Theoretical, Methodological, and Empirical Approaches to Cost Savings: A Compendium

This publication summarizes and contains the original documentation for understanding why the U.S. Department of Energy's (DOE's) privatization approach provides cost savings and the different approaches that could be used in calculating cost savings for the Tank Waste Remediation System (TWRS) Phase I contract. The initial section summarizes the approaches in the different papers. The appendices are the individual source papers which have been reviewed by individuals outside of the Pacific Northwest National Laboratory and the TWRS Program. Appendix A provides a theoretical basis for and estimate of the level of savings that can be" obtained from a fixed-priced contract with performance risk maintained by the contractor. Appendix B provides the methodology for determining cost savings when comparing a fixed-priced contractor with a Management and Operations (M&O) contractor (cost-plus contractor). Appendix C summarizes the economic model used to calculate cost savings and provides hypothetical output from preliminary calculations. Appendix D provides the summary of the approach for the DOE-Richland Operations Office (RL) estimate of the M&O contractor to perform the same work as BNFL Inc. Appendix E contains information on cost growth and per metric ton of glass costs for high-level waste at two other DOE sites, West Valley and Savannah River. Appendix F addresses a risk allocation analysis of the BNFL proposal that indicates,that the current approach is still better than the alternative.