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Government keeps tight lid on names of bidders for Sandia contract

Copyright © 2016 Albuquerque Journal

Wednesday was the deadline for bids on the multibillion-dollar contract to run Sandia National Laboratories, but the federal government is staying mum about which – or even how many – firms made a formal play for the massive, high-tech management job.

Nearly 20 entities, including major defense contractors and universities, expressed interest in managing Sandia when the National Nuclear Security Administration released its request for proposals in April, but not all of those actually submitted bids, according to analysts closely following the bidding process.

Lockheed Martin, which has managed the lab since the mid-1990s, confirmed to the Journal that it would bid to retain the contract. A five-member partnership that comprises the Boeing Co., Battelle, the University of New Mexico, the University of Texas System and the Texas A&M University System also confirmed its bid for the Sandia job.

The NNSA is expected to select a winner by the end of 2016 to take over next April.

Francie Israeli, a spokeswoman for the NNSA, said federal procurement guidelines require secrecy about the bids to protect the bidders’ proprietary interests.

“Essentially, this nondisclosure is required by federal regulation,” Israeli said, citing a rule called the Federal Acquisition Regulation. “NNSA maintains a high level of business security that must be maintained in order to preserve the integrity of the acquisition process.”

Managing Sandia – one of the nation’s three nuclear weapons laboratories – is a massive undertaking that includes oversight of a $2.9 billion federal contract and more than 10,000 employees working in 700 buildings across 13,740 acres. In addition to nuclear weapons maintenance, Sandia scientists work on defense systems, homeland security technology, energy and climate change and more.

While the amount of the management contract is big, the risks for managing Sandia can give pause to many potential bidders, likely discouraging all but the most experienced and deep-pocketed from actually entering the race.

For one thing, the lab management and operations contractor is responsible for contingency liability that can reach into the hundreds of millions of dollars. But the management fee for Sandia only pays up to about $35 million – much less than fees earned for managing Lawrence Livermore and Los Alamos national laboratories, the other two nuclear weapons labs – and often even that can be reduced by penalties for missing benchmarks or administrative infractions. Last year, Lockheed Martin earned $27.3 million.

“The net amount is very small while the risk is high given the contingent liabilities,” one analyst with experience in the bidding process said. “Corporate risk managers would say the return is not big enough to cover the risk for many potential bidders.”

In addition, bidders face substantial hurdles to demonstrate they’re the most qualified candidates to manage Sandia.

The Department of Energy first announced in 2011 that it planned to open the contract to new bidders but then granted a series of extensions. In 2014, the NNSA extended the agreement again as it engaged in a wide-ranging review of the management of its three defense labs.

The NNSA issued a draft request for proposals in March that offered some clues as to what kind of management arrangement it seeks for the lab.

Former Sen. Pete Domenici, a New Mexico Republican who spent much of his career working on congressional funding and other issues related to Sandia and Los Alamos, said most major U.S. defense contractors likely considered a bid.

“Clearly, it is a prized national contract for multi-years … and therefore it attracts premier bidders,” Domenici said.

The NNSA made the current bidding process easier compared with previous competitions to manage other national labs, which may account for the broad range of initial interest. The government is using a “short form” process, which can expedite the time needed to select a winner while significantly reducing the paperwork and associated costs for bidders.

In previous lab-management competitions, participants have submitted up to 500-page proposals and spent more than $7 million during lengthy reviews that can take nearly two years, said one person closely following the Sandia bids. The last competitions to manage Lawrence Livermore Laboratory in California and Los Alamos National Laboratory took more than a year and a half. Consortia led by industrial giant Bechtel won those bids.

In the current Sandia competition, participants are limited to 35-page proposals.

Prior experience counts, and in that regard, Lockheed Martin is a tough competitor, given its nearly two-decade management experience at Sandia. Battelle also has extensive experience managing six national laboratories for the Energy and Homeland Security departments, but none of those labs are nuclear weapons facilities.

The NNSA’s decision, however, to consider bidder efforts to strengthen Sandia relations with small local businesses when evaluating bids helps level the playing field somewhat. The NNSA’s commitment to also consider bidder proposals on workforce retention, technology transfer, university partnerships and support for science technology, engineering and math education could also help Lockheed challengers, particularly the Battelle-led team.

UNM and its partners declined to discuss their proposal to the NNSA with the Journal. But when the consortium announced its intent to bid on the contract in May, the participants stressed that UNM brings well-recognized success with technology commercialization to the table, and it’s at the forefront of efforts to build a high-tech research and development hub in Albuquerque in partnership with the national labs.

They also stressed the advantages of having three university partners on the team to provide engineering talent to staff Sandia and to forge research partnerships with the lab in engineering and other fields.