Speaker: Jeff Ace; Pacific Northwest National Laboratory

Note: Pacific Northwest National Laboratory manages all the contracting for the U.S. Department of Energy's work to improve the safety of Soviet-designed nuclear power plants.

In the implementation of cooperative nuclear safety projects, the U.S. Department of Energy funds technical services provided by staff in the former Soviet countries. Often, these services are in the form of a subcontract with Pacific Northwest National Laboratory or a U.S. commercial contractor. Thus, it is important to determine a fair price for labor in former Soviet countries. This discussion focuses on determining fair prices for labor in Russia and Ukraine, where most of the contracting occurs.

Under direction by the U.S. Department of Energy, Pacific Northwest National Laboratory began initiating contracting activities for the Soviet-designed reactor safety work a little over 2 years ago. At that time, the Laboratory based the contract labor rates on guidelines issued by the Departments of State and Energy, associated with other programs, concerning the price of labor in the former Soviet Union. At that time, the benchmark was between $400.00 and $600.00 per person-month, fully burdened.

It quickly became apparent that it was going to be difficult to implement that range for the U.S. Department of Energy's nuclear safety work because of our different objectives and because of the different host country organizations and institutions with whom we do business. Therefore, the Laboratory undertook two activities to determine a fair price for labor in Russia and Ukraine. One was to commission a salary survey by Price-Waterhouse in Moscow. The other was to begin subscribing to an Ernst & Young salary survey, the results of which are used by many Western companies doing business in Russia and Ukraine. The Ernst & Young survey addresses various industries and contains specific labor categories, with salary ranges for each. In addition, the Laboratory has continued to gather information from those who participate in the U.S. Department of Energy's international nuclear safety work, capturing new data as much as possible.

Pacific Northwest National Laboratory receives a wide range of proposed labor rates submitted by contractors. For accountability, the labor rates negotiated must be based on salary surveys and other objective data.

One trend in contracting with former Soviet countries is the increasing use of commercial or quasi-commercial companies as opposed to nuclear power plants or research and technical institutes. Thus, the proposed labor rates are beginning to include overhead rates and profit factors. Some of these overhead rates have been several times higher than the actual labor costs, yet they are virtually impossible to quantify and verify to anything close to Western standards.

Pacific Northwest National Laboratory received the latest Ernst & Young salary survey in early February. At the time of the February 19 meeting, the salary survey was still being analyzed by staff in Richland, Washington. However, informal correspondence with Ernst & Young about the survey indicated that very little had changed in labor rates in Russia and Ukraine from previous reports. These salaries range from $600 to $800 per person-month for a non-bilingual secretary to about $2474 per person-month for what is called the General Director. These labor categories are not precise to our work but they can be translated generally to our labor categories.

Those are salaries paid to the individual. In Russia and Ukraine, it is difficult to determine how to define the term "fully burdened." At the host country nuclear power plants, the Laboratory has taken the approach that the United States will pay the labor rates previously mentioned, without any additional burdening. In doing so, the Laboratory assumes that any additional overheads or infrastructure rates are contributed by the host country as part of the cooperative nuclear safety work.

The Laboratory is ordering specific, independent information from a Russian organization that is a spin-off of the Ernst & Young company for salaries targeted toward Kiev and St. Petersburg. In addition, the same company will provide a report on inflation and the cost-of-living index for Moscow.

In the meantime, the Laboratory continues to negotiate specific elements of cost proposals, conveying expectations of what the companies must provide to justify overheads and other labor rate factors. In this way, the Laboratory negotiates the fixed price or bottom line for each job to be done. The negotiated labor rates are consistent with the information collected from the salary surveys to date.

Having a unified team contributes to successful contract negotiations. The unified team consists of program office support, project manager support, and any U.S. laboratories or contractors involved. It is important to ensure that no U.S. individual or organization become advocates for specific Russian or Ukrainian contractors.

The salary surveys are copyrighted. Contractors working frequently in Russia and Ukraine may wish to consider subscribing to the salary surveys as a business tool. For information about subscribing, contact Jeff Ace, Pacific Northwest National Laboratory, at telephone (509) 375-2640, fax (509) 372-4411, or e-mail: jk_ace@pnl.gov.