Department of Energy—Obligation of Appropriations for Indirect Costs of a Management and Operating Contract

Decision

Matter of: Department of Energy—Obligation of Appropriations for Indirect Costs of a Management and Operating Contract

File: B-333911

Date: August 15, 2024

DIGEST

The National Nuclear Security Administration, a separately organized agency within the Department of Energy (DOE), has a management and operating contract with Lawrence Livermore National Security, LLC (LLNS) through which LLNS manages the Lawrence Livermore National Laboratory (Livermore) in support of DOE's statutory missions. The amount that DOE obligates for this contract includes both the direct and indirect costs of the contract. At issue here are the indirect costs of the contract, which LLNS used, in part, to renovate and construct laboratory space at Livermore Warehouse Building 490, in support of DOE and Department of Defense (DOD) programs.

Under the purpose statute, appropriations are only available for the purposes for which Congress made them. Incurring costs properly chargeable to another agency for the value of services received may result in a violation of the purpose statute. The renovation costs attributable to DOD were funded by DOD appropriations pursuant to an interagency agreement. Because DOE did not obligate its appropriations to cover the portion of the renovation that would benefit DOD, DOE did not violate the purpose statute.

In addition, the bona fide needs statute, provides that a fixed-year appropriation is only available to fulfill a genuine or bona fide need of the time period of availability of the appropriation. The indirect costs at issue here are held in the contractor's indirect cost pool for its estimated current year expenses to enable the performance of its “direct charged” work. When DOE incurs obligations reflecting the amount of its indirect costs under the contract, it obligates currently available appropriations for current year needs. Therefore, DOE complied with the bona fide needs statute when it obligated appropriations for its indirect costs under the contract.

DECISION

The Department of Energy, Office of Inspector General (DOE IG) requests a decision under 31 U.S.C. § 3529 regarding whether the use of a contractor's indirect cost pool, which is funded by Department of Energy (DOE) appropriations, for the renovation of laboratory space violated the purpose statute and the bona fide needs statute, where the only initial identified users of the space were Department of Defense (DOD) programs.[1]

Our practice when rendering decisions is to contact the relevant agencies[2] to seek factual information and their legal views.[3] We contacted DOE to seek additional factual information and its legal views on this matter.[4] DOE responded with its explanation of pertinent facts and legal analysis.[5]

BACKGROUND

The National Nuclear Security Administration (NNSA), a separately organized agency within DOE, operates several research laboratories throughout the country, including the Lawrence Livermore National Laboratory (Livermore).[6] This site is federally owned, and operated by Lawrence Livermore National Security, LLC (LLNS), a private entity, pursuant to a management and operating contract with NNSA.[7]

NNSA's contract with LLNS is a cost-reimbursement contract through which LLNS “‘manage[s] Government-owned facilities and infrastructure . . . to further national interests and to perform NNSA/DOE statutory missions.'”[8] According to DOE, it funds this contract with multiple DOE appropriations because the contract supports various DOE programs.[9]

DOE incurs obligations for this contract monthly when it executes modifications to the contract.[10] The amount obligated includes LLNS's direct costs—those that can be directly identified with specific cost objectives—and indirect costs, which DOE describes as “expenses of the human and physical infrastructure underpinning and enabling the performance of the ‘direct charged' work.”[11] The indirect costs are calculated as a percentage of the total costs under the contract.[12] Once obligated and expended by DOE, funds associated with the indirect costs of the contract are held by LLNS in its indirect cost pools and are used by LLNS to perform work that benefits multiple cost objectives under its contract with NNSA.[13]

Other federal agencies and nonfederal entities also provide funding for research conducted at Livermore through reimbursable work agreements with DOE.[14] Specifically, DOE executes Strategic Partnership Projects (SPP) with public and private entities on a reimbursable basis pursuant to its authorities under the Atomic Energy Act of 1954 and the Economy Act.[15] See 42 U.S.C. §§2011 et seq.; 31 U.S.C. § 1535.

In May 2016, DOE identified a need to renovate and construct laboratory space at Livermore Warehouse Building 490.[16] According to DOE, the renovation project was classified as an Institutional General Plant Project (IGPP)—a minor construction project benefiting multiple cost objectives—pursuant to a then-applicable DOE Order.[17] Consistent with this Order, LLNS funded the project with $7.2 million from an indirect cost pool, the Site Support Overhead Pool.[18] In addition, DOD identified a need for space for its programs that could be addressed by LLNS's occupancy of space at Livermore under DOE's management and operating contract.[19] Pursuant to an existing SPP agreement with DOE, DOD provided DOE with approximately $11.7 million to tailor the space for their needs.[20] LLNS will utilize the space to perform research and other activities on behalf of the DOD programs pursuant to its management and operating contract with NNSA.[21]

DISCUSSION

At issue here is DOE's obligation of its appropriations for the indirect costs of its management and operating contract. As explained below, we conclude DOE did not violate the purpose statute or the bona fide needs statute when it incurred these obligations.[22]

Application of the Purpose Statute

The purpose statute provides that appropriated funds may only be used for the purposes for which Congress appropriated them. 31 U.S.C. § 1301(a); B-333826, Apr. 27, 2022; B-329446, Sept. 17, 2020. When an agency uses an appropriation to cover costs properly attributable to another appropriation, the agency violates the purpose statute. 70 Comp. Gen. 592 (1991).

The purpose statute applies to an agency's use of its “appropriations,” which are generally defined as “budget authority to incur obligations and to make payments from the Treasury for specified purposes.”[23] Here, we assess DOE's compliance with the purpose statute at the time it incurred obligations for the indirect costs of the management and operating contract with LLNS.[24]

We consider whether DOE incurred costs pursuant to NNSA's management and operating contract with LLNS that covered the needs of another agency, specifically DOD. Failure to properly charge an agency for the value of services received may result in a violation of the purpose statute. 70 Comp. Gen. 592. For example, the Department of Labor (Labor) violated the purpose statute when it used appropriated funds of nine agencies to purchase computer equipment for a shared communications system for executives, but then charged eight of the agencies amounts in excess of the actual costs of the equipment provided. Id. There, Labor's cost allocation methodology resulted in eight agencies subsidizing costs properly allocable to the ninth. Id.

According to DOE, it identified a need for the space at issue in May 2016, and the project was characterized as an indirect cost under a then-applicable DOE Order because the space at issue would benefit multiple cost objectives at DOE.[25] Because the project was characterized as an indirect cost under the management and operating contract, LLNS funded $7.2 million of the project from an indirect cost pool, the Site Support Overhead Pool, which is funded by multiple DOE appropriations.[26]

In January 2019, DOD and DOE agreed to DOD's use of a portion of the Livermore space for its mission-related research, which would be carried out by LLNS.[27] According to DOE, none of its funds were obligated or expended for the portion of the renovation project needed to carry out DOD research.[28] Rather, DOD paid approximately $11.7 million from its appropriations for the costs of the renovation project that specifically benefitted DOD programs.[29] These funds were transferred to DOE pursuant to an SPP agreement.[30]

According to DOE, it entered into the SPP agreement pursuant to the Economy Act and the Atomic Energy Act.[31] The Economy Act is a statute applicable governmentwide that authorizes an agency to provide goods or services to another agency on a reimbursable basis. 31 U.S.C. § 1535; B-289380, July 31, 2002, at 1. Here, DOE could rely on the Economy Act to charge DOD for costs that were solely related to DOD's mission needs. Because DOE charged DOD for the costs that specifically benefited DOD programs and no DOE appropriations were used for this purpose, DOE did not violate the purpose statute.

Application of the Bona Fide Needs Statute

Next, we consider whether DOE violated the bona fide needs statute when it obligated funds for the indirect costs of the management and operating contract.[32] The bona fide needs statute, 31 U.S.C. § 1502(a), provides that a fixed-year appropriation is only available to fulfill a genuine or bona fide need of the time period of availability of the appropriation.[33] Like with the purpose statute, we assess compliance with the bona fide needs statute at the time DOE incurred an obligation against appropriated funds. B300480.2, June 6, 2003, B-325526, July 16, 2014.

DOE incurred obligations monthly for the management and operating contract with LLNS when it executed modifications to the contract.[34] The amount obligated includes both direct and indirect costs under the contract.[35] According to DOE, cost accounting standards require indirect costs of the management and operating contract to be allocated to costs incurred in the current fiscal year.[36] Therefore, the amount DOE obligated for these indirect costs constituted LLNS's estimated current year costs to enable its performance of its “direct charged” work. Because these indirect costs constituted a current year need and DOE obligated available appropriations for these costs, DOE complied with the bona fide needs statute when it incurred these costs.

CONCLUSION

DOE did not violate the purpose statute or the bona fide needs statute when it obligated appropriations for the indirect costs of its management and operating contract with LLNS.

Edda Emmanuelli Perez
General Counsel

 

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