DOE penalizes Fernald manager

Project cost data in error


BY MIKE GALLAGHER
The Cincinnati Enquirer

The U.S. Department of Energy hit the company managing Fernald with a $135,000 penalty for failing to correct estimates of subcontracting costs on a building demolition project that were millions of dollars higher than the actual costs.

The company - Fernald Environmental Restoration Management Co. (FERMCO) - failed to change the figures in 1993-94 reports to the Energy Department, resulting in erroneous cost and schedule data for the project given to the government, according to a special Energy Department review.

FERMCO benefited financially from the problem because the Energy Department used the false data as part of a formula to determine how much of a performance fee or penalty the company should receive on the project.

Had FERMCO provided the project's real cost and schedule data in 1993-94, the company would have been penalized the $135,000 at that time because the Energy Department would have discovered that the company had not met the contract performance goal.

The finding substantiates a Feb. 11 Enquirer report detailing how FERMCO failed to revise its estimate on the cost of demolishing Plant 7, a building at the site.

The review team's report said FERMCO did not try to hide the fact that it received a bid that was substantially lower than the company's original estimate. FERMCO told the Energy Department several times that it had received the lower bid, the report said.

But the team said the Energy Department staff at Fernald failed in its oversight responsibility by allowing FERMCO to wait 17 months before ordering it to formally change the estimated subcontractor costs to the actual figure.

And the government's Fernald staff failed to catch the erroneous cost and scheduling information being provided by FERMCO when the data was used to calculate the performance fee.

The findings were made in an April 1 report prepared by a Financial Review Team of the Energy Department's Ohio Field Office, which was obtained this week by The Enquirer through a federal Freedom of Information Act request.

The review team's verification of the problems caused by FERMCO's failure to change its subcontracting estimates to the actual costs and the company's submitting erroneous data to the government come after heated and public denials of wrongdoing by FERMCO.

Enquirer report cited


FERMCO officials, and officials of its parent company, Fluor Corp. of Irvine, Calif., held a press conference on Feb. 12 criticizing a Feb. 11 Enquirer article detailing how FERMCO failed to revise its estimate on the cost of demolishing Plant 7. The officials called the article ''false, inaccurate and erroneous.''

But the Energy Department's investigative report found otherwise.

According to the report, ''FERMCO was overpaid $135,000 in award fees for the April-through-September 1994 performance period. The overpayment occurred because FERMCO incorrectly received a 'satisfactory' rating for the cost and schedule variances criteria for the performance period.''

Energy Department spokesman Gary Stegner said the team began its investigation as a result of the Feb. 11 Enquirer article. The article reported FERMCO originally estimated it would cost $5.5 million to demolish Plant 7. The newspaper also reported that FERMCO failed to reduce the estimate when it learned actual cost would only be about $1.8 million.

The Financial Review Team report confirmed The Enquirer's findings and recommended FERMCO be penalized the $135,000.

Jack Craig, the Energy Department's manager at Fernald, and Phil Hamric, head of the department's Ohio Field Office, declined to answer specific questions from The Enquirer about numerous problems cited in the review team's report.

However, a written statement issued by Mr. Hamric's office Wednesday said FERMCO's performance fee was calculated incorrectly because of ''an erroneous assignment of a 'satisfactory' rating for the contractor's cost and schedule performance for the April-September 1994 performance period. The Department of Energy and its contractor agree that this was attributable to a mutual mistake on the part of the DOE and the contractor . . .''

The statement also said FERMCO paid the penalty through a credit to the government on Wednesday.

FERMCO officials, in a written response to The Enquirer, said it agreed that the Energy Department made an ''erroneous calculation'' of its performance fee for the Plant 7 project.

''FERMCO will correct the mistake by crediting the amount of $135,000 in its next invoice to the government,'' the response said. ''FERMCO has worked cooperatively with DOE in its review of this issue and accepts the conclusions of the DOE Evaluation Report.''

The review team report said the Energy Department wrongly gave FERMCO a satisfactory rating on the project because of ''the cumulative effect of several errors:''

FERMCO failed to timely reduce its original written cost estimates.

The Energy Department's Fernald staff was aware of the significant difference between the original estimate and actual contract values, ''but still did not direct FERMCO to make the adjustment in a timely manner.''

In determining performance fee, the Energy Department did not consider the impact of FERMCO's failure to make a timely reduction to the estimate and the resulting false cost and schedule variances being supplied to the government.

The Energy Department investigators also said in their report, ''Overall, our evaluation . . . substantiated the (Enquirer) allegation that FERMCO failed to timely adjust the baseline (estimate) for the value of the Plant 7 contract.''

''The adjustment should have been made within a month or so of the subcontract award, but FERMCO took over 17 months,'' the report said.

No FERMCO response


The investigative report also noted that, during the probe, FERMCO staff members used a computer to ''recreate'' March 1994 reports at the investigators' request. But the investigators said they soon learned that the ''new'' reports FERMCO supplied them contained erroneous information that benefited the company. The report did not indicate whether the investigators felt FERMCO purposely tried to deceive them.

FERMCO officials did not respond to Enquirer questions about how and why their staff provided the investigators with bad reports.

FERMCO was awarded a five-year, $2.2 billion contract in 1992 to manage the cleanup of the government-owned former uranium processing plant.

Published May 2, 1996.