DOE's Contract Management for the National Nuclear Security Administration and Office of Environmental Management

Why It's High Risk

The Department of Energy (DOE), the largest non-Defense Department contracting agency in the federal government, relies primarily on contractors to carry out its diverse missions and operate its laboratories and other facilities. About 90 percent of DOE's annual budget is spent on contracts. Contract management—which includes both contract administration and project management—is a high-risk area because DOE's record of inadequate management and oversight of contractors has left the department vulnerable to fraud, waste, abuse, and mismanagement. In January 2009, to recognize progress made at the Office of Science, GAO narrowed the focus of its high-risk designation to two DOE program elements—the Office of Environmental Management (EM) and the National Nuclear Security Administration (NNSA). Together, these two programs account for 60 percent of DOE's budget of nearly $27 billion.

^ Back to topWhat We Found

DOE has continued to take many steps to address contract and project management weaknesses including 1) demonstrating strong commitment and top leadership support, 2) developing a corrective action plan that identifies effective solutions, 3) and demonstrating progress implementing corrective measures. These are three of the five criteria for removal from GAO's High-Risk List.

In March 2009, GAO testified that DOE was managing over 100 construction projects with estimated costs over $90 billion and 97 nuclear waste cleanup projects with estimated costs over $230 billion.

• GAO found that 8 of the 10 major NNSA and EM construction projects (DOE defines a major project as any project greater than or equal to $750 million) that GAO reviewed had exceeded the initial cost estimates for completing these projects. In total, DOE added $14 billion to these initial estimates.
• GAO also found that 9 of the 10 major construction projects were behind schedule. In total, DOE added more than 45 years to the initial schedule estimates for these projects.

Over the last 2 years, DOE has updated program and project management guidance to improve the reliability of project cost estimates, better assess project risks, and ensure that project reviews are timely and useful and identify problems early. DOE has also restructured its portfolio of projects to distinguish between capital asset projects and operating projects and has taken steps to break large projects into smaller, more manageable components when possible. DOE officials stated that these and other changes will improve project performance.

The steps DOE has taken are very important, but have not yet consistently improved contract and management performance in EM and NNSA. Problems at EM included the following:

• GAO's reviews of cost estimates for two large projects—construction of a $1.3 billion Salt Waste Processing Facility at the Savannah River Site in South Carolina and decontamination and decommissioning at the Y-12 National Security Complex in Tennessee that DOE estimates will cost between $1.1 billion and $1.2 billion—found that the estimates did not exemplify the four characteristics of high-quality cost estimates. Specifically, best practices establish that high-quality cost estimates must be credible, well-documented, accurate, and comprehensive.
• GAO also found that another large EM project—emptying, cleaning, and closing large underground liquid radioactive waste tanks at the Savannah River Site—has experienced a $1.4 billion increase in its estimated cost from $3.2 billion to $4.6 billion because, among other things, DOE's cost estimate that formed the basis of its contractor's initial proposal was inaccurate.
• In addition, of the 91 EM cleanup projects funded with $6 billion in Recovery Act funds, nearly one-third were not meeting cost or schedule targets when GAO reviewed them, although more recent information indicates cost and schedule performance on these projects has improved. These Recovery Act projects were generally smaller and simpler than some of EM's other cleanup work.
• DOE has also recently renegotiated commitments with the Environmental Protection Agency and the state of Washington that move out DOE's promise to complete the treatment of the Hanford Site's radioactive waste by nearly 20 years. Cleaning up the entire site will cost the department tens of billions to over a hundred billion dollars.

NNSA has also experienced problems. Specifically:

• GAO found that NNSA cannot accurately identify the total costs to operate and maintain its nuclear weapons facilities because NNSA does not have a mechanism to reconcile the differences in site contractors' accounting practices. As a result, NNSA lacks the management information necessary to make cost-benefit decisions on infrastructure investment.
• NNSA's project to construct a new Uranium Processing Facility at the Y-12 National Security Complex has experienced a nearly sevenfold cost increase from its 2004 estimate of between $600 million and $1.1 billion to its current estimate of between $4.2 and $6.5 billion. Moreover, NNSA does not expect all technologies for this facility to be mature enough before critical decisions on cost and schedule are made.
• GAO found that NNSA's plans to modernize its Kansas City Plant were based on an inadequate cost estimate. Specifically, NNSA based its cost estimate of leasing a new facility versus constructing one itself upon an arbitrary 20-year horizon rather than on the estimated actual lifespan of the facility. As a result, NNSA's financing decisions were not as fully informed or as transparent as they could have been. Constructing a new Uranium Processing Facility, modernizing the Kansas City Plant, and constructing a major new nuclear facility at NNSA's Los Alamos National Laboratory are cornerstones of NNSA's multibillion dollar transformation of the nuclear weapons complex and exemplify high-risk endeavors by NNSA that GAO will continue to monitor closely.

In its corrective action plan, DOE recognized that having sufficient people and other resources to resolve its contract and project management problems was one of the top 10 issues facing the department. Specifically, the plan said that the department lacked an adequate number of federal contracting and project personnel with the appropriate skills (such as cost estimating, risk management, and technical expertise) to plan, direct, and oversee project execution. These challenges are likely to continue as DOE's workforce ages and the department faces future budget constraints. Both EM and NNSA are taking steps to assess current and future staffing needs and are in the process of developing plans to address the shortfalls.

^ Back to topWhat Needs to Be Done

DOE's removal from the High-Risk List requires meeting all five of GAO's long-established criteria. DOE has already demonstrated and must continue to sustain leadership commitment and progress implementing corrective measures and also ensure the successful implementation of its corrective action plan.

Additional actions are needed to meet the remaining two criteria. DOE needs to commit sufficient people and resources to resolve its contract management problems. Furthermore, DOE must monitor and independently validate the effectiveness and sustainability of these corrective measures. In particular, DOE must ensure that the corrective measures it is taking to improve its cost estimating policies and procedures ultimately result in cost estimates for its major projects that are more accurate, reliable, and can be used to hold the department accountable for its performance.

^ Back to topKey Reports

Recovery Act

Nuclear Weapons

Nuclear Weapons

Nuclear Weapons

Nuclear Weapons

Nuclear Weapons

Nuclear Waste

Nuclear Waste

Nuclear Nonproliferation

Department of Energy

Department of Energy

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