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Distinctions of M&O Contracts: Key Elements and Emerging Issues

Explore the unique financial and contractual aspects of Management and Operations (M&O) contracts, from the original vision by the Atomic Energy Commission to current audit impacts and emerging challenges. Learn about financial integration, risk ratios, and evolving contract dynamics.

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Distinctions of M&O Contracts: Key Elements and Emerging Issues

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  1. Distinctions of the M&O contracts Linda Montgomery INL General Counsel Date: July 16, 2015

  2. M&Os are GOCOs • The Atomic Energy Commission set the original vision for the Government-Owned, Contractor-Operated (GOCO) model for lab management • Key elements of the AEC vision:“enlist the interest and support of industries and universities” • “eliminate bureaucratic supervision” • Provide “freedom from various hampering restrictions” • Facilitate “operating economies” • AEC vision: The public and private sectors working together as “co-trustees” to expand science and technology of the nation. • The fundamental risk/reward ratio was originally: Government bares the risk, contractor works for little to no cost

  3. Certain elements are unique to the M&O Contract - Financial • DOE provides a letter of credit • The contractor is spending Treasury money directly • Reconciliation is after the fact • While appropriation law and anti-deficiency act do not apply to contractors, the direct funding tends to blur the requirements • The IG does the financial auditing and property auditing (as opposed to DCAA) • The financial systems between the contractor and DOE are integrated • DOE has full access • Often DOE dictates much of the contractor’s systems

  4. Certain elements are unique to the M&O Contract - Contractual • The Statement of Work is general, work authorization is through the work-packages & funding approvals • Change clause triggered by funding not scope • DOE/contractor integrated activities on a federal facility triggers times that the contractor is a “quasi-fed”. • for example, the M&O contractor is not responsible for the subcontractor’s non-payment of correct payroll • Subcontractor’s can not put liens on material

  5. Examples of audit impacts and immerging issues • Are human error costs allowable (as opposed to inadequate internal controls – systemic errors)? • Are bad debts allowable? • Litigation costs = a changing landscape • Are the costs related to employee fraud allowable? (how about the fraud corrective costs)? • Should there be acknowledgement of the “cost of doing business” risk and related costs – who’s are they? • Continuing impacts of political concerns • Whistleblowers • M&O contract reform (what is the right risk formula today?)

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