United States Nuclear Regulatory Commission - Protecting People and the Environment

OIG/98A-02 - Review of NRC's Contracting Activities

May 18, 1998

MEMORANDUM TO: L. Joseph Callan
Executive Director for Operations
FROM: Thomas J. Barchi
Assistant Inspector General for Audits

During December 1997, the Office of the Inspector General (OIG) initiated the subject review to determine the nature, extent, and controls over contract price increases. The purpose of this memorandum is to share our observations and provide some suggestions based on the work performed.

At the request of the Executive Director for Operations, OIG initiated a similar review in 1995 to evaluate the number and significance of cost overruns on commercial contracts at the U.S. Nuclear Regulatory Commission (NRC). At that time, NRC did not have reliable summary data needed to identify cost overruns and other contract price increases. The Division of Contracts and Property Management (DCPM) advised us they were developing a new, automated system from which we could obtain summary data. We ended that survey with the intent of revisiting the area after the agency implemented its new Contracts and Payments System (CAPS).

Although the agency implemented CAPS in August 1996, our current review found that CAPS contains inaccurate and unreliable data on the nature and extent of contract price increases. The absence of reliable data prevented us from identifying and evaluating contract price increases and, from examining, to the extent we felt necessary, controls over those price increases. We were advised that a new contract information system is under development and that CAPS will be merged into the new system. In addition, we learned that information in this new system may duplicate some data to be contained in STARFIRE, the agency's resource management system that is currently under development. Finally, it appears that senior managers outside DCPM also have a need for contract information, which CAPS or its successor system may be capable of providing. These issues are discussed below.

CAPS Data to be Validated; System Being Replaced

CAPS contains a variety of contract information, including financial data related to independent government cost estimates, original ceilings, modification amounts, current ceilings, and obligated funds. It also provides for the coding of modifications to describe the nature of a contract change. NRC has established several codes to describe modifications; examples include out-of-scope changes, exercising options, overruns, ratifications, and extending periods of performance.

As we began our review with information provided in CAPS reports, we found original ceiling amounts were often missing or erroneous, and current ceiling amounts were, in most cases, overstated. Some modification codes, identifying the nature of cost increases, were inaccurate or not recorded. These inaccuracies in CAPS resulted from programming deficiencies and input errors, which demonstrate a need for stronger internal controls to ensure data reliability. The Director DCPM stated that the system's reports contained erroneous data. He said that he planned to validate CAPS data concurrent with the development of a new system involving the merger of CAPS with DCPM's Contract Tracking, Invoice Tracking, and Purchase Order Tracking Systems. The Director also indicated that the new system, which is currently being developed and planned for completion in late summer 1998, will not only consolidate existing systems but also will be Year 2000 compliant.

New DCPM System May Be Partially Duplicative of STARFIRE

We also met with representatives of the Office of Administration, the Office of the Chief Financial Officer, and the Office of the Chief Information Officer and discussed whether the DCPM system being developed takes into account the STARFIRE project, specifically the Automated Procurement Module. We were told that STARFIRE will likely provide some of the existing functions of the new DCPM system, but it is too early to tell how the systems will interface.

Senior Managers Outside DCPM Indicate a Need for CAPS Data

Our review also disclosed that NRC senior level managers outside DCPM have an interest in CAPS, or its planned successor system, as a management tool for contract oversight purposes. In meetings with the Deputy Executive Director for Management Services, the Assistant for Operations, and the Director, Office of Administration (ADM), each expressed interest in information which the system is capable of providing. For example, the Director of ADM, was interested in obtaining periodic summary/trend information on contract ratifications and out-of-scope changes.


As DCPM moves forward with the design and implementation of a new, consolidated information system, we believe that the staff charged with this effort should implement effective ongoing internal controls to ensure data accuracy and completeness to prevent the types of problems encountered with CAPS. Moreover, while planning the merger of its systems, we believe DCPM should coordinate with STARFIRE project management to eliminate or minimize possible duplication of efforts. Finally, we suggest that management requirements outside DCPM be identified to ensure that DCPM's new system meets the needs of all managers.

We have discussed our observations with DCPM management. At this time, we do not intend to perform additional work, but will monitor the agency's progress in developing and implementing the new contract information system. Please contact me at 415-5915 if you have any questions on this matter.

cc: Chairman Jackson
Commissioner Dicus
Commissioner Diaz
Commissioner McGaffigan
P. Norry, DEDM
E. Halman, ADM

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