posted by Damozel | Anyone who has ever had to hire a contractor to oversee a building project knows this: contractors quite often have trouble staying within budget and getting the job done on time. This often isn't the contractor's fault: over the course of a long-term construction project, shit happens. Materials turn out to be unavailable; building permits get delayed or denied; bad weather prevents work from progressing; external causes wreak havoc on the project (hurricane, vandalism, theft); subcontractors get into a snit and walk off the job or do substandard work and on and on and on. It's because shit happens in this less than perfect world that people hire contractors in the first place. You hire them because they know more than you do.
On the other hand, the average reasonable person does enter into such an arrangement with certain expectations. If you arrange with a contractor to build a house for $200,000, you expect to get the house for somewhere in the neighborhood of $200,000 (with due allowance for additional costs attributable to necessary changes to the plans). If you arrange for your house to be completed by a specified estimated date, you expect that it will be completed sometime in the vicinity of that date (with due allowance for necessary extensions of time).
So it's a bit of a shock to learn that a project that was intended to be completed in 2011 and to cost taxpayers $4.3 billion won't be finished till 2019 and that it is going to cost the taxpayers $12.2 billion. And since they've already spent $3 billion, it's not as if they can just decide to forget the whole thing .
How is this even possible?
One reason I never believe conspiracy theories is this: the U.S. government can't even seem to build a waste treatment plant----yes, okay, ""one of the largest and most complex nuclear waste cleanup projects in the nation" (GAO at 1)---without losing track of so-called "taxpayer" dollars.
According to the Government Accountability Office, the Department of Energy has a history of laissez-faire relationships with contractors. When they hire contractors to manage construction projects, they've tended---according to the GAO; the DoE disagrees----to provide minimal oversight. The GAO says:
DOE relies almost entirely on contractors to carry out its production, research, and cleanup missions. DOEâs history of inadequate management and oversight of contractors and of failure to hold its contractors accountable led us in 1990 to designate DOEâs contract management, including both contract administration and project management, as a high-risk area vulnerable to fraud, waste, abuse, and mismanagement. Similarly, both DOE and DOEâs Office of Inspector General have reported contract and project management as significant DOE management challenges since the 1990s. Over the years, we have also reported on project management weaknesses at WTP. (GAO Rep. at 5-6)
Just to give you the overview, here are the factors the Government Accountability Office believes contributed to the waste of taxpayer dollars at the Hanford site. These are all direct quotes from published "highlights" from their report, numbered for your reading convenience.
1. DOEâs internal controls over payments to contractors on its W[aste] T[treatment] P[lan] project did not provide reasonable assurance against the risk of improper contractor payments, particularly given the projectâs substantial inherent risks.
- Several factors combined to pose a risk of improper payments on this project, including the size and complexity of this one-of-a-kind nuclear construction project, escalating cost and schedule estimates, and the thousands of charges [the contractor] billed to DOE on each invoice.
- Despite the risks, in fiscal years 2005 and 2006 DOE performed little or no review of contractor invoices or supporting documents for the $40 million to $60 million in charges that [the contractor] billed to DOE each month to help ensure the validity of these charges. Instead, DOE officials relied primarily on the Defense Contract Audit Agencyâs reviews of Bechtelâs corporate-wide financial systems and on [the contractor's] reviews of subcontractor charges for assurance that the charges were proper. DOEâs heavy reliance on others, with little oversight of its own, exposed the hundreds of millions of dollars it spent annually on the project to an unnecessarily high risk of improper payments.
2. DOE also did not adequately oversee the contractor to ensure accountability for assets purchased with WTP contract funds, relying primarily on the contractor to manage such government property without ensuring the adequacy of the contractorâs controls.
- We found numerous internal control weaknesses with Bechtelâs property management program, including poor segregation of duties, property system errors, and inadequate property procedures.
- For example, [the contractor] did not timely prepare and submit required reports of lost or damaged property, taking up to 2 years in some instances to report missing assets, such as computers, to DOE.
- [The contractor] also did not always review subcontractorsâ property management policies and procedures as required or follow up on subcontractor weaknesses it identified to help ensure that its subcontractors adequately managed and safeguarded WTP property in their possession.
These property control weaknesses coupled with the lack of DOE oversight created an environment in which property could be lost or stolen without detection. (GAO highlights)
When I'm feeling lonely or blue or I just can't get to sleep, there's nothing I like better than to curl up with my laptop and a 30+ page government bulletin, so I actually read the entire report.
It is fraught with interest. I've said before, I don't mind paying taxes; I believe that there are social and other issues that only the federal government can solve and services that only it can provide; and I understand that I have to pay for them. I'm cool with that; it's just that I can't help thinking that if a lot of the money weren't being wasted, there'd be enough to fund programs that soppy liberals like me think are necessary, such as health care for the poor (to name one example) and care in general for the elderly or indigent. If a lot of excess weren't being flushed down the latrine by the DoD or incinerated by the DoE, in other words, there'd be a lot more to go around.
And though my Republican father always sneered that the money gets eaten up by the expanding "bureaucracy," it turns out that cutting back on certain kinds of government jobs is false economy, at least in any situation in which the government is hiring private for-profit companies to do its work. In the reports I've looked at so far, a major factor in government waste is lack of government oversight----meaning that there aren't enough people in place in the agencies that hire contractors to keep an eye on them.
The GAO seems to think that some of the excess cost to the taxpayer resulting from the construction of the "WTP" arise from "improper payments, a widespread and significant problem in government " Improper payments, they point out, can arise from a number of causes, including "inadvertent errors, such as duplicate payments and miscalculations; payments for unsupported or inadequately supported claims or invoices; payments for services not rendered; and payments resulting from outright fraud and abuse." (GAO Rep. at 10). The GAO argues that some of these "improper payments" arose as a result of the inadequacy of the DoE's "contract administration," which the GAO defines as "those activities performed by government officials, such as the program office staff, contracting officer and representatives, property administrator, and financial staff, after a contract has been awarded to help ensure that the contractor complies with the terms of the contract and that the government gets what it paid for at an appropriate cost." (GAO at 7)
The DoE apparently believes---for the most part---that its contract administration has been just fine. Just bear that in mind as you read what follows. To read the DoE's contentions (and the GAO's responses), see to pages 32-35 of the report. You can decide for yourself whether they have refuted the GAO's criticisms.
Based on my reading of the report, here are some of GAO's specific criticisms
1. The contract itself wasn't structured in the first instance to protect the taxypayers' investment; instead, it favored the contractor, placing "maximum risk with the government and minimum risk with the contractor and provid[ing] the contractor with little financial incentive to control costs." (GAO at 12).
2. With respect to this project, the DOE hasn't put in place and followed sufficient "internal controls"---i.e., "plans, methods, and procedures used to effectively and efficiently meet missions, goals, and objectives." (GAO at 9). It's pretty clear from the report that the DOE's "internal control activities" with respect to expenditures---"approvals, approvals, authorizations, verifications, reconciliations, and reviews"âhaven't been consistently or rigorously applied to the waste treatment project. (GAO at 10).
Apparently one challenge to adequate oversight resulted from the design of the contract itself. With the contractor billing DoE for millions of dollars in every invoice, the contract contained a provision requiring payment within seven days after "the receipt of a proper invoice." It just seems obvious that a complicated invoice is going to take more time than that to review, even by the most efficient governmental bean-counters. (GAO at 11).
Furthermore, the contract itself is a "cost-plus-incentive-fee contract." The purpose of the incentives was to encourage the contractor to control costs, but they no longer apply because of previous cost overruns and scheduling delays (GAO at 12). Otherwise, the deal requires the taxpayer to reimburse the contractor for its costs (and cost overruns). This type of contract greatly favors the contractor, Federal standards require maximum oversight for this sort of contract to ensure cost controls and efficiency. The DoE has not provided adequate oversight to ensure either one (GAO at 13-14).
The invoices submitted by the contractor, despite specific requirements included in the contract, were themselves were so lacking in detail that proper review was probably not possible:
[W]e found the lack of detail on the invoices for direct costs other than labor hindered DOEâs ability to identify potentially improper charges, obvious mistakes, or unusual transactions based on the invoice alone. For example, a standard invoice review procedure would include looking for items with descriptions of potentially unallowable charges. However, this type of review was impossible to perform on WTP billings because neither the contractorâs invoices nor the billing system that generated them provided adequate descriptions of the charges.
The FAR and the ...contract require a proper contractorâs invoice to include the description, quantity, unit price, and extended price of supplies delivered or services performed. However, the contractorâs invoice does not provide, and DOE has not required, purchase descriptions. Instead, [the contractor's] invoices list most transactions under broad cost categories such as âconstruction material & suppliesâ or âsubcontracts, consultants, & outside servicesâ with vendor or subcontractor names, dates, and amounts. Thus, the lack of transaction descriptions would make it difficult for the contracting officer to identify obvious mistakes or unusual transactions, as well as potentially improper charges [GAO at 13-14]
With so little to go on, there wasn't really much chance that project directors could identify improperly billed costs. "[T]he project directorsâ reviews were limited primarily to assessing whether the total costs billed for their respective projects appeared reasonable given their projectsâ annual budgets and progress." (GAO at 15). Furthermore there was no specific requirement for regular review of the invoices. (GAO at 15)
The GAO wasn't happy about DoE's reliance on other agencies---and on the contractor---to provide the oversight which the government considers essential for a contract of this kind. (GAO at 16-17). DoE relied entirely on the contractor to "review and validate" subcontractor charges that were submitted to it (GAO at 17). Although the government is not in privity of contract with subcontractors, the GAO suggested that it might be a good idea to "have a process in place to ensure that the prime contractor is providing adequate oversight and effective cost control of its subcontractorsâ expenditures." (GAO at 17).
The use of cost-reimbursement contracts places special responsibilities on the contracting agency to monitor and control costs by using good contract management and administration practices, including proper internal controls. By not adequately monitoring charges, DOE may not be identifying errors or the weaknesses that allowed them to occur and thus is providing no deterrent to future errors or improprieties. Although DOE officials stated that they were comfortable with the current level of review because they had not found a significant number of errors in the past, as noted in the Strategies to Manage Improper Payments guide, most improper payments associated with federal programs go unidentified typically because of factors such as insufficient oversight or monitoring. (GAO at 18)
The GAO found that the DoE didn't require a sufficient accounting from the contractor with respect to property that it purchased with the DoE's (i.e., the taxpayers') money. (GAO at 19). They relied on the contractor's property management program. "As a result, until recently DOE management was largely unaware of numerous internal control weaknesses in the contractorâs property management system, which exposed WTP assets to loss or misuse." (GAO at 19).
DoE reimbursed the contractor for more than $3 million in property it purchased for the project or in expenses to support the construction project in fiscal years 2005 and 2006 (GAO at 19).
Such property varies by type and value and includes (1) construction materials, which may be consumed during construction and incorporated into an end product (e.g., cement and pipes); (2) plant equipment, which is personal property of a capital nature and used for administrative or general plant purposes (e.g., cranes and vehicles); (3) sensitive items, which are personal property susceptible to theft and misappropriation (e.g., computers and audiovisual equipment); and (4) tools, which include both inexpensive handheld tools as well as power tools costing thousands of dollars. (GAO at 19)
Instead of monitoring these expenditures, DOE seems to have left it to the contractor to monitor itself. While it's appropriate for the contractor to see day-to-day management of such expenditures, DoE should have: "(1) review[ed] and approve[d] the contractorâs property management system and (2) ensure[d] compliance with the government property clauses of the contract. Furthermore DoE's own policies required oversight in the form of "records of approvals"; and reviews of the contractor's property management system (GAO at 20). Except for a 2002 letter that approved the contractor's property control system, the DoE never documented the basis for its approval. (GAO at 20).
Subsequent reviews were inadequate, given the circumstances.
[T]he DOE official responsible for the oversight of WTP assets from May 2005 to May 2006 stated that he never went out to the WTP site to review procedures, observe property management operations, or conduct spot checks of property because he did not have the time to perform such reviews. While DOE received some reports from the contractor related to propertyâsuch as periodic reports of lost, damaged, or destroyed government property and [the contractor's] annual performance measures report that included limited summary-level data, such as percentage of items located during physical inventoriesâit accepted these reports without performing on-site observations or reviewing any supporting documentation to validate the information. In addition, DOE relied solely on [the contractor] to ensure that subcontractors maintained. (GAO at 20)
So, concludes the GAO, "Our review of [the contractor's] property management program disclosed numerous internal control weaknesses that exposed government assets to an increased risk of theft, loss, or misuse and decreased the likelihood of detecting such incidents in a timely manner:" (GAO at 23). Here's a list (details are in the report) of problems the GAO found in the contractor's "program" for keeping track of expenditures during the project:
- Inadequate segregation of key duties among personnel, increasing the risk of error, fraud and self-dealing. (see GAO at 23)
- Inaccurate property system data, with property inaccurately identified in the data base as to location and custodian, or not identified at all. (see GAO at 23)
- Inadequate inventory procedures---e.g., no complete inventory of property was performed during fiscal years 2005 and 2006. (see GAO at 23).
- Inadequate policies and procedures for the accountability of tools---with no adequate inventory or check-out system, employee access to tools was pretty much uncontrolled and fired employees often seemed to have "checked out" tools immediately before their last day on the job. (GAO at 23).
And on and on and on. Sort of as if you were to say to your contractor,
"Dude! Okay, build me this house. $200,000, you say? Fine. Send me invoices as you go and I'll pay them. What, within a week? Okay; I wasn't planning to review them anyway. No, I don't need you to keep any records of what you buy; no, if you can't get the materials for the price you thought when you gave me the estimate, that's fine---just go ahead and spend what you have to.
No, I don't need for you to keep track of the stuff you buy---I'm sure you'll take good care of everything, right? I mean, you'll be keeping an eye on everyone, yeah? But if not, no worries; we'll just buy more of whatever it is.
No, seven days to review your invoices is plenty---and don't bother itemizing; I know you wouldn't ever make a mistake, or forget you've already charged me for something, or accidentally approve a subcontractor's expense for equipment that the subcontractor is buying for its own employees, or anything like that. And don't worry if it takes you a few years longer than we thought; no problem!
Hey, I totally trust you, man! After all, my neighbor's accountant thought you looked all right and I'm sure my neighbor pays a lot of attention to this stuff; he's got lots of experience so that's good enough for me!
Oh, wait, we're already up to $200,000 and aren't nearly through yet? Oh well, shit happens....
With all this bad news, it's good to know that the DOE and the contractor have already implemented "corrective action." (GAO at 28)
DOE has recently taken steps to increase its oversight of [the contractors] WTP property management program. At the time we began our audit, DOE hired a property administrator responsible solely for overseeing the WTP property management program. This property administrator has taken on a more active oversight role through his procedural and compliance reviews. For example, since his arrival in mid-2006 he has issued specific requirements to the contractor for reporting lost, damaged, or destroyed property more timely; directed the contractor to perform a materials inventory at least annually; issued guidelines for performing inventories of tools checked out to workers; and performed several on-site inspections identifying instances of noncompliance and corrective actions for [the contractor] to address. In addition, he has directed the contractor to prepare and submit for his approval a detailed inventory plan for construction materials specifying the inventory type, frequency, and detailed procedures.
For its part, [the contractor] has also initiated a number of corrective actions to improve its management of government property. [The contractor] also hired a new property manager in mid-2006 who in turn hired several additional property staff to better address the segregation-of-duties issue and to help implement requirements. The new property manager has developed and issued new policies, such as a policy requiring [the contractor] and DOE property management concurrence prior to disposing of worn tools. In addition, he implemented a new property database system and tasked his staff with correcting errors in the property system. He stated he also plans to review Bechtelâs receiving process and tools accountability.
Because the policy and procedural changes primarily occurred after our review period, we have not assessed the effectiveness of the changes. If implemented properly, these should help improve the contractorâs management of government property and DOEâs oversight of the contractorâs program. However, additional issues remain which, if not addressed, will continue to expose government property to an increased risk of theft, loss, or misuse. (GAO at 28-29)
The GAO reached the following conclusions based on their review:
DOEâs oversight of contractor billings and property management on the WTP project did not have the level of internal controls that would be expected of a project of this magnitude and complexity. DOEâs lack of appropriate oversight controls for contractor invoices significantly increased its vulnerability to improper payments. Further, DOE did not establish basic oversight controls to reasonably ensure that Bechtel and its subcontractors appropriately tracked and safeguarded the millions of dollars in property and equipment purchased for the project. Given that DOE has estimated that it will likely spend at least another $9 billion on the WTP project over the next decade or more, it is critically important that it establish appropriate oversight and controls commensurate with the risks involved in this costly, complex project.
This is particularly important in the near term as the project ramps back up and the contractor begins to hire hundreds of additional workers in Hanford and at off-site locations. The recent corrective actions taken to date, if effectively implemented, are positive first steps to improving DOEâs oversight of contractor payments and property management. DOE managementâs commitment and continued attention to these areas will be essential to establishing a lasting and more effective administration of the WTP contract. (GAO at 30).
The GAO's recommendations for executive action (i.e., a directive from the Secretary of Energy to the Assistant Secretary for Environmental Management to implement certain actions) are set out on pages 30-31 of the report.
The Department of Energy's contentions and objections (following its review of the draft report)---along with the GAO's responses--- can be read beginning on page 32. The remainder of the report shows that the DOE has recently been taking a lot of steps to get a handle on the problems.. But the GAO definitely does not agree that DOE was---during the period of review anyway---in compliance with government standards or that "more broadly" that it had in place adequate "internal controls over contractor payments and project assets." (GAO at 32; see 32-33).
In any case, I didn't write this note because I wanted to pick on the DoE. I'm sure that their practices may have been just as good---or as slovenly---as practices being used by other government agencies that are spending "taxpayer dollars" to get their projects done. Which is really the reason I wrote this: based on my reading, I'm pretty sure that all government agencies have been a bit loosey-goosey in carrying out their work. .
As I've recently said---and will keep saying---I don't mind paying my share of tax to the government so it can pay for things it thinks we need such as a waste treatment facility; I just don't think it's reasonable that the cost of such a project should end up being 2 1/2 to 3 times the intended amount. I definitely mind reading reports showing that government agencies aren't carefully counting each bean they receive from the taxpayer since every bean wasted is a bean they can't spend on....I don't know; health care for kids? For everyone? Infrastructure? Other programs and projects that people like me think only the federal government is in a position to supply?
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