Management & Operating (M&O) Contracts

• Office of Science Management and Operating (M&O) Contracts
• Acquisition Guide – Chapter 17.6, A Discussion of the Origin, Characteristics, and Significance of the Department of Energy’s M&O Form of Contract (PDF)

The Office of Science (SC) national laboratories are Federally Funded Research and Development Centers operated by private sector organizations under sponsoring agreements known as management and operating (M&O) contracts. The M&O contract model, which dates back to World War II and the Corps of Engineers’ Manhattan Engineer District (MED), was designed to ensure the recruitment of world-leading scientific and technical talent, and the successful completion of the mission at hand—to win the War.

In recognition of the MED contractors’ success in that endeavor, Congress, via the Atomic Energy Act of 1946, carried the M&O model forward into the organization of the Atomic Energy Commission and its predecessor agencies, including the DOE. The legislation “permits management contracts for the operation of Government-owned plants so as to gain the full advantage of the skill and experience of American industry.” The unique M&O contract relationship enables the Government to establish objectives for the laboratories’ research programs and to exercise controls necessary to assure security, safety, and the prudent use of public funds, while allowing private sector organizations selected for the technical ability and managerial expertise to carry out the laboratories’ day-to-day operations.

M&O contracts are characterized by their special purpose and the close relationship they create between the Department of Energy (DOE) and the contractor. The work performed under M&O contracts is intimately related to DOE’s mission, is of a long-term and continuing nature, and, among other things, includes special requirements for work direction, safety, security, cost controls, and site management.

The Office of Laboratory Policy develops, manages, and ensures the implementation of DOE procurement policies and procedures to strengthen the SC M&O contract system and to support comprehensive acquisition planning and robust contractor performance management.

DOE Policy Regarding the Extension or Competition of the Contracts to Manage and Operate its National Laboratories

DOE's policy is, and will continue to be, to follow the statutory and regulatory framework established for all of its national laboratory M&O contracts. DOE does not default to a posture of determining a priori either that the Department will conduct competitions for all its M&O contracts, or that it will extend all these contracts. DOE recognizes a preference for full and open competition, and exercises, on a case-by-case basis, the authorities available to the Secretary under CICA, the FAR, and the DEAR to noncompetitively extend an M&O contract when the extension is justified. The regulatory framework governing M&O contracts for FFRDC's has long recognized the unique nature of these contracts and it provides the necessary criteria for the Agency to make an informed decision as to whether to extend or compete an M&O contract for an FFRDC prior to its expiration. DOE employs a disciplined decision-making process involving senior Departmental management, including recommendations by Heads of Contracting Activities, review and concurrences by cognizant Secretarial officials, the Procurement Executive for DOE and the DOE Chief Financial Officer, prior to being referred to the Secretary of Energy for a decision. DOE's decisions to compete or extend an M&O FFRDC is based on regular and rigorous evaluations of the incumbent contractor's performance, whether cost and performance improvements are likely to result from competition, the potential impact of a change in contractor, and whether meaningful competition is anticipated. In cases where as a result of that rigorous analysis DOE'S interests will be best served by a non-competitive extension, any such extension will be executed in accordance with applicable statute and regulation. Before determining whether an M&O contract will be extended or competed, DOE performs a review of the ongoing need for the FFRDC, itself. DOE reviews each of its sponsored FFRDCs at appropriate intervals, and at least once every 5 years to determine whether there is ongoing need for the FFRDC. As required by FAR 35.01 7-4, DOE includes the following in its FFRDC review:

• an examination of the sponsor's special technical needs and mission requirements that are performed by the FFRDC to determine if and at what level they continue to exist.
• consideration of alternative sources to meet the sponsor's needs.
• an assessment of the efficiency and effectiveness of the FFRDC in meeting the sponsor's needs, including the FFRDC's ability to maintain its objectivity, independence, quick response capability, currency in its field(s) of expertise, and familiarity with the needs of its sponsor.
• an assessment of the adequacy of the FFRDC management in ensuring a cost-effective operation.
• determination that the criteria for establishing the FFRDC continue to be satisfied and that the sponsoring agreement is in compliance with FAR 35.01 7-1

For the full DOE policy and process, see Secretary Chu’s December 22, 2009 memo, DOE Policy Regarding the Extension or Competition of the Contracts to Manage and Operate its National Laboratories.