Cost Overrun Incompetence at Energy

January 15, 2010

OMB Director Peter Orszag is blaming the inefficiencies of the federal government on outdated personal computers. That is hard to understand given that federal IT spending amounted to $200 million a day last year.

A new GAO report on cost overruns at the Department of Energy undercuts Orszag’s argument that the solution to government incompetence is new computers. DOE cost overruns are nothing new. As far back as 1982 the GAO was reporting that “DOE lacked sufficient guidance to provide to its contractors for developing cost estimates.” A 2007 GAO report found that eight of twelve DOE projects it examined had exceeded their initial cost estimate by almost $14 billion due to “ineffective DOE project oversight and poor contractor management.” In 2008, GAO reported that nine out of ten environmental cleanup projects it examined had cost overruns that DOE estimated would require an additional $25 to $42 billion.
For the new report, the GAO looked at DOE’s contract management procedures and here are some of the highlights:
  • “DOE has not had a policy that establishes standards for cost estimating in place for over a decade, and its guidance is outdated and incomplete, making it difficult for the department to oversee the development of high-quality cost estimates by its contractors.” 
  • “DOE’s only cost-estimating direction resides in its project management policy that does not indicate how cost estimates should be developed.” (This statement has to be read several times to actually be believed.) 
  • “DOE’s outdated cost-estimating guide assigns responsibilities to offices that no longer exist.” 
  • “DOE does not have appropriate internal controls in place that would allow its project managers to provide contractors a standard method for building high-quality cost estimates.” 
  • “DOE has drafted a new cost-estimating policy and guide but the department expects to miss its deadline for issuing them by more than a year.” 
There’s nothing here that a supercomputer is going to change. Cost overruns in government programs will continue to occur for the simple reason that policymakers and administrators are playing with other people’s money. Moreover, the market forces that compel private firms to manage resources effectively or risk going out of business (unless they are in the auto or finance industries) are absent. DOE won’t be put of business for its cost overruns (although it should be); it’ll just go ask Congress for more taxpayer money.
See this Cato essay for more on cost overruns at the Department of Energy and other government agencies.


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