September 30, 2009
The Department of Energy's Management of Contractor Fines, Penalties and Legal Costs
The Department of Energy reimburses its facility contractors for millions of dollars in settlement costs and for fees paid to outside law firms for legal research, litigation and consulting activities. Because of contract reform initiatives, the Department increased contractor financial responsibility for certain legal costs. For example, fines and penalties for violations of laws and regulations, which totaled almost $12 million over the five-year period of our review, were found to be unallowable and were not reimbursed by the Department. The Department specifically considers certain other costs to be unallowable, such as those for punitive damages or in cases where contractor management officials are found to have engaged in willful misconduct or have failed to exercise prudent business judgment. Legal costs may also be disallowed if they are not properly coordinated with Department officials.