Model Contract Implementation at Sandia National Laboratories Risk Based Oversight Dan Pellegrino Sandia Site Office November, 2007

NNSA Report to Congress NNSA will redesign the federal-contractor relationship to improve accountability. NNSA will streamline oversight by clarifying NNSA authorities and responsibilities, coordinating with DOE and other external overseers, evaluating systems – not transactions, and redefining federal jobs. NNSA will l ift administrative burdens through streamlining policies, procedures, and staffing.

Goals of the 2004 Sandia Model Contract The Model Contract was established between NNSA and SNL in FY04 with the following goals in mind: Redesign the Federal/ Contractor Relationship Capitalize on Private Sector Expertise Increase Contractor Accountability Implement a Simpler, Less Adversarial Contracting Model Sandia is implementing the model contract and contractor assurance through the Integrated Laboratory Management System

Model Contract Objectives 1. Provide a model for implementing an operational Contractor Assurance System (CAS) with an increase in contractor accountability and a shift in federal oversight 2. Capitalize on industry standards and outside certifications 3. Introduce a more disciplined Work Authorization process through contracting officer (CO) and contracting officer representative (CORs) appointments and Performance Direction clause 4. Streamline the contract by reducing non-applicable clauses 5. Provide a framework for systems oversight of non-nuclear work 6. Allow investment of cost efficiencies with onsite investment as an incentive 7. Increase involvement of the parent entity and Sandia Corporation Board of Directors 8. Improve performance through benchmarking with private sector and NNSA contractors 9. Enhance coordination within the Nuclear Weapons Complex (NWC) 10. Emphasize Sandia’s accountability for daily operations

Twelve Special H Clauses Clause H-1, Redefining the Federal/Contractor Relationship to Improve Management and Performance Clause H-2, Performance Direction Clause H-3, Contractor Assurance System Clause H-4, NNSA Oversight Clause H-5, Accountability Clause H-6, Standards Management Clause H-7, Utilization of Parent Corporate Systems Clause H-8, Contractor Reinvestment of Cost Efficiencies Clause H-9, Contractor Multi-Year Laboratories’ Vision for Continuous Improvement Clause H-10, Performance Based Management Clause H-11, Performance Incentives Clause H-12, Award Term

H - Clause Requirements Clause H-1, Redefining the Federal/Contractor Relationship to Improve Management and Performance –NNSA focuses on the “what” and the contractor is responsible for the “how”. Clause H-3, Contractor Assurance System –The Contractor shall develop a Contractor Assurance System that at a minimum has nine key attributes. Clause H-4, NNSA Oversight –Once NNSA is satisfied that the Contractor Assurance System is operating effectively, NNSA will conduct oversight of the Contractor’s Non-Nuclear Facilities operations, Programs, Projects and Business Systems at the systems level. Clause H-5, Accountability –The Contractor is responsible for the quality of its products and for assessing its operations, programs, projects and business systems and identifying deficiencies and implementing needed improvements in accordance with the terms and conditions of this Contract, regardless of whether NNSA has evaluated the Contractor’s performance in any area of the Contract. The purpose of NNSA oversight is for assessing the Contractor’s performance in meeting its obligations under this Contract. NNSA oversight shall not be relied upon by the Contractor in assessing its performance. Clause H-6, Standards Management –The Contractor shall regularly benchmark with industry to identify best commercial standards and best business practices that will improve site operations with the goal of improving performance where cost effective. Clause H-7, Utilization of Parent Corporate Systems –If the Contractor adopts or adapt its parent corporate systems or services, it will ensure that the Government and Contractor’s data in such systems is readily transferable to a successor contractor.

H - Clause Requirements (Continued) Clause H-8, Contractor Reinvestment of Cost Efficiencies Clause H-9, Contractor Multi-Year Laboratories’ Vision for Continuous Improvement Clause H-10, Performance Based Management Clause H-11, Performance Incentives Clause H-12, Award Term

Clause H3: CAS Nine Attributes A comprehensive description of the Contractor Assurance System with risks, key activities and accountabilities clearly identified. A Process for notifying the Contracting Officer of significant assurance system changes. Rigorous, risk based credible self-assessments, feedback and improvement activities, including utilization of nationally recognized experts, and other independent reviews to assess and improve its work process and to carry out independent risk and vulnerability studies. The Contractor is encouraged to seek third party certifications (such as VPP and ISO 9001 or ISO 14001), audits, peer reviews and independent assessments with external certification or validation. Identification and correction of negative performance/compliance trends before they become significant issues. A method for validating assurance processes. Integration of the assurance system with Contractor management systems including Integrated Safety Management. A process for defining performance metrics and performance targets to assess performance, including benchmarking of key functional areas with other NNSA/DOE contractors and industry and research institutions to enhance processes and to assure development of performance metrics and performance targets that will result in achievement of best in class/industry performance where efficient and cost effective. Continuous feedback and performance improvement. An implementation plan that defines a transition period for the implementation to the Contractor Assurance System.

SNL Design of the Contractor Assurance System 1. SNL adopted Integrated Laboratory Management System (ILMS) as management system for all of SNL 2. ILMS has an Assess, Assure and Improve Component that serves as the Contractor Assurance System 3. SNL completed 7 integrated Corporate Process Requirements as Framework for CAS a. Enterprise Risk Management b. Corporate Quality Assurance Program c. Corporate Work Process d. Corporate Issues Management Program e. Corporate Self-Assessment Process f. Corporate Corrective Action Process g. Corporate Comparison Activities

SSO Risk-Based Oversight Mapped federal and contractor requirements for 113 DOE orders (except cyber) in SNL contract and determined current oversight method, establishing oversight baseline. These map into 38 Functional Areas of oversight. Developed a risk-based oversight procedure consistent with DOE O and trained federal staff. Federal staff trained in systems level oversight, DOE O 226.1, and the Sandia ILMS/CAS. Chartered a risk-based oversight board (RBOB) to review each SSO oversight area. Prior to the RBOB, each Assistant Manager: –Reviews federal requirements –Evaluates and scores SNL program health for their applicable SSO oversight areas (38 total for SSO) –Evaluates and scores each Functional Area’s implementation of CAS for implementation consistent with SNL’s 7 CAS corporate policy requirements –Recommends risk level (H/M/L) for federal oversight, based on SNL program health and CAS confidence –Risk level determines SSO method of oversight--systems or transactional –Recommends tailor/alter/exemptions to federal requirements as necessary for contractor accountability or clarification of roles and responsibilities RBOB evaluates input and makes recommendations to the Site Manager for final approval.

Understanding Requirements of Oversight Federal Requirements Oversight Group: Objective – Determine baseline of federal & contractor requirements and status of current oversight Reviewed SNL contract to identify contractor and federal oversight requirements 113 directives – 7,752 lines with 6,676 contractor and 3,812 federal requirements –Security (45%), Business (23%), ES&H (23%), F&PM (3%), Program (2%), Nuclear Safety (2%) –Interviewed SMEs for 105 of 113 directives to identify status of current federal oversight of contractor

113 directives – 7,752 lines with 6,676 contractor and 3,812 federal requirements

DOE O Six Oversight Techniques: Steps and Process Flows for SSO Performing Oversight

Steps, Process Flow, and Responsibilities for Reporting to the RBOB

Program Health Sample Evaluation Table

SSO Risk Based Oversight Procedure Confidence in CAS Process (1/5)

SSO Risk Based Oversight Procedure Confidence in CAS Process (2/5)

SSO Risk Based Oversight Procedure Confidence in CAS Process (3/5)

SSO Risk Based Oversight Procedure Confidence in CAS Process (4/5)

SSO Risk Based Oversight Procedure Confidence in CAS Process (5/5)

Expected Results from Model Contract and CAS Capitalize on Private Sector Expertise Increase Contractor Accountability Balance Federal Oversight Improve Management, Performance and Effectiveness, Mission and Operational Efficiency and Redirect Efficiencies to Mission Priorities

Expected Benefits from Model Contract and CAS Consistent with NNSA Report to Congress: 1.Streamlined and reduced oversight with minimal workload impact 2.Clarified and simplified requirements, including both operational and programmatic guidance and reporting requirements 3.Maximum empowerment of expertise in the laboratories 4.Site contractors accountable for performance in compliance with clear expectations 5.Federal oversight based on risk

Implementation of Model Contract Summary SSO requests NNSA HQ partner with SSO on path forward to get approval for DOE Order/Directives exemptions from federal requirements. SSO advise NNSA HQ on transition from Transaction Level to Systems-Based Oversight for non-nuclear facility operations, programs, projects and business systems. SSO requests NNSA HQ process to get DOE Independent Oversight to recognize changes in oversight at SSO and to hold contractor accountable.

BACK UP

Results to Date Facilities –81/133 (71%) of federal requirements exempted through tailoring, altering or waiving –44/113 (39%) of federal requirements utilize systems oversight –51/113 (45%) of federal requirements utilize transactional oversight –18/113 (16%) of federal requirements are performance based Procurement –8/19 (42%) of federal requirements exempted through tailoring or altering –8/19 (42%) of federal requirements utilize systems oversight –11/19 (58%) of federal requirements utilize transactional oversight Property –10/16 (62%) of federal requirements exempted through tailoring or altering –14/16 (94%) of federal requirements utilize systems oversight –2/16 (6%) of federal requirements utilize transactional oversight Contractor Human Resources –43/89 (48%) of federal requirements exempted through tailoring, altering or waiving –58/132 (44%) of federal requirements utilize systems oversight –74/132 (56%) of federal requirements utilize transactional oversight