August 4, 2016

Management of Selected Department of Energy Contractors’ Health and Post-Retirement Benefits

The Department of Energy relies on contractors to perform a substantial part of its mission and reimburses its contractors for employee labor and benefit costs incurred.  Employee benefits are a significant portion of contractor costs.  In fiscal year (FY) 2013, the Department spent approximately $3.3 billion on contractor employee benefits, and that amount is expected to grow to $4 billion by FY 2019.

According to Department officials, a number of activities are conducted to evaluate contractors’ health and post-retirement benefit costs.  Contractors submit annual reports to the Department regarding management of these costs.  Department Order 350.1, Contractor Human Resource Management Programs, was established, in part, to improve the cost effectiveness of contractor human resource management programs.  The current version of the Order directs Department and National Nuclear Security Administration (NNSA) officials to ensure that health and post-retirement benefits are reasonable based on the results of a benefit value study and a cost study.  

During our audit, we found that three of the four contractors in our review prepared cost studies that did not completely follow Department guidance for complying with Department Order 350.1 or with associated contract requirements.  The fourth contractor did not complete a cost study because NNSA was unable to incorporate the current version of Department Order 350.1 into the contract.  In addition, one of the four contractors did not follow Department guidance for preparing its benefit value study, while a second contractor was not required to take appropriate corrective action in response to its study.

The issues with the required contractor cost studies occurred because the Department and NNSA did not ensure that complete health and post-retirement cost studies were prepared to assist with evaluating whether contractor employee benefit costs were reasonable.  We found that the sites’ Contracting Officers either did not include or did not enforce key elements of Department Order 350.1 or the associated contract clauses and Department guidance in contracts.  Because contractors had not fully completed their cost studies in accordance with Department requirements or guidance and some sites also had issues with their benefit value studies, we could not determine if contractor health and post-retirement benefit costs were cost effective and reasonable for the sites we audited. 

Topic: Management & Administration