The Department of Energy needs better financial oversight of the subcontractors hired at sites like Hanford, concluded a Government Accounting Office report released Tuesday.
It found issues with a lack of audits covering costs charged to the federal government and conflicts of interest — citing a Hanford nuclear reservation civil case as an example of what could allegedly go wrong.
Most of the $30 billion DOE budget goes to contractors, most of which spend money on subcontracts, the GAO said.
“Yet (the Department of) Energy has not clarified which subcontracts should be audited and what an audit should entail,” said the report.
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The GAO report concluded that DOE and the National Nuclear Security Administration were lax on ensuring that contractors met their requirements to audit subcontractor costs, despite the significant taxpayer dollars going to subcontractors.
The GAO report looked at 24 of the largest DOE and NNSA contractors in 2016, including four in Richland — CH2M Hill Plateau Remediation Co., Washington River Protection Solutions and Bechtel National at Hanford and Battelle Memorial Institute at Pacific Northwest National Laboratory.
It found that nearly 30 percent of the $23.6 billion spent on the contractors went to thousands of subcontractors.
Audits to find excess costs skipped
DOE relied on its contractors to audit subcontractors in many cases, but did not issue procedures and guidance to require that local DOE offices, such as those in the Tri-Cities, monitor contractors to make sure that adequate audits of subcontractors were done, the GAO report said.
The agency reviewed 43 subcontract cost assessments and audit reports at DOE and NNSA sites across the nation and found that more than $3.4 billion in subcontract costs over a decade had not been audited as required.
Some had not been audited for more than six years to identify overcharges. Six years is the time limit under the Contract Disputes Act during which the federal government is allowed to recover overcharges.
DOE also was not tracking contractor ownership closely to track conflicts of interest between contractors and the subcontractors they were hiring, the GAO said.
The GAO found a confusing web of contract and subcontract ownership across the complex, with 24 of the 28 companies or organizations that owned DOE prime contracts in 2016 also holding nearly 3,000 subcontracts totaling about $927 million.
“Further, we found that in some cases, entities held subcontracts on the specific prime contracts to which they were a party,” the GAO report said.
Hanford has ‘high profile’ incident
The subcontracting arrangement is legal, but has the potential for fraud, the report indicated.
It illustrated its concerns in the report with what it called the “high profile” incident involving Hanford contractor Mission Support Alliance and former subcontractor Lockheed Martin Services Inc.
Lockheed Martin Corp. was a former principal owner of Mission Support Alliance and hired Lockheed Martin Services Inc. as a subcontractor.
A former vice president of finance at Mission Support Alliance settled an allegation that he received kickbacks for work that included submitting false statements to DOE regarding labor rates charged by Lockheed Martin and anticipated profit.
The former executive, Richard A. Olsen, agreed to pay $124,440 to the federal government in August and cooperate in the ongoing investigation, but admitted no guilt.
That was followed by a civil lawsuit filed by the Department of Justice accusing Mission Support Alliance, Lockheed Martin Corp. and Lockheed Martin Services Inc. of inflating prices charged to the federal government for work subcontracted by Mission Support Alliance to Lockheed Martin Services Inc.
All defendants strongly deny wrongdoing.
GAO advice to DOE
The GAO report recommended DOE clearly define which subcontracts should be audited and other subcontract audit requirements.
Procedures should be developed that result in DOE making sure that contractors complete audits of their subcontractor costs within the six-year limit.
DOE should require its local DOE officials to independently review subcontractor owner information and assess potential conflicts of interest, the GAO report said.
DOE should periodically review the limits on how large subcontracts must be for contractors to be required to get DOE approval for them.
DOE also could include assessments of how contractors are managing subcontracts as part of the contractors annual reviews, which result in incentive pay for Hanford contractors, the GAO report said.