The Department of Energy needs to update and consistently apply guidance regarding contractor executive salaries, according to a DOE Inspector General report that questioned DOE approval of salaries for executives for Oak Ridge cleanup contractor URS-CH2M Oak Ridge, LLC. When UCOR took over the contract in 2011, an official in the Department’s Oak Ridge Office did not follow established procedures and did not have the proper authority when he approved 10 contractor executive salaries that were higher than market salary rates calculated by Oak Ridge’s Human Resources office, the IG found. For example, a UCOR executive salary of $337,581 is $143,181 higher than HR’s market rate calculations. “The events leading up to the UCOR salary approvals involved Headquarters and ORO officials taking a number of actions that were inconsistent with existing policy and were not well coordinated,” the IG report states. “These actions resulted in higher UCOR salaries that, if left unmodified, could cost the Department an additional $3.45 million over the life of the 5-year contract.”
Two factors resulted in the issues identified, with “confusion regarding what guidance was operative and the failure of field officials to consistently apply existing Department guidance,” the report states. Senior headquarters officials told the IG that Oak Ridge and other sites were no longer using a 2007 letter on contractor executive compensation as guidance in making the determination. Instead, they told the IG that determining whether the salaries were reasonable took place during the Source Evaluation Board process before awarding the contract. While Oak Ridge and EM headquarters officials claimed that the SEB had evaluated those salaries, SEB officials told the IG that they had not made any determination or market analysis regarding the UCOR salaries.
The IG included several recommendations to consistently apply guidance and better control salary costs. Those include suggestions that the Office of Acquisition and Project Management update and clarify its policy on contractor salary reasonableness, that EM Headquarters ensure that related policies and procedures “are consistently applied,” and that DOE Oak Ridge “complete a reasonableness determination regarding the UCOR executive salaries and adjust rates as appropriate.” DOE management largely agreed with the recommendations, and agreed to update the policy and generally follow the recommendations.