Coupling Environmental Contracting Using Risk Allocation with U.S. Department of Energy Remediation Marketplace

Conference · Thu Mar 02 00:00:00 EST 2000

OSTI ID:1374060

Howes, Walter S. ^[1]; Boyd, Gerald G. ^[1]; Sink, Claire H. ^[2]; Lynn, Douglas A. ^[3]

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1. Dept. of Energy (DOE), Washington DC (United States)
2. Dept. of Energy (DOE), Washington C (United States)
3. Lockheed Martin Energy Systems, Inc., Oak Ridge, TN (United States)

As the U.S. Department of Energy (DOE) Office of Environmental Management (EM) enters the 21st century, its primary mission remains unchanged: to clean up sites contaminated with radioactive, chemical, and other hazardous wastes from over fifty years of government nuclear operations, particularly weapons production. A major challenge confronting DOE EM in doing environmental cleanup is to improve project management and to allocate project risks into an optimal contracting strategy. Data show DOE’s site remediation work as 30% of the U.S. remediation market with major remediation activities scheduled to occur by 2006. In the era of reduced funding and increased fiscal accountability, it is incumbent on DOE to adopt a cleanup strategy that applies best practices and expertise of private industry and capitalizes on optimal risk allocation among cleanup project participants. DOE should provide better incentives to accomplish its mission. Traditionally, DOE has focused on technical risk only. Lessons learned, however, from DOE privatization initiatives, such as Tank Waste Remediation System, show risks, including technical, operational/business, and people, are interrelated. To devise an effective cleanup strategy using improved project management and tailored contracting strategies therefore requires all risk to be addressed as an integrated composite. This paper presents an overview of outcome-oriented risk management and applicability of outcome-oriented risk management to accelerating DOE’s cleanup mission. In the context of privatization and contract reform, the paper discusses how DOE could use risk allocation in environmental remediation contracts to achieve an optimal contracting strategy that is more efficient and effective for cleanup of contaminated sites across the complex. Technical risk includes new technology, its implementation and performance; operational/business risk includes site conditions, construction issues, program management, and financial risk; people risk consists of legal and procurement issues including liability and indemnification, regulatory and stakeholder acceptance of the technology, and associated political dimensions of the work. Use of outcome-oriented risk planning could enable DOE EM to identify, evaluate, and force tradeoffs, such as choosing goals, choosing alternatives to meet goals, and allocating budgets across sites and time periods. Technical risk translates directly to financial risk which, in turn, increases terminal risk and the cost of cleanup. Throughout risk allocation, optimal contracting strategy would need to preserve key benefits associated with third-party financing, including inherent performance incentives and requirements of private lending sources. Options for government involvement range between extremes of totally private or totally government financing, which should be assessed and applied project by project. The challenge for DOE is to be a smart customer and manage its contracts to optimize results.

• Research Organization: US Department of Energy (USDOE), Washington DC (United States); Lockheed Martin Energy Systems, Inc., Oak Ridge, TN (United States)
• Sponsoring Organization: USDOE Office of Environmental Management (EM)
• OSTI ID: 1374060
• Resource Relation: Conference: WM’00 Conference, Tucson, AZ, February 27 – March 2, 2000
• Country of Publication: United States
• Language: English