GAO - WMD Plutonium Disposition Hi-Cost Fraud.pdf - DECLASSIFIED BOOKS - rc51

United States Government Accountability Office

Report to the Subcommittee on Energy

and Water Development, and Related

Agencies, Committee on

Appropriations, House of

Representatives

February 2014

PLUTONIUM

DISPOSITION

PROGRAM

DOE Needs to

Analyze the Root

Causes of Cost

Increases and

Develop Better Cost

Estimates

GAO-14-231

February 2014

PLUTONIUM DISPOSITION PROGRAM

DOE Needs to Analyze the Root Causes of Cost

Increases and Develop Better Cost Estimates

Highlights of GAO-14-231 , a report to the

Subcommittee on Energy and Water

Development, and Related Agencies,

Committee on Appropriations, House of

Representatives

Why GAO Did This Study

NNSA, a separately organized agency

within DOE, manages the Plutonium

Disposition program to dispose of

surplus weapons-grade plutonium by

burning it as MOX fuel—a mixture of

plutonium and uranium oxides—in

specially modified commercial nuclear

reactors. In 2012, DOE forecasted cost

increases of close to $3 billion over the

previous estimates for the program’s

two construction projects, the MOX

facility and the WSB for disposing of

waste from the MOX facility.

GAO was asked to review these cost

increases and the life-cycle cost

estimate. This report examines: (1)

drivers NNSA identified for the cost

increases; (2) the extent to which

NNSA analyzed underlying causes of

the cost increases; (3) steps NNSA

took to hold construction contractors

accountable for their role, if any, in the

cost increases; and (4) the extent to

which NNSA’s most recent estimates

met cost- and schedule-estimating best

practices. GAO reviewed NNSA’s draft

life-cycle cost estimate and contractor

estimates of the MOX project’s cost

and WSB schedule, compared the

estimates with cost- and schedule-

estimating best practices, and

interviewed DOE and NNSA officials.

What GAO Recommends

GAO is recommending, among other

things, that DOE conduct a root cause

analysis of the Plutonium Disposition

program’s cost increases and ensure

that future estimates of the program’s

life-cycle cost and cost and schedule

for the program’s construction projects

meet all best practices for reliable

estimates. DOE generally agreed with

GAO’s recommendations.

What GAO Found

The Department of Energy’s (DOE) National Nuclear Security Administration

(NNSA) identified various drivers for the close to $3 billion increase in the

estimated cost of the Plutonium Disposition program’s two construction

projects—the Mixed Oxide (MOX) Fuel Fabrication Facility and the Waste

Solidification Building (WSB). These drivers included DOE’s approval of the MOX

facility’s cost and schedule estimates before design was complete and schedule

delays in construction of the WSB. According to NNSA, the cost of critical system

components for the MOX facility averaged 60 percent higher than estimated as a

result of approval of estimates before design was complete.

NNSA has not analyzed the underlying, or root, causes of the Plutonium

Disposition program construction cost increases to help identify lessons learned

and help address the agency’s difficulty in completing projects within cost and

schedule, which has led to NNSA’s management of major projects remaining on

GAO’s list of areas at high risk of fraud, waste, abuse, and mismanagement.

DOE’s project management order requires that lessons learned be captured

throughout a project to, among other things, benefit future endeavors. NNSA

officials said that, because the order does not require a root cause analysis of

cost increases, NNSA decides on a case-by-case basis whether to conduct one.

Unlike a root cause analysis, the cost drivers NNSA identified provided few

details about why the drivers existed, such as DOE’s reasons for approving the

MOX facility’s cost and schedule estimates before the design was complete.

Without a root cause analysis, it is uncertain whether NNSA will be able to

accurately identify underlying causes of the increases to identify and implement

corrective measures and identify lessons learned to apply to other projects.

After determining that the performance of the contractors for the MOX facility and

WSB contributed to cost increases, NNSA took steps to hold the contractors

accountable by withholding fees specified under the contracts. In particular, as of

November 2013, NNSA withheld $45.1 million or close to one-third of the MOX

contractor’s fees, including fees tied to meeting the MOX project’s cost and

schedule estimates. In addition, NNSA withheld $7.7 million or about 40 percent

of the WSB contractor’s fees tied to various performance measures for the WSB,

such as completing construction milestones.

NNSA’s most recent estimates for the Plutonium Disposition program did not fully

reflect all the characteristics of reliable cost estimates (e.g., credible) and

schedule estimates (e.g., well-constructed) as established by best practices for

cost- and schedule-estimating, placing the program at risk of further cost

increases. For example: (1) NNSA’s draft April 2013 life-cycle cost estimate of

$24.2 billion for the overall program was not credible because NNSA did not

conduct an independent cost estimate to provide an unbiased test of whether the

estimate was reasonable. (2) Because the MOX contractor’s September 2012

proposal for increasing the cost of the MOX facility did not include a formal

analysis to examine the effects of changing assumptions, it was minimally

credible. (3) The WSB contractor’s February 2013 monthly update to its schedule

estimate was minimally well-constructed in that it contained activities that were

not properly tied with the start or end date of other activities, which could

potentially obscure the critical path determining the project’s completion date.

View GAO-14-231 . For more information,

contact David C. Trimble at (202) 512-3841 or

trimbled@gao.gov .

United States Government Accountability Office

Contents

Letter

Background

NNSA Identified Various Cost Drivers for the Plutonium

Disposition Program’s Construction Projects

NNSA Has Not Analyzed Root Causes of the Cost Increases for

the Plutonium Disposition Program’s Construction Projects

NNSA Has Taken Steps to Hold Contractors Accountable for Cost

Increases by Withholding Fees

Estimates for the Plutonium Disposition Program’s Life-cycle Cost

and Construction Projects Did Not Meet All Best Practices for

Reliability

Conclusions

Recommendations for Executive Action

Agency Comments and Our Evaluation

Appendix I

Objectives, Scope, and Methodology

Appendix II

Assessment of NNSA’s Process for Developing a Life-cycle Cost

Estimate for the Plutonium Disposition Program

Appendix III

Assessment of the MOX Contractor’s Proposed Cost Estimate

Compared with Industry Best Practices

Appendix IV

Assessment of the Waste Solidification Building’s Schedule Estimate

Compared with Industry Best Practices

Appendix V

Comments from the National Nuclear Security Administration

Appendix VI

GAO Contact and Staff Acknowledgments

Page i

GAO-14-231 Plutonium Disposition Program

Tables

Table 1: Types of Fees for Construction of the MOX Facility and

Amounts Paid, Withheld, and Remaining to Be Earned as

of November 2013

Table 2: Fees Paid and Withheld for Construction of the WSB

through Fiscal Year 2012

Table 3: NNSA’s Draft Life-cycle Cost Estimate for the U.S.

Plutonium Disposition Program, as of April 2013

Table 4: Four Characteristics of a High-Quality Cost Estimate with

Their Corresponding 12 Key Cost Estimating Steps (or

Best Practices)

Table 5: MOX Contractor’s September 2012 Proposal for

Increasing the Project’s Cost

Table 6: Four Characteristics of a High-Quality Schedule Estimate

with Their Corresponding Best Practices

Figures

Figure 1: Aerial Views of the Plutonium Disposition Program’s

Construction Projects

Figure 2: DOE and NNSA Organizational Structure for

Management of the Plutonium Disposition Program

Abbreviations

DOE

Department of Energy

EVM

earned value management

FAR

Federal Acquisition Regulation

MIFT

MOX Irradiation, Feedstock, and Transportation

MOX

mixed oxide

NNSA

National Nuclear Security Administration

NRC

Nuclear Regulatory Commission

PDCF

Pit Disassembly and Conversion Facility

PDIP

Plutonium Disposition and Infrastructure Program

WSB

Waste Solidification Building

This is a work of the U.S. government and is not subject to copyright protection in the

United States. The published product may be reproduced and distributed in its entirety

without further permission from GAO. However, because this work may contain

copyrighted images or other material, permission from the copyright holder may be

necessary if you wish to reproduce this material separately.

Page ii

GAO-14-231 Plutonium Disposition Program

441 G St. N.W.

Washington, DC 20548

February 13, 2014

The Honorable Mike Simpson

Chairman

The Honorable Marcy Kaptur

Ranking Member

Subcommittee on Energy and Water Development, and Related Agencies

Committee on Appropriations

House of Representatives

Plutonium is a man-made, radioactive element that poses a danger of

nuclear weapons proliferation and a risk to human health and the

environment. Under an agreement signed in 2000, the United States and

Russia have each pledged to dispose of at least 34 metric tons of surplus

weapons-grade plutonium no longer needed for defense purposes by

burning it as mixed oxide (MOX) fuel in specially modified commercial

nuclear reactors. 1 Once used and removed from a reactor, the plutonium

can no longer be readily used to make a nuclear weapon. The National

Nuclear Security Administration (NNSA), a separately organized agency

within the Department of Energy (DOE), manages the Plutonium

Disposition program. As part of this program, NNSA entered into separate

contracts for design and construction services for two facilities at DOE’s

Savannah River Site in South Carolina: (1) the MOX Fuel Fabrication

Facility for producing MOX fuel for nuclear reactors and (2) the Waste

Solidification Building (WSB) for disposing of liquid waste from the MOX

facility. 2

and related policies and

guidance, NNSA project directors are responsible for managing the MOX

facility and WSB construction projects and overseeing the contractors that

design and construct the facilities. Among other things, the project

Under DOE’s project management order

1 MOX fuel is a mix of plutonium and uranium oxides.

2 The contractor for the MOX facility is Shaw AREVA MOX Services, LLC. The contractor

for the WSB is Savannah River Nuclear Solutions, LLC. Design and construction

management of the WSB is included in the contract between Savannah River Nuclear

Solutions and DOE for management and operation of the Savannah River Site.

3 DOE, Program and Project Management for the Acquisition of Capital Assets , DOE

Order 413.3B (Washington, D.C.: Nov. 29, 2010).

Page 1

GAO-14-231 Plutonium Disposition Program

GAO - WMD Plutonium Disposition Hi-Cost Fraud.pdf

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