2 Hanford contractors overcharged taxpayers $63 million, says federal audit

The federal government was overcharged as much as $63 million and small businesses were deprived of the chance earn money at Hanford, according to an audit of small business subcontracting at the nuclear reservation.

The audit report of the Department of Energy Office of Inspector General was released on Thursday.

It recommended that DOE consider reducing incentive pay for one contractor, Mission Support Alliance (MSA), because of issues the audit found.

It also said that DOE should look at recovering some money paid to MSA and a second contractor, CH2M Hill Plateau Remediation Co., for reimbursed expenses that may not have been allowed under their contracts.

DOE pays for their costs of doing work at Hanford and they earn profit through incentive pay.

DOE agreed to do both.

Federal taxpayers are spending about $2.5 billion a year to clean up radioactive and other hazardous chemical contamination and waste left from the production of plutonium at the Hanford site from World War II through the Cold War.

DOE contracts out the work, with prime contractors required to subcontract with small businesses for significant amounts of work.

MSA was limited to performing 60% of the work in its contract itself and required to subcontract at least 25% of its total contract value to small businesses. It provides sitewide services at Hanford, such as utilities, information technology, fire protection and security.

CH2M, which is responsible for certain environmental cleanup work, was required to perform no more than 65% of work in its contract itself and to subcontract at least 17% of the work to small businesses.

The audit concluded that both contractors incorrectly calculated the value of the work they did themselves and incorrectly credited some work toward its small business requirements.

MSA reported subcontracting 27% of its total contract value to small businesses, but the audit found that it only subcontracted 21% to small businesses, not meeting its 25% contract requirements.

MSA reported that it performed 55% of its total contract value itself, meeting the no more than 60% requirement. But the audit found MSA self-performed 73% of the work.

CH2M, although it also incorrectly allocated costs, still appeared to meet the requirements in its contract, according to the audit report.

The audit said the MSA contract was valued at $3.75 billion at the end of fiscal 2018 and the CH2M contract was valued at $6.47 billion.

Subcontracting issue

Both DOE contractors ran into trouble when they began work on their contracts more than a decade ago and were required to offer jobs to certain employees of the previous contractors.

To provide jobs for some of the workers, called incumbent employees, both arranged employment through their subcontractors, some of them small businesses.

However, MSA provided most of the administration functions for the incumbent employees, from providing and assigning the employee to paying the employee’s wages and benefits. But the subcontractors still billed and were paid for administrative costs for those employees, based on each worker’s pay and benefits.

The audit estimated that the extra administrative costs eventually charged to the government could be as much as $31.6 million.

CH2M had a similar arrangement with subcontractors but ended it after four years in 2013, when a DOE Hanford subcontracting official questioned it.

CH2M Hill said then that by hiring the incumbent employees directly, it would save up to $13 million per year and it could still meet its small business subcontracting goals. But before the arrangement was ended, the audit estimated that it had cost DOE up to $32.2 million.

Self-performed work

On the second issue of limiting work the contractors did themselves, the audit said MSA did not include certain work as required in the total.

MSA subcontracted work to some of companies that were part of the team that was awarded the sitewide services contract and also to a subsidiary of a member of the team.

A total of $803 million of work should have been added to the tally of work that was self-performed, the audit found.

CH2M also excluded the costs of large business subcontractors on its team from its calculations of how much work it self-performed, the audit concluded.

Both contractors also included some purchases made from large, rather than small, businesses toward their small business subcontracting goals, the audit found.

However, the dollar amounts were small enough that they did not have a material impact on the small business subcontracting percentages the contractors reported, the audit report said.

Contracts ending

The audit blamed all the issues it found on lack of oversight by MSA, CH2M and by DOE. The DOE office that oversees work by the two contractors, the Richland Operations Office, implemented new guidelines for small business reporting in August 2019.

Both MSA and CH2M have had ownership changes since MSA was awarded a contract in April 2009 and CH2M was awarded a contract in June 2008.

Both contracts have been extended as DOE works to replace expiring contracts with new contracts. New contracts have been awarded but with the majority of Hanford workers not reporting to the site because of the coronavirus, the contract transitions have not begun.

The expiring contract held by CH2M, now owned by Jacobs Engineering Group, will be replaced with a contract valued at up to $10 billion that was awarded to a team led by Amentum, formerly Aecom, and including Fluor Federal Services and Atkins Nuclear Secured.

The expiring contract held by MSA, currently owned by Leidos Integrated Technology and Centerra Group, will be replaced with a $4 billion contract awarded to a team that is owned by Leidos, Centerra and Parsons Government Services.

This story was originally published July 24, 2020 at 10:05 AM.