Appendix B
Make-or-Buy Decision Tree
The MakeorBuy Decision Tree is a direct result of one of the recommendations of the Department’s Contract Reform Team Report, published in 1994. This report recommended that the Department improve its make-or-buy decisionmaking process and explore more costeffective contracting strategies. In seeking cost-efficiencies, DOE is looking to commercial entities outside the traditional M&O community as possible sources for performing work, either directly or through a subcontract administered by a management contractor (“buy”).
The Decision Tree is an analytical tool for ensuring that a decision that an M&O contractor will continue to “make” a product or service inhouse, rather than “buying” it from outside commercial sources, properly meets one or more specific exceptions, and that the reasons for the exception(s) are documented.
Make-or-Buy Decision Tree
Section I
1. Is there a satisfactory outside source (or sources)?
If “YES,” continue remainder of form. If “NO,” do work inhouse and attach Section II, “Commercial or Other Source Availability,” and supporting rationale.
2. Would procurement from an outside source disrupt or delay an essential program?
If “NO,” continue form. If “YES,” perform work in-house and attach Section III, “Core Competency,” and supporting rationale.
3. Is the work considered to be necessary to a “core competency” and therefore must be performed in-house?
If “NO,” continue form. If “YES,” perform work in-house and attach Section III, “Core Competency,” and supporting rationale.
4. Is the work considered to be necessary for maintenance of a critical defense capability and/or to maintain national security interests? NOTE: These would normally also be considered as core competencies.
If “NO,” continue form. If “YES,” perform work in-house and attach Section IV, “Defense Capability/Special Weapon Safety/Security,” and supporting rationale.
5. Does the work involve significant environmental danger to either the general public, contractor employees, or the environment that requires immediate action and that precludes the use of a contractor?
If “NO,” continue form. If “YES,” perform work in-house and attach Section V, “Environmental and Safety Issues,” and supporting rationale.
6. Does the work involve technology transfer and research advancement issues that may have to be handled in-house?
If “NO,” continue form. If “YES,” perform work in-house and attach Section VI, “Technology Transfer and Research Advancement,” and supporting rationale.
7. Is temporarily surplus manpower available in-house to justify a “make” decision that would otherwise be a “buy” decision? NOTE: This may only be appropriate where the work scope is also temporary and is within the capability of the surplus manpower.
If “NO,” continue form. If “YES,” perform work in-house and attach Section VII, “Cost Issues,” a Make-or-Buy cost benefit analysis (currently under development), and supporting rationale.
8. Can the work be performed in-house for less cost than an outside source? (This should be based on an analysis of cost using Section VII, “Cost Issues.”)
If “NO,” attach Section VII and continue form.
If “YES,” attach Section VII with supporting rationale and perform work in-house. NOTE: Where possible, proposals should be solicited from outside sources for comparison against the contractor’s in-house estimate.
9. Purchase from outside source.
Section II—Commercial or Other Source Availability
To the greatest extent possible, Department of Energy contractors shall seek out qualified sources of supply who can satisfactorily meet contractor requirements at least cost.
1. Is the item or service readily available from the commercial sector (including small businesses, small disadvantaged businesses, women-owned businesses, and businesses in labor surplus areas) or other sources?
If “NO,” continue with form and provide supporting rationale. If “YES,” return to Section I.
2. Has a market survey been conducted to determine whether two or more commercial sources are available and interested in providing the product or service?
If “NO,” continue with form and provide rationale as to why market survey was not conducted. If “YES,” provide summary of techniques used to conduct market survey and results of survey.
3.Are other sources (for example, contractor at another DOE facility, other government source) available?
If “NO,” continue with form and describe any potential sources that were considered.
4. Can an outside commercial source (including small businesses, small disadvantaged businesses, women-owned businesses, and businesses in labor surplus areas) or other source be readily developed (development of technical expertise, purchase of special tooling and equipment)?
If “NO,” provide rationale. If “YES,” return to Section I.
Section III—Core Competencies
DOE contractors shall maintain sufficient capabilities in core competencies to meet DOE-assigned mission requirements. The contractor and DOE must have a clear mutual understanding of what the core competencies for a contract are.
Definition: Core Competencies—A set of unique customer-oriented requirements for products, services, or technologies that are critically essential for meeting current or future mission requirements, maintaining facility operations, controlling outsourced activities, conducting authorized research and development projects, and/or maintaining technological capability.
1. Has DOE or some other agency (in the case of a Work for Others situation) specified that the prime contractor shall perform the work?
If “YES,” provide specific details regarding the government direction.
If “NO” continue with form.
2. Is it essential that the prime contractor maintain a critical capability because of a weak vendor/supplier base?
If “YES,” provide supporting rationale.
If “NO” continue with form.
3. Is it essential that the prime contractor retain this effort to maintain the continuity of research effort already being performed by the prime contractor?
If “YES,” provide supporting rationale.
If “NO,” continue with form.
4. Does the prime contractor need to retain a small cadre of sufficiently specialized and talented managers or technical experts to adequately oversee their outsourced/subcontracted activities (both supplies and services)?
If “YES,” provide supporting rationale, including brief description of number of inhouse personnel and number and dollar value of subcontracting activity.
If “NO,” continue with form.
5. Does the prime contractor need to preserve existing capabilities for an essential and unique technology source?
If “YES,” provide supporting rationale.
If “NO,” continue with form.
6. Are these technological capabilities necessary to provide essential capabilities in reasonably foreseeable future core competencies as well as current core competencies?
If “YES,” provide supporting rationale.
If “NO,” continue with form.
7. If schedules are not met for essential or critical projects and schedules can not be effectively maintained through the use of a subcontractor, will substantial additional costs be borne by the Government?
If “YES,” provide supporting rationale.
If “NO,” return to Section I.
Section IV—Defense Capability/Special Weapon Safety/Security
DOE contractors shall ensure that essential defense capabilities are maintained, security issues are fully considered, and safety issues are adequately resolved during the make-or-buy decision process.
1. Is the product or service critical to an essential defense capability, and/or does the product or service relate to special weapons safety and security issues?
If “YES,” continue with form.
If “NO,” return to Section I.
2. Has DOE (or some other Federal agency with DOE’s concurrence) specifically identified specific processes, services, or products that must be performed or fabricated by the prime contractor (e.g., subcontractor, other DOE prime contractor, or Government agency) in the interests of defense capability or national security?
If “YES,” comply with DOE direction and provide details regarding DOE direction.
If “NO,” continue with form.
3. Has DOE (or some other Federal agency with DOE’s concurrence) specifically identified specific processes, services, or products that must be performed or fabricated by some other organization (e.g., subcontractor, other DOE prime contractor, or Government agency) in the interests of defense capability or national security?
If “YES,” comply with DOE direction and provide details regarding DOE direction.
If “NO,” continue with form.
4. Does the product or service require the handling, processing, or fabrication of controlled nuclear material, other controlled material, and/or other controlled components and subcomponents that would require DOE approval before the product or service can be outsourced?
5. Does the prime contractor and/or other contractors currently have the technical expertise, equipment, and/or plant facilities to build the product or perform the service without impacting other DOE programs?
6. Would a either a “buy” or “make” decision result in a loss of personnel with essential technical expertise?
If “YES,” provide supporting rationale.
7. Is the proposed make-or-buy decision consistent with DOE short- and long term defense requirements?
8. Do special weapon security and safety considerations preclude contracting out?
If “YES,” provide supporting rationale.
9. Is it desirable to expand or develop alternate sources of supply in order to maintain defense supply capabilities?
Section V—Environmental and Safety Issues
The Department’s prime contractors will perform make-or-buy decisions with the ultimate objective of ensuring that potential risks to human health and the environment are eliminated or reduced to prescribed safe levels in a timely manner.
1. Does the potential hazard to the general public, contractor employees, subcontract employees, and/or the environment constitute a serious threat or emergency situation that requires immediate action that precludes the use of a subcontractor? NOTE: If the response to the threat or emergency involves both exigent short-term corrective actions and long-term corrective actions, time considerations may very likely preclude a “buy” decision for the short-term corrective action, but may not necessarily preclude a “buy” decision for the long-term portion of the corrective action.
If “YES,” provide supporting rationale.
If “NO,” continue with form.
2. Do industrial or commercial activities generate similar types of hazardous, radioactive, sanitary, mixed, transuranic, and mixed waste generated by the DOE facility?
If “YES,” provide brief description of industrial or commercial situation and continue with form.
If “NO,” skip to question 5 of this form.
3. Have industrial or commercial activities already perfected or marketed treatment, storage, or disposal techniques that can be used/modified to meet DOE’s requirements?
If “YES,” a “buy” decision is warranted unless some other overriding consideration is present.
If “NO,” provide supporting rationale and continue with form.
4. Can treatment, storage, or disposal techniques that have been used to meet DOE’s requirements be used or modified to meet industrial and commercial applications?
If “YES,” a “buy” decision is usually warranted to facilitate technology transfer unless some other overriding consideration is present.
If “NO,” continue with form.
5. Do contractors have the necessary expertise to treat, store, or dispose of hazardous, radioactive, and mixed waste generated by the DOE facility in a safe, environmentally sound manner, and to comply with applicable laws, regulations, and agreements in a cost-effective manner?
If “YES,” a “buy” decision is usually warranted unless some other overriding consideration is present.
If “NO,” continue with form.
6. Can contractors develop and implement innovative, cost-effective processes to utilize existing technologies; increase industry capability for solving DOE environmental restoration/waste management problems; or prevent future pollution and waste generation problems?
If “YES,” a “buy” decision is usually warranted unless some other overriding consideration is present.
If “NO,” continue with form.
7. Can contractors perform environmental waste management and remediation activities in a safe, environmentally sound, and cost-effective manner at a particular site for specific types of waste products?
If “YES,” a “buy” decision is usually warranted unless some other overriding consideration is present.
If “NO,” return to Section I.
Section VI—Technology Transfer and Research Advancement
Departmental applied technology programs supporting strategic goals in the marketplace (for example,alternative energy sources or energy applications, energy-efficient technologies, or environmental cleanup technologies with commercial applications) will use “buy” decisions as the preferred path to deployment since the private sector has to necessarily take the lead on issues of commercial applications, market opportunities, and economic requirements. Similarly, the Department will promote (where feasible) the development of independent private-sector capabilities for providing technical requirements and conducting innovative research projects in order to encourage a competitive marketplace for continuing research and development activities for critical energy science and technology programs.
1. Are there any potential commercial or industrial applications for the product or service being developed?
If “YES,” provide brief description of the likely commercial marketplace and continue with form.
If “NO,” return to Section I.
2. Is the existing technology or existing research adaptable for commercial or industrial applications (both current applications and applications that are reasonably foreseeable in the near future)?
If “YES,” continue with form.
If “NO,” provide supporting rationale.
3. Do industrial or commercial firms have the technical expertise, research facilities, and/or manufacturing capabilities to adapt existing research findings to develop the industrial and commercial applications of the technological product or service?
If “NO,” provide supporting rationale and perform work in-house.
If “YES,” a “buy” decision is warranted unless some other overriding evaluation criteria warrant a “make” decision.
4. Do industrial or commercial firms have the technical expertise and research facilities to continue existing research?
If “NO,” provide supporting rationale and perform work in-house.
If “YES,” a “buy” decision is warranted unless some other overriding evaluation criteria warrant a “make” decision.
Section VII—Cost Issues
The Department’s prime contractors will obtain quality performance at least cost, consistent with departmentally approved, program-specific factors. Indirect-cost functions and routine services should be bought unless the prime contractor can perform at a lower cost or other overriding reasons leading to a “make” decision are thoroughly documented.
1. Are products being manufactured or activities currently being performed by the prime contractor in areas where the company is not expected to be preeminent in product or service quality or cost-effectiveness?
2. Does the product or service constitute work that is significantly different from the prime contractor’s current operations?
3. Is there a commercial market for these products and services? If there is a commercial market:
a. Do potential contractors have greater technical expertise or ready access to skilled labor, manufacturing equipment, proprietary technologies, new technologies, or raw materials that the prime contractor does not?
b. Do potential contractors have cost advantages due to experience in this field?
c. Are these cost advantages made more significant by technological and competitive uncertainties in the marketplace?
4. Will capital equipment or facilities be required to implement a “make” decision? If additional capital equipment or facilities are required:
a. Will a substantial capital or labor investment be required before the prime contractor can make the product or perform the service?
b. Is sufficient capital funding available to implement the “make” decision?
c. Will the additional capital equipment and facilities be fully utilized on this project?
d. Can the additional equipment and facilities be used on other projects?
e. Are there major risks in this area (for example, rapid technological obsolescence in this area, schedule risks, or liability)?
f. Will rapid technological obsolescence likely make a dedicated facility obsolete prior to obtaining a fair return on the investment?
g. Will the requirement for the product or service continue for a sufficiently long period to justify the investment?
5. Can potential contractors allocate nonrecurring costs and/or overheads (for example, development of necessary skills, construction of dedicated equipment and facilities, manufacturing overhead, engineering overhead) among several clients?
6. How frequently will the product or service be used? If the product or service is required on an infrequent basis:
a. Can the product be rented or the service performed by temporary employees?
b. Are competent suppliers available to meet short-term or infrequent requirements?
c. Will the product or service utilization rate (if performed in-house) be sufficiently high to prevent an underutilization of assets?
7. Does the prime contractor currently have the labor, equipment, or facility resources to make the product or provide the service without incurring any additional expenditures?
a. What effect will a “make” decision have on other prime contractor projects?
b. Are the prime contractor’s labor, equipment, or facility resources currently being underutilized? Will they be underutilized?
c. If current resources are being underutilized, does the utilization of existing resources result in less overall cost to the Government even though commercial suppliers can provide the product or service at a lower unit price?
d. Would developing alternate supply sources or dual sources provide added flexibility for contracting in emergencies and/or handling peak workload requirements?
8. Can performance objectives and/or product specifications be sufficiently defined to put in a statement of work to a contractor to allow for a procurement that is not cost-reimbursement based—that is, fixed-price?
9. Have performance measures been sufficiently defined to measure the quality of the contractor’s product for supply items or the contractor’s performance for services?
10. If the answers to the above questions indicate that either a “make” or a “buy” decision is feasible, a cost/benefit analysis should be conducted between the “make” and “buy” alternativesand/or competitive proposals solicited from commercial sources to determine which alternative provides for quality performance at least cost without jeopardizing national security interests or other departmental priorities. The cost/benefit analysis should be a life-cycle cost analysis that covers the period of performance for the potential subcontract resulting from a “buy” decision, or some appropriate period that accounts for significant cost differences or future cost avoidance between a “make” or “buy” decision. The cost analysis should answer the following questions (a matrix of costs that should be considered for both current and optimized in-house performance of the work vs. contracting out with the private sector is currently under development and will be issued at a later date):
a. What are the total costs that will be incurred if the prime contractor makes the product or provides the service? These should also be viewed as the total costs that would be eliminated if the contractor were to no longer produce the product or service. For example, when evaluating the elimination of a certain number of labor hours associated with a service, one must determine what indirect rates should be applied to the deleted labor costs. Clearly, that portion of the labor overhead or G&A rates that apply directly to the deleted hours (social security, fringe benefits, etc.) should be included in the calculation. However, there are portions of the indirect rates that would not disappear with the deleted product or service and should, therefore, not be included in the evaluation (e.g., amortized facility maintenance, a portion of electrical power not eliminated, remaining indirect administration costs, etc.) This analysis should assess the cost of both the current in-house effort and the cost of an optimized or the most efficient in-house effort—seek the input of the work force and their representatives on ways to optimize and reduce costs of the in-house effort.
b. What are total costs (including the purchase price) that will be incurred if the prime contractor buys the product or service (e.g., technical liaison with the subcontractor and/or provision of facilities, equipment, raw material, and labor resources to the contractor)?
c. Are there other benefits besides reduced costs that argue in favor of a buy decision? List these benefits and describe the extent to which they may offset or augment cost considerations.
11. Based upon the detailed cost/benefit analysis and the responses to the questionnaire, is it in the best interests of the Government for the prime contractor to “buy” the product or service or to retain the work in-house using either the current or a reengineered, more efficient process?
If “YES,” buy the product or service (with the appropriate DOE approvals for security considerations).
If “NO,” make the product or perform the service in-house at the optimized or most efficient cost (with the appropriate DOE approvals for security considerations).