Case Study 4: Hanford Utilities Privatization Project

Background

The Cold War placed many national security requirements on the operations at DOE’s field sites. One of those requirements at the Hanford facility in Washington State was the need for a continual, uninterrupted and dedicated power supply. With the end of the Cold War and with the acquisition of new missions, the Richland Operations Office (RL) began to investigate and evaluate different ways to restructure Hanford operations.

In early 1995, in an effort to reduce costs, RL decided to evaluate possible areas for privatization. The manager of RL notified the local governments of intentions to pursue direct agreements with those local governments for infrastructure and support service functions if cost/benefit analyses indicated that it would be economically advantageous to RL.

RL met with the onsite contractor and the labor union to discuss RL’s intention of investigating privatization. The union was informed that it would have a chance to keep the work if onsite costs were reduced.

The Effort

RL developed a formal process for evaluating potential privatization projects. Both the local government and the labor unions were fully briefed on the process, which, among other things, provided that the onsite contractor would have a fair chance to compete for the work.

RL worked with the City of Richland to identify the scope of work that the city would be interested in taking over. The City of Richland expressed strong interest in providing utilities (electrical, water, and sewer) to the Hanford 300 Area. RL provided the onsite contractor and the City of Richland with the same statement of work and asked for a price on services. RL formally requested the onsite contractor to involve the labor unions in preparing the proposal.

RL received a technical and cost proposal for providing utilities to the Hanford 300 Area from both the onsite contractor and the City of Richland. RL performed a cost-comparison analysis of both proposals, taking into consideration transition costs that would be incurred as a result of transitioning the 300 area utilities to the City of Richland. The cost-comparison analysis indicated that the city’s proposal would not yield savings to RL.

Lessons Learned

In this case, the onsite M&O contractor recognized that a significant cost element of supplying electricity was the cost of labor. To be competitive, the onsite contractor had to reengineer its business practices and reduce staffing levels. These efforts allowed the onsite contractor and workforce to underbid the City of Richland’s proposal and retain the work.

This case demonstrates that the potential of contracting out work is an effective incentive for an M&O contractor to identify ways to reduce costs. As this case demonstrates, the primary objective is to determine the most economic, productive method of performance—not simply to contract out.