Friday, February 25, 2005



Recently issued by the NNSA Source Evaluation Board

With regard to the preparation of a Request for

Proposals to operate the Los Alamos National Laboratory

The four white papers prepared by the NNSA Source Evaluation Board contain many improvements over the original draft and the board is to be commended for them. However, there are a number of items that would benefit by modification.

Employee retention: The original draft contained a provision which required the successor contractor to hire all the staff, except the senior management. In the white paper on “Major Issues,” this assurance of reasonable job security evaporates. Under issue #8, the proposed change says “… DOE expects the Contractor to subsequently exercise appropriate managerial judgment regarding employee retention … This provision provides a strong incentive for the staff to seek stable employment elsewhere!

A Big Pot of Money for the New Contractor: If you think for half a minute, you will realize that if the University of California does not retain the operating contract, almost all the current Laboratory employees will be terminated from University employment, at the very second that UC contract expires. This means that, unless special action is taken, (e.g., retirement) all the vested employees will immediately become inactive members of the University of California Retirement Plan. It can then be argued that the UCRP has a contractual obligation to those former UC employees and therefore there is no money to be transferred to any successor contractor. In these circumstances the scheme to induce industrial companies to bid by giving them a big pot of money to manage (play with?) will fail. If you read the current contract you will find that the University only agreed to consider the desirability of transferring funds to a successor contractor, and not to actually do it.

I presume that the reason that the SEB is planning not to offer guaranteed rehiring to employees who “freeze” their accounts with UCRP, is to coerce the employees to join the new contractor’s plan, thereby increasing the Big Pot of Money. If they do so, according to the SEB response to question 2 in the white paper on “Pension Benefits for Current and Retired LANL Employees”: “with respect to employees who transfer from UCRP to the LANL site specific plan the successor contractor shall consider any changes to UCRP as it administers the site specific plan.” This statement is rather unclear, but it

would seem to permit a considerable reduction in the pension benefits, particularly if the successor contractor badly manages the funds. One can not help but notice, considering the verbiage in the white paper on “Contractor Compensation,” that a decrease in benefits would not only enhance the Contractor profits, but would also save money for the DOE. This is not a way to bolster the national defense on the backs of skilled employees.

I recommend that the whole idea of funds transfer be scrapped. All employees would then retain the UCRP benefits that they have earned, and start with the successor contractor’s plan. The remaining issues to be resolved have to do with vesting. Of course, if the University of California retains the contract, these issues may become moot.

It is really bad business not to have the compensation and benefits package part of the proposal for evaluation; to expect to have it provided after the successor contractor is selected is like buying a “pig in a poke.” What if the Contracting Officer finds that the aforementioned package is not “substantially equivalent. What then?

What happens to new employees?: According to the language of the SEB response to question 2 in the Benefits White Paper, “The plan shall include a timeline as to when the Contractor can bring the benefits to within 5% of the comparator group without impacting the substantially equivalent defined benefits for employees who transferred from the predecessor contractor.” As the current benefits are claimed to be over twice those of the comparator group, then, if they are not changed (as mentioned previously), it would seem that the benefits for new hires would have to be very small. This feature would impact negatively on the hiring of high quality young people.

Please try to keep in mind that the mission is first and foremost the national defense. The duty is to assure that the Los Alamos National Laboratory is able to carry out the high calling of the defense of the nation. To do this work we need to have excellent people who could easily have a good and very rewarding job elsewhere. As you may know, a great deal of trust has been lost over the last couple of years. If the SEB can write into the RFP in clear, unambiguous and uncontradicted language the establishment of a good working environment and a sensible compensation and benefits package, then maybe the thousands of senior people who are currently preparing to retire might be retained and excellent young people could be attracted before the knowledge and experience accumulated over decades vanishes from the Laboratory.

I am pleased to acknowledge that some of these ideas were contributed by colleagues.

George A. Baker, Jr.

Thank you for this detailed review! Is anyone sending this to Pete Domenici's staff?
Somebody else's turn to send stuff to Domenici. I don't want to get the reputation of being a member of a small, vocal group if discontents.
Under the subject line "Pension Benefits White Paper," I just sent the following to

Pension Envy.

What else could we conclude is the source of the SEB's persistence in RFP language that holds pension benefits to no more than 105% of the comparator group? Applying this cap to per capita cost is absolutely the right thing to do in protecting the interests of the taxpayer. That should be sufficient! But why apply the same criterion to net benefit value? If you truly want to attract and retain the best and brightest, why would you force the contractor to offer only mediocre benefits to its employees? Wouldn't it make far more sense to protect those employees by stipulating a lower limit instead?

The white paper states that the proposed language is "standard in all NNSA contracts, except those with UC." Why would NNSA require any of its contractors to provide less generous benefits for their employees than they are capable of providing? Why hamstring them in competing for the best candidates in the marketplace?

If NNSA were truly interested in protecting both the taxpayer and contract employees, you would retain the 105% ceiling for per capita cost but use a 95% floor for net benefit value.

Accordingly, the pertinent section in every NNSA contract (Section H-36(e)(2)(ii) in the LANL RFP) could be reworded as follows:

When net per capita cost exceeds the comparator group by more than 5 percent, or when net benefit value is more than 5 percent lower than the comparator group, submit corrective action plans, when requested by the Contracting Officer, to achieve a net per capita cost not to exceed the comparator group by more than 5 percent and/or a net benefit value no lower than 95% of the comparator group. The plan shall include a timeline as to when the Contractor can reduce the net per capita cost to less than 105% of the comparator group and/or to increase the net benefit value to greater than 95% of the comparator group.

In the case of the LANL contract, this rewording would obviate the SEB's proposed addition to Section H-36(e)(2)(ii) ("...without impacting the substantially equivalent defined benefits for employees who transferred from the predecessor contractor"). Besides, that language would force the successor contractor to set up a double standard in its benefits wherein those hired after the new contract commences might suffer so that substantial equivalency can be sustained for those who transfer from the incumbent contractor. That would be both unfortunate and unwise.

Also, the rewording proposed herein would mitigate the complaints of prime offerors competing with UC that they cannot compete with UC's pension program. They probably cannot, but this language does not require them to do so in order to submit a competitive overall proposal. It merely sets limits as to how poor can be their performance in cost (by setting a ceiling) and net benefit value (by establishing a floor).

Thank you for your careful consideration of this matter.

Greg Sheppard
Los Alamos, NM
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