OIG/97A-07 - Review of NRC's Draft Renewal Justification to Continue the Federally Funded Research and Development Center
- Report Synopsis
- Agency Comments
- Objectives, Scope, and Methodology
- Major Contributors to this Report
- Glossary: Office of the Inspector General Products
Office of the Inspector General
U.S. Nuclear Regulatory Commission
Washington, D.C. 20555-0001
July 11, 1997
|Memorandum To:||L. Joseph Callan
Executive Director for Operations
|From:||Thomas J. Barchi
Assistant Inspector General for Audits
|Subject:||Review of NRC's Draft Renewal Justification to Continue the Federally Funded Research and Development Center|
Attached is the Office of the Inspector General's audit report entitled "Review of NRC's Draft Renewal Justification to Continue the Federally Funded Research and Development Center." This report reflects the results of a follow-up on OIG's audit of NRC's first draft renewal justification.
On June 5, 1997, we provided a draft of this report to the Deputy Executive Director for Regulatory Programs (DEDR). On July 3, 1997, the DEDR responded to our draft report and agreed with our recommendation. The DEDR informed us that the initial Commission paper was revised to address the four items in our recommendation and to provide additional information which was not available at the time of the initial draft. The DEDR's comments are contained in Appendix II of this report.
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Since October 1987, the U.S. Nuclear Regulatory Commission (NRC) has sponsored a Federally Funded Research and Development Center (FFRDC), the Center for Nuclear Waste Regulatory Analyses (the Center). The Center provides the agency with long-term technical assistance and research related to NRC's High-Level Waste (HLW) program under the Nuclear Waste Policy Act of 1982, as amended. The Federal Acquisition Regulation (FAR) requires that, prior to extending the contract for an FFRDC, sponsors conduct a comprehensive review of the use and need of their FFRDCs. In response to the FAR requirement, the NRC staff recently drafted its second renewal justification for extending the Center's contract which expires in September 1997.
In addressing NRC's first renewal justification, an Office of the Inspector General's (OIG) February 1993 audit report(1) disclosed that the agency was unable to adequately support some statements made in the justification document. OIG recommended that the NRC develop plans and procedures covering justification requirements for use in future FFRDC reviews. In our current audit work, we looked at NRC's second renewal justification process and evaluated (1) whether the agency implemented OIG's previous recommendations on NRC's initial renewal justification and (2) if NRC properly considered all FAR requirements in currently determining whether to renew sponsorship of the Center.
We found that NRC staff developed an interim plan for performing its FFRDC renewal justification, implemented that plan, and drafted a renewal justification. We believe the draft renewal justification adequately assesses some, but not all, of the FAR considerations in that (1) the review of the use and resources needed to operate the Center needs to be expanded and (2) the consideration of alternative sources to meet NRC's needs is not thorough. The draft renewal justification also does not provide the Commission sufficient information on which to make its judgement because (1) assumptions used by the staff in drawing conclusions are not identified and (2) an Office of the Controller cost comparison referenced by the staff does not reflect the current environment affecting the HLW program. Our report makes one recommendation to address the issues identified.
In October 1987, the U.S. Nuclear Regulatory Commission (NRC) entered into a five-year contract with Southwest Research Institute (SwRI) to operate a Federally Funded Research and Development Center (FFRDC). SwRI established the Center for Nuclear Waste Regulatory Analyses (the Center) to provide the agency with long-term technical assistance and research related to NRC's High-Level Waste (HLW) program under the Nuclear Waste Policy Act of 1982, as amended. On October 15, 1992, NRC extended its contract with SwRI for an additional five years. The current contract is scheduled to expire on September 30, 1997. NRC's current FFRDC contract ceiling amount is $134.7 million, which represents one of NRC's largest active contracts. The NRC's Commission must decide whether to renew the contract with SwRI for operation of the Center. Therefore, it is of utmost importance that the Commission have adequate input from the NRC staff on which to make an informed decision.
The Federal Acquisition Regulation (FAR) requires the sponsor, prior to extending the contract for an FFRDC, to conduct a comprehensive review of the use and need of the FFRDC. In a February 1993 report(2) regarding NRC's first renewal justification for the Center, the Office of the Inspector General (OIG) reported that the agency was unable to adequately support some statements made in its renewal justification. OIG recommended, and NRC agreed, that the agency develop plans and procedures covering justification requirements for use in future FFRDC reviews. Because of the pending expiration of NRC's contract with SwRI for operation of the Center, we decided to audit NRC's current renewal justification process. We evaluated (1) whether the agency appropriately implemented OIG's previous recommendations and (2) if NRC properly considered all FAR requirements in determining whether to renew the contract with SwRI. Appendix I provides more detail about our audit objectives, scope, and methodology.
FAR Section 35.017, "Federally Funded Research and Development Centers," provides the policy and requirements that Federal agencies must satisfy in establishing, using, reviewing, and terminating FFRDCs. When conducting a comprehensive review of the continued use and need of an FFRDC, a sponsoring agency must complete five activities:
An examination of the sponsor's special technical needs and mission requirements that are performed by the FFRDC to determine if, and at what level, they continue to exist;
Consideration of alternative sources to meet the sponsor's needs;
An assessment of the efficiency and effectiveness of the FFRDC in meeting the sponsor's needs;
An assessment of the adequacy of the FFRDC management in ensuring a cost effective operation; and
A determination that the criteria for establishing the FFRDC continue to be satisfied and that the sponsoring agreement is in compliance with the FAR.
FAR also states that the renewal justification process may be done in parallel to the budget process.
As indicated above, our earlier report addressed NRC's first renewal justification for continued operation of the Center and identified that the NRC did not provide adequate support for some statements made in the renewal justification. We were particularly concerned with NRC's efforts to explore alternative sources to meet the agency's needs. In that report, we also recognized that the FAR provides no specific requirements regarding how an FFRDC review is to be conducted or documented. As a result, we recommended that the NRC develop a plan, or procedures, that covered justification requirements.
We believed this was necessary for NRC to sufficiently plan and document the level of analysis necessary to support conclusions resulting from any future FFRDC review. We also recommended that special emphasis should be placed on ensuring a full consideration of alternative sources to meet the agency's needs. We pointed out that the plan should include steps to ensure that all criteria are compared with actual conditions. In response to our report, the then Deputy Executive Director for Nuclear Material Safety, Safeguards and Operations Support agreed with our recommendations.
We found that NRC staff developed an interim plan for performing its FFRDC renewal justification, implemented that plan, and drafted a renewal justification. We believe the draft renewal justification adequately assesses some, but not all, of the FAR considerations, in that, (1) the review of the use and resources needed to operate the Center needs to be expanded and (2) the consideration of alternative sources to meet NRC's needs is not thorough. We believe the draft renewal justification also does not provide the Commission sufficient information on which to render its judgement, because assumptions used by the staff in drawing conclusions are not identified and an Office of the Controller (OC) cost comparison referenced by the staff does not reflect the current environment affecting the HLW program.
The following two sections of our report describe more specifically our concerns with the agency's draft renewal justification document.
Review of the Use and Resources Needed to Operate the Center Needs to be Expanded
The draft renewal justification adequately addressed the agency's special technical needs for an FFRDC; however, the mission requirement levels identified in the draft do not adequately portray the current and potential future use of the Center. The draft renewal justification states that the Center needs 61 full time equivalent (FTE) positions to fully support the HLW program, and 54 FTE to minimally support the "breadth and depth of skills required over the long term." However, neither the actual number of staff at the Center (currently at 42 FTE) nor the implications of the present staffing level are identified in the draft renewal justification. More specifically, the draft does not fully discuss whether, at the current staffing level, the Center presently has the breadth and depth needed to minimally support the HLW program or whether it will be able to maintain/acquire this capability over the years.
The NRC staff considered nine assumptions in drafting the renewal justification. Although some information on the assumptions is contained in the justification package for the Commission's consideration, the nine assumptions themselves are not. We believe a review of these assumptions is important to the Commission in making an informed decision on renewing the contract with SwRI. Five of these assumptions address issues involving implementation of both the Department of Energy (DOE) and NRC HLW programs in the near term, while the four remaining assumptions deal with other programmatic considerations and future work areas. Moreover, reductions in NRC's budget have impacted NRC's HLW program and the assumptions for assessing whether to renew the Center's contract. We believe these budget reductions should have signaled the NRC staff to re-visit the original assumptions and revise the draft renewal justification accordingly.
The HLW appropriation funds the Center and other HLW program activities within NRC. In Fiscal Years (FY) 1996 and 1997, NRC's HLW program appropriation fell from the $22 million received in FY 1995 to $11 million for each year. NRC supplemented the $11 million appropriation with $6 million and $3 million in carryover funds in FYs 1996 and 1997, respectively. NRC requested $17 million for its HLW program for FY 1998 and NRC staff said that it was not anticipated that sufficient carryover funds will be available to supplement the appropriation. This request consists of about $12.5 million for the Center and about $4.5 million for other activities not associated with the Center. However, the NRC staff's draft renewal justification is written based on funding of $17 million solely for support of the Center in FY 1998. Therefore, the renewal justification draft does not align with NRC's HLW budget request for FY 1998. Moreover, even if the full HLW appropriation requested for FY 1998 is received, it will not fully support the Center's activities described in the current draft justification because $4.5 million of the $17 million requested will be used to support other activities outside of the Center.
Consequently, in November 1996, the Director, Nuclear Material Safety and Safeguards (NMSS), identified that insufficient funding in FYs 1996 and 1997, and further cuts in FY 1998, would result in a potential significant weakness. The HLW program would be unable to achieve legislatively mandated directives. The Director described some of the programmatic effects of the FYs 1996 and 1997 budget cuts and further stated that, if NRC's FY 1998 appropriation for the HLW program remained at $11 million (the same appropriations received in the previous two years), (1) the program will have further reductions in scope, (2) NRC's review of DOE's viability assessment and license application would be limited to the current knowledge base, and (3) the three-year time period for licensing specified in the Nuclear Waste Policy Act, as amended, would not be possible.
We discussed NRC's reduced appropriations and current budget request for the HLW program with the Office of Management and Budget (OMB) officials and staff members of the House Subcommittee on Energy and Water Development, Committee on Appropriations. Given the current budget climate, they indicated that NRC needs to re-evaluate its needs and resources for the HLW program. Additionally, the Subcommittee staff with whom we spoke said they had begun to question NRC's credibility regarding the agency's HLW budgets, because for two consecutive years NRC said that the Center would be closed if the HLW program received an $11 million appropriation. However, despite receiving this appropriation level for both years, the Center has remained open.
Based on these comments, we believe the NRC draft renewal justification must provide the Commission with sufficient analysis and detail to clearly identify the funding level at which the agency would not be able to meet its HLW program mandates or sustain the Center. NRC and the Center performed an analysis of different funding levels and the impact each level would have on the HLW program and support to the Center, but the details of this analysis are not included in the draft renewal justification package. We believe "a line in the sand," or minimal support level for the HLW program and the Center, must be provided by the NRC staff to the Commission. It is critical to the Commission's ability to make an informed decision on whether to renew the Center's contract.
Finally, NRC's current Strategic Assessment and Rebaselining initiative resulted in the development of a series of direction setting issues (DSI) for the agency to form the basis of the new NRC Strategic Plan. One of the DSI's options states that NRC will maintain NRC's HLW program. The Commission's preliminary view on this DSI is that NRC should continue to support the national HLW program at whatever level is appropriate to keep pace with the national program. In addition, the Commission desires to explore taking a more active role in resolving issues in the national HLW program, consistent with NRC's mission. We believe that, if the recent downward trend in appropriated funding levels continues for the HLW program, NRC will not be able to accomplish this DSI as intended.
We believe an analysis of these three conditions (reduction of NRC's HLW program funding, the potential significant weakness in the HLW program, and the NRC strategic assessment DSI addressing the HLW program) is needed. The analysis should emphasize use of the Center and the NRC staff's assumptions in developing the draft renewal justification. Such an analysis would provide the Commission with the necessary detail to make an informed decision regarding renewal of the agency's FFRDC.
Consideration of Alternative Sources is Not Thorough
As previously identified, when conducting a comprehensive review of the continued use and need of an FFRDC, a sponsoring agency must consider alternative sources to meet the sponsor's needs. In response to a finding in our previous audit report, the then Deputy Executive Director for Nuclear Material Safety, Safeguards and Operations Support committed to seeking OMB guidance regarding consideration of alternative sources. NMSS staff said that they contacted OMB and were told that a poll of alternative sources considered from technical staff would satisfy this requirement.
Although the draft renewal justification cites there are some alternative sources to meet NRC's HLW program needs, the methodology used to generate the list was not thorough. The NMSS poll of technical staff resulted in responses from some project managers not being aware of any alternative sources to several other staff providing specific alternative considerations that would provide some, if not all, of the technical support needed by NRC.
Based on the listing generated by the technical staff, NRC determined that none of the identified sources were adequate in meeting either continuity of technical support or conflict of interest concerns. We found that the analysis of alternatives was not fully documented in the draft renewal justification. The draft justification also did not consider the enhanced expertise acquired by NRC staff in their 10 years of overseeing the Center or the possibility of further enhancing NRC's staff capabilities as an additional alternative consideration. In addition, the draft justification's discussion only addressed re-competing the contract as an FFRDC. We do not believe NRC adequately analyzed the use of individual contracts to different entities for providing an alternative method of support.
In a previous audit report(3), we addressed how the NRC manages its contract for operation of the Center. We recommended that NRC staff complete a cost comparison of performing the Center's work within the agency versus at the Center. Although OC performed a cost comparison for completing all of the Center's work within the agency versus at the Center, the cost comparison is not comprehensive. This comparison was completed in 1994, when there was no indication of a long term budget reduction. Further, OC used data for only one year, instead of assuming and using data covering the full 5 years of the contract. In areas where the comparison found insufficient data, no cost difference was assumed. As such, the OC cost comparison does not provide a thorough and realistic basis on which to evaluate the merits of performing HLW program work at the Center or within the agency.
We believe the NRC staff's draft renewal justification does not provide sufficient information by which the Commission can render its judgement regarding whether to renew the SwRI contract. This is caused, in part, because assumptions supporting the current draft justification are not provided in the paper and should be re-assessed given the current budget climate and NRC's strategic assessment.
Further, NRC's analysis of alternative sources to support the HLW program is not adequately documented and does not consider the enhanced expertise acquired by NRC staff. Additionally, the cost comparison performed by OC is not comprehensive and does not reflect the current environment affecting the HLW program. We believe NRC needs to re-evaluate the data on which the current draft justification is based and revise the justification to provide the Commission sufficient information to make an informed business decision.
To ensure that the Center's renewal justification provides the best possible information to support the Commission in making an informed decision regarding continuation of the Center, we recommend that the Executive Director for Operations revise the draft renewal justification to include:
Details regarding the assumptions on which the justification is based;
An analysis of the minimum budget level needed to support the contract as well as contingencies based on varying budget levels;
An analysis of the minimum staffing levels needed at the Center to sustain viable support for NRC's HLW program; and
A detailed discussion of alternative sources.
On July 3, 1997, the Deputy Executive Director for Regulatory Programs (DEDR) responded to our draft report and agreed with our recommendation. The DEDR informed us that "the initial Commission paper has been revised to address the four items in your recommendation and to provide additional information which was not available at the time of the initial draft." Appendix II contains a copy of the DEDR's comments.
Objectives, Scope, and Methodology
In Fiscal Year 1988, the U.S. Nuclear Regulatory Commission (NRC) established the Center for Nuclear Waste Regulatory Analyses (the Center) as a Federally Funded Research and Development Center (FFRDC). The purpose was to provide sustained technical assistance and research free from conflict of interest for NRC's portion of the High-Level Waste Program.
FFRDC contracts are intended to be long-term in nature. However, the Office of Federal Procurement Policy (OFPP), Office of Management and Budget (OMB), requires that agencies conduct analyses prior to renewing FFRDCs to determine whether the unique FFRDC relationship is still needed. The analyses should address whether the market place has changed to the point where competition should be sought, and should evaluate past performance and any future changes to the FFRDC's mission.
Responding to a September 1992 request from OFPP, the Office of the Inspector General (OIG) audited the nature and adequacy of NRC's first justification for renewing its FFRDC. OIG found that, although the NRC addressed all requirements for an FFRDC review, the NRC staff was unable to adequately support some statements it made in its renewal justification. OIG recommended that the NRC develop plans and procedures covering justification requirements for use in future FFRDC reviews and the agency agreed. NRC's contract for the Center is scheduled to expire in September 1997 and the agency's justification for this renewal will have to be completed prior to this expiration.
The objectives of this audit were to (1) evaluate NRC's corrective action for implementing OIG's previous recommendation and (2) determine if NRC properly considered all of the requirements for an FFRDC review prior to renewing its FFRDC contract. This audit is considered a review of internal management controls related to renewal of an FFRDC, based upon the Federal Acquisition Regulation requirements.
We directed our audit work at the draft renewal justification developed for extending the Southwest Research Institute contract, set to expire in September 1997. Follow-up with OFPP took place to determine if any changes had occurred in the criteria for renewing FFRDC contracts.
Our audit included: (1) a review of current Federal regulations and guidance, NRC policies and procedures, and contract provisions for the FFRDC; (2) discussions with representatives from the Offices of Administration and the Office of Nuclear Material Safety and Safeguards; (3) review of NRC's draft renewal justification and supporting files related to justifying an additional period for FFRDC support, and (4) discussions with OMB officials and staff members of the House Subcommittee on Energy and Water Development, Committee on Appropriations.
We conducted our audit work between January and March 1997 in accordance with generally accepted government auditing standards.
Major Contributors to this Report
Corenthis B. Kelley
Judith L. Leonhardt
Glossary: Office of the Inspector General Products
1. Investigative Report - White Cover
An Investigative Report documents pertinent facts of a case and describes available evidence relevant to allegations against individuals, including aspects of an allegation not substantiated. Investigative reports do not recommend disciplinary action against individual employees. Investigative reports are sensitive documents and contain information subject to the Privacy Act restrictions. Reports are given to officials and managers who have a need to know in order to properly determine whether administrative action is warranted. The agency is expected to advise the OIG within 90 days of receiving the investigative report as to what disciplinary or other action has been taken in response to investigative report findings.
2. Event Inquiry - Green Cover
The Event Inquiry is an investigative product that documents the examination of events or agency actions that do not focus specifically on individual misconduct. These reports identify institutional weaknesses that led to or allowed a problem to occur. The agency is requested to advise the OIG of managerial initiatives taken in response to issues identified in these reports but tracking its recommendations is not required.
3. Management Implications Report (MIR) - Memorandum
MIRs provide a "ROOT CAUSE" analysis sufficient for managers to facilitate correction of problems and to avoid similar issues in the future. Agency tracking of recommendations is not required.
4. Audit Report - Blue Cover
An Audit Report is the documentation of the review, recommendations, and findings resulting from an objective assessment of a program, function, or activity. Audits follow a defined procedure that allows for agency review and comment on draft audit reports. The audit results are also reported in the OIG's "Semiannual Report" to the Congress. Tracking of audit report recommendations and agency response is required.
5. Special Evaluation Report - Burgundy Cover
A Special Evaluation Report documents the results of short-term, limited assessments. It provides an initial, quick response to a question or issue, and data to determine whether an in-depth independent audit should be planned. Agency tracking of recommendations is not required.
6. Regulatory Commentary - Brown Cover
Regulatory Commentary is the review of existing and proposed legislation, regulations, and policies so as to assist the agency in preventing and detecting fraud, waste, and abuse in programs and operations. Commentaries cite the IG Act as authority for the review, state the specific law, regulation or policy examined, pertinent background information considered and identifies OIG concerns, observations, and objections. Significant observations regarding action or inaction by the agency are reported in the OIG Semiannual Report to Congress. Each report indicates whether a response is required.
1. Review of NRC's Justification for Renewing Its Contract for Federally Funded Research and Development Center (FFRDC) Operations, OIG/93A-01, February, 8, 1993
2. Review of NRC's Justification for Renewing Its Contract for Federally Funded Research and Development Center (FFRDC) Operations, OIG/93A-01, February 8, 1993
3. NRC Effectively Manages Its Contract With Southwest Research Institute For Operating The Center For Nuclear Waste Regulatory Analyses, OIG/93A-11, December 14, 1993