processes they use to  develop annual research plans that describe each FFRDC’s research  agenda. For example, DHS designates an executive agent to ensure that its  FFRDC is used for the agency’s intended purposes. Each year DHS  develops a research plan that is reviewed and approved by the executive  agent, including any subsequent changes. DHS also uses an Advisory  Group to ensure that its FFRDCs produce work consistent with the  sponsoring agreement. DOD has a similar mechanism for approving the  annual research plan for its Lincoln Laboratory FFRDC. This FFRDC has a  Joint Advisory Committee that annually reviews and approves the  proposed research plan. Members of this committee include  representatives from the various DOD services—e.g., Air Force, Army, and  Navy—who are the users of the laboratory’s R&D capabilities. Of the four  agencies included in our review, only HHS does not create a separate  annual research plan for its FFRDC. Instead, the work at HHS’ FFRDC is  guided by the National Cancer Institute’s overall mission, which is  described in its annual budgetary and periodic strategic planning  documents.
In determining the proposed research plan, DOD must abide by  congressionally set workload caps. These caps were imposed in the 1990’s  in response to concerns that DOD was inefficiently using its FFRDCs, and  therefore, each fiscal year Congress sets an annual limitation on the  Staffyears of Technical Effort (STE) that DOD FFRDCs can use to conduct  work for the agency. The STE limitations aim to ensure that (1) work is  appropriate and (2) limited resources are used for DOD’s highest  priorities. Congress also sets an additional workload cap for DOD’s  FFRDCs for certain intelligence programs. Once DOD receives from  Congress the annual total for STEs, then DOD’s Office of the  Undersecretary of Acquisition, Technology and Logistics allocates them  across DOD’s FFRDCs based on priorities set forth in the annual research  plan developed by each FFRDC. DOD officials observed that while the  overall DOD budget has increased about 40 percent since the early 1990s,  the STE caps have remained steady, and therefore, DOD must turn aside  or defer some FFRDC-appropriate work to subsequent years. Although the  majority of work that DOD’s FFRDCs conduct is subject to these  limitations, the work that DOD FFRDCs conduct for non-DOD entities is  not subject to these caps.
Each sponsoring agency also reviews and approves tasks for individual  FFRDC projects to make sure that those tasks (1) are consistent with the  core statement of the FFRDC and (2) would not constitute a “personal  service” or inherently governmental function. Listed below are examples  of procedures used by agencies included in our review to approve tasks  for individual projects:    DOD sponsors generally incorporate in their sponsoring agreement  guidelines for performance of work by the FFRDC. The work is screened  at various levels for appropriateness, beginning with FFRDC clients who  request the work, then program and contract managers, and then it is  reviewed and approved as well by the primary sponsor. In some cases,  projects are entered into a computer-based tool, which the Air Force has  developed to determine and develop its overall requirements for that year.  The tool is intended to assist the Air Force in prioritizing requests for its  FFRDC and in ensuring that work requested is in accordance with  guidelines and that potential alternative sources have been considered.
DOE FFRDCs must document all DOE-funded projects using work  authorizations to help ensure that the projects are consistent with DOE’s  budget execution and program evaluation requirements. In addition, DOE  uses an independent scientific peer-review approach—including faculty  members and executives from other laboratories—at several of its FFRDC  laboratories to ensure the work performed is appropriate for the FFRDC  and scientifically sound. In some cases, DOE’s Office of Science holds  scientific merit competitions between national laboratories (including  FFRDCs), universities, and other research organizations for some R&D  funding for specific projects.
HHS uses an automated “yellow task” system to determine if work is  appropriate for its FFRDC, and several officials must approve requests for  work, including the government contracting officer and overseeing project  officer for the FFRDC, with reference to a set of criteria. This agency  requires a concept review by advisory boards for the various HHS  institutes to ensure the concept is appropriate for the FFRDC and meets  its mission or special competency.
DHS requires certain officials at its sponsoring office to conduct a  suitability review using established procedures for reviewing and  approving DHS-sponsored tasks. This review is required under DHS’s  Management Directive for FFRDCs.
FFRDCs are required to have their sponsors review and approve any work  they conduct for others, and the four agencies included in our review have  policies and procedures to do so. FFRDCs may conduct work for others  when required capabilities are not otherwise available from the private  sector. This work for others can be done for federal agencies, private  sector companies, and local and state governments. The sponsoring  agency of an FFRDC offers the work for others, with full costs charged to  the requesting entity, to provide research and technical assistance to solve  problems. At laboratory FFRDCs, work for others can include creating  working models or prototypes. All work placed with the FFRDC must be  within the purpose, mission, general scope of effort, or special  competency of the FFRDC.
Work for others is considered a technology transfer mechanism, which  helps in sharing knowledge and skills between the government and the  private sector. Under work for others, according to DOD officials and  federal regulation, the title to intellectual property generally belongs to the  FFRDC conducting the work, and the government may obtain a  nonexclusive, royalty-free license to such intellectual property or may  choose to obtain the exclusive rights. As required by FAR, sponsoring  agreements or sponsoring agencies we reviewed identified the extent to  which their FFRDCs may perform work for other than the sponsors (other  federal agencies, state or local government, nonprofit or profit  organizations, etc.) and the procedures that must be followed by the  sponsoring agency and the FFRDC. In addition, according to agency  officials FFRDCs have a responsibility to steer inquiries about potential  research for other entities to their primary sponsor’s attention for  approval. Agency officials stated that they work with their FFRDCs when  such situations arise.
DOE’s Office of Science established a “Work for Others Program” for all of  its FFRDC laboratories. Under this program, the contractor of the FFRDC  must draft, implement, and maintain formal policies, practices, and  procedures, which must be submitted to the contracting officer for review  and approval. In addition, DOE may conduct periodic appraisals of the  contractor’s compliance with its Work for Others Program policies,  practices, and procedures. For DOE’s National Nuclear Security  Administration (NNSA), officials reported that the work for others process  at the Sandia National Laboratories requires DOE approval before the  Sandia Corporation develops the proposed statement of work, which is  then sent to DOE’s site office for review and approval.
For DHS, each FFRDC includes the work for others policy in its  management plan. For example, one management plan states that the  FFRDC may perform work for others and that such work is subject to  review by the sponsoring agency for compliance with criteria mutually  agreed upon by the sponsor and the FFRDC contractor. The DHS FFRDC  laboratory director said he routinely approves any work-for-others  requests but gives first priority to the DHS-sponsored work. The sponsor  for this FFRDC also periodically assesses whether its work for others  impairs its ability to perform work for its sponsor.
HHS and DOD also have work-for-others programs for the FFRDCs they  sponsor. For example, at HHS’s FFRDC the program is conducted under a  bilateral contract between the entity that is requesting the work and the  FFRDC to perform a defined scope of work for a defined cost. This agency  developed a standard Work for Others Agreement for its FFRDC, the terms  and conditions of which help ensure that the FFRDC complies with  applicable laws, regulations, policies, and directives specified in its  contract with the HHS.
Some agency sponsors report that work for others at their FFRDCs has  grown in the past few years. For example, DOE officials said work for  others at the Sandia National Laboratories related to nanotechnologies  and cognitive sciences has grown in the last 3 years. As shown in table 1,  the amount of work for others by FFRDCs since fiscal year 2001 has  increased for many of the FFRDCs included in our review.
While funding for work for others has increased, some agencies in our  review reported limiting the amount of work for others their FFRDCs  conduct. For example, DOE’s Office of Science annually approves overall  work-for-others funding levels at its laboratories based on a request from  the laboratory and recommendation from the responsible site office. Any  work-for-others program that is above 20 percent of the laboratory’s  operating budget, or any request that represents a significant change from  previous year’s work-for-others program will be reviewed in depth before  the approval is provided. Similarly, DOE officials limit commitments to  conduct work for others at the National Renewable Energy Laboratory’s to  about 10 percent of the laboratory’s total workload.
section_title: Agencies Assess FFRDCs’ Performance, Costs, and Internal Controls
paragraphs: In addition to ensuring work is appropriate for their FFRDCs, the four  sponsoring agencies in our case study regularly review the contractors’  performance in operating the FFRDCs, including reviewing and approving  costs incurred in operations and internal control mechanisms. Agency  performance evaluations for FFRDC contractors vary, particularly  between those that incorporate performance elements into their contracts  and those that do not. Furthermore, contracting officers at each agency  regularly review costs to ensure that they are appropriate, in some cases  relying on audits of costs and internal controls to highlight any potential  issues.
subsections: section_title: Agencies Review Performance of FFRDC and Operating Contractor
paragraphs: All four agencies conduct at least annual reviews of the performance of  their FFRDCs and contractors. At three agencies, the outcomes of these  reviews provide the basis for contractors to earn performance-based  incentives or awards. Specifically, DOE, HHS, and DHS provide for award  fees to motivate contractors toward excellence in high performance, and  contractors operating FFRDCs for DOE and DHS may earn additional  contract extensions by exceeding performance expectations.
DOE uses a performance-based contracting approach with its FFRDCs,  which includes several mechanisms to assess performance. First, DOE  requires contractors to conduct annual self-assessments of their  management and operational performance. Also, contracting officers  conduct annual assessments of the performance of the FFRDC contractor,  relying in part on user satisfaction surveys. All of this input contributes to  each lab’s annual assessment rating. For example, Sandia National  Laboratories, operated by Sandia Corporation (a subsidiary of Lockheed  Martin) received an overall rating of “outstanding” for fiscal year 2007 and  was awarded 91 percent of its available award fee ($7.6 million of a  possible total fee of $8.4 million). DOE noted that Sandia National  Laboratories’ scientific and engineering support of U.S. national security  was an exceptional performance area. DOE publishes such “report cards”  for its laboratories on the internet. DOE includes detailed performance  requirements in each contract in a Performance Evaluation and  Measurement Plan that is organized by goals, objectives, measures, and  targets. The DOE Office of Science mandates that each of its ten FFRDC  laboratories establish the same eight goals in each FFRDC’s contractual  plan. For example, the Ernest Orlando Lawrence Berkeley National  Laboratory, operated by the University of California, received high ratings  in providing efficient and effective mission accomplishment and science  and technology program management. These ratings resulted in an award  of 94 percent or $4.2 million of the total available fee of $4.5 million.
HHS, which also uses performance-based contracting, has identified  certain designated government personnel to be responsible for evaluation  of the FFRDC contractor. This review process includes different levels of  reviews, from coordinators who review performance evaluations to an  FFRDC Performance Evaluation Board, which is responsible for assessing  the contractor’s overall performance. The board rates each area of  evaluation based on an established Performance Rating System to  determine the amount of the contractor’s award fee. In fiscal year 2007,  the National Cancer Institute at Frederick, operated by Science  Applications International Corporation-Frederick (a subsidiary of Science  Applications International Corporation), received 92 percent of its  available award fee or $6.9 million of a possible $7.4 million.
Similar to the other agencies, DHS regularly conducts performance  reviews throughout the life cycle of its FFRDC contract. This includes  program reviews as described in the sponsoring agreement, midyear status  reviews, technical progress reports, monthly and quarterly reports, and  annual stakeholder surveys to ensure the FFRDC is meeting customer  needs. DHS also drafts a multiyear improvement plan and collects  performance metrics as evidence of the FFRDC’s performance. For fiscal  year 2007, Battelle National Biodefense Institute, operating the National  Biodefense Analysis and Countermeasures Center, received 82 percent of  its performance-based award fee amounting to $1.4 million. According to  DHS officials, Analytic Services, Inc., which operates the Homeland  Security Institute, received a fixed fee of about 2 percent or approximately  $.68 million for fiscal year 2007.
DOD conducts annual performance reviews and other internal reviews,  such as conducting periodic program management reviews and annual  customer surveys to monitor the performance of its FFRDCs in meeting  their customers’ expectations. As part of this review process, major users  are asked to provide their perspectives on such factors as the use and  continuing need for the FFRDC, and how these users distinguish work to  be performed by the FFRDC from work to be performed by others.  According to DOD, these performance evaluations provide essential input  to help it assess the effectiveness and efficiency of the FFRDC’s  operations. Typically the performance reviews obtain ratings from FFRDC  users and sponsors on a variety of factors including the quality and value  of the work conducted by the FFRDCs, as well as its ability to meet  technical needs, provide timely and responsive service, and manage  costs.
section_title: Agencies Review Costs and Internal Controls
paragraphs: Federal regulations, policies, and contracts establish various cost,  accounting, and auditing controls that agencies use to assess the adequacy  of FFRDC management in ensuring cost-effective operations and ensure  that costs of services being provided to the government are reasonable.  Sponsors of the FFRDCs we reviewed employ a variety of financial and  auditing oversight mechanisms to review contractors’ management  controls, including incurred cost audits, general financial and operational  audits, annual organizational audits, and audited financial statements.  These mechanisms differ, depending on the agencies involved and the type  of organization operating the FFRDCs.
Under cost-reimbursement contracts, the costs incurred are subject to  cost principles applicable to the type of entity operating the FFRDC. Most  FFRDC contracts we examined include a standard clause on allowable  costs that limits contract costs to amounts that are reasonable and in  compliance with applicable provisions of the FAR. Under the FAR,  contracting officers are responsible for authorizing cost-reimbursement  payments and may request audits at their discretion before a payment is  made. In addition, when an allowable cost clause is included in a contract,  the FAR requires that an indirect cost rate proposal be submitted annually  for audit. At DOD, the Defense Contract Audit Agency (DCAA) generally  performs both annual incurred cost audits and close-out audits for  completed contracts and task orders at the end of an FFRDC’s 5-year  contract term. The audit results are included in the comprehensive review  of DOD’s continued need for its FFRDCs. DCAA also performs these types  of audits for DHS’s FFRDCs. At DOE, the Office of the Inspector General  is responsible for incurred cost audits for major facilities contractors. At  HHS, officials stated that while the contracting officer for its FFRDC  regularly reviews the incurred costs, no audits of these costs have been  performed.
Agencies and FFRDC contractors also conduct financial and operational  audits in addition to incurred cost audits. DOE relies primarily upon  FFRDC contractors’ annual internal audits rather than on third-party  monitoring through external audits. These internal audits are designed to  implement DOE’s Cooperative Audit Strategy—a program that partners  DOE’s Inspector General with contractors’ internal audit groups to  maximize the overall audit coverage of M&O contractors’ operations and  to fulfill the Inspector General’s responsibility for auditing the costs  incurred by major facilities contractors. This cooperative audit strategy  permits the Inspector General to make use of the work of contractors’  internal audit organizations to perform operational and financial audits,  including incurred cost audits, and to assess the adequacy of contractors’  management control systems. DHS and DOD generally rely on audits  performed by those agencies, a designated audit agency, or an accounting  firm, though their FFRDC contractors usually perform some degree of  internal audit or review function as part of their overall management  activity.
In addition, all nonprofits and educational institutions that annually  expend more than $500,000 in federal awards—including those that  operate FFRDCs—are subject to the Single Audit Act which requires  annual audits of: (1) financial statements, (2) internal controls, and (3)  compliance with laws and regulations. We have previously reported these  audits constitute a key accountability mechanism for federal awards and  generally are performed by independent auditors.  At DOD, for example,  DCAA participates in single audits normally on a “coordinated basis”—at  the election of the organization being audited—with the audited  organization’s independent public accountant. The financial statements,  schedules, corrective action plan, and audit reports make up the single  audit package, which the audited organization is responsible for  submitting to a federal clearing house designated by OMB to receive,  distribute, and retain. DOD’s Office of Inspector General, for example, as a  responsible federal agency, receives all single audit submissions for  nonprofits and educational institutions that operate DOD’s FFRDCs. These  audit results are employed by DOD as partial evidence of its FFRDCs’ cost- effectiveness and incorporated in the 5-year comprehensive reviews.  These annual single audits for nonprofit and educational FFRDC  contractors are a useful adjunct to other cost, accounting, and auditing  controls discussed previously, designed to help determine contractor  effectiveness, efficiency, and accountability in the management and  operation of their FFRDCs.
Private contractors that publicly trade their securities on the exchanges— including those that operate FFRDCs—are registered with the Securities  and Exchange Commission (SEC) and are required to file audited financial  statements with the SEC. These audited statements must be prepared in  conformity with generally accepted accounting principles (GAAP) and  securities laws and regulations, including Sarbanes-Oxley, that address  governance, auditing, and financial reporting. These financial statements  are designed to disclose information for the benefit of the investing public,  not to meet government agencies’ information needs. Accordingly, SAIC  and Lockheed—private contractors that manage National Cancer Institute  at Frederick and Sandia National Laboratories respectively—prepare  audited financial statements for their corporate entities, but do not  separately report information on their individual FFRDCs’ operations.
Finally, even though financial statements are not required by university  and nonprofit sponsored FFRDCs, some of the FFRDCs in agencies we  reviewed have audited financial statements prepared solely for their own  operations. DOD’s Aerospace and DHS’s HSI and NBACC are examples.  Most others’ financial operations, however, are included in the audited  financial statements of their parent organizations or operating contractor.  Some, like MITRE, which manages not only DOD’s C3I FFRDC but also  two others (one for the Federal Aviation Administration and one for the  Internal Revenue Service), provides supplemental schedules, with balance  sheets, revenues and expenses, and sources and uses of funds for all three  FFRDCs. Others, like the Institute for Defense Analyses, which also  operates two other FFRDCs in addition to the Studies and Analyses Center  for DOD, provide only a consolidated corporate statement with no  information on specific FFRDCs.
section_title: Agencies Periodically Rejustify Their Sponsorship of FFRDCs
paragraphs: The FAR requires that a comprehensive review be undertaken prior to  extending a sponsoring agreement for an FFRDC. We found that the four  agencies in our case study were conducting and documenting these  reviews, but noted that implementation of this requirement by each agency  is based on its own distinct management policies, procedures, and  practices.
During the reviews prior to agreement renewal, sponsoring agencies  should include the following five areas identified by the FAR examination of the continued need for FFRDC to address its sponsor’s  technical needs and mission requirements; consideration of alternative sources, if any, to meet those needs; assessment of the FFRDC’s efficiency and effectiveness in meeting the  sponsor’s needs, including objectivity, independence, quick response  capability, currency in its field(s) of expertise, and familiarity with the  sponsor; assessment of the adequacy of FFRDC management in ensuring a cost- determination that the original reason for establishing the FFRDC still  exists and that the sponsoring agreement is in compliance with FAR  requirements for such agreements.
DOD sponsoring offices begin conducting detailed analyses for each of the  five FAR review criteria approximately 1 to 2 years in advance of the  renewal date. As DOD has received criticism in the past for its lack of  competition in awarding FFRDC contracts, it now conducts detailed and  lengthy comprehensive reviews prior to renewing FFRDC sponsoring  agreements and contracts with incumbent providers. DOD’s FFRDC  Management Plan lays out procedures to help provide consistency and  thoroughness in meeting FAR provisions for the comprehensive review  process. DOD procedures require, and the comprehensive reviews we  examined generally provided, detailed examinations of the mission and  technical requirements for each FFRDC user, and explanations of why  capabilities cannot be provided as effectively by other alternative sources.  For example, DOD convened a high level, independent Technical Review  Panel to review whether Lincoln Laboratory’s research programs were  within its mission as well as whether the research was effective, of high  technical quality, and of critical importance to DOD. The panel— composed of a former Assistant Secretary of the Air Force, a former  president of another FFRDC, former senior military officers, and a high  level industry representative—found that no other organizations had the  capacity to conduct a comparable research program. In addition, DOD  sponsors use information from annual surveys of FFRDC users that  address such performance areas as cost effectiveness and technical  expertise. Determinations to continue or terminate the FFRDC agreement  are made by the heads of sponsoring DOD components (e.g., the Secretary  of the Army or Air Force) with review and concurrence by the Office of  the Under Secretary of Defense for Acquisition, Technology, and Logistics.
DOE has a documented comprehensive review process that explicitly  requires DOE sponsors to assess the use and continued need for the  FFRDC before the term of the agreement has expired. DOE’s process  requires that the review be conducted at the same time as the review  regarding the decision to extend (by option) or compete its FFRDC  operating contract. According to DOE’s regulation, the option period for  these contracts may not exceed 5 years and the total term of the contract,  including any options exercised, may not exceed 10 years. DOE relies on  information developed as part of its annual performance review  assessments as well as information developed through the contractor’s  internal audit process to make this determination. The comprehensive  review conducted prior to the most recent award of the contract to  operate Sandia National Laboratories concluded that the FFRDC’s overall  performance for the preceding 6 years had been outstanding. The  Secretary of Energy determined that the criteria for establishing the  FFRDC continued to be satisfied and that the sponsoring agreement was  in compliance with FAR provisions.
At DHS, we found that its guidance and process for the comprehensive  review mirror many aspects of the DOD process. DHS has undertaken only  one such review to date, which was completed in May 2008. As of the time  we completed our work, DHS officials told us that the documentation  supporting the agency’s review had not yet been approved for release.
HHS—in contrast to the structured review processes of the other  agencies—relies on the judgment of the sponsoring office’s senior  management team, which reviews the need for the continued sponsorship  of the FFRDC and determines whether it meets the FAR requirements.
Agency officials stated that this review relies on a discussion of the  FFRDC’s ability to meet the agency’s needs within the FAR criteria, but  noted there are no formal procedures laid out for this process. The final  determination is approved by the director of the National Cancer Institute  and then the director of the National Institutes of Health.
section_title: No Formal Interagency Mechanisms Exist for Sharing of Best Practices for Overseeing FFRDCs
paragraphs: Some agencies have used the experiences of other agencies as a model for  their own oversight of their FFRDCs. There is no formal mechanism,  however, for sharing of best practices and lessons learned among  sponsoring agencies.
DHS officials have adopted several of DOD’s and DOE’s policies and  procedures for managing FFRDCs to help their newly created FFRDCs  gain efficiencies. DHS mirrored most of DOD’s FFRDC Management Plan,  and officials have stated that the STE limitations for DOD could be a  potentially useful tool for focusing FFRDCs on the most strategic and  critical work for the agency. Also, DHS officials stated they have made use  of DOE’s experience in contracting for and overseeing the operation of its  laboratories, such as including a DOE official in the DHS process to select  a contractor to operate its laboratory FFRDC. In addition, HHS officials  said they are incorporating the DOE Blue Ribbon Report recommendation  to set aside a portion of the incentive fee paid on their FFRDC contract to  reward scientific innovations or research. The idea for the new contract is  to base 80 percent of the available award fee in a performance period on  operations and use the final 20 percent to reward innovation. HHS also  may adopt the technique used by DOE of providing for contract extensions  on the basis of demonstrated exceptional performance.
To take advantage of others’ experiences, some FFRDCs sponsored by  particular agencies have formed informal groups to share information. For  example, DOD’s FFRDCs have formed informal groups at the functional  level—Chief Financial Officers, Chief Technology Officers, and General  Counsels—which meet periodically to share information on issues of  common concern. In addition, the security personnel from the DOD  FFRDC contractors meet once a year to discuss security and export  control related issues. The contractor officials at Sandia National  Laboratories said they share best practices for operating DOE’s laboratory  FFRDCs at forums such as the National Laboratory Improvement Council.  This Council was also mentioned in a DOE review of management best  practices for the national laboratories as one of the few groups that  deliberate a broader and more integrated agenda among laboratories.
Despite these instances of information sharing within agencies and the  acknowledgment by some officials of potential benefits in such knowledge  sharing, no formal mechanisms exist for sharing information across  agencies that sponsor and oversee FFRDCs. We reported in 2005 that  federal agencies often carry out related programs in a fragmented,  uncoordinated way, resulting in a patchwork of programs that can waste  scarce funds, confuse and frustrate program customers, and limit the  overall effectiveness of the federal effort. The report suggested frequent  communication across agency boundaries can prevent misunderstandings,  promote compatibility of standards, policies, and procedures, and enhance  collaboration. For example, the Federal Laboratory Consortium for  Technical Transfer was created to share information across national  laboratories. This includes the FFRDC laboratories, but not the other  types of FFRDCs. Some agency officials stated that there would be  benefits to sharing such best practices.
section_title: Conclusions
paragraphs: All federal agencies that sponsor FFRDCs are subject to the same federal  regulations, and each agency included in our review has developed its own  processes and procedures to ensure compliance and conduct oversight of  its FFRDCs. For the most part the differences in approaches are not of  great consequence. In at least one key area, however, the different  approaches have the potential to produce significantly different results.  Specifically, while all FFRDCs are required to address organizational  conflicts of interest, only DOD and DOE have requirements that their  FFRDC contractors address specific areas of personal conflicts of interest  of their employees. In light of the special relationship that FFRDCs have  with their sponsoring agencies, which often involves access to sensitive or  confidential information, it is critical not only that the FFRDC as an entity  but also that employees of the entity in positions to make or influence  research findings or agency decision making be free from conflicts.  Lacking such safeguards, the FFRDC’s objectivity and ability to provide  impartial, technically sound, objective assistance or advice may be  diminished. The two agencies with the most experience sponsoring  FFRDCs have recognized this gap and have taken steps to address  personal conflicts of interest. These steps are consistent with our recent  recommendation to DOD that highlighted the need for personal conflicts- of-interest safeguards for certain contractor employees. The other  agencies included in our review of FFRDCs could benefit from additional  protections in the area of personal conflicts of interest. Currently,  although DHS and HHS have policies that generally require their FFRDC  contractors to implement such safeguards, they lack the specificity needed  to ensure their FFRDC contractors will consistently address employees’  personal conflicts of interest.
Conflict-of-interest requirements is only one of several areas where  agencies that sponsor FFRDCs can learn from each other. Other areas  include the use of effective and efficient oversight mechanisms such as  incentive and award fees, obtaining competition, and conducting  comprehensive reviews. In the absence of established knowledge-sharing  mechanisms, however, agencies may be missing opportunities to enhance  their management and oversight practices. Sharing knowledge among  agencies that sponsor FFRDCs, as has been done informally in some  instances, could help to ensure that agencies are aware of all the various  tools available to enhance their ability to effectively oversee their  FFRDCs.
section_title: Recommendations for Executive Action
paragraphs: To ensure that FFRDC employees operate in the government’s best  interest, we recommend   that the Secretary of Homeland Security revise agency policies to  address specific areas for potential personal conflicts of interest  for FFRDC personnel in a position to make or materially influence  research findings or agency decision making; and  that the Secretary of Health and Human Services review agency  policy  regarding personal conflicts of interest for its sponsored  FFRDC and revise as appropriate to ensure that this policy  addresses all personnel in a position to make or materially  influence research findings or agency decision making.
To improve the sharing of oversight best practices among agencies that  sponsor FFRDCs, we recommend that the Secretaries of Energy, Defense,  Homeland Security, and Health and Human Services, which together  sponsor the vast majority of the government’s FFRDCs, take the lead in  establishing an ongoing forum for government personnel from these and  other agencies that sponsor FFRDCs to discuss their agencies’ FFRDC  policies and practices. Areas for knowledge sharing could include, for  example, implementing personal conflicts of interest safeguards and  processes for completing the justification reviews prior to renewing  sponsoring agreements, among others.
section_title: Agency Comments and Our Evaluation
paragraphs: The Departments of Health and Human Services and Homeland Security  concurred with our recommendation that they revise their conflict of  interest policies. In addition, the departments of Defense, Energy, and  Homeland Security all concurred with our recommendation to establish a  forum to share best practices, while HHS is considering participation in  such a forum. We received letters from Defense, Energy, and Health and  Human Services, which are reprinted in appendixes III, IV, and V,  respectively. In addition, the departments of Health and Human Services  and Homeland Security provided technical comments, which we  incorporated where appropriate.
As agreed with your office, unless you publicly announce the contents of  this report earlier, we plan no further distribution of it until 30 days from  the date of this report. We then will provide copies of this report to the  Secretaries of Defense, Energy, Health and Human Services and Homeland  Security and other interested parties. In addition, this report will be made  available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please contact us  at (202) 512-4841 or woodsw@gao.gov or (202) 512-9846 or  mittala@gao.gov. Key contributors to this report are acknowledged in  appendix VI.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: To conduct this review, we chose a nongeneralizable sample of four of the  nine federal agencies that sponsor FFRDCs: the departments of Energy  (DOE) and Defense (DOD) have the longest histories in sponsoring  federally funded research and development centers (FFRDCs) and  sponsor the most—16 and 10, respectively; the Department of Homeland  Security (DHS) has the 2 most recently established FFRDCs; the  Department of Health and Human Services (HHS) has 1 FFRDC  laboratory. From the collective 29 FFRDCs that those four agencies  sponsor, we selected a nongeneralizable sample of 8 FFRDCs that  represented variation among the type of operating contractor, including  some operated by universities, some by nonprofits, and some by private  industry. Within DOD and DHS, we chose FFRDCs that represent the  variation among types these two agencies sponsor, while DOE and HHS  only sponsor laboratory type FFRDCs. See appendix II for the FFRDCs  included in our case study.
To identify sponsors’ contracting and oversight methods at the four  agencies in our case study, we interviewed federal department officials at  each office that sponsors FFRDCs as well as offices that have contractor  management roles and audit roles: (1) DOE’s Office of Science, National  Nuclear Security Administration, Office of Energy Efficiency and  Renewable Energy, Office of Environmental Management, Office of  Nuclear Energy, and Office of Inspector General; (2) DOD’s departments  of the Navy, Air Force, and Army; Office of the Secretary of Defense;  Office of Acquisition, Technology, and Logistics; Defense Contract Audit  Agency; and the Defense Contract Management Agency; (3) HHS’s  National Institutes of Health, National Cancer Institute, and National  Institute of Allergy and Infectious Diseases; and (4) DHS’s Directorate for  Science and Technology. In addition, we obtained and analyzed federal  and agency policies and guidance, contracts for the FFRDCs in our case  studies and other supporting documentation such as performance and  award fee plans, sponsoring agreements (when separate from contracts),  and a variety of audits and reviews. While we did not assess the  effectiveness of or deficiencies in specific agencies’ controls, we reviewed  agency documentation on incurred cost audits, general auditing controls,  single audits, and audited financial statements. We also obtained and  analyzed funding data from sponsoring agencies as well as from the  National Science Foundation (NSF), which periodically collects and  reports statistical information regarding FFRDCs, such as their sponsors,  category types, contractors, and funding. While we did not independently  verify the data for reliability, we reviewed the NSF's methodology and  noted that it reports a 100 percent response rate, no item nonresponse,  and no associated sampling errors.
For FFRDCs in our case study, we conducted on-site visits, interviewed  key contractor administrative personnel, and obtained information and  documentation on how they meet sponsoring agencies’ research needs and  adhere to policy guidance. We observed examples of the types of research  the FFRDCs conduct for their sponsors and obtained and analyzed  documentation such as contractor ethics guidance and policies,  performance plans, and annual reports.
To obtain the perspective of the government contracting community, we  met with high-level representatives of the Professional Services Council, a  membership association for companies that provide services to the U.S.  federal government.
section_title: Appendix II: List of 38 Federally Funded Research and Development Centers
subsections: section_title: El Segundo, Calif.
paragraphs: RAND Corp.
Santa Monica, Calif.
MITRE Corp.
Bedford, Mass., and McLean,  Va.
Alexandria, Va.
Institute for Defense Analyses  Studies and Analyses Center  Alexandria, Va.
Institute for Defense Analyses  Communications and  Computing Center  Alexandria, Va.
Lexington, Mass.
RAND Corp.
Santa Monica, Calif.
RAND Corp.
Santa Monica, Calif.
Pittsburgh, Penn.
Argonne, Ill.
Upton, N.Y.
Brookhaven Science  Associates, Inc.
Ernest Orlando Lawrence  Berkeley National Laboratory  Berkeley, Calif.
Universities Research  Association, Inc.
Batavia, Ill.
Livermore, Calif.
Golden, Colo.
Midwest Research Institute;  Battelle Memorial Institute;  Bechtel National, Inc.
Oak Ridge, Tenn.
Richland, Wash.
Princeton, N.J. (subsidiary of Lockheed Martin  Corp.)
Westinghouse Savannah River  Co.
Aiken, S.C.
Stanford, Calif.
Newport News, Va.
National Cancer Institute at  Frederick Frederick, Md. (wholly owned subsidiary of  Science Applications  International Corp)
Analytic Services, Inc.
Arlington, Va.
National Biodefense Analysis &  Countermeasures Center  Frederick, Md.
National Aeronautics and Space Administration  Pasadena, Calif.
National Astronomy and  Ionosphere Center  Arecibo, P.R.
Boulder, Colo.
Association of Universities for  Research in Astronomy, Inc.
Tucson, Ariz.
Associated Universities, Inc.
Charlottesville, Va.
Science and Technology Policy  Institute  Washington, D.C.
Center for Nuclear Waste  Regulatory Analyses  San Antonio, Tex.
MITRE Corp.
McLean, Va.
MITRE Corp.
McLean, Va.
section_title: Appendix III: Comments from the Department of Defense
section_title: Appendix IV: Comments from the Department of Energy
section_title: Appendix V: Comments from the Department of Health and Human Services
section_title: Appendix VI: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: In addition to the individuals named above, key contributors to this report  were John Neumann, Assistant Director; Cheryl Williams, Assistant  Director; Sharron Candon; Suzanne Sterling; Jacqueline Wade; and Peter  Zwanzig.