2. Recommendations
When successfully implemented, privatization initiatives can produce measurable improvements to DOE in terms of resource realignment, strategic redirection, or cost-efficiency. This chapter presents the Privatization Working Group’s recommendations for specific actions to improve the implementation of privatization within the Department. Each recommendation is followed by one or more actions that are either currently under way or that will be undertaken in the near term.
Recommendation 1
The Department should integrate periodic evaluation of privatization opportunities into strategic planning and annual budget reviews.
While privatization has consistently been identified as a potential strategic management tool, there has been no mechanism to routinely consider privatization opportunities. The downsizing of the Department and reorientation toward new missions demand a more proactive stance toward privatization.
Actions
1. The Secretary’s budget and staffing guidance for fiscal year 1998, requires each Secretarial Officer to identify “management savings and results” including those that may be derived from privatization activities.
2. As part of the annual budget process, including guidance for fiscal year 1999, each Secretarial Officer should continually assess opportunities to substitute private capitalization and investment for Federal funds required to meet the Department’s goals. The budget analysis should include projections for actual savings related to privatization activities both under way and planned, and timelines for their implementation.
3. The Department will continue to seek alternative funding mechanisms for privatization efforts.
4. In an effort to further explore and expand privatization opportunities, the Department will seek comment on this report.
Recommendation 2
The Department should establish new institutional mechanisms to ensure a high-level focus on privatization.
Privatization responsibilities are currently scattered throughout the Department of Energy in various Headquarters offices and throughout the field organizations. The Headquarters offices include Procurement; General Counsel; Policy and International Affairs; Environmental Management; Defense Programs; Energy Research; Worker and Community Transition; Environment, Safety and Health; Contract Reform; Field Management; and the Office of the Secretary. The Privatization Working Group, with part-time representatives from each of these offices, has functioned during the past year as a coordinating entity in this area. However, this experience has highlighted the need for a small group of full-time employees to provide a focal point for coordinating and facilitating privatization activities throughout the Department.
In addition, the Department currently has several different Executive Committees devoted to issues related to DOE business strategies. These Committees are chaired by Principal Secretarial Officers and include the Executive Committee on Contract Reform and the Executive Committee on Asset Trust. The membership of these various Committees overlaps. A consolidation of these Committees would be beneficial.
Actions
1. The Contract Reform Project Office will be expanded to become the Office on Contract Reform and Privatization. Although operational responsibilities will remain with the program offices and the field sites, the Office on Contract Reform and Privatization will provide staff support and a focal point for coordinating and facilitating privatization activities throughout the Department. The Office will assist the Department in identifying and resolving crosscutting issues and areas of needed legislative and institutional change. The reporting relationship, to either the Deputy Secretary or the Under Secretary, will ensure prompt access to senior DOE management, thereby furthering innovative approaches and policy resolution.
2. The Department will establish a Business Strategies Executive Committee to discuss the resolution of intradepartmental issues relating to contract reform, privatization, asset management, and other business management matters. This Committee will be chaired by the Deputy Secretary or Under Secretary and will provide a forum for senior Departmental officials to address issues identified by staff of the Office of Contract Reform and Privatization and by program officials. This Executive Committee will take over matters currently addressed by the Executive Committee on Contract Reform and the Executive Committee on Asset Trust.
3. The Department’s Materials and Asset Management function will continue to be a high priority of the Department. The long-term organizational framework for this function is currently under review within the Department, and recommendations based on these reviews will be ready for decision in early 1997.
Recommendation 3
Privatization actions must involve both internal and external stakeholders from the earliest possible stage.
Stakeholder involvement is essential for proceeding with privatization efforts, and the Department’s commitment to secure stakeholder involvement early in its major decisions ensures accountability to the public. However, individual stakeholder interests are sometimes not mutually compatible, or they may conflict with the Department’s mission, statutory responsibilities, or budget priorities. In addition, the Department must ensure that safeguards are maintained during competitive procurements and that stakeholder involvement does not jeopardize the integrity of the procurement process.
Actions
1. When employees are likely to be directly affected by a privatization action, all workers and affected labor unions will be consulted early in the process.
2. The Department will continue to work through its Worker and Community Transition Office to mitigate any negative effects on workers and communities when the work force is restructured at the Department’s defense nuclear and other facilities.
3. To the maximum extent practicable, the Department will issue for comment to affected stakeholders Draft Requests for Proposals for privatization activities. This will notify interested parties of the proposed action and enable workers whose jobs may be adversely affected by privatization to compete to retain work in-house.
Recommendation 4
The Department should seek to enhance internal resources, acquire outside expertise, and provide training to ensure successful privatization initiatives.
The Department has many highly qualified and experienced personnel in its core programs (science, defense, energy, environment) and support organizations. However, the Department lacks certain expertise essential for successful privatization efforts. For example, very few Departmental personnel have expertise in business finance, strategic business planning, and general corporate transactional work as they relate to privatization. A coherent Departmentwide strategy for privatization will, in many instances, require business and legal consultants who have experience in advising major corporations on their long-term disposition or acquisition strategies and implementation plans. The Department also needs experts in finance law to provide advice on costs and benefits, tax implications, and terms and method of payments. The lack of resident expertise is likely to be exacerbated by declining personnel budgets in the Federal Government.
Actions
1. The Department will retain needed expertise in various fields to ensure successful privatization outcomes. For example, DOE is considering soliciting offers for multiple contract awards covering a wide range of privatization-related skills (for example, financial, legal, industry-specific consultants, investment banking). This contract arrangement would permit quick access to needed expertise on an “as needed” basis.
2. The Office of Contract Reform and Privatization will seek counsel from the Department of Treasury, which is establishing an entity to coordinate and support privatization efforts across the Federal Government.
3. The Department will continue to consult with the National Performance Review, United States Postal Service Office of Asset Management, and other public and private sector entities regarding innovative methods of privatization.
Recommendation 5
DOE should better integrate the perspectives of the business community into its privatization initiatives.
One of the keys to successful privatization at the Department is the ability to structure business deals that will attract the business community by, for example, ensuring a proper balance between risk and reward. Accordingly, the Department should obtain the necessary support to structure privatization initiatives that will attract private-sector participants and explore ways to reduce structural impediments that may exist in government that impede this objective.
Actions
1. The Secretary of Energy Advisory Board or the Office of Contract Reform and Privatization will explore the establishment of a private finance working group to provide the Department information on investment criteria, insurance, underwriting, contract terms, and potential legislative changes to facilitate investment in privatization projects.
2. The Department will encourage the current practice of issuing draft solicitation documents to seek industry input on improving our approach to and success with privatization initiatives.
3. To stimulate private-sector interest and involvement in large-scale privatization efforts, the Department will continue to seek mechanisms to reduce the costs and time associated with contract proposal preparation.
Recommendation 6
Privatization opportunities should be competitively structured to the maximum extent feasible.
The government’s primary objectives from one privatization transaction to another will vary. For example, in a straightforward sale of surplus equipment, the Department’s primary objectives are to divest stewardship and maximize financial return to the Government. In privatizing environmental remediation services currently performed under management and operating contracts, the Department’s primary objectives are to reduce the costs of operation and achieve quality results more rapidly. In disposing of a weapons facility or site, however, the Department’s objectives may include creating a replacement economic base for the local community. Generally speaking, some form of competition in the privatization process should facilitate optimum achievement of the Government’s goals. As in all procurement or sales transactions, however, circumstances may dictate that nontraditional approaches to competition be used or that noncompetitive techniques will be in the Government’s interest.
Actions
1. When the primary objective of the Government is to obtain maximum value from a privatization opportunity (sale, lease, or other arrangement), reduce the cost of performance of a service, or obtain alternative innovative technical solutions to a problem, the privatization opportunity will be competed, unless the requirements for the acceptance of an unsolicited proposal are met.
2. When the Department’s business objectives are offset by a desire to minimize the adverse economic impact to a local community, the Department may determine, consistent with applicable authorities, that the public interest is best served by limiting competition or dealing solely with recognized community organizations.
Recommendation 7
Where privatization initiatives involve significant adverse economic impact to a community, the Department should encourage contractors and private companies to create new opportunities for affected workers and communities.
Privatization can substantially alter the relationship between the Department and affected stakeholders, particularly Federal workers, contractor employees, and the communities where DOE facilities have been major sources of employment.
Action
The Department will include, as appropriate, economic transition measures in contract selection criteria. These may include such factors as commitment of private resources to a community and past performance in work force restructuring.
Moreover, work force restructuring plans should be developed in coordination with, and in support of, the economic development objectives of nearby communities. Therefore, local officials and institutions involved in mitigating social and economic impacts anticipated to be caused by the Department’s actions should be consulted in development of the plan. A plan should address ways the Department can support local business creation and expansion. Separate guidance was issued August 24, 1994, on economic development efforts that may be supported by the Office of Worker and Community Transition. (Copies of this guidance may be obtained from the Office of Worker and Community Transition.)
Recommendation 8
Environment, safety, and health responsibilities must be defined and allocated among all responsible parties in a clear and definitive way. Regulatory considerations should be addressed early in the planning process.
Another challenge to privatization is maintaining an adequate level of environment, safety, and health protection following the privatization of an activity. Regulators from other Federal or State agencies may be unable or unprepared to assume oversight of newly privatized DOE sites or assets. Memorandums of understanding (MOUs), and, in some cases, rulemakings or Federal or State legislation, may be required for the regulator to assume jurisdiction. To ensure a smooth transition, DOE must provide adequate notice and time for external regulators to prepare to assume new responsibilities.
Actions
1. Where issues arise regarding regulatory jurisdiction, the Department must be prepared to maintain an ongoing role in environmental, safety, and health oversight to ensure the continuity of protection, until external regulation is in place.
2. If a potential privatization involves a shift to external regulation, the Department of Energy’s Office of Environment, Safety and Health, and appropriate regulatory agencies, must be notified and engaged very early in the process. Because of the requirement to notify external regulators, particularly the Nuclear Regulatory Commission and the Occupational Safety and Health Administration early in a privatization effort, close coordination between the Department’s Headquarters and field offices is vital. The impacts of external regulation will be carefully analyzed by the appropriate senior program officials at Headquarters and the field offices, with assistance from the Office of Environment, Safety and Health as needed.
3. An ad hoc working group of Occupational Safety and Health Administration and DOE representatives is currently reviewing interagency issues surrounding privatization, specifically the resource implications and timing for transition of DOE privatized facilities to OSHA oversight.
4. Because the Department is a responsible party in a privatization activity and, in some cases, may retain liability, it will ensure that leasing agreements or other legal instruments include explicit provisions for maintenance of adequate environment, safety, and health programs.These legal instruments must also explicitly provide that the private entity is fully responsible for protecting the environment and worker health and safety since the privatization activity is under the control of the private entity and not the Department.
Recommendation 9
The Department should develop new mechanisms for covering privatization costs related to asset sales.
Many asset sales or transfers will require funding to prepare the asset for sale or transfer. At a minimum, most asset sales or transfers will incur administrative costs such as inventorying and screening. Other asset sales or transfers may incur transportation and even decontamination costs. Current appropriated funds are required for such expenditures, with no provision for offsetting the costs of asset sales or transfers with proceeds generated by the sale or transfer.
Actions
1. The Department is performing a comprehensive review of current DOE assets that may be available for lease or sale and the potential revenues available from such sources, and will discuss this issue and the need for additional legislation during the fiscal year 1998 appropriations process. This activity is consistent with the fiscal year 1997 Energy and Water Appropriations Bill Conference Report.
2. The Department will continue to explore the feasibility of utilizing joint ventures with the private sector to offset the costs of asset sales as well as to gain commercial disposition expertise (see Chapter 6).
3. As part of the fiscal year 1998 appropriations process, the Department will submit a proposal for asset management pilot projects, which would allow the Department to retain proceeds from asset sales, either in whole or in part, to reduce future costs associated with asset management (see Chapter 6).
4. The Department is exploring the application of Section 608 of the fiscal year 1996 Treasury, Postal Service and General Government Appropriations Act, to fund future privatization activities. This law authorizes Federal agencies to reuse funds generated from the sales of assetsthat result from recycling or waste prevention programs (see Chapter 6).