U.S. Department of Energy Office of Inspector General report on inspection of Westinghouse Savannah River Company fees for managing and operating the Savannah River Site

During the first five years of its contract with the Department of Energy, Westinghouse Savannah River Company was paid over $130 million in fees to manage and operate the Savannah River Site. Fees paid to Westinghouse steadily increased over the five year period. For example, fees paid for the last six months of this five year period were over three times as large as fees paid for the first six months. The purpose of this inspection was to review the Department`s annual negotiation of total available fees with Westinghouse, and to examine the reasons for the growth in fees over this five year period. The review disclosed that, after Fiscal Year 1989, the Department used an increasing number of fee bases in calculating Westinghouse Savannah River Company`s fixed-fee-equivalents from the maximum fee schedules within the Department of Energy Acquisition Regulation. The authors found that the Department had significantly increased the percentage of the dollar value of subcontracts being placed in Westinghouse`s fee bases for fee calculation purposes. They found that the Department had effectively increased Westinghouse`s fixed-fee-equivalents by approximately $3 million in both Fiscal Year 1993 and 1994 to, in large part, fund an unallowable employee incentive compensation program. They found that Westinghouse`s total paid fees for the five year period increased significantly over what they would have been had the terms resulting from the original competitive negotiations been maintained. The authors recommended that the Deputy Assist Secretary for Procurement and Assistance Management require that changes in either the number or composition of fee bases used in calculating fees from the maximum fee schedules be submitted to the Department`s Procurement Executive for approval