Department of Energy Richland Operations Office P.O. Box 550 Richland, Washington 99352

99-PRO-203

Mr. R. D. Hanson, President
Fluor Daniel Hanford, Inc.
Richland, Washington 99352

Dear Mr. Hanson:

CONTRACT NO. DE-AC06-96RL13200 – FEE DETERMINATION FOR THE PERIOD OF OCTOBER 1, 1997, THROUGH SEPTEMBER 30, 1998

This letter transmits the Fiscal Year (FY) 1998 fee determination for Fluor Daniel Hanford, Inc. (FDH) under the Project Hanford Management Contract (PHMC). My determination is based on the evaluations of 101 "Critical Few" objective performance incentives, the U.S. Department of Energy, Richland Operations Office (RL) Fee Administration Board Report for the more subjective "MEGA Incentive" detailed in the Performance Expectation Plan, and the fact that FDH met the minimum requirements as specified in contract clause H.47. As the Fee Determining Official for RL, I am pleased to inform you that FDH has earned $32,187,772 out of the available $44,600,000. Performance in FY 1998 showed significant improvement over the first year of the PHMC and reflects FDH’s diligence in meeting the challenges identified in its self-assessment at the close of FY 1997.

Notable elements of performance under the "Critical Few" incentives for the PHMC include:

• Advanced Reactor Transition: All incentives established for this program were met and 100% of the available fee was earned.

• Waste Management Program: All incentives established for this program were met. Most of the stretch goals associated with WM 3.1.1, Utilize WRAP Capabilities, were met and resulted in 94% of the available fee for this program being earned.

• Tank Waste Remediation System: All incentives, including stretch goals, were achieved and 100% of the available fee has been earned. This includes performance incentive TWR 1.2.2, Modification to the Basis for Interim Operations and Technical Safety Requirements which is conditionally approved based upon current information, subject to RL final validation in mid-January 1999.

• Facilities Stabilization Program: 90% of the available fee for this program was earned.

A detailed listing of the individual performance expectations is attached that shows whether they were or were not met.

The technical requirements of performance expectations SID 1.1.1, Software Modules for Finance and Supply Management Systems (HANDI), and SID 1.2.1, Complete Computer Assessments (Y2K Project), were met. However, the cost variance threshold was exceeded by .56% which would require disapproval of these two expectations. After careful consideration of the benefits achieved by completion of these two expectations and the amount of the cost variance, I have determined that all fee associated with these two incentives has been earned.

No fee associated with the Spent Nuclear Fuel Project will be paid. While positive performance was seen in several areas, both cost and schedule variances significantly exceeded the established thresholds.

FDH performance under the Performance Expectation Plan found in the MEGA Incentive was rated "Excellent" for the year with a trend of solid improvement in most major areas of importance by fiscal yearend. This excellent rating results in earnings of 82% of the fee available for the MEGA Incentive, or $5,485,800. This strong finish in FY 1998 establishes a good foundation upon which improvements can be made in FY 1999.

Overall, I am very pleased with the progress attained this past fiscal year. We look forward to FDH’s continued improvement in FY 1999. If you have any questions, please contact me, or your staff may contact Sally Sieracki, Procurement Services Division, on (509) 376-8948.

Attachments:

1. Fee Determination for October 1, 1997, through September 30, 1998
2. RL Fee Administration Board Report