Statement of the Honorable Robert Card
Under Secretary of Energy
United States Department of Energy

Before the Subcommittee on Energy
Committee on Science
United States House of Representatives

July 10, 2003

Good morning Madam Chairperson and members of the Subcommittee. It is my pleasure to join you to discuss the Department of Energy’s laboratories and the use of competitive contracting procedures to maintain these important scientific research institutions.

Let me begin by affirming the importance of the Department’s system of laboratories to our country’s national security and its scientific leadership. DOE labs are the United States’ preeminent institutions for the conduct of long term, often high risk, research and development. The labs represent a major capital investment in state-of-the-art scientific facilities and technologies which, in many cases, is beyond the financial reach of American industry and academia. For over fifty years, DOE labs have enhanced the ability of our nation to deter and defend against military threats; they have expanded our understanding of the origins and physical nature of our world; they have led the way in high energy, nuclear, and condensed matter physics; they have helped increase the availability of energy supplies, made energy technologies more efficient, and supported the discovery and development of alternative energy sources; they have expanded our knowledge, skills and technologies in dealing with environmental hazards; and they have helped to unlock the biologic codes which dictate who and what we are.

The preservation and enhancement of these critical scientific capabilities is a major objective of Energy Secretary Spencer Abraham. He is committed to ensuring that the DOE labs continue to provide our nation with world class science and that they are managed in a conscientious, business-like fashion by our contractors. It is my privilege to support him in my role as Under Secretary for Energy, Science and Environment.

You have invited me here today to address the Department’s policies and practices for the use of competitive procedures in maintaining DOE’s contractor managed and operated laboratories. Allow me to begin with a historical perspective.

The Department and its predecessor agencies, the Energy Research and Development Administration and the Atomic Energy Commission, have, since their inception, relied on private sector industrial and academic institutions to carry out weapons production, basic and applied research, and other mission-critical activities at its government-owned sites and facilities located throughout the United States. The Department has obtained these services through the use of management and operating (M&O) contracts. M&O contracts are contractual agreements authorized under DOE’s enabling legislation and regulated by the government-wide Federal Acquisition Regulation (FAR).

The FAR characterizes an M&O contract by its special purpose in conducting work closely related to an agency’s fundamental mission as well as by its long-term or continuing nature. The FAR further provides that the effective work performance under management and operating contracts usually involves high levels of expertise and continuity of operations and personnel.

The Department historically provided for the continuing maintenance of its major sites and facilities and their assigned mission responsibilities through the use of non-competitive contract extensions. The use of competitive procedures for M&Os was relatively infrequent, and generally limited to those circumstances where a new facility was being established or an incumbent chose not to continue its performance at an existing facility. For example, between 1984 and 1994 when the Department had over 50 M&O contracts, only 3 M&O contracts were competed.

In the mid 1990s, however, DOE’s competition policy and practice changed significantly. As a result of a comprehensive initiative to assess and improve its management of M&O contracts, the Department made a policy decision to significantly increase the use of the competitive procedures in selecting contractors to manage and operate its facilities. At the same time, it significantly reduced the usage of the M&O form of contracting coincident with mission changes at certain sites and its desire to identify more appropriate forms of contracting to fit its needs.

DOE’s new policy, which was introduced in 1994, and formally established by regulation in 1996, provided that competition would be the norm or default mechanism for selecting an M&O contractor at the completion of the contract term. This policy was consistent with the statutory principles governing all Federal agencies as contained in the Competition in Contracting Act of 1984. The policy preserved the concept of maintaining a long-term contractual relationship, however, by providing for a contract term of up to 10 years: a 5 year initial term with a competitively derived option right that the Department could exercise for an additional term of up to 5 years. The Department’s new policy recognized, however, that certain circumstances might, nonetheless, support the noncompetitive extension of a contract with an incumbent, as specifically authorized by the Competition in Contracting Act. To ensure that competition was always considered and that noncompetitive procedures were selectively and appropriately used, a rigorous process of analysis, review, and approval was established with the ultimate authority to approve noncompetitive actions resting with the Secretary.

As a result of the new policy, DOE vigorously applied competitive procedures to its M&O contracts as well as to other major contracts which were formally M&O contracts. Since 1994 the Department conducted 26 competitions for its M&O and former M&O contracts, representing over $50 billion in contract value. Approximately 75% of the Department’s contract dollars are now awarded competitively as compared to its historic norm of less than 20%.


Notwithstanding this major paradigm shift in the way the Department manages its programs and places its contracts, certain M&O contracts have not been competed. They are a subset of the Department’s research and development laboratories, which have been officially designated as Federally Funded Research and Development Centers (FFRDC). An FFRDC is a unique organization that assists the United States Government with special long-term scientific research, analysis, and systems engineering requirements which cannot be met effectively by other means. An FFRDC occupies a special relationship to the government organization it serves, having access, beyond that which is common to a normal contractual relationship, to government and private data, including sensitive and proprietary information, as well as to Federal employees and facilities. An FFRDC is required to conduct its business in the public interest with objectivity and independence and in a manner befitting its special relationship. It must remain free from organizational conflict of interest, and provide full disclosure of its affairs to its sponsoring agency. Government-wide policies and procedures governing the establishment and maintenance of FFRDC’s are promulgated in the Federal Acquisition Regulation. The FAR encourages long-term relationships between government sponsors and FFRDCs in order to maintain continuity, currency, objectivity, and independence.

The Competition in Contracting Act of 1984, which provides Federal Executive Branch agencies with Congressional policy and procedures for the conduct of their contracting activities, recognizes the unique position of FFRDCs and specifically authorizes agencies, as an exception to the general rule requiring the use of full and open competition, to use noncompetitive procedures as necessary to establish and maintain FFRDCs.

As a matter of general practice, most Federal agencies that sponsor FFRDCs do not use competitive procedures to maintain their FFRDCs upon expiration of the contract terms. Indeed, the Department has been able to identify only two incidents of competition by other Federal agencies.

Consistent with its policies on the use of competition, however, the Department of Energy has since 1994 affirmatively considered the use of competition for its FFRDCs at the expiration of contract term. Although Congress authorized Federal agencies to exempt FFRDC contracts from competition, the Department has, nonetheless, engaged in competition when an identifiable interest presents itself, such as where it is dissatisfied with an incumbent’s performance or when a change of mission or program direction presents an opportunity for considering the merits of alternative providers. It has also tended to compete in those cases where an FFRDC is run by an incumbent for-profit organization as opposed to an academic or non-profit organization. As a consequence, the Department has competed or decided to compete FFRDCs eight times since 1994. Most significantly, however, the Department has demonstrated to its incumbent contractors its willingness to engage in competition when necessary so that contractors do not consider their continued contractual relationship with the government as a foregone conclusion. DOE has used this competitive pressure to ensure that the contractors focus on good performance and the Department’s needs and concerns, as well as to provide leverage to accomplish significant changes in contract terms and conditions.

DOE believes that the changes in policy and practice with respect to M&O and former M&O competition have had a generally positive impact. Although some performance learning curve and program disruption may be experienced if a non-incumbent is selected as a result of competition, it has generally been offset by either improved longer term performance of the contractor or the accomplishment of other contract goals during the competition such as the use of performance-based contracting techniques. Further, the effects of the learning curve of a newly-selected contractor are offset by DOE’s retention of relatively long contract terms of up to 10 years. With respect to the FFRDC’s, since they have typically been competed for cause because of a specific objective to be accomplished through the competitive process, DOE has, in almost every case, seen improvements in, the operation of the laboratory.

Notwithstanding the changes in DOE policy and the significant increase in the use of competitive procedures, generally, the issue of competition continues to receive the attention of Congress and the General Accounting Office.

For example, the GAO in its recent report on DOE management challenges noted that although the Department had made much progress in its overall competitive posture, it continued to noncompetitively extend most of its FFRDCs including some that had experienced performance problems. GAO concluded that it was unclear in these latter cases whether “… DOE can successfully address the performance problems using contract mechanisms.” Further, DOE has, on occasion, received different perspectives from Congress regarding the use of competition and has received complaints as to lack of clarity in DOE policy as to when competition is and isn’t appropriate. To help address this continuing issue, Secretary Abraham requested the Secretary of Energy Advisory Board to establish an independent “Blue Ribbon Commission” to re-examine the issue of DOE’s competition policies and practices with respect to its FFRDCs. The Commission is expected to assess the Department’s competitive policies and procedures to determine the circumstances and criteria under which competition can best assist DOE in maintaining high quality research and efficient and effective operation of its government-owned facilities. Among other things, the Commission is expected to advise on whether the FFRDCs should be routinely competed and with what frequency, or whether they should only be competed for cause. If the former, should there be any exceptions? If the latter, under what circumstances should a decision to compete be made? Should different standards or decision criteria be applied depending on the purpose of the research facility? Should different standards or decision criteria be applied depending on whether the incumbent is a non-profit or academic institution or a commercial, for-profit entity?

The Commission will also assess the benefits and disadvantages of competing the FFRDCs, offer its opinion as to whether FFRDCs should be treated differently from other competition decisions, and recommend potential criteria for deciding which types of entities should mange and operate the various types of laboratories.

The Commission’s analysis and recommendations on these and other issues are due by the end of the fiscal year. Its report should provide useful information to the Secretary of Energy to make necessary improvements to the Department’s competition policies and procedures.

This concludes my testimony, I will be happy to answer any questions that you may have or provide any additional information that you desire for the record.