Department of Energy: Management of Excess Property
Released: 1998-12-04T00:00:00

Letter

Background

Although most of the Department of Energy’s (DOE) real and personal property is under the control of its contractors, several DOE offices have the responsibility for managing this property. Overall, the office of Field Management is responsible for real property management and field oversight, and the office of Procurement and Assistance Management is responsible for personal property. In addition, the Office of Worker and Community Transition directs various efforts regarding the sale or disposition of surplus assets and compiles reports for the Congress on unneeded real and personal property and pilot projects relative to its overall responsibilities. In addition, DOE’s program offices, such as the office of Defense Programs, are responsible for declaring property excess to their missions’ needs. One program office, Environmental Management, is responsible for the cleanup of contaminated excess property before its disposal. DOE’s field offices oversee the contractors’ efforts to manage the property and maintain the property records.

In its fiscal year 1997 financial statements, DOE reported that it held property, plant, and equipment valued at $20.8 billion—$12.0 billion of real property and $5.2 billion of personal property, with construction work in progress, natural resources, and software accounting for the remaining $3.6 billion. The property amounts include only those items costing $25,000 or more. Items that cost less than $25,000 are expensed for financial statement purposes; DOE contractors held an additional $3.4 billion of such personal property at the end of fiscal year 1997.

In DOE’s fiscal year 1997 Federal Managers’ Financial Integrity Act report accompanying its financial statements, the Department indicated that it had extensive inventories of real and personal property that is no longer necessary and that disposal of this property could save future storage, security, and maintenance costs. In addition, DOE reported problems with the management of personal property. For example, the Rocky Flats Field Office in Colorado identified problems that included a contractor’s inadequate property records systems, incomplete inventory records, and requests made for new work space while comparable space at the site was being designated as excess. (See the bibliography for a list of GAO and Inspector General reports on DOE property management issues.)

Federal Regulations Provide Guidelines for Real Property but DOE’s Guidance Does Not Include Criteria for Determining When Personal Property Is Excess

The federal property management regulations specify that executive agencies should dispose of real and personal property that is excess to their needs and include guidelines for determining when real property is unneeded or underutilized. However, neither the federal regulations nor DOE’s guidance includes similar specific guidelines for determining when personal property is excess. In the absence of criteria in the federal regulations, it is left up to each agency to develop guidelines. DOE implements the overall federal regulations for its real property and has issued supplemental regulations for managing personal property. However, DOE’s regulations for personal property include no criteria for determining when property is excess.

Real Property

The federal property management regulations for the utilization and disposal of real property state that each executive agency should survey the real property under its control at least annually to identify property that is not needed, is underutilized, or is not being put to optimum use. The regulations also include a list of 15 guidelines to be used by executive agencies in these annual reviews, including whether operating and maintenance costs are excessive compared with those of other similar facilities, whether all of the property is essential for program requirements, and whether federal use of the property would be justified if a rental charge equivalent to commercial rates were added to the program costs for the occupants. Federal agencies are to maintain their inventory of real property at the absolute minimum consistent with economical and efficient operations and promptly report to the General Services Administration any real property determined to be excess. The regulations then describe the disposal process to be used for any property determined to be excess. At many of DOE’s facilities, the excess property is contaminated by radiation or other hazardous waste and must be cleaned up before the disposal process can begin.

In addition to the federal property management regulations, DOE’s guidance on life cycle asset management requires the Department to use formal planning methods for real property, including a method to declare property excess. The guidance further defines “excess” as physical assets that are not required for DOE’s needs and for carrying out its missions but does not include any additional criteria for making that determination. According to officials in DOE’s office of Field Management, the field and program offices are to use the guidelines in the federal property management regulations in their planning process and in determining when real property is excess to their needs.

Personal Property

Unlike for real property, neither the federal property management regulations nor DOE’s regulations and guidance include specific criteria for determining when personal property is excess. The federal property management regulations define excess personal property as that which is not required for an agency’s needs and the discharge of its responsibilities. The regulations further state that when property is determined to no longer be required for the “purpose of the appropriation from which it was purchased or for the use to which it has been applied,” an executive agency should reassign the property within its activities.

DOE’s supplemental property management regulations state that management practices are to ensure the best possible use of personal property and that supplies and equipment should generally be limited to those items essential for carrying out DOE’s programs efficiently. DOE’s regulations also state that DOE offices and designated contractors are responsible for continuously surveying property under their control to ensure maximum use and promptly identify property that is excess to their needs. In addition, for laboratory and research equipment, the regulations require a management walk-through of all operating and storage areas at least every 2 years to identify idle and unneeded personal property. Equipment identified as idle and unneeded is to be made available to others or listed as excess. However, there are no guidelines to be used in making these determinations.

After property has been determined to be excess, the regulations state that the property must first be screened for reuse or transfer to others before offering it for sale to the public. Personal property is first screened for reuse within DOE, then for transfers to the Math and Science Education Gift Program (under Executive Order 12821) and to the Community Reuse Organizations/Economic Development program (under P.L. 103-160). Subsequent steps include making property available to educational institutions such as colleges and universities under the Used Energy Related Laboratory Equipment Grant Program (P.L. 101-510) and to other federal agencies and state donation programs. Personal property that remains after the screening process can be sold to the public or discarded.

DOE’s Property Records Do Not Consistently Reflect When Property Is Excess

DOE’s recently revised guidance on property records requires contractors to record property already identified as excess. For real property, the information contained in the property records could be used to determine when additional real property may be excess. However, for personal property, without further guidance, these records will not provide information to help identify other personal property that is no longer needed.

Real Property

DOE currently maintains approximately 22,500 facilities, including buildings, production facilities, and other structures. Property records for these facilities are maintained in DOE’s Facilities Information Management System and contain detailed information on each facility. The field offices are responsible for entering all data into the system, which was implemented as DOE’s agencywide database. This database contains information such as the location, size, age, and acquisition cost of the property and the percentage of a facility being used. It also reflects building status as determined by the DOE field offices, such as operational, standby, or shutdown pending decontamination and decommissioning.

In July 1998, DOE added a new requirement to its real property records system by adding an “excess indicator” to show whether a property has been determined to be excess. In addition, there is a new requirement to include “deferred maintenance” costs for each facility, which are those costs necessary to restore a facility to its operating condition. Employing the federal property management guidelines, DOE field offices and program managers can use information in the database, such as the percentage of a facility being used and its deferred maintenance costs, to identify other facilities that may be excess.

Personal Property

DOE’s contractors hold approximately 95 percent of the Department’s personal property. Of the approximately 744,000 items of personal property held by the contractors, about 89,000 items cost $25,000 or more; the remaining 655,000 items cost less than $25,000 each and are expensed for the purposes of DOE’s financial statements. Contractors are required to maintain property control records for every accountable item of personal property and individual item records for each sensitive item (i.e., those items of personal property considered susceptible to being stolen, such as portable computers or portable power tools).

A contractor’s property records system must be approved by a DOE contracting office. DOE’s May 1998 property management regulations specify the minimum requirements for a property records system. For example, the individual property record for each item should include such information as a description, acquisition cost, physical location, and the status of the item. Status is defined as “active, storage, excess, etc.,” but no further explanation of these terms is given. However, in the absence of criteria, the information in these records such as date of purchase and cost do not aid in determining what personal property is excess.

While DOE Faces Challenges, Some Field and Program Offices Have Initiated Local Solutions

According to DOE officials, the Department faces challenges in identifying and disposing of excess property. The challenges cited by DOE officials include a lack of funding for the decontamination and decommissioning of excess real property and the existence of few incentives for program and field offices to identify property as excess. Nevertheless, field and program offices have made some innovative efforts to dispose of excess real and personal property.

Challenges in the Identification and Disposal of Excess Property

In January 1996, DOE issued a report on 10 categories of nuclear and nonnuclear materials in inventory, including uranium, lead, and chemicals.DOE reported that it had large quantities of the materials that no longer had clearly defined or immediate uses; if left unattended, much of the material could present environmental, safety, and health risks; and maintaining these materials in a safe condition cost millions of dollars annually, although the exact cost was unknown. Although this report specifically addressed materials, the Director of the Office of Policy Analysis, Environmental Management, told us that the concerns about the identification and disposal of excess materials should also be applied to real and personal property. Among the problems noted in the report were that (1) DOE lacks policies and criteria for determining when materials are excess to the Department’s needs and (2) the function of declaring materials excess usually rests with program managers at DOE’s sites, who have little or no incentive to address the problem and who lack the resources and funding to identify and dispose of excess materials. Similarly, other DOE officials with the Office of Contract and Resource Management and the office of Field Management told us that with real and personal property, the Department faces challenges because of a lack of funding and incentives.

Cleaning up excess facilities represents a funding challenge for DOE. Since the Department’s Environmental Management program was created in 1989 to clean up and dispose of contaminated excess facilities, a backlog of over 10,000 facilities has developed. Because of funding concerns, Environmental Management stopped accepting new facilities about 2 years ago and has had to set cleanup priorities based on such criteria as relative risk. According to DOE’s fiscal year 1997 financial report, the cleanup program for Environmental Management facilities and “legacy” wastes represents an unfunded liability of $141 billion. While the Environmental Management program seeks to complete its long-term cleanup strategy for those facilities, DOE anticipates that by the year 2006, up to another 1,500 facilities will be declared excess, almost half of them contaminated.

As with materials, program managers have little or no incentive to identify real and personal property as excess. According to DOE officials in the office of Procurement and Assistance Management and in the Defense Programs, Environmental Management, and Energy Research program offices, managers are reluctant to commit scarce program funding to identify excess property. Program managers do not see all of the costs associated with unneeded property because some of the costs to maintain and store unneeded property are included in overhead costs and are not separately identified. DOE estimates that for its largest Environmental Management sites, it is spending about 20 percent of its overall budget on maintenance and surveillance of facilities and infrastructure. However, without the program managers’ knowing the actual costs to maintain their property, there is little incentive to spend the resources necessary to dispose of it. In addition, DOE noted that declaring property excess may require initiating costly programs to decontaminate or decommission the property. Funds for such programs are not generally available because mission or compliance requirements are funded first.

Examples of Innovative Approaches to Identifying and Disposing of Excess Property

Innovative approaches to the identification and disposal of excess property have been developed at the field and program office levels. Examples include requiring a contractor to reduce surplus property at a site, establishing a group to dispose of excess property and funding its efforts through the sale of that property, creating a computer-based system to facilitate the reuse of materials within DOE, and establishing pilot projects that sought to allow the proceeds from property sales to be retained to fund future disposal efforts.

The most recent contract for the management of the Hanford site in Washington State includes provisions for reducing the site’s overall infrastructure to support its current missions and states that the contractor is expected to use innovative approaches to accomplish this objective. In addition, several of the contract’s performance-based incentives required the contractor to increase the utilization of the space in its facilities; reduce inventory management costs, including carrying costs; and dispose of $50 million of excess personal property.

The contractor at the Hanford site established a group to dispose of excess property through donation programs, transfers to other sites or agencies, and public auctions and negotiated sales. In addition, this group opened a retail store that sells such items as surplus computers and office equipment to the public; sales at this store average $5,000 per week. The proceeds from the public auctions, negotiated sales, and retail store must cover the group’s costs of operation; it receives no additional funding from DOE. Any proceeds that exceed the group’s costs are returned to DOE.

The office of Energy Research has developed an innovative system to better reuse materials within DOE. Although the system currently covers only materials, program officials told us they plan to expand it to include a link to the personal property system. This computer-based system, called the Exchange, is accessible to DOE program personnel on the Internet. By sharing information about materials that are excess at various sites or needed by other sites, the Exchange allows materials to be reused more efficiently. For example, the Idaho Falls site needed sturdy packing boxes in Idaho to ship instruments for repair and calibration, and the Pantex site had about 250 excess boxes in Texas that met this need. The Idaho Falls site estimated that using the Exchange saved it about $50,000 over the cost of new boxes.

As part of its responsibility for the disposition of excess assets, the Office of Worker and Community Transition proposed six pilot projects for fiscal year 1998 to dispose of excess real and personal property. Under these pilot projects, DOE sought to overcome its funding constraints by asking for congressional approval to retain the proceeds generated by the pilot projects and to use them to fund further disposal efforts. These projects included the sale of heavy water at the Savannah River site in South Carolina; the sale of precious metals at Oak Ridge in Tennessee; the leasing of facilities at the Hanford and Savannah River sites; the sale of approximately 100,000 pieces of machinery, tools, and equipment at Rocky Flats in Colorado; and a program at Oak Ridge to refurbish and sell excess electronic equipment. Although DOE’s request was denied, the conference report accompanying DOE’s appropriations urged the Department to proceed with implementation under the current guidelines that allow DOE to retain proceeds from the sales and leases to the extent needed to cover the administrative costs associated with the sales or leases. DOE will evaluate these pilot projects at the end of the fiscal year and report the results to the Congress.

Agency Comments

We sent a draft of this report to the Department of Energy for its review and comment. The Department’s primary comments related to our characterization of the criteria for determining when personal property is no longer needed. DOE generally disagreed with our assessment of the extent to which criteria exist. The Department cited several references to regulations that it believes provide specific criteria for identifying unneeded personal property. However, these regulations are general in nature and do not provide any specific guidance similar to that found in the real property regulations. For example, one of the references cited by DOE states that equipment identified as idle and unneeded should be redeployed or declared excess, as appropriate. However, this does not provide program managers any guidance that defines when an item is to be classified as idle and unneeded. For real property, program managers have 15 guidelines to be used in their annual reviews to help determine when property is not needed, underutilized, or not put to its optimal use. Because the personal property regulations do not provide specific guidance to program managers, we therefore did not revise the report.

DOE also noted that the cleanup of its excess facilities is actually broader in scope than reflected by the $141 billion in its annual report, which represented Environmental Management facilities and legacy wastes. Total environmental liabilities reported in the financial statements were $181 billion. Because our report addresses the environmental cleanup of real property, we did not revise it to reflect the broader environmental costs. DOE also noted a new effort to collect individual facility maintenance and deferred maintenance cost information at the headquarters level that is designed to enable program managers to identify costs to maintain their real property. We did not revise our report because this effort is just getting under way and is not to be completed until fiscal year 2000.

DOE also offered several technical corrections that were incorporated. DOE’s comments are included in appendix I.

Scope and Methodology

To determine what criteria DOE uses to guide the identification and disposal of excess property and whether DOE’s property records reflect what is no longer needed to carry out its missions, we reviewed the federal property management regulations and DOE’s property management regulations and guidance. In addition, we interviewed officials from DOE’s offices of Worker and Community Transition, Procurement and Assistance Management, Field Management, Environmental Management, Energy Research, and Defense Programs, and we reviewed documentation provided by them. We also interviewed officials from DOE and contractor property management organizations at the Hanford site and reviewed their procedures.

To determine what challenges DOE encounters in identifying excess property and to identify innovative approaches being used to dispose of this property, we reviewed DOE’s fiscal year 1997 Federal Managers’ Financial Integrity Act report and supporting documentation, reports from DOE’s Office of the Inspector General, and the January 1996 materials in inventory report. We interviewed officials from DOE’s offices of Worker and Community Transition, Procurement and Assistance Management, Field Management, Environmental Management, Energy Research, and Defense Programs. We also interviewed officials from DOE and contractor property management organizations at the Hanford site and reviewed documentation they provided.

We performed our review from July 1998 through September 1998 in accordance with generally accepted government auditing standards.

As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this letter. At that time, we will send copies to the Secretary of Energy. We will also make copies available to others on request.

Please call me at (202) 512-7106 if you or your staff have any further questions. Major contributors to this report were Jeffrey E. Heil, Carole J. Blackwell, and Kathleen A. Gilhooly.

Bibliography

General Accounting Office

Department of Energy: Property Management Has Improved at DOE’s Rocky Flats Site (GAO/RCED-96-39, Dec. 28, 1995).

Energy Downsizing: Criteria for Community Assistance Needed (GAO/RCED-96-36, Dec. 27, 1995).

Managing DOE: Government Property Worth Millions of Dollars Is Missing (GAO/T-RCED-94-309, Sept. 19, 1994).

Department of Energy: Status of DOE’s Property Management Program (GAO/RCED-94-154FS, Apr. 7. 1994).

Department of Energy: The Property Management System at the Rocky Flats Plant Is Inadequate (GAO/RCED-94-77, Mar. 1, 1994).

Inspector General, Department of Energy

The U.S. Department of Energy’s Facility Reuse at the Rocky Flats Environmental Technology Site (DOE/IG-0425, Aug. 20, 1998).

Personal Property at the Oak Ridge Operations Office and the Office of Scientific and Technical Information (ER-B-98-07, Apr. 6, 1998).

Audit of the Deactivation, Decontamination, and Disposal of Surplus Facilities at the Savannah River Site (ER-B-98-01, Oct. 23, 1997).

Audit of the Use of Hanford Site Railroad System (WR-B-97-04, Mar. 20, 1997).

Audit of the U.S. Department of Energy’s Identification and Disposal of Nonessential Land (DOE/IG-0399, Jan. 8, 1997).

Special Audit Report on the Department of Energy’s Arms and Military-Type Equipment (DOE/IG-0385, Feb. 1996).

Audit of Light Vehicle Fleet Management in the Department of Energy (DOE/IG-0362, Dec. 1994).

Audit of the Transfer of Government-Owned Property at the Mound and Pinellas Plants (DOE/IG-0360, Nov. 1994).

Summary Report on DOE’s Management of Personal Property (DOE/IG-0344, Mar. 1994).

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