The Federal Acquisition Regulation and Cost Accounting Standards provide overall requirements for allocating incurred costs either directly to a program or indirectly to pools of similar types of costs that are allocated proportionately among the programs. For example, to avoid double counting and ensure that DOE programs and other federal agencies pay an appropriate share of indirect costs, the standards require that a contractor use consistent methods for estimating costs for each project or activity. That is, if the laboratory charges one project $8 per square foot for maintenance, it must charge other projects in the same manner. Contractors submit for DOE approval accounting policy statements describing how they will classify costs as direct or indirect. DOE improved its ability to compare laboratories’ costs in fiscal year 1997, when it began requiring contractors to report all functional support costs, regardless of how they were classified. Functional support cost data facilitate comparisons of laboratories’ costs because they are intended to include all costs that support laboratory missions, regardless of whether a particular laboratory has classified the support costs as direct or indirect. However, functional support costs have limitations in that they cannot account for differences in the mission, size, age, or location of DOE facilities. Facility comparisons need to factor in the differences, for example, in (1) maintenance costs for a 50-year-old manufacturing facility as compared with those of a modern research facility or (2) safety and health costs at a facility that uses nuclear materials as compared with a facility with no nuclear materials. From fiscal years 2000 through 2004, indirect cost rates increased at two of the five DOE laboratories we examined and decreased at the other three laboratories. A laboratory’s indirect cost rates are generally comparable over time, but the indirect cost rates of different laboratories are not comparable because contractors often categorize costs differently. Regarding functional support costs, three of the five laboratories’ rates increased, while rates of two laboratories decreased during the same 5-year period. While functional support cost data help DOE to compare rates across laboratories, several DOE and contractor officials told us that the definitions for some categories are unclear, leading to confusion among categories. Finally, because of the differences in how DOE contractors categorize direct and indirect costs, and because other federal, non-DOE contractors do not collect and report functional support costs, the rates at DOE’s laboratories cannot be compared with those of the Jet Propulsion Laboratory or Lincoln Laboratory. From fiscal years 2000 through 2004, indirect cost rates increased at two laboratories operated by DOE contractors and decreased at three. Los Alamos had the largest increase—10.4 percent. Nearly all of this increase occurred during the 4th quarter of fiscal year 2004 and, according to Los Alamos officials, was attributable to the “stand down” of activities that the laboratory director ordered in July 2004 in response to a series of safety and security incidents. In particular, the Los Alamos officials told us that the stand down resulted in lower program costs without similarly lower indirect costs. For example, $8 million in staff costs for the stand down’s first 2 days was treated as indirect costs as laboratory managers developed plans for assessing and resolving the safety and security issues. Once risk assessment and mitigation activities began, stand-down costs were charged directly to benefiting programs. Los Alamos officials stated that general and administrative costs, especially costs in the “executive direction” category, were higher than expected, while direct program costs were lower. The indirect cost rate for Lawrence Livermore increased as well by 2.9 percent from fiscal years 2000 through 2004 because of additional costs, such as those related to facilities safety, maintenance, environmental protection, and hazard control. In contrast, Idaho National Laboratory’s indirect cost rate decreased by 32.1 percent during the 5-year period, mainly because the contractor reclassified a large portion of its costs associated with environmental cleanup operations from indirect to direct in fiscal year 2004. According to contractor officials, these costs were reclassified in response to DOE’s decision to split the management and operating contract, which expired during fiscal year 2005, into two parts by awarding separate contracts for laboratory operations and the environmental restoration of the site. Laboratories can make changes in how they account for indirect costs, and, when they do, they are required to document these changes in their disclosure statement for DOE approval. The indirect cost rates for Oak Ridge and Sandia decreased by 7.3 percent and 2.2 percent, respectively, between fiscal years 2000 and 2004. According to Oak Ridge contractor officials, the decrease resulted from several factors, including management’s decision to limit the growth of indirect costs while the laboratory’s total spending grew—when total costs increase at a higher rate than indirect costs, the indirect cost rate will decrease because the rate equals the indirect costs divided by total costs. Indirect cost rates cannot be meaningfully compared across laboratories because one contractor may track costs more closely, allowing the contractor to classify a higher proportion of the cost of a support activity, such as administration, as a direct cost than another contractor does. For example, from fiscal years 2000 through 2003, Oak Ridge and Sandia classified administrative support costs as both indirect and direct costs, while Idaho classified all administrative support costs as indirect. Similarly, Idaho classified road and ground maintenance as direct costs, while Lawrence Livermore and Oak Ridge treated them as indirect costs. Two contractor officials provided other examples of costs that laboratories are likely to classify differently: subcontract administration, any type of fringe benefit, program management, organizational management and administration, facility management and maintenance, and information technology functions. A Lawrence Livermore official noted, for example, that one contractor may treat desktop software used by many programs as a direct cost, while another contractor may bundle these software purchases into a common site license that is paid from an indirect account. The indirect cost rate may be higher in the latter case, but the goods may be obtained at a lower cost. Thus, higher indirect costs do not necessarily equate with less efficiency. Further, the five DOE contractors use different methods to classify support activities—that is, they differed in how indirect costs are collected and distributed. For example, one contractor used 4 major indirect cost pools while another contractor used 12 indirect cost pools for distribution among programs. Similarly, the number of major service centers at the five DOE laboratories ranged from 6 to 14. Service centers are accounts where costs of specific services are accumulated and charged on the basis of services rendered, either to a program or to other indirect cost pools. Common service centers are telecommunications and computing centers. Table 1 shows that for fiscal years 2000 through 2004, three laboratories’ functional support cost rates increased and two laboratories’ decreased. These rates are the functional support costs as a percentage of total costs without capital construction. Again, Los Alamos had the largest increase, 8.1 percent, and Idaho had the largest decrease, 11.8 percent. Functional support costs were primarily developed to facilitate the analysis of each facility’s costs. While not intended for comparison purposes, they provide more comparability across laboratories than indirect costs because they are developed on the basis of standard, defined cost categories. However, detailed analysis is required to determine whether rate differences are the result of inefficiencies or other factors, such as differences in each facility’s mission, activities, location, or size. For example, costs for safety and health, maintenance, and utilities at Los Alamos are higher than costs at other sites because, according to DOE officials, the laboratory has 2,224 facilities on 27,800 acres of mesas and canyons. Also, Los Alamos uses plutonium and other hazardous materials, which require added safety procedures, and accelerator facilities, which consume large amounts of electricity. While functional support cost rates facilitate improved analysis of laboratory costs, several DOE and contractor officials told us that the definitions for some categories are somewhat unclear, leading to confusion in how to categorize certain costs. Notably, the “facilities management” and “maintenance” categories are somewhat ambiguous and, hence, are not fully comparable across laboratories. Peer reviewers checking for accuracy of classification of costs have found that several laboratories have misclassified costs between the two categories. In July 2003, peer reviewers found that Sandia had classified $1.1 million of facilities management costs as maintenance and $8.8 million in maintenance costs as facilities management. In June 2004, peer reviewers found that Los Alamos had classified $550,000 in maintenance costs as facilities management. In addition, in fiscal year 2003, a Lawrence Livermore internal review found that the laboratory had categorized plant facility engineering costs as maintenance, while other laboratories had categorized these costs as facilities management. In 2004, after discussing the categories with DOE and contractor officials involved in reviewing functional support cost data, Lawrence Livermore moved $15 million from the fiscal years 2002 and 2003 maintenance category to the facilities management category. Most of the peer reviews for the DOE laboratories and other facilities found difficulties with which cost elements were placed in or omitted from “facilities management” and “maintenance,” according to our analysis. In addition, peer reviews at Los Alamos and Oak Ridge found over $2 million of legal or information services costs that was misclassified in the “executive direction” category, another example of a category whose definition may be unclear. Idaho officials reported that discrepancies in executive direction cost data between Idaho and other sites resulted from uncertainty about how many levels of management or what type of site development and strategic planning costs are to be included in the executive direction category. Differences in interpretation result from insufficiently detailed guidance for developing functional support costs. The guidance primarily consists of 10 pages of 22 support category definitions. DOE’s Web site does not have more detailed instructions that contractors can turn to when they are uncertain whether a cost should be classified under one category or another. Contractor officials developing cost data often turn to different DOE or contractor officials with responsibility for these data for help, increasing the likelihood of getting different advice, despite the fact that consistency is key to data quality.