Risk reduction and the privatization option: First principles

The Department of Energy`s Office of Environmental Restoration and Waste Management (EM) faces a challenging mission. To increase efficiency, EM is undertaking a number of highly innovative initiatives--two of which are of particular importance to the present study. One is the 2006 Plan, a planning and budgeting process that seeks to convert the clean-up program from a temporally and fiscally open-ended endeavor to a strictly bounded one, with firm commitments over a decade-long horizon. The second is a major overhauling of the management and contracting practices that define the relationship between the Department and the private sector, aimed at cost reduction by increasing firms` responsibilities and profit opportunities and reducing DOE`s direct participation in management practices and decisions. The goal of this paper is to provide an independent perspective on how EM should create new management practices to deal with private sector partners that are motivated by financial incentives. It seeks to ground this perspective in real world concerns--the background of the clean-up effort, the very difficult technical challenges it faces, the very real threats to environment, health and safety that have now been juxtaposed with financial drivers, and the constraints imposed by government`s unique business practices and public responsibilities. The approach is to raise issues through application of first principles. The paper is targeted at the EM policy officer who must implement the joint visions of the 2006 plan and privatization within the context of the tradeoff between terminal risk reduction and interim risk management.