Case Study 5: Privatization of Inhalation Toxicology Research Institute

Background

The Department of Energy’s Inhalation Toxicology Research Institute (ITRI) is a government-owned, contractor-operatedresearch facility located at Kirtland Air Force Base in Albuquerque, New Mexico. ITRI’s mission as a management and operating (M&O) contract was to identify and describe the health effects associated with energy-related materials released in the workplace or general environment, with the emphasis on inhaled materials. ITRI has been operated since 1960 by the Lovelace Biomedical and Environmental Research Institute (LBERI) and its parent organization, the Lovelace Institutes. LBERI is a nonprofit organization established for the purpose of performing medical research. The current contract expired on September 30, 1996.

The Effort

In recent years, flat budgets and increasing administrative costs have caused DOE’s direct research budget to decline. To maintain the viability of this valuable national resource, DOE considered alternative contracting methods for operating the facility. The alternative chosen is to lease the ITRI facility to Lovelace, thus allowing Lovelace to utilize the facility for non-DOE work. Under this concept, DOE will support needed research requirements from the facility through cooperative agreements. The M&O status of the contract and the designation of ITRI as a federally Funded Research and Development Center have been eliminated.

Current Status

DOE negotiated lease arrangements with the Air Force and Lovelace. At the same time, DOE worked with Lovelace to develop a cooperative agreement that benefits both parties. The formal announcement of the privatization was made on October 1, 1996.

Lessons Learned

Numerous alternative business approaches were evaluated before focusing on this arrangement. Both DOE and the contractor were frustrated by the lack of flexibility inherent in the M&O contract. To overcome this obstacle, both parties needed a common vision for “doing business” and defining the essential roles and responsibilities for achieving that vision. The key was having both parties recognize that evolving mission requirements and declining budgets necessitated a new business arrangement in which future DOE funding would be limited to supporting research services.

While Lovelace assumes greater business risk, it also has the opportunity to market business to private clients. It currently has more than 30 active proposals under consideration for a total value in excess of $25 million. A competitive award for approximately $5 million from another Federal agency is pending.