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Research and Development Dollars are Understated by Billions in The Federal Procurement Data System 

by Robert Antonio

July 5, 2001

  The Federal Procurement Data System, the federal government's source for contracting statistics, understates contract obligations on research and development by billions of dollars.  Table 1 shows the $23.6 billion the Federal Procurement Data System reports for research and development in fiscal year 2000 together with a revised estimate of $30.3 billion that adjusts this figure to account for the understatement of contract obligations on research and development.

Table 1:  Actual Federal Procurement Data System  Research and Development Dollars Compared to the Revised Estimate.

Federal Procurement Data System Category Federal Procurement Data System Data Revised Estimate
Research & Development $23,623,275 $30,308,177
Services & Construction 103,361,750 96,676,848
Supplies & Equipment 76,523,263 76,523,263

The difference between the $23.6 billion and the $30.3 billion is caused by the use of product and service codes to classify contract dollars obligated on the Department of Energy's Federally Funded Research and Development Centers.  Since these government-owned Centers are managed under management and operating contracts, the contract dollars normally are classified as services for the management of a government-owned facility.  This classifies an estimated $6.7 billion in research and development as services.  Table 2 compares the Federal Procurement Data System dollars for 16 of the Department of Energy's  Federally Funded Research and Development Centers with revised estimates that reclassify the service dollars as research and development dollars.  

Table 2:  Comparison of Department of Energy Federally Funded Research and Development Center Obligations with a Revised Estimate. 

Federal Procurement Data System Category Federal Procurement Data System Data Revised Estimate
Research & Development 581,704 7,266,606
Services & Construction 8,899,841 2,214,939

The Federal Procurement Data System

The Office of Federal Procurement Policy Act (41 U.S.C. 405 (d)) requires a computer-based Federal Procurement Data System (FPDS) to adequately collect, develop, and disseminate federal contracting statistics.  For Fiscal Year 2000, FPDS collected information on nearly 520,000 separate contract actions that each exceeded $25,000.  These actions include 12 possible actions ranging from a new contract award to a contract terminated for default.  When all the actions are summed, the federal government obligated nearly $204 billion to contracts that each exceeded $25,000 in Fiscal Year 2000.  To obtain this data from federal agencies, FPDS uses a Standard Form 279 to collect more than 40 different bits of information.   

One of the data items required for entry into the FPDS is a "principle product or service" code that is intended to identify the different items the federal government acquires.  These codes, provided in the "Product and Service Codes Manual (August 1998)," are grouped into three broad classes: research and development, services, and supplies and equipment.  The Standard Form 279 provides for only one code to be assigned to a contract action.  If more than one code is applicable, the code that describes the "predominant product or service procured" is to be provided.  These codes include 4 digits that include letters and numbers.

Research and Development Codes

Research and development is identified on the Standard Form 279 using two letters and two numbers.  The first digit is the letter "A" which designates work as research and development.  The last digit is a number that identifies five stages of research and development such as basic research, applied research, advanced research, etc.  There is a sixth number described as "Management and Support" which includes such things as 

"construction of a general nature unrelated to specific programs, maintenance and support of laboratories, operation and maintenance of test ranges, and maintenance of test aircraft, equipment, or ships."

However, the Manual explains that laboratory personnel, either in-house or contractor, are to be assigned to appropriate projects or program stages outlined in the first five categories.  The remaining letter and number in the code further defines the research and development work.  For example, 

  • code "AG51" identifies basic energy research in the area of nuclear research and development.  

  • code "AZ11" identifies other basic research and development.

As can be seen, the coding system provides for a worthwhile description of contract work in the area of research and development. 

Service Codes

For services, the Manual explains that "all services except research and development" are included in this class of item.  There are 23 categories of services with each category identified by a letter.  After the letter, three numbers are added for the 4-digit code.  Included in the service category is one identified with the letter "M" for "Operation of Government-Owned Facilities."  Included under these "M" services are

  • code "M159" Operation of Other Government-Owned Industrial Buildings.

  • code "M181" Operation of Government-Owned Contractor-Operated (GOCO) R&D Facilities.

The Management and Operating Contract

The Department of Energy (DOE) manages its massive research and development facilities through management and operating (M&O) contracts.  The M&O contract concept started in World War II with the development of nuclear weapons and was formally authorized by the Atomic Energy Act of 1946.  The M&O contracts and their processes make these contracts unique in the federal contract world. 

Table 3:  Contract Obligations to FFRDC Facilities

Facilities

Fiscal Year 2000 Obligations
(000)

Ames Laboratory

23,526

Argonne National Laboratory 487,731
Brookhaven National Laboratory 403,920
Fermi National Accelerator Laboratory 297,082
Idaho National Engineering and Environmental Laboratory 886,477
Ernest Orlando Lawrence Berkeley National Laboratory 415,577
Lawrence Livermore National Laboratory 1,351,493
Los Alamos National Laboratory 1,575,899
Pacific Northwest National Laboratory 357,561
Sandia National Laboratories 1,319,987
National Renewable Energy Laboratory 169,074
Princeton Plasma Physics Laboratory 70,874
Savannah River Laboratory and Plant 1,328,462
Stanford Linear Accelerator Center 201,784
Thomas Jefferson National Accelerator Facility 95,253
Oak Ridge National Laboratory 1 496,845
   Fiscal Year 2000 Obligations 9,481,545
1 The Oak Ridge obligations include the sum of the expiring incumbent contract and the successor contract during Fiscal Year 2000.

The source of the Fiscal Year 2000 Obligations is DOE's Annual Procurement and Financial Assistance Report. 

DOE's M&O contractors conduct some of the world's most important science.  They also maintain the nuclear arsenal of the United States and conduct environmental restoration of the facilities that were polluted by the development and production of nuclear weapons. 

DOE is justly proud of these science  facilities and provides a website dedicated to its research and development accomplishments.  That website also provides a map that identifies DOE's national laboratories.  Sixteen national laboratories managed by M&O contractors are designated as Federally Funded Research and Development Centers (FFRDC) for 2001.  To be designated as an FFRDC, an institution's primary activities must include basic research, applied research, development, or management of research and development.  Table 3 provides a list of 16 of these national laboratories and their fiscal year 2000 contract obligations.

One of the unique aspects of DOE's M&O contracts is that most, if not all, are integrated into DOE's accounting system.  DOE provides the account structure called Budget and Reporting Classification (B&R) Codes for the M&O contractors to use and DOE can monitor the M&O contractors' spending activities through its accounting system.

Classification of DOE FFRDC M&O Contracts

DOE is faced with a choice of product and service codes for the management and operation of an FFRDC under an M&O contract.  DOE can choose from a research and development category or a service category.  Table 4 shows the product and service codes that were used during fiscal year 2000 for the 16 FFRDCs operated under M&O contracts.

Table 4:  FFRDCs with Product and Service Codes. 

FFRDC Product and Service Code
Research & Development Service
Ames Laboratory   M181
Argonne National Laboratory   M181
Brookhaven National Laboratory   M181
Fermi National Accelerator Laboratory   M181
Idaho National Engineering and Environmental Laboratory   M181
Ernest Orlando Lawrence Berkeley Laboratory AZ11  
Lawrence Livermore National Laboratory   M181
Los Alamos National Laboratory   M181
Pacific Northwest National Laboratory 1

 

M181

Sandia National Laboratories   M181
National Renewable Energy Laboratory 2   B543
Princeton Plasma Physics Laboratory AG51  
Savannah River Laboratory and Plant   M159
Stanford Linear Accelerator Center   M181
Thomas Jefferson National Accelerator Facility AG51  
Oak Ridge National Laboratory   M181
1 Although this FFRDC used M181 in Fiscal Year 2000, it is using AJ31 in Fiscal Year 2001.

2  Product and service code B543 is for "Energy Studies" under a service code category titled "Special Studies and Analysis - Not R&D"


The Source for the Codes is the FPDS online obligation data for Fiscal Year 2000.  DOE's online Procurement and Assistance Data System also was used to verify codes.  

The majority of the FFRDCs were placed in a service category--ordinarily the "M181" category for the operation of a government-owned contractor-operated research and development facility.  

Table 5:  Percent of FFRDC Contract Spending on Research and Development

FFRDC

Percent of Obligations
 Spent on R&D

Ames Laboratory 97%
Argonne National Laboratory 87%
Brookhaven National Laboratory 94%
Fermi National Accelerator Laboratory 100%
Idaho National Engineering and Environmental Laboratory 20%
Ernest Orlando Lawrence Berkeley Laboratory 92%
Lawrence Livermore National Laboratory 62%
Los Alamos National Laboratory 51%
Pacific Northwest National Laboratory 58%
Sandia National Laboratories 53%
National Renewable Energy Laboratory 97%
Princeton Plasma Physics Laboratory 100%
Savannah River Laboratory and Plant 3%
Stanford Linear Accelerator Center 97%
Thomas Jefferson National Accelerator Facility 1 100%
Oak Ridge National Laboratory 2  68%
1 The Continuous Electron Beam Accelerator Facility was renamed the Thomas Jefferson National Accelerator Facility.

2 At the time of the GAO report, the Oak Ridge National Laboratory and the Oak Ridge Plants were operated under one M&O contract with 32 percent of that contract's spending being for research and development.  Currently, they are operated under separate M&O contracts.  To calculate the percent for the current Oak Ridge National Laboratory contract, the two current contracts were added together and multiplied by 32 percent to get the estimated dollar value for the current research and development effort.  That dollar value was then used with the Fiscal Year obligations to the Oak Ridge National Laboratory contract to estimate that 68 percent of the Laboratory's obligations were for research and development. 

However, there is a difference of opinion in regard to the proper code to use.  Some contracts were given a research and development code.  In one case, an FFRDC was classified as a service in Fiscal Year 2000 and is classified as research and development in Fiscal Year 2001.  Each classification that DOE used seems appropriate.  Although the "M181" category is a service category, it does identify the managed facility as a research and development facility.  However, when this service category is used the FPDS users do not see the contract dollars spent on research and development.  

As noted above, an M&O contract may cover an assortment of work including such things as research and development, the maintenance of nuclear weapons, construction, the management of the site, the operation of the site, and the environmental restoration of the site.  To identify the specific work that the M&O contractor does, an accounting system that collects cost data on specific spending activities is needed.  DOE has such an accounting system for its M&O contractors and they report their costs in accordance with DOE's B&R Codes.  In 1995, the General Accounting Office (GAO) conducted a study in which it used DOE's accounting system and B&R Codes to identify the research and development spending of the FFRDCs. Table 5 shows the amount spent on research and development as a percent of overall contract spending at the 16 FFRDCs in Fiscal Year 1994.

As shown in Table 5, all but 2 of the FFRDCs spent the majority of their funding on research and development.  If this spending ratio remained constant over the years since the GAO report, then it is clear that the majority of FFRDC spending is for research and development and not the maintenance of a government facility.  Under FPDS reporting instructions, when more than one product and service code is applicable, the code that describes the "predominant product or service procured" is to be provided.  Table 6 provides the revised estimates using this FPDS reporting instruction.   

Table 6:  Percent of FFRDC Obligations Spent on R&D

FFRDC FY 2000 Obligations

FPDS for
FY 2000

Revised Estimates
Using FPDS Reporting Instruction Pro Rata Allocation
Ames Laboratory

23,526

  23,526 22,820
Argonne National Laboratory 487,731   487,731 424,326
Brookhaven National Laboratory 403,920   403,920 379,685
Fermi National Accelerator Laboratory 297,082   297,082 297,082
Idaho National Engineering and Environmental  Laboratory 886,477     177,295
Ernest Orlando Lawrence Berkeley Laboratory 415,577 415,577 415,577 382,331
Lawrence Livermore National Laboratory 1,351,493   1,351,493 837,926
Los Alamos National Laboratory 1,575,899   1,575,899 803,708
Pacific Northwest National Laboratory 357,561   357,561 207,385
Sandia National Laboratories 1,319,987   1,319,987 699,593
National Renewable Energy Laboratory 169,074   169,074 164,002
Princeton Plasma Physics Laboratory 70,874 70,874 70,874 70,874
Savannah River Laboratory and Plant 1,328,462     39,854
Stanford Linear Accelerator Center 201,784   201,784 195,730
Thomas Jefferson National Accelerator Facility 95,253 95,253 95,253 95,253
Oak Ridge National Laboratory 496,845   496,845 337,855
     Total 9,481,545 581,704 7,266,606 5,136,720

The revised estimates show (1) a 100 percent allocation of obligations based on the predominant contract work and (2) an allocation based on the research and development spending percentages provided in the GAO report for Fiscal Year 1994.  Both of the revised estimates show a difference of billions of dollars from the amount included in the FPDS for Fiscal Year 2000.

Conclusions

This analysis and estimates assume that the spending patterns for the FFRDCs have not changed significantly over the past several years.  Even if there have been changes, it is reasonable to assume that DOE's FFRDC spending on research and  development is underestimated by billions of dollars in the FPDS.  For FPDS data to be useable, it must be more precise.    

Improving the precision of the FPDS is not difficult.  Since DOE's accounting system identifies the costs associated with its M&O contractors' various activities, DOE can use its accounting system to identify the predominant activity of its FFRDCs.  Once that is done, it can select the appropriate product and service code to use.  DOE and FPDS may wish to use the "M181" code as a research and development code instead of a service code.  This would require little effort.  If DOE wishes to use the research and development codes instead, its accounting system will help it identify the type of research and development being done.  Although this would take more effort, it would be more precise.  

1 Federal Research: Information on Fees for Selected Federally Funded Research and Development Centers, GAO/RCED-96-31FS, December 8, 1995.  (See p. 18 of the report.)
Copyright 2001 by Robert M. Antonio

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