Objective
We determined whether the contracts and task orders related to the Utility Energy Services Contracts (UESCs) were properly awarded and administered. This is the third in a series of audits related to the DoD’s use of UESCs. UESCs allow Federal agencies to contract with utility companies to reduce energy consumption. DoD Components are authorized to manage energy demand or conserve energy by participating in programs provided by any gas or electric utility company. We are conducting this audit in response to allegations made to the Defense Hotline. The allegations stated that Marine Corps Base (MCB) Camp Pendleton, California, Energy Office officials did not have adequate internal controls in place to ensure the proper award and administration of UESCs implemented at MCB Camp Pendleton. We reviewed 10 UESCs implementing energy projects at Camp Pendleton, valued at $44.6 million, awarded between FY 2009 and FY 2015.
Findings
Naval Facilities Engineering Command (NAVFAC) Southwest contracting officials properly awarded and justified the 10 UESCs reviewed. Specifically, contracting officials appropriately solicited and evaluated proposals for the implementation of energy conservation measures at MCB Camp Pendleton. However, NAVFAC Southwest contracting officials did not adequately administer the 10 UESCs.
- For 6 of the 10 UESCs, valued at $25.9 million, the NAVFAC Southwest contracting officers did not approve scope of work changes before the contractor implemented the changes and did not modify the UESCs to reflect the scope of work changes.
- For 9 of 10 UESCs, valued at $39.8 million, NAVFAC Southwest contracting officers did not appoint contracting officer’s representatives to monitor contractor performance and provide contract surveillance during the contract period of performance.
This occurred because NAVFAC Southwest contracting officers relied solely on the NAVFAC Southwest project manager and Facilities Engineering and Acquisition Division officials to monitor contractor performance and perform quality assurance but did not have controls in place to identify potential changes to scope of work or concerns about the contractor’s performance. In addition, NAVFAC Southwest contracting officers did not appoint contracting officer’s representatives for the UESCs because the NAVFAC Southwest contracting officers’ understanding was that they were not required to appoint contracting officer’s representatives for utility service contracts.
As a result, NAVFAC Southwest contracting officials and MCB Camp Pendleton Energy Office officials did not have reasonable assurance that changes in scope of work were in the best interest of the Government and provided the best alternative to the original scope of work. In addition, the officials did not have reasonable assurance that the Government and contractor received fair consideration for the changes in the scope of work and that the contractor met the contract terms and conditions.
Moreover, for the 10 UESCs we reviewed, MCB Camp Pendleton Energy Office officials did not have an existing process to track the savings generated by individual energy conservation measures or by individual UESC. MCB Camp Pendleton Energy Office officials’ stated that they did not track energy savings for the individual UESCs or energy conservation measures because their understanding of UESC guidance was that they were not required to track the generated energy savings. As a result, MCB Camp Pendleton officials could not support that they achieved sufficient energy savings to pay back their $44.6 million investment in energy conservation measures.
Recommendations
We recommend that the Commanding Officer, NAVFAC Southwest:
- direct the NAVFAC Southwest contracting officers to approve all future scope of work changes before the contractor begins performance, and reemphasize and hold training sessions to implement the existing process for notifying and approving minor scope of work changes for the MCB Camp Pendleton UESCs;
- initiate a review of the contracting officers’ and other Government officials’ actions when they inappropriately approved or did not approve changes in the scope of work before the contractor began work and did not modify the UESCs to reflect the changes in the scope of work, and, if appropriate, initiate administrative actions; and
- establish a detailed written agreement with the organizations that NAVFAC Southwest contracting officers rely on to perform contract administration and quality assurance duties to clearly outline each organization’s duties, roles, and responsibilities; documentation and retention requirements; procedures for providing contractor performance; and procedures for requesting and obtaining approval for scope of work changes.
We recommend that the Commanding General, Marine Corps Installation West – MCB Camp Pendleton, direct MCB Camp Pendleton Energy Office officials to develop and implement a system to convert energy usage to cost and realized energy savings for each UESC.
Management Comments and Our Response
The Assistant Secretary of the Navy (Energy, Installations, and Environment) responding for the Commanding Officer, NAVFAC Southwest, agreed with our finding and recommendations. Specifically, the Navy agreed to:
- amend basic ordering agreements to eliminate ambiguity related to the contracting officer duties related to the approval of minor change request through a contract modification;
- develop a memorandum of agreement between the NAVFAC Southwest contracting office, Marine Corps Utility Energy Manager, and Facilities Engineering and Acquisition Division Camp Pendleton to clearly define each organization’s roles and responsibilities related to UESCs;
- designate the Facilities Engineering and Acquisition Division Camp Pendleton personnel as the contracting officer’s representatives for UESCs;
- evaluate the actions of the contracting officer and other Government officials to determine appropriate accountability actions, if necessary;
- train the contracting officer on oversight and administration of UESCs; and
- adopt the contract administration plan to outline and address required actions, duties, and responsibilities for all persons and offices administering UESCs.
The Navy will implement these recommendations between September 30, 2017, and January 31, 2018. Therefore, these recommendations are resolved but will remain open. We will close these recommendations once we verify that the Navy has amended the basic ordering agreements; developed the memorandum of agreement; designated the contracting officer’s representative; evaluated the action of the contracting officer and Government officials; trained the contracting officer; and adopted the contract administration plan.
In addition, the Assistant Secretary of the Navy (Energy, Installations, and Environment) responding for the Commanding General, Marine Corps Installation West–MCB Camp Pendleton, disagreed with our recommendation to develop and implement a system to convert energy usage to cost and realized energy savings for each UESC. The Assistant Secretary stated that the DoD disagreed with a similar recommendation cited in a Government Accountability Office audit report. The Assistant Secretary used the same context for his disagreement with our recommendation, stating that there is no statutory requirement for annual measurement and verification of the energy, water, or cost savings or contractual guarantee of the savings. He concluded that UESCs are for utility services and the only financial requirement is the obligation of the annual costs for the UESC. In addition, he stated that the MCB Camp Pendleton would implement the use of performance assurance plans as recommended by the Department of the Energy Federal Energy Management Program. Furthermore, as the command responsible for developing policy, instruction, and guidance on UESCs for the Marine Corps, the Commander, Marine Corps Installations Command, will issue guidance that will incorporate steps recommended by the Department of the Energy Federal Energy Management Program for developing and implementing performance assurance plans for UESCs.
Comments from the Assistant Secretary of the Navy (Energy, Installations, and Environment) did not address the specifics of the recommendation. We agree there is no statutory requirement for annual measurement and verification of the savings or a contractual agreement of those savings; however, we disagree that there is no requirement to track energy savings achieved through UESCs. Specifically, Section 2912, title 10, United States Code states an amount of appropriated funds for the fiscal year equal to the amount of energy cost savings realized by the DoD shall remain available for obligation until spent.1 In addition, Federal Energy Management Program guidance requires that an agency pay for the cost of the UESC from savings generated from the ECMs during the contract period.2 Finally, DoD Instruction 4170.11 requires tracking the estimated and verified energy savings generated by implementing energy projects.3 In order for a UESC to comply with Section 2912, title 10, United States Code, the Federal Energy Management Program guidance, and DoD Instruction 4170.11, MCB Camp Pendleton Energy officials would need to track energy savings generated from the individual ECMs.
In addition, performance assurance plans alone are not sufficient to comply with applicable UESC guidance. According to the Department of the Energy Federal Energy Management Program guidance, performance assurance plans define actions to be taken during the contract to achieve the expected performance of the energy conservation measures implemented under the UESC. By developing and implementing performance assurance plans, MCB Camp Pendleton officials assert a commitment in reaching the estimated savings of a UESC; however, they do not measure actual energy savings achieved after implementation of energy conservation measures. Therefore, by using the performance assurance plans, MCB Camp Pendleton Energy officials cannot clearly determine whether the energy conservation measures implemented through UESCs achieved sufficient savings. Therefore, the recommendation is unresolved and remains open.
We request that the Assistant Secretary of the Navy (Energy, Installations, and Environment) provide comments on the final report that specifically address the issue of MCB Camp Pendleton Energy Office officials not supporting whether energy conservation measures achieved sufficient energy savings. We request that the Assistant Secretary of the Navy (Energy, Installations, and Environment), provide comments to the final report by October 30, 2017.
1 Section 2912, title 10, United States Code, “Availability and Use of Energy Cost Savings.”
2 Department of Energy Office of Energy Efficiency and Renewable Energy Federal Energy Management Program, “Utility Energy Services Contracts: Enabling Documents,” May 2009 and June 2013.
3 DoD Instruction 4170.11, “Installation Energy Management,” December 11, 2009. Change 1 effective March 16, 2016.
This report is a result of Project No. D2017-D000CI-0005.000.