DOE F 1325.8 (8-89) EFG (07-90) United States Government Department of Energy MEMORANDUM DATE: March 10, 1997 REPLY TO ATTN OF: IG-1 SUBJECT: INFORMATION: Report on "Inspection of the Performance Based Incentive Program at the Richland Operations Office" TO: The Acting Secretary BACKGROUND: The subject final report is provided for your information. While conducting other inspection work at the Richland Operations Office (Richland), the Office of Inspector General identified the Fiscal Year 1995 Richland Performance Based Incentive (PBI) Program as an area of concern. Specifically, we were unable to identify any written policies describing implementation procedures or program controls for this $14.22 million program. As a result, we initiated an inspection to review (1) the Department's policies and guidance for the establishment and implementation of PBI Programs at the Department's Operations Offices, (2) the guidance developed by the Richland Operations Office for the administration of the Fiscal Year 1995 PBI Program, (3) the process used by Richland to nominate and select projects for the PBI Program, and (4) the establishment of PBI objectives at Richland and the justification for specific PBI award amounts. DISCUSSION: The Richland PBI Program for Fiscal Year 1995 was comprised of 34 PBIs with 86 separate Performance Objectives that totaled $14.22 million in potential incentive fees that could be earned by the Management and Operating (M&O) Contractor. This program was established by Richland as one part of the Department's Contract Reform Initiative implemented at the Hanford Site in Fiscal Year 1995. A July 5, 1994, "DECISION MEMORANDUM," prepared by the Contract Reform Executive Committee and signed by the former Secretary of Energy, required that the Richland Operations Office and the M&O Contractor at that time, the Westinghouse Hanford Company, incorporate the full range of applicable contract reform provisions into the existing M&O contract at Richland by the beginning of October 1994. We found that the Fiscal Year 1995 Performance Based Incentive Program at Richland has not always made the best use of incentive dollars paid to the M&O Contractor. For example, we found: (1) an instance where the fee paid was excessive when compared with the cost of labor and material to perform the PBI work; (2) instances where PBI fees were paid for work that was accomplished prior to the establishment of the PBI Program at Richland; (3) instances where PBI fees were paid for work that was not completed; (4) instances where PBI fees were paid for work that was easily achieved by the M&O Contractor; and, (5) an instance where quality and safety were compromised by the M&O Contractor in order to achieve a PBI fee. Specific examples include the payment of $225,000 to the M&O Contractor to procure and install a ventilation fan with a total Fiscal Year 1995 project cost of only $24,766; the payment of $225,000 to the M&O Contractor to complete the installation of alarm panels in seven tank farms when all the work was not completed prior to the PBI completion date as claimed by the contractor; the payment of $185,870 to the M&O Contractor for the replacement of compressed air systems in 10 tank farms when all the work was not completed prior to the PBI completion date as claimed by the contractor; and, the payment of a $100,000 PBI incentive fee to the M&O Contractor for the implementation of laboratory software when, in fact, the software installation was completed prior to the establishment of the incentive agreement. We also identified $950,000 in penalties that should be assessed against the M&O Contractor for incomplete work. We have recommended that action be taken to recover fees paid for incomplete work and associated penalties, and to recover fees paid for work that was performed prior to the establishment of the PBI Program. In addition, we found numerous PBI Program weaknesses in the implementation of the Fiscal Year 1995 PBI Program at Richland. For example, this program was established without any specific written policies or procedures for the management and administration of an incentive fee program. As a result, the rationale for the selection of PBI Performance Objectives was unclear, the justification for specific PBI fee amounts could not be determined, the scope of the PBI work and the criteria for acceptance was not always clearly defined, and the expected financial and operational benefits from individual projects selected under the PBI Program were undefined in most cases. In addition, an audit trail did not exist for the Richland PBI process which identified who authored specific PBIs, who reviewed specific PBIs prior to issuance, or who approved the establishment of specific PBI fees. In commenting on this report, Departmental managers from the Office of Environmental Management and the Richland Operations Office concurred with all 19 recommendations to improve the PBI Program. (Signed) John C. Layton Inspector General Attachment cc: Deputy Secretary Under Secretary Assistant Secretary for Environmental Management Acting Associate Deputy Secretary for Field Management Manager, Richland Operations Office U.S. DEPARTMENT OF ENERGY OFFICE OF INSPECTOR GENERAL REPORT ON INSPECTION OF THE PERFORMANCE BASED INCENTIVE PROGRAM AT THE RICHLAND OPERATIONS OFFICE The Office of Inspector General wants to make the distribution of its reports as customer friendly and cost effective as possible. Therefore, this report will be available electronically through the Internet five to seven days after publication at the following alternative addresses: PLEASE NOTE THAT ATTACHMENTS 1-4 OF THIS REPORT CAN BE OBTAINED BY CALLING THE INSPECTOR GENERAL REPORTS REQUEST LINE AT 202-586-2744 OR BY CALLING 202-586- 1924. Department of Energy Headquarters Gopher gopher,hr.doe.gov Depart of Energy Headquarters Anonymous FTP vm 1.hqadmin.doe.gov U.S. Department of Energy Human Resources and Administration Home Page http://www.hr.doe.gov/ig Your comments would be appreciated and can be provided on the Customer Response Form attached to the report. This report can be obtained from the U.S. Department of Energy Office of Scientific and Technical Information P.O. Box 62 Oak Ridge, Tennessee 37831 Report No. DOE/IG-0401 Office ofInspections Date Issued: March 10, 1997 Washington D.C. 20585 REPORT ON INSPECTION OF THE PERFORMANCE BASED INCENTIVE PROGRAM AT THE RICHLAND OPERATIONS OFFICE TABLE OF CONTENTS PAGE I. INTRODUCTION AND PURPOSE. . . . . . . . . . . . . 1 II. SCOPE AND METHODOLOGY. . . . . . . . . . . . . . . 2 III. SUMMARY RESULTS OF INSPECTION. . . . . . . . . . . 3 IV. BACKGROUND. . . . . . . . . . . . . . . . . . . . . 6 V. RESULTS OF INSPECTION. . . . . . . . . . . . . . . 19 A. PBI FEE WAS EXCESSIVE . . . . . . . . . . . . 19 B. PBI FEES PAID FOR WORK THAT WAS ACCOMPLISHED PRIOR TO THE PBI PROGRAM BEING ESTABLISHED AT RICHLAND. . . . . . . . . . . . . . . . 24 C. PAYMENT MADE BY RICHLAND FOR INCOMPLETE PBI WORK. . . . . . . . . . . . . . . . . 36 D. PBI PERFORMANCE OBJECTIVES APPEAR TO BE EASILY ACHIEVED. . . . . . . . . . . . . 45 E. QUALITY AND SAFETY WERE COMPROMISED TO ACHIEVE A PBI FEE. . . . .. . . . . . . . 59 F. RICHLAND PBI PROGRAM ADMINISTRATIVE WEAKNESSES. . . . . . . . . . . . . . . 62 G. INSPECTION OBSERVATIONS ON OTHER RICHLAND PBI PROGRAM ISSUES. . . . . . . . . . . . . 82 Appendix A: Fiscal Year 1995 Richland Operations Office Performance Based Incentives Attachments: Copies of Management Comments 1. December 23, 1996, Memorandum from the Assistant Secretary for Environmental Management 2. December 23, 1996, Memorandum from the Manager, Richland Operations Office 3. February 19, 1997, Memorandum from the Assistant Secretary for Environmental Management 4. February 24, 1997, Memorandum from the Manager, Richland Operations Office OFFICE OF INSPECTOR GENERAL OFFICE OF INSPECTIONS WASHINGTON, D.C. 20585 REPORT ON INSPECTION OF THE PERFORMANCE BASED INCENTIVE PROGRAM AT THE RICHLAND OPERATIONS OFFICE I. INTRODUCTION AND PURPOSE The Fiscal Year (FY) 1995 Performance Based Incentive (PBI) Program at the Department of Energy's (DOE) Richland Operations Office (Richland) was initiated by Richland as one part of the broader DOE Contract Reform Initiative being implemented at the Hanford Site in FY 1995. This program was identified as an area of concern by the Office of Inspections as a result of previous inspection work. Specifically, during a limited review of the construction of an Effluent Treatment Facility at the Hanford Site, we were unable to identify any written policies describing PBI Program controls or implementation procedures. We were told that Richland Operations Office Program Management personnel were not directly involved in the selection of the Effluent Treatment Facility project for the PBI Program, or in the determination that this particular PBI would be established with a potential fee of $1 million. The PBI Program at Richland implemented certain elements of the Departmentms Contract Reform Initiative and allowed the Management and Operating (M&O) Contractor to earn (or forfeit) fee from a Performance Based Incentive Fee Pool for work performed under the Management and Operating Contract. This fee was payable to the M&O Contractor upon the completion of certain PBI objectives, and after approval of payment by the Contracting Officer. The Richland PBI Program for FY 1995 was comprised of 34 separate PBI projects that totaled more than $14 million in potential incentive fees. The purpose of this inspection was to review the processes used by the Department of Energy's Richland Operations Office in implementing and administering a Performance Based Incentives Program at the Hanford Site. In reviewing the PBI Program at Richland, we evaluated: 1. The Department of Energy's policies and guidance on the establishment and implementation of PBI Programs at the Department's Operations Offices. 2. The guidance developed by the Richland Operations Office for the administration of the Richland PBI Program. 3. The process used by Richland to nominate and select projects for the PBI Program. 4. The PBI objectives established for specific projects and the justification for specific PBI award amounts. II. SCOPE AND METHODOLOGY This inspection included a general review of 34 Performance Based Incentives with 86 separate Performance Objectives issued to the Westinghouse Hanford Company in FY 1995. As part of our inspection, we reviewed: (1) the PBI contract files for the 34 Performance Based Incentives issued in FY 1995; (2) the "PERFORMANCE BASED INCENTIVES" provisions of the Management and Operating Contract with the Westinghouse Hanford Company under Modification M-111 dated January 25, 1995; (3) the "PERFORMANCE, OBJECTIVES, MEASURES, EXPECTATIONS AND FEE DISTRIBUTION" provisions of the follow-on Fluor Daniel Hanford Contract dated October 1, 1996; (4) selected portions of the Multi-Year Program Plan for the Hanford Site; (5) selected Milestone Description Sheets for projects that were selected under the Performance Based Incentive Program; and, (6) DOE Acquisition Letter 94-14 on performance based management contracts. In addition, this inspection also included a review of two reports prepared by the Richland Operations Office which discussed the results of two Richland Operations Office reviews of seven FY 1995 PBI performance objectives. The first of these reviews resulted in a report dated August 5, 1996, titled "Special Assessment Report" for the "241-A- 701 Air compressor Upgrade." This review was initiated by the DOE Richland Tank Waste Remediation System (TWRS) organization after a June 10, 1996, "near miss" incident involving work that had been certified as complete by the Management and Operating Contractor under a FY 1995 PBI for the replacement of compressed air systems in 10 tank farms. The second of these reviews resulted in a report dated September 24, 1996, titled "REVIEW OF TANK WASTE REMEDIATION SYSTEM (TWRS) FISCAL YEAR 1995 PERFORMANCE BASED INCENTIVES." This review was also initiated by the TWRS organization in order to identify any systematic and program weaknesses associated with the award of TWRS PBIs in FY 1995. As part of our review, the Office of Inspections obtained information at the Richland Operations Office and the Westinghouse Hanford Company. We also interviewed Department of Energy Headquarters officials, Richland Operations Office officials, and Westinghouse Hanford Company personnel. This inspection was conducted between September 1995 and December 1996. This inspection was conducted in accordance with the "Quality Standards for Inspections"issued by the President's Council on Integrity and Efficiency. III. SUMMARY RESULTS OF INSPECTION Our inspection found that the Performance Based Incentive Program at Richland has not always made the best use of incentive dollars paid to the Management and Operating Contractor. For example, we found: (1) an instance where the fee paid was excessive when compared with the cost of labor and material to perform the PBI work; (2) instances where PBI fees were paid for work that was accomplished prior to the establishment of the PBI Program at Richland; (3) instances where PBI fees were paid for work that was not completed; (4) instances where PBI fees were paid for work that was easily achieved by the Management and Operating Contractor; and, (5) an instance where quality and safety were compromised by the Management and Operating Contractor in order to achieve a PBI fee. We also found numerous PBI Program weaknesses in the implementation of the FY 1995 PBI Program at Richland. For example, this program was established without any specific written policies or procedures for the management and administration of an incentive fee program. As a result, the rationale for the selection of PBI performance objectives was unclear, the justification for specific PBI fee amounts could not be determined, the scope of the PBI work and the criteria for acceptance was not always clearly defined, and the expected financial and operational benefits from individual projects selected under the PBI Program were undefined in most cases. In addition, since the PBI document did not contain an audit trail, we could not determine who authored specific PBIs, who reviewed specific PBIs prior to issuance, or who approved the establishment of specific PBI fees. We attempted to obtain this information through discussions with Richland Operations Office personnel responsible for monitoring the contractorms PBI performance. However, these individuals could not provide the information in many cases. We believe that the FY 1995 PBI Program at Richland did not always provide incentives to the Management and Operating Contractor in an efficient manner to accomplish tasks at the Hanford Site. Some examples include the payment of $225,000 to the M&O Contractor to procure and install a ventilation fan with a total FY 1995 project cost of only $24,766; the payment of $225,000 to the M&O Contractor to complete the upgrade of alarm panels in seven tank farms, when the contractorms Milestone Description Sheet indicated that the upgrade requirement for six of the seven alarm panels were completed prior to the PBI being established, and a Richland Review Team found that all the work was not completed prior to the PBI completion date as claimed by the contractor; the payment of $185,870 to the M&O Contractor for the replacement of compressed air systems in 10 tank farms, when the contractorms Milestone Description Sheet indicated that seven of the 10 systems were completed prior to the establishment of the PBI Program, and a Richland Review Team found that all the work was not completed prior to the PBI completion date as claimed by the contractor; and, the payment of a $100,000 PBI incentive fee to the M&O Contractor for the implementation of laboratory software, when in fact the software installation was completed prior to the incentive fee being offered. We believe that the use of PBI dollars as described above had the impact of reducing the effectiveness of the PBI Program and reduced the dollars available for other potential PBI activities at the Hanford Site. As shown in the "BACKGROUND" section of this report, the Management and Operating Contractor earned almost as much in PBI fees in FY 1995 as was earned in award fees in the three previous fiscal years combined, when no similar incentive program was in effect. In those previous three fiscal years, the Management and Operating Contractor earned a total of $13.7 million in award fees compared with an available award fee pool of $62.4 million. In FY 1995, the Management and Operating Contractor earned $11.5 million in incentive fees compared with an available incentive fee pool of $14.22 million. Under the FY 1995 PBI Program, the percentage of available fee earned increased significantly when compared with prior year award fee programs, from an average of 22 percent under the award fee structure in FYs 1992, 1993, and 1994, to 80.9 percent under the PBI structure in FY 1995. This increase in the percentage of available fee earned was due in part to several FY 1995 PBI fee payments that were inappropriate or questionable. As discussed in this report, we found through discussions with Richland officials and through the review of Richland documentation that $910,870 in PBI fees was paid for incomplete work. This documentation included the results of the two Richland Operations Office reviews of seven FY 1995 PBI Performance Objectives as described in the lSpecial Assessment Reportn for the "241-A-701 Air compressor Upgrade" dated August 5, 1996, and the "REVIEW OF TANK WASTE REMEDIATION SYSTEM (TWRS) FISCAL YEAR 1995 PERFORMANCE BASED INCENTIVES" dated September 24, 1996. The TWRS review teams reported that work required under three of seven FY 1995 PBI Performance Objectives was not completed by the Management and Operating Contractor, even though the contractor had certified that the work was completed and had been paid $910,870 in PBI fees associated with that work. We also found that $950,000 in penalties was not assessed against the contractor for the PBI work that was not completed. Each PBI contained a penalty provision where the contractor would forfeit fee if the PBI task was not completed. In the case of the PBIs discussed in this report where work was not completed, the contractor would have been subject to the forfeiture of the maximum available fee, or $950,000. We believe that the $910,870 in PBI fees paid for incomplete work should be recovered from the contractor, and that $950,000 in penalties should be assessed against the contractor consistent with the fee terms of the PBIs involved. This action has been proposed by the Richland Office of Tank Waste Remediation System in a September 26, 1996, letter to the Richland Director of the Procurement Services Division. In addition, we have identified $111,000 in PBI fees paid for PBI work that was completed prior to the establishment of the PBI Program at Richland. We are recommending that the Richland Operations Office recover this amount since the PBI work was accomplished without an approved performance incentive in place. We are also recommending that the DOE Richland Contracting Officer review the circumstances surrounding the modification of a PBI after the work was completed to ascertain if a $843,333 payment made by Richland to the M&O Contractor was appropriate. Management Comments: In comments to the Initial Draft Report, the Manager, Richland Operations Office, stated that: "We were aware of deficiencies in our FY 1995 Performance-based Incentive (PBI) program, and had begun to take preliminary steps to address deficiencies prior to the receipt of your report. Your report has clearly confirmed some of the same problems we found in earlier reviews of the Tank Waste Remediation System safety initiatives. "Based on our review of your draft report, the cumulative amount of incentive fees that have been questioned is seven percent of the total fee available to the contractor. We plan to review FY 1995 and FY 1996 incentives and work aggressively to recover incentive fees that were inappropriately paid." In comments to the Official Draft Report, the Manager stated that: "Since our December 23, 1996, response to the initial draft report, we have initiated actions to implement your recommendations and resolve concerns about DOE Richland Operations Officems (RL) performance based incentives (PBIs). Westinghouse Hanford Company (WHC) was directed on January 17, 1997, to reimburse $410,870 for the fee paid to WHC in error and the penalty due to RL for PBI 95-011(d). In addition, a Contract Incentive Review Team, co-chaired by the Directors of the Procurement and Contract Finance and Review Divisions, was established to review each of WHCms FY 1995 and FY 1996 PBIs. "The purpose of the Contract Incentive Review is to: 1) ensure that each contract incentive was adequately and appropriately validated and documented, 2) assemble the information necessary to close out the WHC contract, and 3) apply lessons learned from the experience with WHC contract incentives to the RL fee administration process. This review is scheduled to be completed by February 28, 1997." The Manager also stated that: "Our comments regarding the report's recommendations have not changed since our previous response. However, we currently are not in full agreement with all of the findings and conclusions regarding the specific PBIs cited in the draft report and will be better able to respond to those findings and conclusions after the Contract Incentive Review is completed." IV. BACKGROUND Richland Mission and Work Scope According to the DOE "Field Fact Book" dated February 1996, the mission of the Richland Operations Office is to manage waste products, including the researching, developing, applying, and commercializing technologies related to waste management, cleanup, and environmental restoration. Additionally, engineering, scientific, and research programs are conducted on environmental restoration, tank waste remediation, waste management, nuclear energy, and energy research. In February 1996, the Richland Operations Office monitored the activities of 13,186 contractor personnel with 531 DOE employees. The major contractors included the Westinghouse Hanford Company (WHC) with 6,351 employees who performed the function of the Hanford Site Management and Operating (M&O) Contractor, Battelle Memorial Institute with 3,169 employees who managed Pacific Northwest Laboratories, and Kaiser Engineering Hanford (KEH) with 1,896 employees who provided Hanford Site engineering services in support of WHC. The FY 1996 environmental research and restoration activities managed by the Richland Operations Office were funded in the amount of $1.487 billion (as of February 1996). Fees Payable to the M&O Contractor FIGURE 1 FY 1995 RICHLAND/WHC FEE STRUCTURE BASE FEE $6,000,000 AWARD FEE $10,150,000 PBIs $14,320,000 OTHER FEES $10,530,000 A feature of the M&O contract with the Westinghouse Hanford Company has been the payment by the Department of Energy to WHC of base, award, and incentive fees. The FY 1995 allocation of the $41 million in potential fees payable to WHC is shown in Figure 1. The Base Fee of $6,000,000 for the entire year was established and payable to the contractor in evenly divided monthly installments for the first six months of FY 1995 to cover unallowable costs. An Award Fee pool of $10,150,000 was established where the contractor could earn this fee amount for meeting Performance Evaluation Plan goals. PBI incentive fees of $14,320,000 were established as part of the DOE Contract Reform Initiative where the contractor could earn this fee amount for meeting objective criteria. Other fees of $10,530,000 were also established as part of the DOE Contract Reform Initiative where the contractor could earn this fee amount for meeting cost reduction goals such as those under the Challenge 170 program. According to a document provided by the Richland Operations Office, base fees paid to the contractor for Fiscal Years 1992-1994 were as follows: $4,200,000 in FY 1992; $10,750,000 in FY 1993; and $12,500,000 in FY 1994. It should be noted that the base fee paid to the contractor in FY 1995 was only $6,000,000, a significant reduction compared to FY 1993 and FY 1994. Richland Operations Office officials told us the reduction in the FY 1995 base fee amount was made to implement the new performance based contract negotiated at Richland for FY 1995 as part of the DOE Contract Reform Initiative. These officials told us the dollars that were taken out of the base fee were allocated to the PBI incentive fees. This had the effect of reducing a fixed fee, which the contractor automatically received, and increasing the amount of fee "at risk." Payment of Award Fees Payments of award fees to the contractor were made through an award fee cycle which consists of two, six month award fee periods in a single fiscal year. The Manager of the Richland Operations Office was designated as the Government Fee Determining Official (FDO), and, as part of the DOE M&O contract with the Westinghouse Hanford Company, the contractor agreed that the determination of the award fee earned would be made by the FDO, and that such determination was binding on both parties. The contract also stated that the evaluation of contractor performance would be in accordance with an Award Fee Performance Evaluation Plan that would be unilaterally established by the Government, and upon which the determination of the award fee earned would be based. The Award Fee Evaluation Plan included the criteria to be considered under each performance area to be evaluated, and the percentage of award fee available for each area. As stated in the WHC Award Fee Evaluation Plan for the Award Fee Period of April 1, 1995, through September 30, 1995, performance areas included the following: Environment, Safety and Health (51 percent of award fee); Planning Productivity, Efficiency and Responsiveness (9 percent of award fee); and a "Program Section" (40 percent of award fee), which contained performance objectives for Tank Waste Remediation, Facilities Transition, Waste Management, Spent Fuel, and the Waste Encapsulation and Storage Facility. In an interview with the Richland Operations Office Deputy Manager, the Deputy Manager said that the M&O Contractor was not being motivated by the previously used award fee structure, but that the contractor had performed well with the implementation of the PBI Program in FY 1995. According to the Westinghouse Hanford Company Acting Manager for Contracts Administration, WHC assisted in establishing the PBI process at the Richland Operations Office due to dissatisfaction with flaws in the award fee process. Specifically, the WHC Acting Manager for Contracts Administration said, while expressing an opinion, that the past award fee process was very subjective, and had unfairly denied WHC award fees that they had earned, due, in part, to DOE Headquarters intervention in downgrading scores so that reduced award fees were earned by WHC. The WHC Acting Manager for Contracts Administration also said an award fee process needed to be implemented that would focus on deliverables, and that the PBI process was part of several such programs, where the question of whether you did or did not achieve your stated performance goals was readily apparent. FIGURE 2 AWARD FEES PAYED BY RICHLAND TO WHC FY 92 Award Fee Pool:$15.9 Million FY 92 Award Fee Paid:$8.5 Million FY 93 Award Fee Pool:$21.5 Million FY 93 Award Fee Paid:$2.7 Million FY 94 Award Fee Pool:$25 Million FY 94 Award Fee Paid:$2.5 Million As depicted in Figure 2, WHC had received a fractional amount of the allocated award fee pool during the three fiscal years prior to the establishment of the PBI Program at the Richland Operations Office in FY 1995. Management Comments: In comments to the Official Draft Report, the Assistant Secretary for Environmental Management stated that: "DOE's position is that WHC was not unfairly denied award fee they had earned. Award fee earnings are determined by the Government based on a comprehensive evaluation of the contractor's accomplishments and deficiencies in specified performance areas. Fifty-one percent of the potential fee was historically allocated to environment, safety and health. Systemic safety problems leading to fatalities at the site in 1992 and 1993 significantly affected the award fee earned. All fee determinations were made in accordance with established procedures and contractual provisions." FY 1995 Performance Based Contract Implementation As part of the Contract Reform Initiative, the Department recognized that many of the unique contracting systems and practices that served the Department in the past were no longer suitable for the effective and efficient accomplishment of the Department's changing mission: managing the nation's remaining warheads, strengthening non-proliferation efforts, environmental restoration, and pursuing science and energy initiatives. In February 1994, the Department's Contract Reform Team (formed by the Secretary of Energy in June 1993 to evaluate the contracting practices of DOE) issued a report titled "Making Contracting Work Better and Cost Less" which outlined basic elements of contract reform. We were told that Performance Based Incentives evolved from three of the basic elements of contract reform: (1) Performance Criteria and Measures; (2) Performance Based Incentives (incentives that encourage and reward achievement of stated performance requirements); and, (3) Results- Oriented Statement of Work. In a July 5, 1994, "DECISION MEMORANDUM" prepared by the Contract Reform Executive Committee and approved by the Secretary of Energy, the Richland Operations Office and the Westinghouse Hanford Company were required to incorporate into the existing Management and Operating contract at Richland the full range of applicable contract reform provisions by the beginning of October 1994. On January 25, 1995, the existing Management and Operating contract at Richland was modified to include provisions of contract reform. The incorporation of contract reform provisions resulted in the establishment of the Richland Operations Office's Performance Based Incentive program. DOE Wide Implementation According to DOE Acquisition Letter 94-14, dated September 28, 1994, "performance-based management contracts" were to be used by the Department of Energy for the operation of DOE Government owned or controlled laboratories, and weapons production facilities, where the use of such contracts would reflect the Department's policy and intent to convert traditional Management and Operating contracts to the new form of contract called for in the Contract Reform Team Report. As stated in DOE Acquisition Letter 94-14: "The Department of Energy's Contract Reform Team Report concluded that the Department's policies and practices regarding the extension of its management and operating contracts needed to be revamped. The Contract Reform Team found that existing policies favored indefinite extensions of incumbent contractors and that in practice, few competitions for management and operating contracts were undertaken. Such policies and practices effectively precluded the introduction of best management practices into the Department's laboratory and weapons production complex." Section II. Contract Term and Options to Extend (b) of DOE Acquisition Letter 94-14 stated that: "Contracts awarded prior to the effective date of this Acquisition Letter using competitive procedures may be modified to incorporate an option to extend the term of the contract for a period not to exceed 5 years where: * * * * * * * (3) the contractor has also agreed to a contract modification necessary to implement other performance-based management contract provisions." Richland Implementation In an interview with the Richland Operations Office Deputy Manager, the Deputy Manager said that the Richland Operations Office PBI Program was developed to support the Department of Energy's contract reform initiatives. He said that DOE Headquarters officials asked for input from Richland in the form of a proposal with measurable parameters for work accomplishment as part of the M&O contract. He said that the PBIs submitted to DOE Headquarters were reviewed by the Office of the Assistant Secretary for Environmental Management. The Deputy Manager said that beginning in the Summer of 1994, the Richland Operations Office established a team to implement the PBI Program at Richland, with a goal of having the PBI Program in place by October 1, 1994. However, the Deputy Manager said that it was recognized by September 1994 that the team had reached an impasse, and that DOE Headquarters had returned the first round of 13 draft PBIs from Richland as being insufficient for a contract incentive program effort. The Deputy Manager also said that DOE Headquarters officials indicated to Richland management that the PBI fee pool should be increased along with the number of PBIs, and required that the PBI Program be in place at Richland by December 1994. In response to the Official Draft Report, the Assistant Secretary for Environmental Management stated that the guidance to Richland was to allocate more of the available fee pool dollars to objectively measured performance based incentives, and to reduce the amount of the subjective award fee portion of the fee pool. The Deputy Manager said that, after receiving DOE Headquarters input regarding modifying the existing M&O contract with the Westinghouse Hanford Company, WHC balked at the proposed contractual terms which included PBI provisions. The Post Negotiation Summary for the contract modification indicates that WHC was concerned about, among other things, the ratio of performance incentives to the award fee pool included in the proposed contract. In January 1995, following a meeting between DOE Headquarters officials, Richland officials, and Westinghouse Corporate officials, a DOE official gave a deadline of 5:00 P.M. on January 25, 1995, as the time and date that the contract modification would be signed or the process of competing for the site Management and Operating contract would begin. Management Comments: In response to the Official Draft Report, the Assistant Secretary for Environmental Management stated that: "Given the Secretary's July 5, 1994, Decision Memorandum announcing an extension of the WHC contract conditioned on 'the full range of applicable contract reform provisions' being incorporated into the contract by October 1994, a negotiating deadline was necessary to determine whether an immediate competition would be required." As stated in the "Postnegotiation Summary" for this contract, "WHC submitted numerous PBIs for RL's consideration, which were reviewed and revised up until the last minute prior to signature." The Postnegotiation Summary also stated that the PBI fee pool was raised from $11,000,000 to $14,320,000, and that the PBIs were agreed to on January 25, 1995. Appendix A provides a summary of the PBIs established by Richland in FY 1995, showing the PBI descriptions, the dates the PBIs were established and completed, the FY 1995 cost of the PBI work, and the PBI fees available and earned. As stated in the previous section of this report, contracts awarded prior to the effective date of Acquisition Letter 94-14 could be modified to incorporate an option to extend the term of the contract for a period not to exceed 5 years where the contractor has also agreed to a contract modification necessary to implement other performance based management contract provisions. The DOE Richland contract with WHC was extended for a period of one year effective with Contract Modification M-111 which included performance based management provisions. Clause H-15, "PERFORMANCE BASED INCENTIVES," of Contract Modification M-111 to Contract DE-AC06-87RL10930, signed January 25, 1995, established the PBI Program at the Richland Operations Office and stated that: "The Government may, at its sole discretion, establish Performance Based Incentives which will be described and provided to the Contractor in writing annually or at other times as determined by the Government. The Contractor may present input, which the Government may consider and discuss with the Contractor, as part of the establishment of the Performance Based Incentives. The Contractor's input must be received by July 1 of each year. The Performance Based Incentives will provide for the Contractor to earn or forfeit fee as described therein from a Performance Based Incentive fee pool. While the Contractor may earn or forfeit fee as a result of performance on the individual incentives described, the net fee earned from the pool cannot be less than zero." PBI Document Format The PBI document is an extension of the DOE Richland M&O contract with the Westinghouse Hanford Company resulting from Clause H-15, of Contract Modification M-111. The format of the PBI document describes the task and the amount of the incentive. There are four different information sections to the FY 1995 PBI document that prescribe how the contractor may earn the PBI specific incentive fee. Each PBI contains an identification section which states the PBI Number (e.g. 95-010), the PBI Owner organization at Richland, and the date that the PBI was established. Each PBI also contains a "Performance Objective" section which describes what the contractor is to accomplish to qualify for payment of the PBI award amount. Additionally, each PBI contains a "Contract Performance Measures" section that specifies what level of performance will qualify the contractor for incentive fee payment at either an "Excellent,"Satisfactory," or "Unsatisfactory" level, and the potential fee associated with each level. As stated in Contract Clause H-15, the contractor may either earn or forfeit fee. An "Excellent" rating allows the contractor to earn a fee, a "Satisfactory" rating does not allow the contractor to earn a fee, while an "Unsatisfactory" rating requires the contractor to forfeit fee from the incentive fee pool. However, the net fee earned from the pool cannot be less than zero. The last section on the PBI document is the "Basis for Measurement" section which describes conditions associated with the payment/forfeiture of incentive fee, such as the amount of fee available per day during the PBI performance period. The PBI performance period is the time frame described within each PBI, in which the contractor must accomplish the Performance Objective in order to receive an incentive fee payment. A review of PBI documents that implemented the FY 1995 Richland PBI Program has revealed similarities between many of the PBIs regarding incentive fee calculations and periods of performance. Specifically, many PBIs specify a schedule date that will result in a "Satisfactory" quality level where no incentive fee is provided for meeting that date. These PBIs also state a period of time for PBI task performance which is usually 30 days in advance of the "Satisfactory" date. The 30 day performance "window" is the period of time in which the contractor may earn a prorated portion of the incentive fee for "Excellent" performance, or the maximum (entire) fee if the performance date is achieved 30 days or more in advance of the "Satisfactory" date. Conversely, the contractor would be penalized and forfeit fee if the PBI task completion was later than the "Satisfactory" date. The amount of incentive fee penalized would then be calculated based upon the number of days that the task was late, up to the maximum fee amount at the "Unsatisfactory" level. The PBI total fee is usually prorated among the performance days in the "window," e.g., a total incentive fee of $300,000 would be paid to the contractor for completing the PBI 30 days or more ahead of the "Satisfactory" date, or $150,000 for completing the work 15 days ahead of schedule. If the contractor completed the work 15 days past the "Satisfactory" date, the contractor would be required to forfeit $150,000 from PBI fee amounts otherwise earned under this incentive program. If the contractor completed the work 30 days or more past the "Satisfactory" date, the contractor would be required to forfeit the maximum of $300,000. Completion of PBI Performance Objectives and the PBI Payment Process Following the completion of a PBI performance objective, a payment process is initiated by the contractor through a notice of completion package. During our inspection, we found that after a PBI performance objective was satisfied, the contractor manager responsible for completing that work would document this condition with a "Notice of Completion" letter that would be addressed to the DOE Richland Operations Officer. The "Notice of Completion" letter would describe the performance objective that was completed, the date the work was completed, and the amount of the incentive fee claimed. This letter is also used as an attachment to a "Notice of Completion" package which is originated by the respective contractor manager and forwarded to the appropriate DOE Richland Programmatic Assistant Manager and/or Director, the Richland Operations Officer, and the Richland Contracting Officer for concurrence. The process is completed with authorization from the DOE Contracting Officer for the contractor to draw down the appropriate amount of earned incentive fee from the contractorms letter of credit account. PBI Fees Paid by Richland to WHC Compared to WHC's Award Fee Experience At the time of our Inspection, FY 1995 PBI fees had been paid by Richland to WHC that greatly exceeded the past award fees earned by WHC over the prior three fiscal years. Specifically, by the end of FY 1995, Richland had established 34 different PBIs with WHC that contained 86 different performance objectives. As of March 5, 1996, $11,485,572 in PBI fees had been paid to the M&O Contractor for PBI work under the FY 1995 PBI Program, compared to a three year annual average (FY 1992 - FY 1994) of only $4,577,916 in award fees paid to WHC. Figure 3 shows a comparison of base fees, award fees, and incentive fees earned by WHC in FY 1992 - FY 1995. FIGURE 3 Base, Award and Incentive Fees Paid by Richland to WHC (Millions of Dollars) FY 95 PBIs $11.5 Million FY 95 Award Fee $l.5 Million FY 95 Base Fee $6 Million FY 94 Award Fee $ 2.5 Million FY 94 Base Fee $12.5 Million FY 93 Award Fee $2.7 Million FY 93 Base Fee $10.75 Million FY 92 Award Fee $8.5 Million FY 92 Base Fee $4.2 Million Per a document titled "History of Westinghouse Hanford Company Award Fee," provided by the DOE Richland Operations Officer, "'Contract Reform' was implemented via a modification to WHC's contract which was effective October 1, 1994. The entire base fixed fee for FY 1995 was paid during the first six months of the fiscal year; the base fixed fee for the second six months was zero. The contract modification also established a revised fee structure which includes several fee incentive features for specific accomplishments. As a result, this award fee evaluation was not a comprehensive evaluation of WHC's performance, and it is not directly comparable to award fee performance for prior periods." Management Comments: In comments to the Initial Draft Report, the Manager, Richland Operations Office, stated that: "Changing old ways of doing business at Hanford has been a difficult process that required a continuous improvement approach. DOE recognized that a negotiated contract extension in 1995 with the Westinghouse Hanford Company was an interim step; full competition of the management contract and privatization of the Tank Waste Remediation System are examples of the steps we have taken to improve contractor accountability and performance. "Performance-based incentives were an essential part of the negotiated contract extension with the Westinghouse Hanford Company. A fundamental change in contracting methodology was initiated to correct: poor performance on environment, safety, and health (ES&H) activities; unacceptable performance in meeting regulatory and project commitments; pervasive business-as-usual thinking; and lack of effectiveness in using an award fee to motivate improved contractor performance. "Our basic approach for the performance-based incentives was to define specific, measurable objectives; place performance risk on the contractor and apply upward and downward adjustments to the fee based on actual performance. A new fee structure was established in the contract extension, reducing base fees by one-half, reducing available award fees, and placing all fees (except reduced base fee) at risk for unacceptable performance. "Even though problems were experienced with some of the FY 1995 Performance-based incentives, significant contractor performance improvements were realized during FY 1995, including: improved performance on ES&H activities, demonstrated by the downward trend in accident severity rates, a key measure of improved safety; improved performance and productivity in meeting regulatory and project commitments, evidenced by our ability to exceed original scope objectives during a period of major budget shortfalls; re-engineered processes, with a cost reduction initiative resulting in more than $300M of savings (validated by Arthur Anderson); and improved overall contractor performance." The Manager provided additional information on contractor performance improvements in comments to the Official Draft Report. The Manager stated that these improvements included a 67 percent reduction in accident severity rates and completion of 94 percent of the enforceable regulatory milestones on or ahead of schedule. In further comments to the Initial Draft Report, the Manager, Richland Operations Office, also stated that: "The draft report's comparison of the prior years award fee payments with the FY 1995 PBI payments does not include an assessment of the contractor's overall performance during the period covered by the PBIs. During that period the contractor initiated numerous management changes and re-engineering initiatives and was able to improve both safety and efficiency as a result of RL [Richland] direction and the fee incentives. This improved performance would have substantially increased the contractor's award fees had we retained the prior years award fee structure." In comments to the Official Draft Report, the Manager, Richland Operations Office, stated that: "the questioned FY 1995 PBI amounts are only half of the $6.0 million reduction in base fee and only 7 percent of the total available fee." The Manager also stated that Richland feels that: "the reduction in base fee is an important issue when evaluating the inefficiencies and lessons learned from the initial year of the PBI Program, and that the contractor's total base plus earned PBI fees were probably comparable to what they would have earned under the previous base plus award fee arrangement." Inspector Comments: At this time, we have no analytical basis for assessing how improved performance under the PBI Program, or through other Richland direction in FY 1995, would have substantially increased the contractor's award fees had Richland retained the prior years award fee structure. It is clear, based on our inspection, that PBI fee incentives in FY 1995 targeted activities relating to site management, safety, and projects that would have impacted the efficiency of operations at the site. However, these incentives did not cover the entire work scope of the contractor in FY 1995. As shown in Appendix A, these incentives involved projects and activities whose total cost in FY 1995 was only $162 million compared with the total $1.381 billion budgeted for the contract in FY 1995. As discussed in a February 1996 independent audit report prepared for Richland, the contractor claimed more than $300 million in cost savings for FY 1995 under the Challenge 170 Program. However, the contractor received additional fee over and above that received for the PBI Program for achieving these savings. Management Comments: In comments to the Official Draft Report, the Manager, Richland Operations Office, stated that: "The report's comparison of prior years'award fee payments with the FY 1995 PBI payments . . . appears to be a misleading comparison of the costs for the work covered by PBIs to the total contract cost. The $162 million cost for the PBIs does not include any costs for six safety PBIs that are crosscutting across the entire contract scope, and the report does not acknowledge that RL continued to have an award fee program concurrent with the PBI Program. It should also be noted that the award fees were not evenly applied to the total contract in FY 1995 and prior years and a majority of the award fees were often applied to only a portion of the total contract scope. The use of PBIs did not significantly decrease the scope of work that would have to be performed in order for the contractor to earn fee." Inspector Comments: As stated in Appendix A, we determined that a total of $162 million was the dollar value of the work scope that was incentivized for Performance Objectives as part of the FY 1995 PBI Program at Richland. As shown in Appendix A, we recognized that the FY 1995 project cost for the six safety PBIs (PBIs 95-003 through 95-008) was not available from Richland Operations Office personnel. However, we do not believe that the lack of specific cost information for these six PBIs results in a misleading comparison of the costs for the work covered by PBIs to the actual contract cost. It should be noted that the safety PBIs were crosscutting across the contract work scope in that they sought to achieve lost workday incident and case rates below the DOE average, sought to reduce radiological contaminated areas, and sought to reduce the number of detectable personnel contamination events. However, these PBIs only incentivized the safety objectives, and did not incentivize contractor performance relating to projects and other activities included in the contract work scope. As acknowledged in the "BACKGROUND" section of this report, Richland did have an Award Fee pool of $10,150,000 in FY 1995 that the contractor could earn for meeting Performance Evaluation Plan goals. V. RESULTS OF INSPECTION The results section of this report is divided as follows: A. PBI FEE WAS EXCESSIVE B. PBI FEES PAID FOR WORK THAT WAS ACCOMPLISHED PRIOR TO THE PBI PROGRAM BEING ESTABLISHED AT RICHLAND C. PAYMENT MADE BY RICHLAND FOR INCOMPLETE PBI WORK D. PBI PERFORMANCE OBJECTIVES APPEAR TO BE EASILY ACHIEVED E. QUALITY AND SAFETY WERE COMPROMISED TO ACHIEVE A PBI FEE F. RICHLAND PBI PROGRAM ADMINISTRATIVE WEAKNESSES G. INSPECTION OBSERVATIONS ON OTHER RICHLAND PBI PROGRAM ISSUES A. PBI FEE WAS EXCESSIVE Our inspection found that a PBI fee paid to the Richland M&O Contractor for the installation of a ventilation fan was excessive. Specifically, we found that the Richland M&O Contractor earned a fee of $225,000 to install a waste storage tank ventilation fan in a tank at the SY Tank Farm at the Hanford Site. However, the total Fiscal Year 1995 project cost for the ventilation fan replacement totaled only $24,766. Replacement of SY Tank Farm Ventilation Fan As part of the Hanford Site tank farm maintenance operations, one activity identified under the FY 1995 Richland PBI Program was the replacement of a ventilation fan in the SY Tank Farm. This activity had been identified as a Secretarial Safety Initiative in 1993 when the Secretary of Energy directed that DOE officials at Richland develop a list of action items to improve safety at the Hanford Site tank farms. The PBI 95-011(g) Performance Objective, designated as "Replace ventilation fan in SY farm to further reduce spark potential by August 31, 1995 (SI 2k),"was established on January 27, 1995. This PBI stated that the M&O Contractor would receive up to $225,000 for completing this action 30 days ahead of schedule. According to the WHC TWRS Milestone Description Sheet dated September 22, 1994, tasks within this scope of work included the design, fabrication, and delivery of a spark resistant replacement fan; installation of the new fan; and acceptance testing. WHC certified that the work required under PBI 95-011(g) was complete, and was paid a fee of $225,000. In a Westinghouse Hanford Company letter from the WHC Director, Tank Farm Transition Projects, to the DOE Richland Director, Tank Safety Analysis Division, dated July 17, 1995, subject: "COMPLETION OF SAFETY INITIATIVE: REPLACE VENTILATION FAN IN SY FARM TO FURTHER REDUCE SPARK POTENTIAL BY AUGUST 31, 1995 (SI 2K)," the WHC Director stated that: "The milestone was completed on July 6, 1995 as evidenced by the signed off Work Order. . . ." As shown on the "FY 95 Performance Based Incentives Westinghouse Hanford Company (WHC)" data sheet provided by the Richland Operations Officer, WHC was paid $225,000 for completing the ventilation fan project at least 30 days ahead of schedule. Statement by Richland Project Manager The FY 1995 cost to complete the replacement of the ventilation fan in the SY tank farm was significantly less than the PBI fee that was received by WHC for completing the work. During an interview with the DOE TWRS Flammable Tanks Project Manager, the Project Manager said that he had reviewed a Budgeted Cost for Work Planned schedule chart associated with the SY Tank Farm ventilation fan PBI where he found that the total cost of labor and materials to complete this PBI work was in the order of $40,000. When asked by the Office of Inspections about the relatively high incentive fee for a $40,000 task, the Project Manager said that the incentive fee amount must either be a mistake or representative of the importance of completing the Secretarial Safety Initiative on time. Our review of the PBI contract file found no documentation to support the rationale used for the establishment of a $225,000 fee for this PBI Performance Objective. Cost Documentation Provided By WHC Documentation provided by WHC verified that the FY 1995 cost to complete the replacement of the ventilation fan in the SY Tank Farm was significantly less than the PBI fee that was received by WHC for completing the work. Specifically, a WHC "Financial Data System" report dated February 29, 1996, shows that the Budgeted Cost of Work Scheduled for the replacement of the ventilation fan in the SY Tank Farm was $63,400. However, this report also shows that the Actual Cost of Work Performed was only $14,800. A WHC "CAPITAL EQUIPMENT (CENRTC) CLOSURE REQUEST" dated October 2, 1995, shows that the "Authorized Total" for this project was $65,000 and the "Actual Cost Total" was $14,861.85. Additional information provided by the Richland Operations Office showed that the total FY 1995 project cost for the ventilation fan project was $24,766. Specifically, Richland provided three WHC "Financial Data System" reports dated October 27, 1995, and identified costs associated with the ventilation fan project of $710.24, $21,906.64, and $2,149.54 on these three reports which total $24,766.42. Conclusions We believe that incentive fees should be structured in such a way as to motivate the contractor while taking into consideration the cost of the work to be performed, the significance of the work, the impact that the work has on other operations, the level of difficulty in accomplishing the work, and the risk to the contractor. However, we found no documentation to show that these factors were considered when the PBI amount of $225,000 was established for the replacement of the ventilation fan in the SY Tank Farm. As discussed later in this report, the work under this PBI objective appeared to be ahead of schedule and easily achieved. In addition, the PBI contract file contained no documentation to support the rationale used for the establishment of a $225,000 fee for an objective that had been identified as a Secretarial Safety Initiative as early as 1993. Therefore, we believe that, in this instance, a fee of $225,000 for the accomplishment of an objective that cost the contractor only $24,766 to perform was excessive and represented an inefficient use of available PBI dollars. Recommendation We recommend that the Manager, Richland Operations Office: 1. Develop guidance for the determination of incentive fees paid to contractors at Richland that considers the cost of the work to be performed, the significance of the work, the impact that the work has on other operations, the level of difficulty in accomplishing the work, and the risk to the contractor. Management Comments: In comments to the Initial Draft Report, the Manager, Richland Operations Office, concurred with Recommendation 1, stating that: "Recommendation 1: RL will develop procedures, guidelines, and additional training for the initiation, administration, and payment of new and current performance incentives. The procedures, guidelines, and training will incorporate the views and recommendations expressed in this report and incorporate lessons- learned from the previous incentive fee programs, other RL reviews, and the upcoming recommendations of the Fee Incentives and Analysis Team." The Manager offered additional comments, stating that PBI 95-011(g) was one of eight PBI 95-011 performance objectives selected to complete TWRS Secretarial Safety Initiatives. The Manager stated that it had been determined that when tank 101-SY, and to a lesser extent tank 103-SY, periodically vented flammable concentrations of gases, the exhauster presented a serious safety risk. The Manager stated that the carbon-steel fan, could, under a variety of failure modes (e.g., blade separation, bearing failure, etc.), strike the housing and create sparks. The Manager said that this sparking could serve as the initiator of a deflagration or explosion if it took place during a gas vent event. The Manager stated that the deflagration could propagate backwards into the tank with extremely serious consequences. The Manager stated that, as a result, the replacement of this fan with one which would control this potential spark source was identified as a key improvement to the Hanford safety posture. The Manager also stated that the FY 1995 total cost to complete replacement of the ventilation fan was $24,811 (later adjusted to $24,766 during a discussion with the Office of Inspections). The Manager stated that the replacement of the ventilation fan was part of a three- year workscope which was originally estimated to cost $654,000. The Manager stated that this initiative was selected for an incentive fee because of the overall importance of the entire work scope. The Manager stated that an objective cost basis methodology to determine the incentive fee was not available and the fee of $225,000 was calculated by dividing the $1,800,000 fee available for PBI 95-011 by the eight performance objectives. Inspector Comments: We agree that the identification of the ventilation fan project as a Secretarial Safety Initiative was an important improvement to the Hanford safety posture as stated by the Manager. However, the basic point we were addressing in our Initial Draft Report was that incentive fees should be structured in such a way as to motivate the contractor while taking into consideration the cost of the work to be performed, the significance of the work, the impact that the work has on other operations, the level of difficulty in accomplishing the work, and the risk to the contractor. In the case of PBI 95-011(g), it is clear that the incentive fee was not structured in this manner, but was simply determined by dividing the total PBI dollars available by the number of performance objectives associated with the PBI. During a return trip to Richland the week of December 2, 1996, we noted other cases where incentive fee amounts were paid for FY 1995 PBI activities that exceeded the FY 1995 cost of the work performed. For example, Appendix A shows that a PBI fee of $400,000 was assigned and paid for PBI 95-024, "PUREX - Transfer of D5/E6 Solution." However, we were told that the majority of the cost of this activity was incurred in FY 1994, and we were provided documentation showing that the FY 1994 cost was $303,500. Although the FY 1995 cost was not tracked in the contractorms Financial Data System, we were told that the FY 1995 cost was "relatively minor" and that the actual cost of this activity in FY 1995 was probably in the range of $30,000. We also noted several cases where the cost of the FY 1995 PBI work was nearly equal to or only slightly greater than the incentive fee paid. We believe that management needs to be aware of these situations and fully consider cost as one of the factors in determining fee in order to avoid any perception that incentive fees are excessive, and to assure that incentive fee dollars are used efficiently. We also believe that management needs to clearly document the rationale for establishing fees, and assure that any fees which greatly exceed the contractor's cost are supported by other considerations. Management Comments: In comments to the Official Draft Report, the Manager, Richland Operations Office, stated that: "The comments . . . regarding the FY 1995 cost to complete PBI 95-024, "PUREX - Transfer of D5/E6 Solution' are generally accurate. However, the report should also acknowledge the cost benefit of completing this activity and that the activity was a significant contributing factor to accelerating the overall project schedule. PUREX had been costing between $100,000 and $200,000 a day in surveillance and maintenance costs. We were able to accelerate the project by 10 months and save over $37 million by incentivizing the critical path activities." Inspector Comments: We do not dispute Richland's position that the early shutdown of the PUREX facility resulted in significant savings to the Department. Nor do we dispute that the completion of PBI 95-024 was necessary to effect the shutdown. However, as previously discussed, the basic point we were addressing is that incentive fees should be structured in such a way as to motivate the contractor while taking into consideration the cost of the work to be performed, the significance of the work, the impact that the work has on other operations, the level of difficulty in acomplishing the work, and the risk to the contractor. In this case, the payment of $400,000 in incentive fees was made for a project that was substantially completed in a prior fiscal year. The work scope to complete the performance objective in FY 1995 was described as "relatively minor" by project personnel with an FY 1995 cost in the range of $30,000. B. PBI FEES PAID FOR WORK THAT WAS ACCOMPLISHED PRIOR TO THE PBI PROGRAM BEING ESTABLISHED AT RICHLAND Our inspection found several instances where PBI fees were paid for work that was accomplished prior to the PBI Program being established at Richland. Specifically, the PBI Program at Richland was established under the M&O contract by a contract modification dated January 25, 1995. However, the M&O Contractor was paid $821,870 for work that was either completed or substantially completed prior to the contract modification date. Upgrade Alarm Panels in Seven Tank Farms As part of Hanford Site tank farm operations, one activity identified under the FY 1995 Richland PBI Program was the upgrade of alarm panels in seven tank farms. The PBI 95- 011(c) Performance Objective, designated as "Upgrade alarm panels in 7 tank farms by March 31, 1995 (SI 4a)," was established on January 27, 1995. This PBI stated that the M&O Contractor would receive up to $225,000 for completing this action 30 days ahead of schedule. According to the WHC TWRS Milestone Description Sheet dated September 16, 1994, tasks within this scope of work included an engineering evaluation to identify obsolete alarm panel windows, and to identify alarms to be retained and upgraded. Other tasks in this scope of work included the consolidation of alarm panel windows in seven control rooms, the elimination of obsolete windows, and the upgrade of selected obsolete hardware. However, documentation available to Richland prior to the establishment of this PBI showed that the upgrade requirements for six of the seven alarm panels were completed prior to the establishment of the PBI Program at Richland. Specifically, the WHC TWRS Milestone Description Sheet stated that: "All control room upgrades, except the 242-S Evaporator, were completed prior to or during FY 1994." In an interview with a DOE Richland TWRS Project Engineer, the Project Engineer confirmed that six of the seven alarm panel upgrades had been completed in prior years by WHC. As discussed in Section C of this report, "PAYMENT MADE BY RICHLAND FOR INCOMPLETE PBI WORK," however, a TWRS review team issued a report dated September 24, 1996, that documented that only two alarm panel upgrades had actually been completed before the PBI completion date. WHC certified that the work required under PBI 95-011(c) was complete. In a Westinghouse Hanford Company letter from the WHC Director TWRS Plant Tank Waste Remediation System to the DOE Director, Tank Operations Division, dated February 24, 1995, subject: "COMPLETION OF SAFETY INITIATIVE SI-4A," the WHC Director stated that: "TWRS Plant has completed all authorized work for Safety Initiative SI-4a. Authorized alarm panel upgrades have been completed in tank farms A, AN, AW, BX, BY, CR, 242-S, and U. The 242-S alarm panel functional test was completed on February 23, 1995, and completes the work specified as Performance Based Incentive work." Upon certification by WHC that the work was completed, WHC was paid a fee of $225,000. As shown on the "FY 95 Performance Based Incentives Westinghouse Hanford Company (WHC)" data sheet provided by the Richland Operations Officer, WHC was paid $225,000 for completing the alarm panel project at least 30 days ahead of schedule. Replace Compressed Air Systems in 10 Tank Farms As part of Hanford Site tank farm maintenance operations, one activity identified under the FY 1995 Richland PBI Program was the replacement of compressed air systems in 10 tank farms. The PBI 95-011(d) Performance Objective, designated as "Replace compressed air systems in 10 tank farms by March 31, 1995 (SI 4b)," was established on January 27, 1995. This PBI stated that the M&O Contractor would receive up to $225,000 for completing this action 30 days ahead of schedule. According to the WHC TWRS Milestone Description Sheet dated September 16, 1994, tasks within this scope of work included the replacement of compressor systems within existing facilities, the upgrade of compressor cooling systems, providing a dryer system for the compressed air systems, acceptance and operational testing, and the return of the hardware to WHC Hanford Site Operations. However, documentation available to Richland prior to the establishment of this PBI showed that seven of the 10 compressed air systems were already completed prior to the establishment of the PBI Program at Richland. Specifically, the WHC TWRS Milestone Description Sheet stated that seven of the 10 compressed air systems were already completed prior to FY 1995. In an interview with the DOE Richland TWRS Waste Storage Division Manager, the Manager said that he did not know why the PBI was written to include work that was completed prior to the PBI being established. Other WHC documentation also showed that seven of the 10 compressed air systems were already completed prior to the establishment of the PBI Program at Richland. In a Westinghouse Hanford Company letter from the WHC Manager, TWRS Life Extension and Transition Tank Waste Remediation System, to the DOE Director, Tank Operations Division, dated March 5, 1995, subject: "COMPLETION OF SAFETY INITIATIVE SI-4B, MILESTONE NUMBER T2C-95-115, REPLACE COMPRESSED AIR SYSTEM IN TEN TANK FARMS, A PERFORMANCE BASED INCENTIVE ACTIVITY," the WHC Manager stated that seven compressor systems were completed in prior years, while three compressor systems were completed in FY 1995. This letter identified the air compressor completion dates as follows: 1. AW Farm upgrade was completed on 1/15/93. 2. SX Farm upgrade was completed on 5/26/93. 3. T Farm upgrade was completed on 3/26/93. 4. 241-CR upgrade was completed on 5/21/93. 5. 242-S Evaporator upgrade was completed on 9/30/92. 6. U Farm upgrade was completed on 5/25/94. 7. B/BX/BY Farm upgrade was completed on 8/24/94. 8. AP Farm upgrade was completed on 2/23/95. 9. 242-T Evaporator/TX Farm/TY Farm upgrade was completed on 2/23/95. 10. The 701-A upgrade was completed on 3/5/95. WHC certified that the work required under PBI 95-011(d) was complete. In a Westinghouse Hanford Company letter from the WHC Director, TWRS Plant Tank Waste Remediation System, to the DOE Assistant Manager, Office of Tank Waste Remediation System, dated March 7, 1995, subject: "COMPLETION OF PERFORMANCE BASED INCENTIVE 95-011(d)," the WHC Director stated that: "This letter provides notice that Performance Based Incentive 95-011(d), replacement of ten tank farm compressed air systems, was completed on March 5, 1995. Your concurrence on the attachment is required for Performance Based Incentive completion." Upon certification by WHC that the work was completed, WHC was paid a fee of $185,870. As shown on the "FY 1995 Performance Based Incentives Westinghouse Hanford Company (WHC)" data sheet provided by the Richland Operations Officer, WHC was paid $185,870 for completing the compressed air system project 19 days ahead of schedule. Shutdown of Fast Flux Test Facility Group 1 Systems The shutdown of the Fast Flux Test Facility (FFTF) Group 1 systems was a planned activity that was designated as a PBI. The PBI 95-026 Performance Objective, designated as "FAST FLUX TEST FACILITY - Complete the shutdown of Group 1 systems," was established on January 27, 1995. This PBI stated that the M&O Contractor would receive up to $300,000 for achieving the goals of: "Greater than 50 percent of the Group 1 systems are shut down prior to April 1, 1995, and all Group 1 systems are shut down prior to August 10, 1995." This had the effect of establishing two performance standards for the FFTF shutdown. However, a review of WHC FFTF shutdown related documentation indicated that many of these actions had taken place prior to the establishment of the PBI Program at Richland. We found that seven of the 11 tasks required to be completed to qualify WHC for payment of the PBI fee by meeting the first performance standard were completed prior to the PBI being established. The other four tasks were completed by February 22, 1995, within 26 days of the PBI being established. Specifically, WHC certified that the work required under PBI 95-026 was complete. In a Westinghouse Hanford Company letter from the WHC Director, FFTF Transition Projects, to the DOE Director, Transition Program Division, dated May 23, 1995, subject: "PERFORMANCE BASED INCENTIVE COMPLETION NOTICE," the WHC Director stated that: "On May 19, 1995, the Fast Flux Test Facility Transition Project completed the shutdown of all twenty-one Group 1 systems per the applicable work documents. The completion of this activity constitutes Westinghouse Hanford Company's meeting of the 'excellent' performance quality level of the Performance Based Initiative titled,' Fast Flux Test Facility - Complete the shutdown of Group 1 systems.'" Attached to the May 23, 1995, WHC letter was a "validation statement" showing the 21 Group 1 systems and the dates when these systems were shut down. The systems and the shutdown completion dates as of May 19, 1995, were identified as follows: SYSTEM COMPLETION DATE 1. PDS Computer 9/28/94 2. PDS Multiplexers 9/28/94 3. CIS 10/10/94 4. ZTO's 1/3/95 5. PPS 1/6/95 6. EDS/DAS 1/6/95 7. Failed Fuel Monit 1/12/95 8. DHX Controls 2/1/95 9. EDS/CALC 2/2/95 10. Rx Flux Control 2/13/95 11. Diesel Generators 2/22/95 12. NASA 3/13/95 13. RSB & AEB-W H&V 3/13/95 14. CTMT Margins 3/17/95 15. MOTA 4/4/95 16. CTMT H&V 4/10/95 17. HTS & DHX H&V 4/14/95 18. Control/AEB-E H&V 4/24/95 19. Cover Gas Sampl. 4/28/95 20. RAPS 5/10/95 21. DG Fuel Oil suspended 5/19/95 This documentation shows that systems 1 through 7 were completed prior to the PBI being established, and systems 8 through 11 were completed within 26 days of the establishment of the PBI. Upon certification by WHC that the work was completed, WHC was paid a fee of $300,000. As shown on the "FY 95 Performance Based Incentives Westinghouse Hanford Company (WHC)" data sheet provided by the Richland Operations Officer, WHC was paid $300,000 for completing the FFTF Group 1 systems shutdown more than 30 days ahead of schedule. EPCRA 311 Material Safety Data Sheet List As part of ongoing environmental reporting requirements, Richland approved a PBI for producing several environmental reports. The PBI 95-028 Performance Objective, designated as "Complete Annual Environmental Reporting Requirements," was established on January 27, 1995. This PBI stated that the M&O Contractor would receive up to a total of $120,000 for environmental reports in which the: "Reports are completed at least one week ahead of schedule and within budget." There were a total of 11 reports stipulated in the PBI "Basis for Measurement" where it was also stated that WHC would receive $11,000 per report if the report was completed at least one week ahead of schedule and within budget. Each of the 11 reports included under PBI 95-028 had separate completion dates established for the achievement of a PBI fee. One of these reports, the EPCRA 311 Material Safety Data Sheet List, was required by PBI 95- 028 to be completed by January 25, 1995, in order to receive the maximum fee of $11,000. However, this report was completed prior to the establishment of the PBI Program at Richland. In a letter dated January 24, 1995, from the WHC Director of Environmental Services to the DOE Acting Program Manager, Office of Environmental Assurance, Permits, and Policy, subject: "MATERIAL SAFETY DATA SHEET REPORTING, EMERGENCY PLANNING AND COMMUNITY RIGHT-TO-KNOW ACT, SECTION 311," the WHC Director stated that: "As required by the Emergency Planning and Community Right-To-Know Act of 1986 (EPCRA), Section 311, a revised Material Safety Data Sheet (MSDS) listing of hazardous chemicals for the Hanford Site has been prepared and is attached for your action. . . . The required revisions to the November 1994 listing were identified on January 23, 1995. Draft cover letters for the submittals are also attached for your use." The completion of the EPCRA 311 MSDS PBI Performance Objective was also documented on a PBI work sheet. Specifically, a Westinghouse Hanford Company Fee/Penalty Calculations worksheet dated February 6, 1995, and subject: "EPCRA 311 MSDS list - 95/1 quarter update," stated that the event (completion) date for this PBI was on January 24, 1995. WHC certified that this task was completed on January 24, 1995. This certification occurred one day prior to the establishment of the PBI Program at Richland, and three days prior to the establishment of this specific PBI. Upon certification by WHC that the work was completed, WHC was paid a fee of $11,000. As shown on the "FY 95 Performance Based Incentives Westinghouse Hanford Company (WHC)" data sheet provided by the Richland Operations Officer, WHC was paid $11,000 for completing the "EPCRA 311 MSDS list (2nd Qtr)" at least one week ahead of schedule. The Richland Operations Officer, the Contracting Officer's Representative for WHC award fees and performance based incentives, was interviewed by the Office of Inspections concerning the payment of an incentive fee for the EPCRA 311 MSDS list. The Operations Officer said that the PBI fee was earned before the PBI establishment date because it took a long time to negotiate Contract Modification M- 111 that established the PBI Program at Richland, and that the work described by this PBI was ongoing prior to the contract modification being signed. The Operations Officer said that the contractor was completing the work in expectation of DOE honoring the PBI. Certification of Laboratory Software As a part of the Hanford Site Analytical Services Program, a PBI was established for implementing a new laboratory computer software program. The PBI 95-029 Performance Objective, designated as "Implement LABCORE LIMS Release 2.0," was established on January 27, 1995. This PBI stated that the M&O Contractor would receive $3,571 per day, up to $100,000 for completing this action by February 28, 1995. Acknowledgment by Richland that all certifications for LABCORE LIMS Release 2.0 had been achieved before February 28, 1995, was required in order for WHC to receive the PBI fee. As stated in PBI 95-029 "Basis for Measurement," there were four requirements that had to be completed by February 28, 1995, as part of the implementation of Release 2.0 of the LABCORE LIMS system. These four requirements were: 1. Complete and document user acceptance testing for the two (X bar and Y bar) moving average range charts. 2. Issue a letter report to the Manager, Information Systems of the 222-S LABCORE system performance evaluation. 3. Complete and document a user acceptance test for the transfer of data between the 222-S Organic instrument system and the 222-S LABCORE system. 4. Complete and document a user acceptance test for the transfer of data from the 222-S Applied Research Inductively Coupled Plasma (ICP) instrument system and the 222-S LABCORE test system. WHC submitted a letter to Richland stating that the PBI objectives were met. As stated in a Westinghouse Hanford Company letter from the WHC Director, Analytical Services Projects and Site Services, to the DOE Richland Director, Waste Programs Division, dated January 31, 1995, subject: "COMPLETION OF LABCORE/LIMS RELEASE 2.0, AS MILESTONE AS- 95-001," the WHC Director stated that: "This letter constitutes the completion of AS-95-001 due February 28, 1995." The WHC Directorms letter detailed the actions taken by WHC to satisfy the requirements of PBI 95-029, but did not mention the completion dates for these four requirements. However, WHC LABCORE LIMS Release 2.0 documentation indicated that the requirements of the PBI were satisfied prior to the PBI being established. This documentation, provided by a DOE Richland Project Engineer, indicated that each of the four PBI "Basis for Measurement" requirements were completed before the PBI was established on January 27, 1995. Specifically, user acceptance testing for the two (X bar and Y bar) moving average range charts was completed on January 13, 1995; a letter report to the Manager, Information Systems of the 222-S LABCORE system performance report was released on November 21, 1994; a user acceptance test for the transfer of data between the 222-S Organic instrument system and the 222-S LABCORE system was completed on October 31, 1994; and, a user acceptance test for the transfer of data from the 222-S Applied Research Inductively Coupled Plasma (ICP) instrument system and the 222-S LABCORE system was completed on October 31,1994. Upon certification by WHC that the work was completed, WHC was paid $100,000. As shown on the "FY 95 Performance Based Incentives Westinghouse Hanford Company (WHC)" data sheet provided by the Richland Operations Officer, WHC was paid $100,000 for completing the implementation of LABCORE LIMS Release 2.0 ahead of schedule. DOE Statements on Work Accomplished Prior to PBI Implementation Several WHC and DOE officials that were knowledgeable of the specifics of PBI 95-026, PBI 95-028 ,and PBI 95-029 Performance Objectives were interviewed regarding the payment for work that was completed prior to the establishment of the PBI Program (on January 25, 1995, under Contract Modification M-111). Some officials said that the PBIs had been in a development status for a considerable period of time, and that the contractor began working on completing the PBI Performance Objectives in anticipation of the PBIs being incorporated into the M&O contract. However, other DOE officials said that, in some cases, it was their belief that PBIs were written to include work that was already accomplished because PBI Performance Objectives were simply copied from documents which included the Secretarial Safety Initiatives for the Hanford Site developed in 1993. Statements by WHC and Richland Officials on PBIs that were to be Approved We found that WHC management was uncertain which PBIs would in fact be approved by DOE Richland as late as January 23, 1995. In a letter from the WHC Executive Vice President to the DOE Richland Deputy Manager dated January 13, 1995, the WHC Executive Vice President stated in part that: ". . . This attachment represents 13 PBIs worth $9.15 million spread over the remaining portion of the fiscal year. We recognize that any potential positive or negative first quarter fiscal year (FY) 1995 incentives associated with the attached 13 PBIs have been eliminated as a result of not having a signed/approved contract in place." * * * * * * * * "Represented in Attachment 3 are 21 additional PBIs worth $9.12 million. Many of these have been previously discussed between the program staff at WHC and RL." In a letter from the WHC Executive Vice President to the DOE Richland Deputy Manager dated January 23, 1995, the Executive Vice President stated that: "We would appreciate your assistance in quickly obtaining copies of the complete set of Performance Based Incentives (PBIs). A complete set of PBIs was provided to the U.S. Department of Energy, Richland Operations Office (RL) on January 13, 1995, and we have not had an opportunity to review changes made subsequent to our submittal." DOE Richland affirmed which PBIs were included in the contract modification one week after the modification was signed. In a letter from the Richland Operations Office Contracting Officer to the President of the Westinghouse Hanford Company, dated February 3, 1995, and subject: "CONTRACT DE-AC06-87RL190930, PERFORMANCE-BASED INCENTIVES," the Contracting Officer stated that: "The recent modification number M111 to the subject contract, incorporated clause number H- 15, titled: Performance Based Incentives. Pursuant to clause H-15, the twenty-nine (29) currently established Performance-Based Incentives (PBIs) are forwarded herewith. Additions, deletions, and/or changes to existing PBIs shall be provided in accordance with the terms of the subject contract." Conclusions We believe that PBI dollars were not effectively used in the instances described here because we found substantial portions of the work performed to achieve PBI fees totaling $821,870 was actually performed prior to the establishment of the PBI Program at Richland on January 25, 1995. In the case of PBI 95-011(c), the PBI objective was written to imply that the alarm panels in seven tank farms were to be upgraded in order to achieve a PBI fee of $225,000. However, documentation shows that the upgrades to the alarm panels in six of the seven tank farms had already been completed prior to or during FY 1994. In the case of PBI 95-011(d), the PBI objective was written to imply that the compressor air systems in 10 tank farms were to be replaced in order to achieve another PBI fee of $225,000. However, the replacements of the compressor air systems in seven of the 10 tank farms were completed between January 1993 and August 1994. In the case of PBI 95-026, the PBI objective was written to imply that the contractor would have to shut down more than 50 percent of the Group 1 systems for the Fast Flux Test Facility by April 1, 1995, and all of the Group 1 systems by August 10, 1995, in order to achieve a PBI fee of $300,000. However, seven of the 11 tasks required to qualify the contractor for the April 1, 1995, performance measure were actually completed between September 28, 1994, and January 12, 1995. We believe that PBIs should clearly reflect the work that is to be performed. In the case of PBI 95-011(c), the work to be performed should have been stated as "Upgrade an alarm panel in 1 tank farm," rather than "Upgrade alarm panels in 7 tank farms." In the case of PBI 95-011(d), the work to be performed should have been stated as "Replace Compressed Air System in Three Tank Farms," rather than "Replace Compressed Air System in Ten Tank Farms." Similar conditions exist for PBIs 95-028 and 95-029 where PBI objectives were completed prior to the establishment of the PBI Program at Richland. In the case of PBI 95- 028, a fee of $11,000 was paid for completing the EPCRA 311 MSDS List. However, this PBI objective was met one day prior to the establishment of the PBI Program at Richland. In the case of PBI 95-029, a fee of $100,000 was paid for completion of four activities associated with implementation of Release 2.0 of the LABCORE LIMS program. However, three of these four activities were completed in October and November of 1994, and the fourth activity was completed 12 days prior to the establishment of the PBI Program at Richland. We believe that any work done prior to the signing of Contract Modification M-111 on January 25, 1995, was accomplished without an approved performance incentive in place, and was accomplished under the prior award fee system at Richland. This position is consistent with the WHC Executive Vice President's January 13, 1995, letter to the DOE Richland Deputy Manager where he stated that: "We recognize that any potential positive or negative first quarter fiscal year (FY) 1995 incentives associated with the attached 13 PBIs have been eliminated as a result of not having a signed/approved contract in place." Since Contract Modification M-111 does not address the payment of fees retroactive to the signature date, and since the PBIs themselves do not address the payment of retroactive fees, we believe that the $111,000 in fees for PBIs 95-028 and 95-029 should be recovered since all of the work required was performed prior to the establishment of the PBI Program at Richland. Recommendations We recommend that the Manager, Richland Operations Office: 2. Direct the Contracting Officer to review PBI Numbers 95-011(c), 95-011(d), and 95-026 to determine if there is any contractual basis for recovering a prorated portion of the PBI fees that were paid for work that was accomplished prior to the establishment of the PBI Program at Richland. 3. Direct the Contracting Officer to take action to recover $111,000 under PBIs 95-028 and 95-029 for fees paid where all of the work required was performed prior to the establishment of the PBI Program at Richland. 4. Develop policy that requires that the work defined in the PBI document reflects the work that is actually to be accomplished in order to achieve the PBI fee. 5. Develop policy that assures that PBI dollars are used to provide incentives to the contractor for future performance rather than reward the contractor for past accomplishments. Management Comments: In comments to the Initial Draft Report, the Manager, Richland Operations Office, concurred with Recommendations 2, 3, 4, and 5, stating that: "Recommendation 2: The Contracting Officer has been directed to review PBIs 95-011(c), 95- 026, and 95-027 to determine the extent to which fee recovery is warranted and the contractual basis to accomplish recovery. DOE has taken action, and the contractor has agreed, to the return of previously paid fees on PBI 95-011(d). "Recommendation 3: The Contracting Officer has been directed to review PBIs 95-028 and 95- 029 to determine the extent to which fee recovery is warranted and the contractual basis to accomplish recovery. "Recommendations 4 and 5: RL will develop procedures, guidelines, and additional training for the initiation, administration, and payment of new and current performance incentives. The procedures, guidelines, and training will incorporate the views and recommendations expressed in this report and incorporate lessons- learned from the previous incentive fee programs, other RL reviews, and the upcoming recommendations of the Fee Incentives and Analysis Team." The Manager offered additional comments. With regard to PBIs 95-011(c) and 95-011(d), the Manager stated that: "We concur that some of the actions in the PBI safety initiatives had already been completed when the PBI was developed, however, the contractor did not receive any additional fees for the already completed work." The Manager stated that: "The PBIs were written to include completed work so that the PBI language would be consistent with the Secretarial Safety Initiatives." With regard to PBI 95-026, the Manager stated that completing the shutdown of the Fast Flux Test Facility (FFTF) Group 1 systems was a planned activity in the Richland approved FY 1995 Advanced Reactors Transition Multi-Year Program Plan. The Manager stated that in October 1994, the planned activity for completing the shutdown of Group 1 systems was submitted to Richland by Westinghouse Hanford Company (WHC) as "a potential candidate for FY 1995 Performance-Based Initiatives (PBI)." The Manager stated that over the next three months, negotiations on the PBI took place at various levels in both WHC and Richland. Finally, on January 27, 1995, PBI 95-026 was formally approved. The Manager also stated that the designation of systems as Groups was established early in calendar year 1994 when the FFTF Shutdown Project Plan was initially developed. The Manager stated that individual systems were grouped into 12 distinct Groups based upon their need to be operational as major shutdown activities were completed. The Manager stated that Richland staff knew that a few of the Group 1 systems had already been shut down prior to establishing the PBI; however, the Group 1 designation was used for convenience in developing the PBI. The Manager stated that the objective of the PBI was to deliver an integrated system. The Manager stated that, while three of 21 of the individual systems were known to be complete at the time the PBI was developed, delivery of the completed integrated system was the incentivized outcome. The Manager also stated that many of these system shutdown actions were completed between the time the PBI was introduced to Richland and the time it was formally approved. With regard to PBI-029, the Manager said that the report states that contract negotiations were concluded and the PBI Program was officially approved on January 27, 1995, and that PBI 95-029 was declared complete on January 31, 1995. The Manager stated, however, that the importance of the LABCORE LIMS Release 2.0 to the success of the Analytical Services Program was recognized well before that date. The Manager stated that identification of the "LIMS" as an important milestone began in August 1994 with the early planning for the FY 1995 Multi-Year Program Plan (MYPP). The Manager stated that this activity was considered high priority and work began on October 1, 1994. The Manager stated that, without the FY 1995 LABCORE LIMS upgrades, the 222-S could not have doubled its production from FY 1994 to FY 1995 and again doubled production in FY 1996. Inspector Comments: There was a four month delay between the time that the PBI Program at Richland was intended to be placed into effect (October 1994), and the time when the PBI Program was actually established (January 25, 1995). During this period of time, DOE Richland Operations Office and WHC officials were aware that contractor efforts were focused on projects that had been proposed as FY 1995 PBI performance objectives. However, as detailed in this section of the report, it was uncertain which of the proposed PBIs would be included in the contract modification as late as January 23, 1995. The basic point we were addressing in our Initial Draft Report was that all or substantial portions of the work performed to achieve the PBI fees under PBIs 95-026 and PBI 95-029 was actually performed prior to the establishment of the PBI Program at Richland on January 25, 1995. We believe that providing an incentive fee for work by the contractor that is accomplished prior to the establishment of the Incentive Fee Program constitutes work that was done outside of the incentive program, and is work that would not be eligible for incentive fee payment. Additionally, any negotiations on incentive fee arrangements between the contractor and Richland officials made prior to the establishment of the PBI Program would not be binding until formal agreement was reached. It should be noted that the Richland Operations Office eliminated some potential PBI performance objectives from the FY 1995 PBI Program because the work intended was completed during the period when the four month delay occurred. C. PAYMENT MADE BY RICHLAND FOR INCOMPLETE PBI WORK Our inspection found instances where Richland paid fees for PBI work that was not complete. Specifically, we found three instances where fees were paid to the M&O Contractor for work that was certified by the M&O Contractor as complete; however, Richland documentation shows that the PBI work was not completed in accordance with the provisions of the PBIs. Upgrade Alarm Panels in Seven Tank Farms As previously discussed, the PBI 95-011(c) Performance Objective, described as "Upgrade alarm panels in 7 tank farms by March 31, 1995 (SI 4a)," was established on January 27, 1995. This PBI stated that the M&O Contractor would receive up to $225,000 for completing this action 30 days ahead of schedule. The Performance Objective also stated that the M&O Contractor would be penalized up to $225,000 for completing this action 30 days or more behind schedule. According to the WHC TWRS Milestone Description Sheet (MDS) dated September 16, 1994, tasks within the scope of work included an engineering evaluation to identify obsolete alarm windows, and to identify alarms to be retained and upgraded. Other tasks within the scope of work included the consolidation of alarm panel windows in seven control rooms, the elimination of obsolete alarm panel windows, and the upgrade of selected obsolete hardware. The WHC TWRS MDS stated that deliverables for these tasks included completion of the design package, installation of the required hardware, and returning the equipment to operation. WHC certified that the work required under PBI 95-011(c) was complete. In a Westinghouse Hanford Company letter from the WHC Director, TWRS Plant Tank Waste Remediation System, to the DOE Richland Director, Tank Operations Division, dated February 24, 1995, subject: "COMPLETION OF SAFETY INITIATIVE SI-4A," the WHC Director stated that: "TWRS Plant has completed all authorized work for Safety Initiative SI-4a. Authorized alarm panel upgrades have been completed in tank farms A, AN, AW, BX, BY, CR, 242-S, and U. The 242-S alarm panel functional test was completed on February 23, 1995, and completes the work specified as Performance Based Incentive work." Upon certification by WHC that the work was completed, WHC was paid a fee of $225,000. Specifically, as shown on the "FY 95 Performance Based Incentives Westinghouse Hanford Company (WHC)" data sheet provided by the Richland Operations Officer, WHC was paid $225,000 for completing the "Upgrade alarm panels in 7 tank farms by March 31, 1995 (SI 4a)" project on March 1, 1995. This was the maximum fee award date, qualifying WHC for the maximum award fee for this PBI. However, a review of the tasks under PBI 95-011(c) by a DOE Richland TWRS Project Engineer revealed that the required tasks were in fact not completed by February 23, 1995, as claimed by WHC. Specifically, the Office of Inspections had requested the man-hours, material costs, and dates associated with the work completed under this PBI. In responding to this request, the Project Engineer identified documentation which showed that the work required had not been completed. The Project Engineer summarized his findings, and provided a summary document to the OIG on August 20, 1996, Subject: "Review of TWRS Safety Initiative 4a, Upgrade Alarm Panels in 7 Tank Farms by March 1995." This summary document stated that: "Based on the description below and the work documents in the archives for A Farm, C Farm, and the 242-S Evaporator, my conclusion is that this SI was not completed by 2/23/95. "The problems noted with this SI are shown as bulletized items. * * * * * * * "Work package (2E-92-655) for the A Farm upgrade was not 'field work complete' or accepted by operations until 4/18/96, which is past the SI completion date of 2/23/95. Operations personnel stated that the upgrades at A Farm had many non-functional alarms following the KEH annunciator work. "Work package (2E-92-1217) for the C Farm/CR Vault upgrade was not functionally tested or accepted by operations until 11/22/95, which is past the SI completion date of 2/23/95. "Work package (2W-92-180) for the 242-S Evaporator upgrade was not 'field work complete' until 5/24/95 and was not accepted by operations until 2/7/96, which is past the SI completion date of 2/23/95." This information was substantiated by a Richland review team. The Richland Operations Office established a review team after a June 1996 "near miss" incident for the purpose of examining six FY 1995 PBI awards. The review team was staffed with personnel primarily from the Management Systems Division of TWRS. The review team was established because the Richland Operations Office was concerned that the problems identified in a DOE Richland "Special Assessment Report" for PBI 95-011(d), "241-A-701 Air Compressor Upgrade," could be indicators of systematic and programmatic weaknesses. The review team issued a report on September 24, 1996, titled "REVIEW OF TANK WASTE REMEDIATION SYSTEM (TWRS) FISCAL YEAR 1995 PERFORMANCE BASED INCENTIVES." In this report, the review team addressed PBI 95-011(c) and found that "of the seven tank farms, alarm panel upgrades were completed on only AN and AW tank farms before the PBI completion date of March 31, 1995." The review team concluded that: "The PBI was inappropriately awarded and RL should request return of the full PBI amount, $225,000." Management Comments: In comments to the Initial Draft Report, the Manager, Richland Operations Office, suggested that the statement regarding work package 2E-92-1217, "upgrade was not functionally tested or accepted by operation until 11/22/95," be changed to "upgrade was not functionally tested or accepted by operation until 7/14/95, and continues to have functional problems." Inspector Comments: We did not change the statement referenced by the Manager because a review of work package 2E-92-1217 for the C Farm/CR Vault upgrade by the Office of Inspections found that the "Operations Acceptance" date was 11/22/95 as indicated in the Initial Draft Report, and that the "Field Work Complete" date was 7/14/93. We were told that the 7/14/95 date included in the Management Comments was in error, and that the correct date was 7/14/93. Since our report was representing the "Operations Acceptance" date, and not the "Field Work Complete" date, we made no change to the report. Replace Compressed Air Systems in 10 Tank Farms As previously discussed, the PBI 95-011(d) Performance Objective, described as "Replace compressed air systems in 10 tank farms by March 31, 1995 (SI 4b)," was established on January 27, 1995. This PBI stated that the M&O Contractor would receive up to $225,000 for completing this action 30 days ahead of schedule. The Performance Objective also stated that the M&O Contractor would be penalized up to $225,000 for completing this action 30 days or more behind schedule. According to the WHC TWRS Milestone Description Sheet (MDS) dated September 16, 1994, tasks within this scope of work included replacement of compressor systems within existing facilities, upgrade of compressor cooling systems, providing a dryer system for the compressed air system, acceptance and operational testing, and the return of the compressed air systems to WHC Hanford Site Operations for continued use. WHC certified that the work required under PBI 95-011(d) was complete. In a Westinghouse Hanford Company letter from the WHC Director, TWRS Plant Tank Waste Remediation System, to the DOE Richland Assistant Manager, Office of Tank Waste Remediation System, dated March 7, 1995, subject: "COMPLETION OF PERFORMANCE BASED INCENTIVE 95- 011(D)," the WHC Director stated that: "This letter provides notice that Performance Based Incentive 95-011(d), replacement of ten tank farm compressed air systems, was completed on March 5, 1995. Your concurrence on the attachment is required for Performance Based Incentive completion." Upon certification by WHC that the work was completed, WHC was paid a PBI fee. As shown on the "FY 95 Performance Based Incentives Westinghouse Hanford Company (WHC)" data sheet provided by the Richland Operations Officer, WHC was paid $185,870 for completing the project described as "Replace compressed air systems in 10 tank farms" 19 days ahead of schedule. However, the work required under this PBI was not completed as certified by WHC. In an interview with the DOE Richland TWRS Waste Storage Division Manager, the Manager said that, in his opinion, the contractor was required to complete an Acceptance Test Procedure (ATP) to comply with DOE Order 4700.1 requirements and to be in compliance with the PBI task. The Manager said that an Acceptance Test Report (ATR) was never issued by WHC to show compliance with these requirements for the 241-A-701 air compressor upgrade, yet WHC accepted the facility and the PBI as being complete. The Manager also said that the ATP is supposed to be followed by an Operational Test Procedure (OTP) which verifies whether the system works as specified, and that WHC never completed the OTP as required by DOE Order 4700.1. This information was confirmed by a DOE Richland "Special Assessment Report," for the "241-A-701 Air Compressor Upgrade," dated August 5, 1996. This report stated, in part, that: "Acceptance testing was fast tracked (10-hour days, seven days a week for six weeks) and accepted for the PBI fee associated with upgrading the tank farm compressors. A handwritten entry on the Acceptance Test Procedure (ATP) Acceptance of Test Results page states 'the PBI milestone portion of this test has been completed and the results, including red- line changes, have been reviewed. Any exceptions discovered during the PBI milestone of the test have been satisfactorily recorded and resolved. The results of the PBI milestone portion of the acceptance test of the 241-A-701 compressed air system accepted by the undersigned.' Additional construction and ATP activities continued until September 1995, six months after construction was 'complete' for the PBI. The result of acceptance testing, the ATR (Acceptance Test Report) was documented as complete but cannot be produced." The "Special Assessment Report" stated that the test procedures prepared for the 241-A-701 Air Compressor Upgrade included the Acceptance Test Procedure (ATP) and the Operational Test Procedure (OTP). This report stated that the system Acceptance for Beneficial Use (ABU) was signed by East Tank Farm Operations in November 1995 with a punchlist, which included the need to complete the OTP and the "as-built field condition" of associated drawings. However, this report noted that the ABU contained errors and omissions such as reference to an Acceptance Test Report which would document the ATP that could not be produced by the M&O Contractor, and that the ABU was not performed in accordance with WHC procedures. In addition, the "Special Assessment Report" stated that the system had not completed OTP and "is currently locked out" by WHC management. This report stated that the OTP was started in late August 1995 (approximately six months after the PBI was reported as complete) and suspended on September 30, 1995. This report stated that air supply for the 701-A complex "is currently provided by a temporary mechanical compressor." The "Special Assessment Report" stated that the ATP contains two different dates, "The first was on March 5, 1995, when WHC engineering personnel claimed completion of the 'Performance Based Incentive' (PBI) portion of the ATP, "and "The second completion date was on July 19-27 1995, which includes both WHC engineering and QA personnel." However, the "Special Assessment Report" noted that the test as written did not distinguish between those portions dedicated to the PBI and those sections not PBI related, and that test documentation contained several incomplete and unsigned ATP test steps. The assessment team concluded that, since the ATP and the OTP were not completed, the equipment was unacceptable and did not meet acceptance criteria. The "Special Assessment Report" stated that WHC declared the ATP successful to the extent necessary to claim a PBI without completing all steps of the ATP. This report noted that no steps in the ATP denoted or indicated which acceptance criteria satisfied the accomplishment of the PBI. The report also stated that the signatures for "PBI Acceptance" were handwritten on the completion and acceptance page of the ATP, but were not part of the initial approved ATP, and that this significant revision to the ATP "was not reviewed and approved as required by WHC-CM-4-2 and DOE 5700.6C/10 CFR 830.120." The report noted that WHC management stated that: "WHC field personnel understood completion of the PBI to mean kinstallation of the compressed air system.' "However, the report concluded that: "Even though some mechanical equipment was set and some electrical hardware installed, this work does not represent a completed construction activity nor an acceptable system as represented in the ABU." TWRS Corrective Maintenance Backlog Reduction As part of ongoing tank farm maintenance operations, one activity identified under the FY 1995 Richland PBI Program was the reduction in the TWRS corrective maintenance backlog. The PBI 95-018 Performance Objective, described as "TWRS Corrective Maintenance Backlog Reduction," was established on January 27, 1995. This PBI stated that the M&O Contractor would receive up to $500,000 for completing this action. Specifically, the contractor, to receive an "Excellent" rating for this contract performance measure, was to "Reduce the overall Corrective Maintenance Backlog by more than 5% from the January 1, 1995, level, while maintaining preventative maintenance actions within acceptable performance parameters." The PBI "BASIS FOR MEASUREMENT" stated, in part, that "WHC shall neither receive nor be penalized fee for impacting the backlog by +5%. WHC shall receive a prorated amount of the incentive fee for reducing the CM backlog from 5% to 10% by September 30, 1995, with a maximum fee of $500,000 for achieving a 10% or greater reduction." WHC certified that the work required under PBI 95-018 was complete. In a Westinghouse Hanford Company letter entitled "Completion of Tank Waste Remediation System Corrective Maintenance Backlog Reduction Performance Based Incentive," WHC claimed to have achieved the excellent performance objective by reducing the corrective maintenance backlog by 10 percent on March 1, 1995. As shown on the "FY 95 Performance Based Incentives Westinghouse Hanford Company (WHC)" data sheet provided by the Richland Operations Officer, WHC was paid $500,000 for completing this PBI. However, we found evidence that the work required under PBI 95-018 had not been completed. In an interview with a DOE Richland Project Engineer, the Project Engineer said that, in his opinion, many of the corrective actions which were claimed to be accomplished by the contractor as part of PBI 95-018 were in fact eliminated by paperwork because of downscoping of TWRS work tasks, which included the closure or mothballing of facilities and equipment. The Project Engineer also said that the corrective maintenance backlog files had not been purged for several years, and that the reduced operations had not been taken into account when the PBI was written. Additionally, a DOE Richland TWRS Maintenance Program Project Engineer said that DOE does not get involved with the decision making process for individual corrective actions, and that the way that the PBI was written, it is possible that the contractor could do the easy work first to get credit for complying with the terms of the PBI. The September 24, 1996, Richland review team report, titled "REVIEW OF TANK WASTE REMEDIATION SYSTEM (TWRS) FISCAL YEAR 1995 PERFORMANCE BASED INCENTIVES," also raised concerns about the completion of the work required under this PBI. With regard to PBI-95-018, the review team found that the corrective maintenance backlog actually increased by 1,305 maintenance packages over the January 1995 level of 1,495 maintenance packages. The review team concluded that, rather than being reduced by 10 percent, the corrective maintenance backlog actually increased by 87 percent over the January 1995 corrective maintenance backlog level. The review team concluded that: "The PBI was inappropriately awarded and RL should request return of the $500K paid to WHC previously for this PBI." TWRS Recommendation for Recovery of PBI Fees TWRS has requested that action be taken to recover PBI fees that were inappropriately paid to WHC and assess PBI penalties for incomplete work. Specifically, in a letter dated September 26, 1996, from the Richland Assistant Manager, Office of Tank Waste Remediation System, to the Richland Director, Procurement Services Division, the Assistant Manager stated that TWRS found PBIs 95-011(c), 95-011(d), and PBI-018 to be incomplete. The Assistant Manager stated that: "TWRS is requesting reimbursement of the $910,870.00 paid to WHC on the three PBIs." The Assistant Manager also stated that: "In addition, WHC should be assessed the negative fee of $950,000.00 on these PBIs." The total reimbursement requested by TWRS is $1,860,870. Conclusions We believe that it is clear, based on our review and the documentation obtained from the Richland Operations Office, that the work required under PBI 95-011(c), "Upgrade alarm panels in 7 tank farms by March 31, 1995," PBI 95-011(d), "Replace compressed air systems in 10 tank farms by March 31, 1995," and PBI 95-018, "TWRS Corrective Maintenance Backlog Reduction," was not completed in the time periods necessary to achieve the PBI fees of $225,000, $185,870, and $500,000 respectively. Contrary to WHC's statement on February 24, 1995, that all work was completed on PBI Number 95-011(c), documentation provided by the Richland Operations Office shows that work on two alarm panels was not completed until April 18, 1995, and May 24, 1995, respectively, and that a third alarm panel was not functionally tested or accepted for operations until November 22, 1995. In addition, contrary to WHC's statements on March 7, 1995, that all work was completed on PBI 95-011(d), documentation provided by the Richland Operations Office shows that the acceptance testing required under the Acceptance Test Procedure and the Operational Test Procedure was never completed for the 241-A-701 air compressor upgrade. Richland documentation shows that the system is currently locked out and that a temporary compressor is being used to provide an air supply. The Richland documentation notes that: "Even though some mechanical equipment was set and some electrical hardware installed, this work does not represent a completed construction activity nor an acceptable system. . . ." Also, contrary to WHC's statements that all work was completed on PBI 95-018, documentation provided by the Richland Operations Office shows that the corrective maintenance backlog was not reduced by 10 percent, but actually increased by 87 percent. We believe that, based on the requirements of these three PBIs, the contractor would not have been entitled to any fee under the circumstances describe here. We believe that $910,870 should be recovered from WHC. The Richland review team report titled "REVIEW OF TANK WASTE REMEDIATION SYSTEM (TWRS) FISCAL YEAR 1995 PERFORMANCE BASED INCENTIVES" supports this position for PBI 95-011(c) in the amount of $225,000, and PBI 95-018 in the amount of $500,000. The Richland "Special Assessment Report" for the "241-A-701 Air Compressor Upgrade" supports this position for PBI 95-011(d) in the amount of $185,870. We also believe that it is clear, based on our review and the documentation obtained from the Richland Operations Office, that the work required under PBI 95-011(c), "Upgrade alarm panels in 7 tank farms by March 31, 1995," PBI 95-011(d), "Replace compressed air systems in 10 tank farms by March 31, 1995," and PBI 95-018, "TWRS Corrective Maintenance Backlog Reduction," was not complete on the dates when the contractor would have been penalized $225,000, $225,000, and $500,000 for completing these actions 30 days or more behind schedule. We believe that the penalty provisions of these three PBIs should be implemented, and that $950,000 in penalties be collected from WHC. We concur in the position taken by TWRS in the September 26, 1996, letter to the Director, Procurement Services Division, requesting reimbursement of the PBI fees paid and reimbursement of penalties due. However, we believe that Richland should also evaluate the potential for collecting an appropriate figure for the interest on the PBI fees of $910,870 that were paid for incomplete work, and evaluate the potential for collecting the interest income earned by WHC on the PBI fees of $910,870. Recommendations We recommend that the Manager, Richland Operations Office: 6. Consistent with our findings and the TWRS letter of September 26, 1996, direct the Contracting Officer to take action to recover $225,000, $185,870, and $500,000 from WHC for previous PBI fees that were paid under PBI 95-011(c), PBI 95-011(d), and PBI 95-018. 7. Consistent with our findings and the TWRS letter of September 26, 1996, direct the Contracting Officer to take action to assess the penalty provisions of PBI 95- 011(c), PBI 95-011(d), and PBI-018, and collect a total penalty of $950,000 for these three PBIs. 8. Direct the Richland Chief Financial Officer to evaluate the potential for collecting an appropriate figure for the interest on the PBI fees of $910,870 that were paid to WHC for incomplete work, and evaluate the potential for collecting the interest income earned by WHC on the PBI fees of $910,870. 9. Initiate the review of all PBIs issued in FY 1995 and FY 1996 to determine if other PBI payments have been made for incomplete work, and take action to recover any fees that were paid for work that did not meet the terms of the PBIs and any penalties that were not collected for incomplete work or work completed late. 10. Develop policy that requires Richland personnel to verify that incentive work was accomplished prior to payment of incentive fees. Management Comments: In comments to the Initial Draft Report, the Manager, Richland Operations Office, concurred with Recommendations 6, 7, 8, 9, and 10, stating that: "Recommendation 6: The Contracting Officer has been directed to take actions to review and recover, if appropriate, the previously paid fees for PBIs 95-011(c), 95-011(d), and 95-018. DOE has taken action, and the contractor has agreed, to the return of previously paid fees on PBI 95-011(d). "Recommendation 7: The Contracting Officer has been directed to take actions to review and assess, if appropriate, the penalty provisions of PBIs 95-011(c), 95-011(d), and 95-018. DOE has assessed, and the contractor has agreed, to the $225,000 penalty associated with PBI 95- 011(d). "Recommendation 8: The RL Chief Financial Officer (CFO) will evaluate the options for collecting interest from the contractor on the PBI fees that were inappropriately paid for incomplete work. "Recommendation 9: RL will initiate actions to review the FY 1995 and FY 1996 PBIs and perform a root cause analysis. "Recommendation 10: RL will develop procedures, guidelines, and additional training for the initiation, administration, and payment of new and current performance incentives. The procedures, guidelines, and training will incorporate the views and recommendations expressed in this report and incorporate lessons- learned from the previous incentive fee programs, other RL reviews, and the upcoming recommendations of the Fee Incentives and Analysis Team." D. PBI PERFORMANCE OBJECTIVES APPEAR TO BE EASILY ACHIEVED Our inspection found several PBI Performance Objectives established by Richland which appear to have been easily achieved. Specifically, we found PBI Performance Objectives which included completion dates that represented little challenge to the M&O Contractor. Richland documentation shows that, in these instances, the M&O Contractor was in the process of completing these objectives ahead of schedule without any PBI incentive. In addition, we found that $250,000 in available fee was paid to the M&O Contractor for three PBIs that were completed within two days of their establishment. We also found a PBI where the performance objectives and the basis for measurement were significantly modified after the work was certified as complete by the M&O Contractor. Replacement of SY Tank Farm Ventilation Fan As previously discussed, the PBI 95-011(g) Performance Objective, described as "Replace ventilation fan in SY farm to further reduce spark potential by August 31, 1995 (SI 2k)," was established on January 27, 1995. This PBI stated that the M&O Contractor would receive up to $225,000 for completing this action 30 days ahead of schedule, or $9,783 for each day this initiative was completed more than seven days ahead of the scheduled date. As shown on the "FY 95 Performance Based Incentives Westinghouse Hanford Company (WHC)" data sheet provided by the Richland Operations Officer, WHC was paid $225,000 for completing the ventilation fan project on July 6, 1995. However, the establishment of the $225,000 PBI Performance Objective for the replacement of the ventilation fan in the SY Tank Farm represented little challenge to the contractor. Specifically, before the PBI Performance Objective was established, WHC had established a completion date for this project of April 28, 1995, approximately four months ahead of the PBI performance date of August 31, 1995. A WHC TWRS Milestone Description Sheet (MDS) dated September 22, 1994, and signed by WHC and DOE Richland officials, showed that a completion date of April 28, 1995, was established for the ventilation fan Acceptance Test Procedure. The MDS also stated that the "Acceptance Criteria" includes the "Successful completion of the ATP" with a deliverable being a "Letter to RL documenting installation of spark- resistant fan in the 241-SY Tank Farm and successful completion of ATP" by August 31, 1995. In an interview with a DOE Richland Project Manager, the Project Manager said that he did not know why a four month delay was built into the schedule between the ATP completion date and the "deliverable" letter to DOE. In addition, the replacement of the ventilation fan was significantly ahead of schedule at the time the PBI was established. Specifically, we found that a "TWRS Department of Energy Safety Initiatives" status chart was issued at approximately the same time that the ventilation fan PBI Performance Objective was being written. The chart indicated that, as of January 1, 1995, the ventilation fan performance objective was three months ahead of the August 31, 1995 schedule date. High-Level Waste Melter Assessment The selection of a high-level waste melter technology was a goal of the Richland Operations Office, with the completion of the assessment report for this project included under the Richland PBI Program. The PBI 95-015 Performance Objective, described as "Provide final high- level waste melter assessment report," was established on January 27, 1995. This PBI stated that the M&O Contractor would receive up to $200,000 for completing this action 37 days ahead of schedule, or $6,666 for each day this initiative was completed between 8 to 37 days ahead of the scheduled date of March 24, 1995. As shown on the "FY 95 Performance Based Incentives Westinghouse Hanford Company (WHC)" data sheet provided by the Richland Operations Officer, WHC was paid $200