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Distinctions of the M&O contracts

Linda MontgomeryINL General Counsel

Date: July 16, 2015

M&Os are GOCOs

• The Atomic Energy Commission set the original vision for the Government-Owned, Contractor-Operated (GOCO) model for lab management– Key elements of the AEC vision:“enlist the interest and support of

industries and universities”– “eliminate bureaucratic supervision”– Provide “freedom from various hampering restrictions” – Facilitate “operating economies”

• AEC vision:The public and private sectors working together as “co-trustees” to

expand science and technology of the nation.

• The fundamental risk/reward ratio was originally: Government bares the risk, contractor works for little to no cost

Certain elements are unique to the M&O Contract - Financial

• DOE provides a letter of credit– The contractor is spending Treasury money directly– Reconciliation is after the fact– While appropriation law and anti-deficiency act do not apply to

contractors, the direct funding tends to blur the requirements

• The IG does the financial auditing and property auditing (as opposed to DCAA)

• The financial systems between the contractor and DOE are integrated– DOE has full access– Often DOE dictates much of the contractor’s systems

Certain elements are unique to the M&O Contract - Contractual

• The Statement of Work is general, work authorization is through the work-packages & funding approvals– Change clause triggered by funding not scope

• DOE/contractor integrated activities on a federal facility triggers times that the contractor is a “quasi-fed”.– for example, the M&O contractor is not responsible for the

subcontractor’s non-payment of correct payroll– Subcontractor’s can not put liens on material

Examples of audit impacts and immerging issues

• Are human error costs allowable (as opposed to inadequate internal controls – systemic errors)?

• Are bad debts allowable?

• Litigation costs = a changing landscape

• Are the costs related to employee fraud allowable? (how about the fraud corrective costs)?

• Should there be acknowledgement of the “cost of doing business” risk and related costs – who’s are they?

• Continuing impacts of political concerns–Whistleblowers–M&O contract reform (what is the right risk formula

today?)