Subcontracting practices at the Nevada Operations Office and its management and operating contractor

The Department of Energy (Department), Nevada Operations office (Nevada) is responsible for following established policy in obtaining necessary support services through its Contract Management Division. The objective of the audit was to determine whether Nevada and its Management and Operating (M&O) contractors were following Federal and Department policies with regard to directed support service subcontracts. The audit showed that program offices in Nevada and Headquarters were directing the Nevada M&O contractor to award subcontracts to specific companies or individuals. The subcontractors reported either directly to a program office or to a national laboratory. Furthermore, the subcontractors` work products were delivered directly to the requesting program office. The M&O contractor had only administrative responsibility for the subcontracts awarded. This occurred because Nevada had not established adequate internal controls over the process of procuring support service. As a result, the M&O contractor was paid a higher award fee for managing the Department`s contracts and may have incurred additional costs in staffing its procurement office. We recommended that the Manager, Nevada Operations Office, discontinue directed support service subcontracts to its M&O contractor and act to strengthen internal controls over subcontracting. Nevada management partially concurred with the recommendations but did not believe the directed procurements cited in the report were inappropriate. Details of management`s comments and our responses are included in Part III