Inspection of the cost reduction incentive program at the Department of Energy`s Idaho Operations Office

The purpose of this inspection was to review the economy and efficiency of Idaho`s Fiscal Year 1992 Cost Reduction Incentive Program, as well as to provide information to Departmental officials regarding any difficulties in administering these types of programs. The report is of the findings and recommendations. According to Idaho officials, their Cost Reduction Incentive Program was designed to motivate and provide incentives to management and operating contractors which would result in cost savings to the Department while increasing the efficiency and effectiveness of the contractors` operations. Idaho officials reported that over $22.5 million in costs were saved as a result of the Fiscal Year 1992 Cost Reduction Incentive Program. It was found that: (1) Idaho officials acknowledged that they did not attempt a full accounting records validation of the contractor`s submitted cost savings; (2) cost reduction incentive programs may result in conflicts of interest--contractors may defer work in order to receive an incentive fee; (3) the Department lacks written Department-wide policies and procedures--senior Procurement officials stated that the 1985 memorandum from the then-Assistant Secretary for Management and Administration was not the current policy of the Department; and (4) the Department already has the management and operating contract award fee provisions and value engineering program that can be used to provide financial rewards for contractors that operate cost effectively and efficiently.