Monday, December 16, 2019

Contractor Loses Out on Significant Profits due to "Marginal" Performance Reports

The U.S. Department of Energy's Office of Inspector General's latest Semiannual Report to Congress (April 1 - September 30, 2019) included CPAR (Contractor Performance Assessment Ratings) summaries for the contractor responsible for building its $17 billion vitrification plant at the Hanford Nuclear Site, Bechtel National. Specifically, the report included the following summary:
Downgraded Contractor Performance Rating in False Claims Act Investigations: As a result of ongoing OIG (Office of Inspector General) criminal and civil investigations, the Department’s Office of River Protection issued and published downgraded Contractor Performance Assessment Ratings for calendar year (CY) 2018 and the beginning of CY 2019 regarding a prime contractor at the Hanford Site’s Waste Treatment and Immobilization Plant. Specifically, the prime contractor was downgraded from “satisfactory” to “marginal” for the “schedule” category. Consistent with the previously issued CY 2017 Contractor Performance Assessment Ratings, the prime contractor’s “cost control” category was evaluated and remains at a “marginal” rating. The assessing official also stated that “given what is known about the contractor’s ability to perform in accordance with the contract or order’s most significant requirements, I would NOT recommend them for similar requirements in the future.” The ongoing investigations are being coordinated with the U.S. Attorney’s Office, Eastern District of Washington. 
We don't know what those ongoing investigations entail but we do know back in 2017 that the Justice Department notified all Bechtel (and employees of its subcontractors) to preserve all information and emails regarding charging for labor, recording time worked, overtime, and related matters.

Perhaps another factor in these downgraded ratings is Bechtel's failure to audit its subcontracts as required by the terms of its prime contract. The OIG issued a report last September that found Bechtel had failed to audit subcontracts as far back as 18 years putting taxpayers at risk for overpayments. The OIG estimated the potential overpayments could approach $160 million.

What do these downgraded classifications mean to Bechtel (or any Government contractor, for that matter). It could jeopardize future work and it could reduce incentive payments (profits).

In this case, as noted above, the contracting officer stated that he/she would not recommend Bechtel for similar requirements in the future. Perhaps this threat is a bit hollow as there are not too many $21 billion vitrification plant construction projects going on right now or planned.

The reduced fee is a viable threat. For the last two years, Bechtel has received less than half of the available incentive fee pool which equates (if reports are accurate) to about $200 million per year.

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