LANL contract could be ‘nightmare scenario’

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Preview > Sandia contract blueprint could have devastating impacts

By Arin McKenna

The Regional Coalition of LANL Communities heard a presentation on Friday about aspects of Sandia National Laboratories’ upcoming contract that could influence the new contract for Los Alamos National Laboratory.
The Department of Energy anticipates issuing the LANL Request for Proposals (RFP) in 2017 and awarding the bid in 2018.
Innovative Technology Partnerships, LLC, Principal Partner John P. Jekowski made the presentation. Jekowski also sits on the Regional Development Corporation board.
According to Jekowski, the most important thing to monitor is a new push toward returning to a “public interest model” for lab contracts.
“What that does is it swings the pendulum way over to a university-led or a nonprofit-led team going after the contract,” Jekowski said.
DOE and the National Nuclear Security Administration (NNSA) have been evaluating the success of the for profit contracts utilized in recent years.
“I think it’s fair to say that most folks will reflect back on that and say DOE and NNSA have not seen the improvements that they thought they were going to by going to a for profit business model for managing the laboratories,” Jekowski said.
According to Jekowski, the corporate entities managing the current contracts, which have to satisfy boards and stockholders, have pushed back against the “public interests” model.
Even the current contract model – which caps profit margins at 3 to 3.5 percent – challenges for profit corporations, whose normal profit margin is between five and seven percent. They have to offset lab contracts with comparably sized contracts with 10 or 11 percent profit margins.
Despite pushback, the Sandia RFP caps the profit margin at one percent, with 1.5 percent for core mission work.
“So the bottom line for Sandia, roughly speaking, is the award fee available to anybody who wins that contract is about $30 million dollars a year,” Jekowski said.
Surprisingly, it appears a number of large corporate entities may bid on the Sandia contract, which closes July 13. Jekowski speculated that it might be due to the fact that Sandia has only a fraction of the nuclear liability found at LANL. He cautions that LANL may not see that same type of interest at that percentage.
“The biggest impact that has – a nightmare scenario for Northern New Mexico – is that now that we have gotten used to getting the New Mexico Gross Receipts Tax (GRT) revenues once the contract was awarded to LANS in 2005, 2006,” Jekowski said, warning that if the contract is awarded to a nonprofit or university (both exempt from GRT.) “You could literally see all of that gross receipts tax go away overnight, and that could be a disaster for northern New Mexico.”
Jekowski estimates that Northern New Mexico currently receives approximately $50 to $60 million in annual GRT revenue.
“Northern New Mexico deserves that, because this is a $2 billion dollar enterprise with 10,000 people, and because of all of the infrastructure needs that all of the local governments have to provide to sustain that activity,” Jekowski said.
Regional Coalition Executive Director Andrea Romero confirmed that NNSA Associate Administrator for Acquisition & Project Management Robert. B Raines recently told her to “look to the Sandia M & O (Management & Operations Contract) for context on what we’re going to see going forward.”
According to Jekowski, Northern New Mexico could also see significant reductions in LANL’s community outreach work. Even with the greatly reduced profit margin for the Sandia contract, the community outreach the contractor is asked to provide is not an allowable cost.
“So it means the contractor has to take it out of their fee,” Jekowski said. “Well, you reduce the fee from 3 1/2 percent to 1 percent and guess what: there’s not that pool of money.”
Jekowski fears that approximately $3 million a year that Los Alamos National Security (LANS) has been investing in the community will evaporate.
“We’re not apt to see that kind of a commitment this next time around, in particular because if DOE sets these low thresholds for award fees and fixed fees, we’re going to see that drop dramatically,” Jekowski said. “It could be $300,000 instead of $3 million dollars.”
Such a cut could have a major impact on the LANL Community Programs Office and drastically reduce investment in educational outreach, community activities and economic development programs.
Jekowski offered some suggestions for how coalition communities might be able to influence the LANL contract or counteract potentially damaging impacts.
“I think one of the most important things this board can do over the next couple of years is to make sure everyone is aware that (the nonprofit model) would be devastating to Northern New Mexico if that were to happen,” Jekowski said.
“So you have to work through the legislature, the governor’s office, the congressional delegation and make sure that the public in general weighs in and lets the federal government know that we just can’t let this happen, this (GRT) exemption can’t be allowed for this particular situation.”
Jekowski suggested working with the legislature to change statutes that exempt all nonprofits from GRT.
“Churches, United Way, animal rescue organizations are a lot different in being exempted from New Mexico Gross Receipts Tax than a $2 billion dollar nuclear enterprise,” Jekowski said.
Jekowski advised against endorsing a potential contract offer.
Santa Fe Mayor Javier Gonzales contended that DOE should stop putting the responsibility for the compensating communities on its contractors, making those communities vulnerable to the financial impacts of non-GRT contracts or reduced revenues after the WIPP incident.
“It seems to me that if there was an established fee in lieu of a GRT that was sufficient to cover the impact and to support Los Alamos in ways that the GRT could support the efforts of providing service and safety and all the components that can be done through the GRT, then you avoid that kind of disastrous point that you made,” Gonzales suggested.
“They have to be held to paying their fair share like any other business here in Los Alamos, and no one is really exempt from having to pay that gross receipts or property tax, however big the business is,” he said.