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entitled 'Chemical Demilitarization: Actions Needed to Improve the 
Reliability of the Army's Cost Comparison Analysis for Treatment and 
Disposal Options for Newport's VX Hydrolysate' which was released on 
January 26, 2007. 

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January 26, 2007: 

Congressional Committees: 

Subject: Chemical Demilitarization: Actions Needed to Improve the 
Reliability of the Army's Cost Comparison Analysis for Treatment and 
Disposal Options for Newport's VX Hydrolysate: 

The U.S. stockpile of 1,269 tons of VX nerve agent[Footnote 1] stored 
at the Newport Chemical Depot (Newport), Indiana, is one of nine 
stockpiles that the Department of Defense (DOD) must destroy in 
response to congressional direction initially provided in 1985. In 
addition, the stockpile must be destroyed to comply with the 
requirements of the Chemical Weapons Convention,[Footnote 2] which the 
United States became a party to in 1997. The stockpile at Newport is 
the first U.S. stockpile containing VX that will be destroyed by using 
neutralization--a process that mixes hot water and sodium hydroxide (a 
caustic chemical) with VX to change the chemical composition to a less 
toxic form. The resulting by-product is a liquid wastewater commonly 
referred to as hydrolysate that consists mostly of water but also has a 
caustic component and organic salts that need further treatment to meet 
Chemical Weapons Convention requirements and to meet federal and state 
environmental requirements for disposal. The Army, DOD's designated 
executive agent, began neutralizing Newport's VX stockpile on-site in 
May 2005 and, as of December 1, 2006, reports neutralizing about 34 
percent of the stockpile. 

None of the generated hydrolysate--expected to be about 2 million 
gallons when the neutralization process is completed--has been treated. 
The hydrolysate is being stored on-site until a post-treatment plan can 
be implemented. The Army has been evaluating options for treating the 
hydrolysate since the mid-1990s. Through these evaluations, on-site 
supercritical water oxidation (SCWO) was initially selected as the 
preferred option in 1999, but the preferred option was subsequently 
changed in 2002 to using an off-site commercial treatment facility 
because of concerns about the continued storage of the stockpile after 
the September 11, 2001, terrorist attacks and numerous technical 
challenges identified during one-tenth scale engineering testing. The 
Army's plan for the treatment and disposal of the hydrolysate was to 
transport it from Newport to an off-site commercial treatment and 
disposal facility--the DuPont Secure Environmental Treatment Facility 
(DuPont) in Deepwater, New Jersey--which would use a pretreatment 
process that would include various chemical processes, including 
oxidation followed by chemical precipitation to further break down the 
hydrolysate. The remaining liquid effluent would be treated in the 
facility's biodegradation-based waste treatment plant. This plan has 
generated concerns about its safety and cost. However, on January 5, 
2007, DuPont announced that it will not participate in the treatment of 
Newport's hydrolysate, citing a "lengthy and arduous" approval process. 
Army officials stated that the Army will explore all available on-site 
and off-site options to treat Newport's hydrolysate. 

The House Committee on Armed Services Report on the National Defense 
Authorization Act for Fiscal Year 2006, H.R. Rep. No. 109-89, directed 
the Secretary of the Army not to proceed with any action to transport 
or relocate hydrolysate from Newport until health and environmental 
concerns raised by the Environmental Protection Agency and the Centers 
for Disease Control and Prevention were addressed in a manner that 
would not result in substantial ecological or human heath risk. The 
Centers for Disease Control and Prevention issued its report[Footnote 
3] in July 2006. The report concluded, in part, that the Army/DuPont 
proposal sufficiently addressed critical issues related to human 
toxicity, transportation, and treatment of Newport's hydrolysate. The 
committee report also required that the Secretary of the Army certify 
to the congressional defense committees that sending the hydrolysate 
off-site for treatment would result in significant cost and schedule 
savings compared to on-site disposal of the hydrolysate before 
transport. The report further required that the Secretary of the Army 
conduct and provide the congressional defense committees a detailed 
cost-benefit analysis to include an analysis comparing the proposed off-
site treatment option with eight on-site options, which are discussed 
in detail in enclosure I. 

In response to the latter requirement, the Army published its cost- 
benefit report[Footnote 4] in April 2006, which concluded that only 
chemical oxidation, SCWO, and wet-air oxidation technologies were 
feasible for treating Newport's hydrolysate. In the cost-effectiveness 
analysis contained in the report, the Army determined that the cost of 
off-site treatment of the hydrolysate at DuPont would be from $146 
million (without program risk) to $347 million (including program risk) 
less expensive than the on-site options. The Army also concluded that 
the off-site treatment option would allow the disposal of the 
hydrolysate to be accomplished in the shortest amount of time and would 
minimize the amount of time that Newport's hydrolysate must be stored 
at Newport. 

The John Warner National Defense Authorization Act for Fiscal Year 
2007[Footnote 5] mandated that we review the Army's Cost-Benefit 
Analysis of Off-Site Versus On-Site Treatment and Disposal of Newport 
Caustic Hydrolysate. Specifically, we (1) assessed the reasonableness 
of the Army's rationale to eliminate five of the eight technologies for 
treating Newport's hydrolysate; (2) determined what other options the 
Army considered, such as incineration; and (3) evaluated the adequacy 
of the cost comparison analysis presented for the three remaining 
technologies considered as alternatives to the Army's proposed plan. To 
meet the December 1, 2006, due date, we briefed or offered to brief 
your offices prior to that time. This report provides details of our 
findings and our conclusions and recommendations. We will also issue a 
separate letter on our assessment of the Army's cost-benefit analysis 
once DOD has completed its sensitivity review of the data in that 
letter. 

To meet our objectives, we reviewed documentation and interviewed 
officials in the Office of the Under Secretary of Defense (Acquisition, 
Technology, and Logistics); Office of the Deputy Assistant Secretary of 
the Army (Elimination of Chemical Weapons); U.S. Army Chemical 
Materials Agency (CMA), Aberdeen, Maryland; the Newport Chemical Depot, 
Newport, Indiana; DuPont's Secure Environmental Treatment Facility, 
Deepwater, New Jersey; Parsons Infrastructure and Technology Group, 
Inc. (Parsons); and Shaw Environmental Group, Inc. (Shaw)--the 
contractor that assisted the Army in performing the analysis for the 
Army's report. To assess the Army's methods of evaluating various 
options for treating hydrolysate, we relied on a review of CMA's 
Newport On-Site Hydrolysate Post Treatment Estimate report (post- 
treatment estimate report), which was prepared by Shaw,[Footnote 6] 
National Research Council (NRC) reports, and other referenced documents 
and supporting documentation. We did not conduct an independent 
evaluation of these technologies. To assess the adequacy of the Army's 
cost comparison analysis, we compared the Army's methods and approaches 
with the guidance contained in Office of Management and Budget (OMB) 
and DOD instructions and Cost Estimating Standards and Practices 
developed by the Society of Cost Estimating and Analysis, and assessed 
the reliability of the cost estimates.[Footnote 7] We reviewed and 
evaluated the cost analyses the Army used in preparing its cost-benefit 
report and interviewed Army and contractor officials regarding the data 
and assumptions they used in preparing their analyses. To determine the 
accuracy of underlying data, we independently calculated values based 
on provided assumptions to compare against values contained in 
supporting spreadsheets. We also compared values from the supporting 
spreadsheets to summary data provided in the supporting post-treatment 
estimate report prepared for CMA by Shaw. Also, we made use of 
information that we obtained during our ongoing review of DOD's 
Chemical Demilitarization Program to assess the reasonableness of 
certain assumptions. We conducted our review from August 2006 through 
November 2006 in accordance with generally accepted government auditing 
standards. 

Results in Brief: 

The rationale that the Army used to eliminate five of the eight 
technologies for treating Newport hydrolysate appears reasonable. Based 
on our review of the supporting post-treatment estimate report and key 
NRC reports referenced by the Army, there was evidence of significant 
difficulties associated with the five eliminated options that would 
make them less promising than the three others that were evaluated 
against the proposed DuPont option in the Army's cost comparisons. For 
example, the Army report's finding that one alternative technology 
would not be well suited to treat large volumes of wastes with high 
concentrations of water, such as Newport's hydrolysate, was consistent 
with determinations made in the post-treatment estimate report and was 
supported by findings in a 2001 NRC report. Also, for another 
alternative, the Army determined that the vendor with the rights to the 
technology was no longer in business and further development of this 
alternative would call for a company to acquire the rights and start 
development work, creating a large cost and schedule risk. 

In addition to evaluating the eight alternatives discussed in its 2006 
cost-benefit report, the Army previously evaluated off-site and on-site 
technical solutions for treating the hydrolysate, including 
incineration. The Army's evaluations concluded for various reasons that 
these alternatives would also be difficult to implement or not viable 
at this time. For example, of the more than 100 commercial disposal 
firms that were initially considered as candidates to treat Newport's 
hydrolysate off-site in 2002, only 7 firms (not including DuPont) that 
have been determined to be qualified by the Army's contractor have 
provided price information through either the Army's 2002 request for 
proposals or a subsequent market survey. However, 5 of the 7 firms 
would use either of two methods: incineration or deep-well injection. 
Army officials believe that these two methods would garner higher 
levels of public concern than other methods. Moreover, while other on- 
site technologies were evaluated, those that were considered to be the 
most promising technologies in the 2001 and 2002 reports are very 
similar to the technologies identified in the Army's 2006 cost-benefit 
report. The use of any of the Army's four incinerators at its stockpile 
sites, while potentially technically feasible, has not been evaluated 
because it also has the potential for high levels of public concern, 
but could be evaluated if other options are no longer available. 

Based on our assessment of supporting documentation and analyses, we 
determined that the underlying cost estimates used in the Army's report 
were not reliable, and the impact of this on the Army's report finding 
that the DuPont plan had "significant cost savings" over the three 
considered alternatives is uncertain. Using OMB criteria and criteria 
approved by the cost estimating community,[Footnote 8] we determined 
that the estimates were unreliable because of (1) the quantity and 
magnitude of errors, (2) quality control weaknesses, (3) questionable 
or inadequate supporting source data and documentation, and (4) the 
undetermined sensitivity of key assumptions. Neither the Army nor the 
contractor has a system in place to perform cross-checks of the costs, 
underlying assumptions, or the technical parameters that went into the 
estimates. Moreover, we have determined that the results from the 
Army's programmatic risk analysis are unreliable because they were 
generated from the previously discussed unreliable cost estimates and 
because the Army attributed no risk to potential permitting, legal, or 
other challenges to the DuPont plan. It was unclear to us whether the 
programmatic risks of other alternatives were understated or 
overstated. Overall, we could not determine the cumulative effect of 
these problems on the outcome or results of the Army's analysis, in 
large part because we did not have confidence in much of the supporting 
data because of the problems that we have noted. Nevertheless, without 
reliable underlying cost estimates, the Army, the Congress, and the 
public cannot have confidence that the most cost-effective solution has 
been selected. We are making recommendations that the Army conduct its 
cost-benefit analysis again using best practices so that its data and 
conclusions are comprehensive, traceable, accurate, and credible; 
correct any technical and mathematical errors in the cost estimate; 
establish quality control and independent review processes that check 
data sources, calculations, and assumptions; and perform a sensitivity 
analysis of key assumptions. 

In written comments on a draft of this report, DOD concurred with our 
findings and recommendations, and stated that the Army will be 
preparing a new cost-benefit analysis based on a revised cost estimate, 
which will be independently reviewed and verified. DOD comments are 
discussed in more detail at the end of this correspondence and are 
reproduced in full in enclosure II. DOD also provided technical 
comments, which have been incorporated where appropriate. 

Background: 

In 1994, the Army, in response to continued public and congressional 
concerns about the use of incineration as a destruction method, 
established the Alternative Technologies and Approaches Project under 
the Program Manager for Chemical Demilitarization, which became CMA in 
2003. The project was tasked with investigating alternatives to 
incineration for the stockpiles that were located at Aberdeen Proving 
Ground (Aberdeen), Maryland, and Newport. These two sites were unique 
in that they consisted solely of chemical agent stored in bulk 
containers, without explosives or other munitions components. 

In February 1999, the Army announced that it would establish a pilot 
program to destroy Newport's stockpile of VX. The treatment and 
disposal method chosen to be pilot tested was neutralization followed 
by SCWO. In making its decision, the Army considered evaluations made 
by the NRC and independent Army reviews of alternatives to incineration 
and for treating hydrolysate. Another key factor in the Army's decision 
was a recommendation made by the Indiana Citizens Advisory Commission 
that the Army consider technologies other than incineration. 

In 2002, in response to heightened concerns about the storage of 
chemical weapons after the terrorist attacks of September 11, 2001, the 
Army adopted "an accelerated approach" at both its Newport and Aberdeen 
stockpile locations in order to eliminate the stockpiles faster. A key 
change resulting from this accelerated approach is that the Army would 
not treat the hydrolysate on-site, but would transport it off-site to 
commercial facilities that had the necessary environmental permits to 
treat and dispose of the hydrolysate. In the case of Newport, Parsons, 
the government's site contractor, awarded a contract to Perma-Fix of 
Dayton, Inc., Dayton, Ohio, through a 2002 request for proposals, to 
demonstrate that it could treat the hydrolysate. However, this plan 
generated considerable public concern, and the contract was 
subsequently terminated when a discharge permit could not be obtained. 
The Army and its contractor at Newport then began pursuing efforts to 
transport the hydrolysate to DuPont, which also responded to the 2002 
request for proposals. 

Methodology Used to Develop the Army's Cost-Benefit Analysis: 

In response to the committee report,[Footnote 9] the Army tasked Shaw 
with developing technical schedule and cost information comparing the 
eight on-site technologies cited in the committee report to the Army's 
proposed off-site transportation of the hydrolysate to DuPont. A post- 
treatment estimate report was prepared to document the methodology, 
assumptions, and findings used in the analysis. In conducting its 
analysis, each of the eight technologies was initially evaluated to 
determine its applicability to process Newport hydrolysate. The Army 
determined that the eight cited treatment and disposal methods were the 
eight methods evaluated by the NRC in an assessment it prepared for the 
Project Manager for the Non-Stockpile Chemical Materiel 
Project[Footnote 10] in 2001. The analysis used the evaluation criteria 
in the NRC report to assess benefits and risks of each method, updating 
information when necessary to reflect events subsequent to the report's 
publishing. The post-treatment estimate report also noted that the Army 
has been monitoring for years the development of emerging technologies 
for the potential application to chemical demilitarization. Schedules 
and cost estimates were only developed for technologies that were 
determined to be applicable to the volume and characteristics of the 
Newport hydrolysate. 

Army officials stated that they selected Shaw because of its experience 
with various aspects of the DOD's Chemical Demilitarization Program and 
its familiarity with treatment methods, which provides it with the 
expertise to make reasoned judgments about the treatment methods 
contained in the Army's cost-benefit report. Shaw has supported CMA and 
its predecessor for more than 15 years. For example, Shaw supported the 
Non-Stockpile Chemical Materiel Project by participating in the 
identification, evaluation, and testing of methods for treating waste 
streams from the neutralization of recovered chemical materials and 
binary chemical agents. According to the Army, Shaw evaluated over 140 
technologies, including all eight cited in the committee report. 
Moreover, Shaw was responsible for a program that monitors the 
development of new technologies for potential application to CMA's 
mission. In addition, Shaw participated in the study and testing of 
various candidate processes for post-treatment of Newport's 
hydrolysate, including SCWO. 

The Rationale Used for Eliminating Technologies from Further 
Consideration Appears Reasonable: 

Although the Army's cost-benefit report did not provide specific 
details on the process it used to make its determination to eliminate 
five of the eight congressionally specified treatment technologies from 
further consideration, the Army's rationale for eliminating these 
methods appears reasonable based on our review of the findings in the 
post-treatment estimate report prepared by Shaw. The report's 
evaluations were supported by past NRC reports, past program studies, 
and experience that Shaw has gained through its work with the Non- 
Stockpile Chemical Materiel Project and its role in evaluating emerging 
technologies. 

Army Eliminated Five Treatment Methods It Determined to Be Unsuitable 
for Newport Hydrolysate: 

The Army's cost-benefit report stated that based on a technical review 
conducted by Shaw's professional engineers with extensive experience in 
these treatment methods, five treatment methods specifically referenced 
in H.R. Rep. No. 109-89 were not viable because the methods were not 
well suited for the known properties and volumes of Newport 
hydrolysate. The five methods eliminated from further study were (1) 
electrochemical oxidation, (2) solvated-electron technology, (3) gas- 
phase chemical reduction, (4) plasma-arc technology, and (5) stand- 
alone biodegradation. Table 1 lists the five eliminated treatment 
methods and the factors the Army report cited as leading to their 
elimination. 

Table 1: Rationale for the Elimination of Five Technologies from the 
Army's Cost-Benefit Report for Hydrolysate Treatment: 

Technology: Electrochemical oxidation; 
Factors leading to elimination: 
* Not appropriate for aqueous wastes; 
* Concern about scale-up issues and risks; 
* Generates large volumes of waste streams needing additional 
treatment. 

Technology: Solvated-electron technology; 
Factors leading to elimination: 
* Not appropriate for aqueous wastes; 
* Generates hydrogen; 
* Uses difficult-to-handle reagents. 

Technology: Gas-phase chemical reduction; 
Factors leading to elimination: 
* Company no longer exists; 
* Generates high volumes of gaseous waste; 
* Hydrogen reagent considered a safety risk. 

Technology: Plasma-arc technology; 
Factors leading to elimination: 
* Not appropriate for large quantities of aqueous wastes; 
* Considered similar to incineration; 
* Limited experience with both hazardous and aqueous solutions. 

Technology: Stand-alone biodegradation; 
Factors leading to elimination: 
* Primary reaction products in Newport caustic hydrolysate are not 
amenable to direct treatment by biodegradation; 
* Not efficient for on-site waste volumes; cannot obtain economies of 
scale available at commercial large-scale treatment, storage, and 
disposal facilities. 

Source: U.S. Army. 

[End of table] 

Army's Eliminations Appear Reasonable Based on Our Review of Supporting 
Documents: 

Our review of the Army's rationale for dismissing five of the eight 
alternative technologies found that the findings contained in the 
Army's report appear to be reasonable and are supported by 
documentation from the post-treatment estimate report prepared for CMA 
by Shaw and NRC reports. The evaluation of the benefits and risks of 
each technology was largely based on criteria developed by the NRC in 
its 2001 report.[Footnote 11] The NRC cited four areas as "top 
priority" criteria: relative process safety (low risk), technical 
effectiveness, permit status, and pollution prevention. Additionally, 
another six categories were designated "important" criteria: 
robustness, cost, practical operability, continuity, space efficiency, 
and materials efficiency. When necessary, the findings of the NRC 
neutralent waste report were updated within these criteria based on 
more recent technological developments, experience Shaw has gained 
working with the Non-Stockpile Chemical Materiel Project, and Shaw's 
role in evaluating emerging technologies. Our review of the post- 
treatment estimate report and key NRC reports referenced by the Army 
provided evidence of likely significant difficulties associated with 
the five eliminated options that would make them less promising than 
the three options that were evaluated against the proposed DuPont 
option in the Army's cost comparisons. Evidence used by the Army to 
support its rationale for eliminating each treatment method is 
discussed below. 

Electrochemical Oxidation: 

* The Army report's finding that electrochemical oxidation would 
generate large volumes of waste is supported by findings in the NRC 
neutralent wastes report. In its report, the NRC noted that 
electrochemical oxidation generates large amounts of gaseous effluents, 
particularly chlorine gas, which needs to be scrubbed. The report also 
noted that those effluents would be corrosive and could cause operating 
problems. Shaw's evaluation determined that the amount of water present 
in Newport's hydrolysate would be too large for the electrochemical 
oxidation technology to process, requiring either the hydrolysate to be 
concentrated or the electrochemical system to be redesigned. The NRC 
neutralent wastes report also noted that treating large quantities of 
water would be an issue for this treatment method. 

* The finding that an electrochemical oxidation system would require a 
significant scale-up is also supported by findings in the NRC 
neutralent wastes report. The report also stated that the one existing 
CerOx facility (the type of electrochemical oxidation proposed for use 
by the Army) could process only one 35-gallon barrel at a time. In 
Shaw's evaluation, it noted concerns about whether the manufacturer 
could easily scale up production for the 200 electrochemical cells 
necessary to operate at Newport, as their systems were only accustomed 
to handling laboratory-scale amounts of waste. 

Solvated-Electron Technology: 

* The Army report's finding that the solvated-electron technology is 
not appropriate for Newport hydrolysate is supported by the NRC 
neutralent wastes report findings as well. The NRC determined that the 
solvated- electron technology process' efficiency is poor when treating 
aqueous waste streams, and its advantages may be outweighed by the 
difficulty of handling its reagents, which are toxic and have been 
known to cause fires. The NRC also was concerned that the solvated-
electron process was less mature than some of the other treatment 
technologies. Shaw determined that solvated-electron technology was 
evaluated by the Assembled Chemical Weapons Alternatives[Footnote 12] 
program but that it could not successfully complete demonstration 
testing. 

Gas-Phase Chemical Reduction: 

* The Army report's finding that the gas-phase chemical reduction 
technology is not appropriate for Newport hydrolysate is supported by 
Shaw's findings, which noted that the vendor who had the rights to this 
technology, ELI Eco Logic, went out of business in 2004. Shaw noted 
that further development of gas-phase chemical reduction as an option 
would "require finding a company to acquire the rights and start 
development work" and that process "would be a large risk to cost and 
schedule." 

* The NRC's neutralent wastes report notes that gas-phase chemical 
reduction is a complex process that requires the management of hot 
hydrogen gas, which presents unique safety concerns. The NRC report 
cited the need to manage gases both in the reactor and as effluents and 
the potential for the buildup of carbon soot. The report also stated 
that no commercial-scale reactor of this type has received a permit to 
operate in the United States, which could lead to delays. 

Plasma-Arc Technology: 

* The NRC neutralent wastes report notes concerns about the prospects 
for plasma-arc technology to get a permit since it has not operated in 
the United States and regulators may consider it to be incineration. 
Also, the NRC noted that tests of the technology conducted by the 
Army's Assembled Chemical Weapons Alternatives program on VX 
hydrolysate generated products of environmental concern. The NRC report 
also stated that this process is less efficient with wastes that 
contain large amounts of water. 

* The post-treatment estimate report states that regulatory hurdles 
would need to be overcome and then technology development would need to 
be accomplished. 

Stand-alone Biodegradation: 

* The NRC has repeatedly noted its concerns related to the ability of 
stand-alone biodegradation to treat hydrolysate from VX. For example, 
in its 1996 Review and Evaluation of Alternative Chemical Disposal 
Technologies[Footnote 13], its 2000 Integrated Design of Alternative 
Technologies for Bulk-Only Chemical Agent Disposal Facilities[Footnote 
14], and its neutralent wastes reports, the NRC noted that the primary 
reaction products of VX hydrolysate are not readily amenable to direct 
treatment by biodegradation, since they cannot be easily broken down by 
the microorganisms used in this process. Additionally, Shaw cited an 
Assembled Chemical Weapons Assessment evaluation that found 
biodegradation to be "inadequate for complete destruction" of VX 
hydrolysate. 

* The Army report's finding that biodegradation could not achieve the 
economies of scale needed to make biodegradation efficient is supported 
by the findings of the NRC. In its 1996 study, the NRC found that 
because hydrolysate cannot serve as the primary substrate for the 
microorganisms in this process, substantial quantities of co-substrate 
need to be added to co-feed the process, making it inefficient. 

* Chemical oxidation, followed by chemical precipitation in conjunction 
with biodegradation, is the process proposed for use in both the off- 
site DuPont option and the on-site chemical oxidation option. 

The Army Has Evaluated Other Technical Solutions for Treating Newport's 
Hydrolysate: 

Although the Army did not discuss them in its cost-benefit report, it 
has evaluated other technical solutions for treating Newport's 
hydrolysate since its 1999 decision to use SCWO. These solutions 
include both off-site commercial treatment facilities and treatment 
technologies that would be used on-site. In general, the evaluations of 
off-site options have determined that there are only a few commercial 
treatment facilities that are qualified and interested in treating 
Newport's hydrolysate, but addressing public comments and concerns 
could be challenging. Evaluations of on-site options have determined 
that the most promising options are similar to those included in the 
Army's 2006 report, but concerns were raised about development costs 
and operational risks. Other solutions, such as using one of the Army's 
four incineration facilities, may be technically feasible but not 
viable at this time. 

Army's Evaluation of Off-Site Commercial Treatment Facilities Found Few 
That Are Potentially Qualified and Interested: 

While there may be numerous facilities that could treat the Newport 
hydrolysate, only a small number have actually responded to requests 
for proposals. The Army began evaluating commercial treatment 
facilities that use various treatment methods, including those using 
incineration, biodegradation, and deep-well injection options 
subsequent to a 2001 NRC report that expressed concerns about the 
reliability of SCWO reactors during engineering tests. An earlier NRC 
report in 2000 recommended that the Army evaluate the potential off- 
site treatment of Newport hydrolysate both for potential costs and 
schedule benefits as well as a contingency in the case of start-up 
problems implementing SCWO. 

The Army adopted an accelerated approach in 2002 that changed the 
planned treatment method for hydrolysate from on-site to an off-site 
commercial treatment facility. The Army's contractor at Newport-- 
Parsons--conducted industry surveys to identify facilities that could 
transport, treat, and dispose of Newport's hydrolysate. Parsons 
conducted a nationwide survey and identified over 100 commercial 
treatment and disposal facilities in the United States as capable of 
handling hazardous waste. However, after considering the facilities' 
technology, environmental permits, safety and environmental records, 
and outreach initiatives, Parsons determined that only 45 of the 
facilities should be considered to determine their qualifications to 
treat and dispose of the Newport hydrolysate. These 45 facilities were 
sent a qualification survey by Parsons; however, only 14 firms 
completed and returned the survey. After a review of the responses to 
determine if they met minimum specified requirements, Parsons provided 
requests for proposals to 10 of these facilities. Ultimately, 4 
facilities responded: 2 incineration-based facilities and 2 
biodegradation treatment-based facilities (Perma-Fix and DuPont). None 
of the facilities that use deep-well injection responded to Parson's 
request. The range of proposed prices varied significantly with a 
fourfold difference in price from the least expensive to the most 
expensive of the four facilities. 

According to the Army, during the evaluation process for the four 
proposals, the two commercial incineration facilities were eliminated: 
one withdrew its proposal and the other was deemed to be too high of a 
risk because of concerns about public opposition. Parsons, in its 
capacity as the government's contractor, awarded Perma-Fix a contract 
in December 2002 to demonstrate its ability to successfully treat the 
hydrolysate. However, before any hydrolysate could be shipped, Parsons 
terminated the contract for convenience of the government. This 
cancellation was caused by the determination that an environmental 
permit would not be issued to Perma-Fix by the local county government. 

As part of this continuing procurement in 2005, Parsons conducted a 
market survey to establish an updated range of hazardous waste 
treatment and disposal prices at the commercial treatment facilities. 
The 10 commercial facilities that were surveyed were the same 
facilities that were provided proposal requests in 2002. In this 
instance, 7 of the 10 commercial facilities provided price data for 
processing generic hazardous waste material.[Footnote 15] Of the 7 
facilities that provided price data, 2 use incineration, 2 use deep- 
well injection, 2 use biodegradation, and 1 uses both biodegradation 
and deep-well injection. Program officials stated that the prices for 
these firms represented a broad range of pricing for hazardous waste 
treatment based on a range of treatment technologies, locations, and 
marketplace factors, such as financial risks and regulatory and 
environmental liabilities. The price for treating and disposing of any 
waste depends on the facilities' capabilities, regulatory restrictions, 
and permit requirements. 

Past Evaluations of On-Site Technologies Yielded Similar Results 
regarding the Most Promising Technologies: 

Although the Army selected SCWO as its planned on-site treatment and 
disposal method for Newport's hydrolysate in 1999, the Army and its 
contractors conducted several more evaluations in 2001 and 2002 to 
consider other on-site approaches because of Army and NRC concerns 
about the reliability of SCWO. These evaluations included technologies 
other than those that were considered in the Army's recent cost-benefit 
report, but the technologies deemed most promising were similar to the 
technologies that survived elimination in the Army's 2006 report. 
Earlier study findings included the following. 

* A 2001 Parsons report identified and assessed 8 potential on-site 
technologies that were capable of processing the Newport hydrolysate. 
Initially, more than 100 technologies were identified in literature and 
database searches. After screening based on several criteria, including 
process efficiency, technology maturity, and the extent that they were 
considered low pressure or temperature, 8 technologies met the 
criteria: two types of SCWO, electrochemical oxidation, wet-air 
oxidation, two types of chemical oxidation, ozone (with and without 
peroxide), and bleach treatment with biodegradation. Two additional 
technologies were added--gas phase chemical reduction and plasma arc-- 
although they did not meet the criteria for being low-temperature 
processes. This report found that the two types of SCWO, wet-air 
oxidation, and chemical oxidation, were the most promising technologies 
for further consideration; these are the same three technologies that 
were identified in the Army's cost-benefit report. 

* A 2002 Parsons report prepared for the Army compared various on-site 
and off-site disposal options for consideration as a potential backup 
plan for treating Newport hydrolysate. In its evaluation, the 
contractor determined that the two on-site treatment options--SCWO and 
the pretreatment/biological treatment option--would rate more favorably 
for public acceptance, but not as favorably for cost and schedule, 
primarily because of development and testing costs and operational 
risks. The evaluation also determined that pretreating the hydrolysate 
on-site before transporting it off-site would offer no advantage. The 
evaluation concluded that off-site options had more favorable ratings 
because of advantages in cost, schedule, and environmental compliance, 
but would likely be at higher risk for lack of public acceptance. 
Figure 1 compares the 2002 evaluation of various on-site and off-site 
treatment options by cost, schedule, public acceptance, and 
environmental compliance. 

Figure 1: Comparison of 2002 Evaluation of the On-site, Off-site, and 
Combination Treatment Options for Newport's Hydrolysate: 

[See PDF for Image] 

Source: U.S. Army. 

[End of Figure] 

Using Existing Army Incineration Sites Is Not Considered a Viable 
Option at This Time: 

CMA officials acknowledged that using one of the four operating 
chemical agent disposal facility incinerators to process the 
hydrolysate is considered a technically feasible option; however, CMA 
has not formally assessed all its advantages and disadvantages because 
CMA officials do not believe incineration to be viable at this time. 
These officials told us that from a technical standpoint, incineration 
could be used to dispose of Newport's hydrolysate, and as discussed 
above, the Army has considered commercial facilities that use 
incineration. However, it is not an ideal solution for treating 
hydrolysate, which is primarily water (85 percent), thus leading to 
greater energy consumption. These officials also stated that because of 
the opposition to incineration of hydrolysate, both locally in Indiana 
and nationally, the Army has committed to pursuing nonincineration 
options first. However, should there be no permitted commercial 
treatment facility reasonably available, the Army would once again 
evaluate the viability/acceptability of using incineration for 
disposing of Newport's hydrolysate, including evaluating the potential 
legal and regulatory barriers. 

Army's Cost Estimates and Programmatic Risk Analysis Were Not Reliable, 
and Impact on Results Is Uncertain: 

The Army's report found that the DuPont plan was significantly more 
cost-effective than the three considered on-site alternatives, but 
based on our assessment of supporting documentation and analyses, we 
determined that the underlying cost estimates used in the Army's report 
were not adequate or reliable, making the cost-effectiveness 
determination among options uncertain. Using OMB criteria and criteria 
approved by the cost estimating community to assess the methodology, 
key assumptions, and data used to develop cost estimates in the Army's 
cost-benefit report, we determined that the estimates were unreliable 
for reasons related to (1) the quantity and magnitude of errors, (2) 
quality control weaknesses, (3) questionable or inadequate supporting 
source data and documentation, and (4) the undetermined sensitivity of 
key assumptions. Further, neither the Army nor the contractor had a 
system of cross-checking in place to verify computations or to 
substantiate the basis for some assumptions. Moreover, we determined 
that the results from the Army's programmatic risk analysis are 
unreliable because they were generated from the previously discussed 
unreliable cost estimates and because the Army attributed no risk to 
potential permitting, legal, or other challenges to the DuPont plan. It 
was unclear to us whether the programmatic risks of other alternatives 
were understated or overstated. Overall, we could not determine the 
cumulative effect of these problems on the outcome or results of the 
Army's analysis, in large part because we did not have confidence in 
much of the supporting data because of the stated problems and the 
limited time available to further test these data. 

Cost Estimating Community Has Best Practices Criteria for Reliability: 

Guidance provided in OMB Circular A-94 and best practices established 
by professional cost analysts, such as those identified by the Society 
of Cost Estimating and Analysis, have identified characteristics of a 
high-quality, reliable cost estimate. These characteristics include the 
following. 

* Comprehensive. The estimate should be at a level of detail 
appropriate to ensure that cost elements are neither omitted nor double 
counted. All cost-influencing ground rules and assumptions are detailed 
in the documentation of the cost estimate. 

* Traceable. The estimate is thoroughly documented, including source 
data and significance, clearly detailed calculations and results, and 
explanations for why a particular method or reference was chosen. Data 
can be traced back to the source documentation. 

* Accurate. The estimate should be unbiased, not overly conservative or 
overly optimistic, and based on an assessment of most likely costs. 
Few, if any, mathematical mistakes are present and are minor in nature. 

* Credible. Any limitations of the analysis because of uncertainty or 
biases surrounding data or assumptions should be discussed. Major 
assumptions should be varied and other outcomes recomputed to determine 
how sensitive outcomes are to changes in the assumptions. In addition, 
the results of an estimate should be cross-checked with an independent 
cost estimate and a level of risk associated with the estimate should 
be identified. 

Engineering Buildup Approach Was Used to Develop the Technical Cost 
Estimate: 

In developing the cost comparisons that were cited in the post- 
treatment estimate report, an engineering buildup approach was used, 
which can be an appropriate methodology for construction projects. The 
approach was based on conceptual design data for manpower estimates, 
facility sizing, construction, equipment costs, and throughput 
estimates for the on-site options. Cost estimates for categories, such 
as utilities, processing materials, and storage costs, for the 
accumulating hydrolysate were also developed. For the DuPont off-site 
option, DuPont's past estimate was updated based on an assessment of 
the impacts of program changes since the estimate was originally 
provided in 2002. For all options, costs were grouped by the following 
major categories: (1) project services; (2) engineering, design, and 
permitting; (3) process equipment and systems; (4) facilities 
construction; (5) systemization; (6) operations and pilot test; (7) 
hydrolysate storage; and (8) closure. A contingency factor was added to 
each estimate to account for estimating, commercial, and technical 
risks. 

Cost Estimates Were Unreliable Because of Inadequate Supporting 
Documentation: 

and Numerous Computational Errors: 

The technical cost analysis that the Army used in estimating the costs 
of the proposed off-site option and the three on-site options contained 
in its cost-benefit report did not follow all applicable guidance from 
OMB and best practices for a cost-effectiveness analysis. Specifically, 
the quality of some of the underlying estimates in the technical report 
was affected because the supporting analysis was not comprehensive nor 
traceable in that data sources were frequently not provided throughout 
the analysis nor was it accurate because of the numerous computational 
errors. Neither the Army nor the contractor performed independent cross-
checks of the costs or the technical parameters that went into the 
estimates. 

Our analysis revealed numerous instances where the data were not 
comprehensive or traceable. We determined that the documentation 
provided was not detailed enough to provide an accurate assessment of 
the quality of each alternative's cost estimate. For example, neither 
the technical report nor the supporting documentation referenced the 
source for numerous data inputs, such as the sources for equipment 
installation labor hour per unit parameters or chemical reagent unit 
costs. Additionally, the basis of estimate documented for some data 
inputs were found to be inadequate for assessing estimate credibility, 
such as staffing estimates, labor rates, and other direct costs. 

Our analysis also revealed many computation errors that affect the 
accuracy of the cost estimates, including an incorrect rate being 
applied to all labor categories for 5 years, leading to costs for one 
category of one option being overstated by about $34 million and 
another option's solid waste disposal costs being understated by 
approximately $3.5 million. CMA officials acknowledged that there was 
no system in place to independently verify the accuracy of the data. In 
total, the errors affected all options and led to both over-and 
underestimating of costs. However, to the extent that we could correct 
identified inaccuracies, our recalculations just for computation errors 
did not result in a significant variance from the Army's analysis. The 
estimated costs would fall in the same order that the Army had 
originally computed, although the net difference in costs between the 
DuPont option and each on-site option was reduced. Table 2 shows the 
relative comparison of the corrected costs versus the reported cost 
estimates. 

Table 2: Comparison of Reported and Corrected Cost Estimates for the 
Three On-Site Options Relative to DuPont's Cost Estimates (without 
Programmatic Risk): 

Treatment option: Chemical oxidation; 
Reported cost estimates relative to DuPont's cost estimate: 
$145,900,000; 
Corrected cost estimates relative to DuPont's corrected cost estimate: 
$130,625,000; 
Change in relative costs of reported and corrected cost estimates: 
($15,275,000). 

Treatment option: Wet-air oxidation; 
Reported cost estimates relative to DuPont's cost estimate: 
$148,900,000; 
Corrected cost estimates relative to DuPont's corrected cost estimate: 
$133,525,000; 
Change in relative costs of reported and corrected cost estimates:  
($15,375,000). 

Treatment option: Supercritical water oxidation; 
Reported cost estimates relative to DuPont's cost estimate: 
$200,500,000; 
Corrected cost estimates relative to DuPont's corrected cost estimate: 
$178,125,000; 
Change in relative costs of reported and corrected cost estimates:  
($22,375,000). 

Source: GAO analysis of U.S. Army data. 

Note: In the Army's cost-benefit report, to protect proprietary 
information generated by DuPont, the estimated costs for implementation 
of each on-site option was reported relative to the estimated cost for 
the DuPont option (considered the base cost) without disclosing the 
actual value of the DuPont cost estimate. 

[End of table] 

Our estimate corrects only for obvious mathematical and spreadsheet 
errors and does not account for unsubstantiated input parameters or 
parameters used in the spreadsheets that are in conflict with the 
documentation. For example, there were differences between consumption 
levels used in the spreadsheet model versus the level documented in the 
post-treatment estimate report. These discrepancies could potentially 
translate to an underestimate of nearly $15 million. This discrepancy 
and others like it are not reflected in our estimate because it is not 
obvious which consumption level is correct. To resolve discrepancies 
like these, an independent technical assessment would need to be 
conducted to verify the validity of inputs and assumptions used to 
prepare the estimates. 

Uncertainty of Cost Estimate Is Not Adequately Addressed: 

The Army's cost analysis does not sufficiently address the uncertainty 
of its cost estimates, which affects the credibility of its 
conclusions. First, the technical report does note that the estimate is 
a rough order of magnitude estimate for cost and schedule that can be 
used to provide a basis for evaluating probable life cycle costs. CMA 
officials stated that the Association for the Advancement of Cost 
Engineering International's Cost Engineers' Notebook was used to 
develop the order of magnitude estimate. According to the technical 
report, the cost estimates are based on conceptual design data, and 
because of the breadth of technological alternatives considered, 
relative unique processes, and lack of processing data for Newport 
hydrolysate, the technical cost estimate should be considered in the 
range of plus 30 percent and minus 15 percent. However, neither the 
Army's cost- benefit report nor the supporting post-treatment estimate 
report provided estimates that reflect these ranges of outcomes. For 
example, applying the worst case to DuPont (plus 30 percent) and the 
best case (minus 15 percent) to one or more of the on-site options 
could significantly reduce the cost difference, although DuPont would 
still be more cost-effective. Second, the Army did not perform a 
sensitivity analysis to assess how variations in certain key 
assumptions could affect its cost estimates although there can be 
imprecision in both underlying data and modeling assumptions. For 
example, the cost estimates were based on the DuPont off-site option 
having about 2.5 times greater throughput capacity than each of the on-
site treatment technologies. This assumption leads to a greater 
disparity between the on-site and off-site operation costs since the 
operation period, and its associated costs, would be longer for the on-
site options. However, it is possible that the actual throughput could 
increase or decrease based on design and operational considerations. 
Because such uncertainty is basic to many analyses, its effects should 
be analyzed and reported. There was no analysis done to determine the 
effects of varying this assumption on the cost estimate. Third, the 
cost estimates also do not address the uncertainty associated with 
impacts that environmental permitting activities, actions of public or 
government agencies, or public opinion could have on program execution. 
This uncertainty is particularly relevant since these impacts have 
greatly affected the program in the past, delaying the Army's proposed 
plan for over 2 years. 

Army's Programmatic Risk Analysis Was Not Reliable Because It Used 
Unreliable Technical Cost Estimates and Understated Risks: 

We determined that the Army's programmatic risk analysis that added 
additional costs to each option is also unreliable because the analysis 
was generated from the previously discussed unreliable technical cost 
estimates and because the Army attributed no risk to potential 
permitting, legal, or other challenges to the DuPont plan. The 
programmatic risk analysis is used to account for unknown risks that 
could affect the cost or schedule of given options. This analysis uses 
a statistical distribution model that typically extends the schedule 
durations by a scaled amount based on the level of risk (none, low, 
medium, and high) assigned to each of three phases: design/ 
construction, operations, and closure. 

Based on this programmatic risk analysis, the Army added additional 
costs to each option. The proposed DuPont plan had the least additional 
costs added during the programmatic analysis, while the net additional 
cost (total additional costs minus additional costs for DuPont) for the 
three options ranged from $84 million to $146 million. 

Conducting a programmatic risk analysis is an acceptable method for 
applying unknown risk; however, it depends heavily on the judgment used 
when assigning risks. For example, Army officials assigned no 
programmatic risk to DuPont's design/construction phase because the 
process would use commercially available facilities and personnel. 
Another reason cited for not assigning risk was that the technical cost 
estimates contained sufficient known risk for the limited scope and 
design that would be needed at DuPont. However, this risk determination 
does not take into account the potential permitting, legal, or other 
challenges that may arise, which could delay construction, transport of 
the hydrolysate to New Jersey, or start of operations. Based on the 
history of delays associated with implementing the proposed plan, it 
would be prudent to account for these risks. It was unclear to us 
whether the programmatic risks of other alternatives were understated 
or overstated. 

Conclusions: 

The Army has been pursuing the off-site treatment of Newport's 
hydrolysate at a commercial treatment, storage, and disposal facility 
since it adopted an accelerated disposal approach in 2002. One of the 
reasons that has been frequently cited for adopting this approach is 
that it would provide substantial cost savings over designing, 
constructing, and operating an on-site treatment and disposal method. 
However, from the time that the accelerated approach was adopted, the 
Army faced resistance on many fronts because of skepticism concerning 
advantages attributable to the off-site treatment option. If the Army 
is to be successful in garnering support for its plan, then it is 
imperative that the Army use a transparent process to develop cost 
estimates that are comprehensive, traceable, accurate, and credible. 
Without reliable underlying cost estimates, the Army, the Congress, and 
the public cannot have confidence that the most cost-effective solution 
for the treatment and disposal of Newport's hydrolysate has been 
selected. 

Recommendations for Executive Action: 

To ensure confidence in the reliability of the underlying cost 
estimates for the Army's decision to send hydrolysate from the Newport 
Chemical Depot, Indiana, off-site for treatment, which indicate 
significant cost and schedule savings compared to on-site disposal of 
the hydrolysate, we recommend that the Secretary of Defense direct the 
Secretary of the Army to take the following four actions. 

* Conduct the Army's cost-benefit analysis again using best practices 
so that its data and conclusions are comprehensive, traceable, 
accurate, and credible. 

* Correct any technical and mathematical errors in the cost estimate. 

* Establish quality control and independent review processes that check 
data sources, calculations, and assumptions. 

* Perform a sensitivity analysis of key assumptions, including, at a 
minimum, 

(1) variations in the throughput rates for various options; (2) the 
technological uncertainty of options; and (3) for off-site treatment 
and disposal options, the risks associated with potential permitting, 
legal, and other challenges. 

Agency Comments: 

In written comments on a draft of this report, DOD concurred with our 
recommendations and stated that it fully supports the use of best 
practices for the development and preparation of cost estimates. DOD 
stated that the Army will be preparing a new cost-benefit analysis 
based on a revised cost estimate, which will be independently reviewed 
and verified, and will contain an analysis of assumptions. DOD 
estimated that the revised cost estimate will be available by the third 
quarter of fiscal year 2007 and the new cost-benefit analysis will be 
available by the fourth quarter of fiscal year 2007. DOD's comments are 
reproduced in full in enclosure II. DOD also provided us with technical 
comments, which have been incorporated where appropriate. Finally, we 
adjusted our fourth recommendation in the draft report in light of 
DuPont's January 5, 2007, announcement that it was no longer interested 
in being considered as a potential treatment site. 

We are sending copies of this report to other interested congressional 
parties. We also are sending copies to the Secretary of Defense; the 
Secretary of the Army; and the Director, Office of Management and 
Budget. We will make copies available to others upon request. In 
addition, the report will be available at no charge on GAO's Web site 
at [Hyperlink, http://www.gao.gov]. 

If you or your staff have any questions concerning this report, please 
contact me at (202) 512-5431 or by e-mail at dagostinod@gao.gov. 
Contact points for our Offices of Congressional Relations and Public 
Affairs may be found on the last page of this report. GAO staff who 
made key contributions to this report are listed in enclosure III. 

Signed by: 

Davi M. D'Agostino: 
Director: 
Defense Capabilities and Management: 

Enclosures - 3: 

List of Congressional Committees: 

The Honorable Carl Levin: 
Chairman: 
The Honorable John McCain: 
Ranking Minority Member: 
Committee on Armed Services: 
United States Senate: 

The Honorable Ike Skelton: 
Chairman: 
The Honorable Duncan Hunter: 
Ranking Minority Member: 
Committee on Armed Services: 
House of Representatives: 

The Honorable Daniel Inouye: 
Chairman: 
The Honorable Ted Stevens: 
Ranking Minority Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
United States Senate: 

The Honorable John P. Murtha: 
Chairman: 
The Honorable C.W. Bill Young: 
Ranking Minority Member: 
Subcommittee on Defense: 
Committee on Appropriations: 
House of Representatives: 

[End of Section] 

Enclosure I: Description of Eight Congressionally Specified Disposal 
and Treatment Options for Newport's Hydrolysate: 

* Chemical oxidation. Organic wastes are mixed with an oxidizing agent 
(such as hydrogen peroxide) and water at low temperatures and low 
pressure. This process breaks down the organic components of the waste 
into either benign compounds or compounds that can be more easily 
treated by other means. 

* Electrochemical oxidation. A similar chemical process to chemical 
oxidation, electrochemical oxidation uses a metallic element as an 
oxidizing agent within an electrochemical cell. This also is a low- 
temperature, low-pressure process. 

* Biodegradation. This process uses microorganisms to destroy certain 
organic compounds in dilute aqueous (water) solutions. This low- 
temperature, low-pressure process is often used to treat sewage. Some 
organic compounds can be readily broken down by biotreatment, while the 
structure of other compounds makes them highly resistant. 

* Solvated-electron technology. This process involves the reaction of 
organic waste materials with solutions of metallic sodium in anhydrous 
liquid ammonia. In contrast to most of the other technologies 
considered by the Department of Defense's Chemical Demilitarization 
Program, this is a reduction rather than an oxidation reaction. 
Solvated-electron technology is a low-temperature, low-pressure 
process. 

* Wet-air oxidation. This process oxidizes organic compounds in water 
using dissolved oxygen and air. It operates at relatively higher 
temperatures and pressures than chemical oxidation. Wet-air oxidation 
is commercially in use worldwide to treat industrial wastes. 

* Supercritical water oxidation. This process destroys organic 
compounds through oxidation by introducing air to water that has been 
superheated beyond its critical point (374C). This is a high-
temperature, high- pressure process. 

* Gas-phase chemical reduction. This process uses hydrogen and steam at 
high temperatures to break down organic compounds into more easily 
treated chemicals. Like solvated-electron technology, gas-phase 
chemical reduction is a reduction reaction. This is a high-temperature 
but low-pressure process. 

* Plasma-arc technology. This process uses electrical discharges 
through gases to produce intense radiant energy and high-temperatures 
to break down organic compounds in a containment chamber. This is an 
extremely high-temperature but low-pressure process. 

[End of Section] 

Enclosure II: Comments from the Department of Defense: 

Nuclear And Chemical And Biological Defense Programs: 
Assistant To The Secretary Of Defense: 
3050 Defense Pentagon: 
Washington, DC 20301-3050: 

Jan 4 2007: 

Ms. Davi M. D'Agostino: 
Director, Defense Capabilities and Management: 
United States Government Accountability Office 441 G Street, N. W. 
Washington, DC 20548: 

Dear Ms. D'Agostino: 

This is the Department of Defense (DoD) response to the GAO draft 
report, GAO-07-240R, `Review of the Cost Comparison of Off-Site Versus 
On-Site and Treatment and Disposal of Hydrolysate at the Newport 
Chemical Depot, Indiana,' dated December 6, 2006 (GAO Code 350933). 

The DoD concurs with the draft report's recommendations. The Department 
fully supports the use of best practices for the development and 
preparation of cost estimates. As such, the Army will be preparing a 
new cost-benefit analysis with a revised cost estimate, which will be 
independently reviewed and verified. 

The Department appreciates the opportunity to provide comments on the 
draft report. These comments, including technical comments, are 
enclosed. For further questions concerning this report, please contact 
Barbara Burgess, Senior Program Analyst for the Chemical 
Demilitarization Program, (703) 588-1983, extension 113. 

Sincerely, 

Signed by: 

Jean D. Reed: 
Special Assistant: 
Chemical and Biological Defense and Chemical Demilitarization: 

Enclosures: 
As stated: 

cc: Deputy Assistant Secretary of the Army (Elimination of Chemical 
Weapons): 

GAO Draft Report - Dated December 6, 2006 GAO Code 350933/GAO-07-240R: 

"Review of the Cost Comparison of Off-Site Versus On-Site Treatment and 
Disposal of Hydrolysate at the Newport Chemical Depot, Indiana" 

Department Of Defense Comments To The Recommendations: 

Recommendation 1: The GAO recommended that the Secretary of Defense 
direct the Secretary of the Army to conduct the Army's cost-benefit 
analysis again using best practices so that its data and conclusions 
are accurate, replicable, traceable, verifiable, comprehensive, and 
credible (p. 18/GAO Draft Report). 

DOD Response: Concur. The new cost-benefit analysis, based on a revised 
cost estimates, will be conducted utilizing best practices to include 
the Association for the Advancement of Cost Engineering methods. The 
new cost-benefit analysis will be available during the fourth quarter 
of Fiscal Year 2007 (FY07). 

Recommendation 2: The GAO recommended that the Secretary of Defense 
direct the Secretary of the Army to correct any technical and 
mathematical errors in the cost estimate (p. 18/GAO Draft Report). 

DOD Response: Concur. The cost estimates will be revised for use in the 
new cost-benefit analysis. The revised cost estimates will be reviewed 
independently for methodology and application. The revised cost 
estimate will be available during the third quarter of FY07. 

Recommendation 3: The GAO recommended that the Secretary of Defense 
direct the Secretary of the Army to establish quality control and 
independent review processes that check date sources, calculations, and 
assumptions (p. 18/GAO Draft Report). 

DOD Response: Concur. The Army is directing the U.S. Army Chemical 
Materials Agency, which prepared the initial analysis report, to 
conduct an independent review of the revised cost estimates. The 
revised cost estimate will be available during the third quarter of 
FY07. 

Recommendation 4: The GAO recommended that the Secretary of Defense 
direct the Secretary of the Army to perform a sensitivity analysis of 
key assumptions, including, at a minimum, (1) variations in the 
throughput rates for various options; (2) the technological uncertainty 
options; and (3) for the DuPont option, the risks associated with 
potential permitting, legal, and other challenges (p. 18/GAO Draft 
Report). 

DOD Response: Concur. The independent review of cost data, estimates, 
and analysis will include an analysis of the assumptions. The revised 
cost estimate will be during the third quarter of FY07. 

[End of Section] 

Enclosure III: 

GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Davi M. D'Agostino, (202) 512-5431 or dagostinod@gao.gov: 

Acknowledgments: 

In addition to the contact named above, Mark A. Pross, Assistant 
Director; Bonita Anderson; Rodell Anderson; Susan Ditto; Jennifer 
Echard; Neil Feldman; James Lawson; Brian Octeau; Charles Perdue; and 
Karen Richey made key contributions to this report. 

(350933): 

FOOTNOTES 

[1] VX is a rapid-acting, lethal nerve agent that affects the nervous 
system by interfering with the signals sent from the brain to vital 
organs. Nerve agents are the most toxic and rapidly acting of known 
chemical warfare agents. 

[2] The Chemical Weapons Convention prohibits the use of chemical 
weapons and specifies deadlines for signatories, of which the United 
States is one, to destroy unitary stockpiles. The final deadline to 
destroy existing stockpiles is April 29, 2012. 

[3] Department of Health and Human Services, Centers for Disease 
Control and Prevention, Review of the Revised Plan for Off-Site 
Treatment of Newport's Chemical Agent Disposal Facility's Caustic VX 
Hydrolysate at DuPont Secure Environmental Treatment Facility in 
Deepwater, New Jersey (Atlanta. Ga.: July 2006). 

[4] U.S. Army, Project Manager for Alternative Technologies and 
Approaches, Cost-Benefit Analysis of Off-Site Versus On-Site Treatment 
and Disposal of Newport Caustic Hydrolysate (Aberdeen Proving Ground, 
Edgewood Area, Md.: April 2006). 

[5] Pub. L. No. 109-364,  922 (2006). 

[6] Shaw Environmental, Inc., Newport Chemical Disposal Facility On- 
Site Hydrolysate Post Treatment Estimate (Edgewood, Maryland: April 
2006). 

[7] The Department of the Army Cost Analysis Manual contains criteria 
and a checklist that are similar to the OMB and best practices 
guidance. See Department of the Army, U.S. Army Cost and Economic 
Analysis Center, Cost Analysis Manual (Washington, D.C.: May 2002). 

[8] The Society of Cost Estimating and Analysis (SCEA) is an 
organization dedicated to improving cost estimating and analysis and to 
furthering the effectiveness and efficiency of cost estimating and 
analysis. The characteristics of a high-quality estimate are contained 
in SCEA's Cost Programmed Review of Fundamentals  2003 SCEA. 

[9] H.R. Rep. No. 109-89 (2005). 

[10] Non-stockpile chemical materiel are items not included as part of 
the nation's unitary chemical stockpile, including buried munitions and 
binary munitions. 

[11] National Research Council, Review and Evaluation of the Army Non- 
Stockpile Chemical Materiel Disposal Program: Disposal of Neutralent 
Wastes (Washington, D.C.: 2001). 

[12] The Congress established the Assembled Chemical Weapons Assessment 
program in 1996 to identify and demonstrate at least two alternative 
technologies to baseline incineration. Omnibus Consolidated 
Appropriations Act, 1997, Pub. L. No. 104-208 (1996). In 2002, the 
program was assigned responsibility for full-scale pilot testing of 
neutralization technologies to destroy the chemical weapons stockpiles 
at the Pueblo Chemical Depot in Colorado and Blue Grass Army Depot in 
Kentucky. Department of Defense Appropriations Act, 2003, Pub. L. No. 
107-248 (2002). In 2003, the program's name was changed to Assembled 
Chemical Weapons Alternatives. 

[13] National Research Council, Review and Evaluation of Alternative 
Chemical Disposal Technologies (Washington, D.C.: 1996). 

[14] National Research Council, Integrated Design of Alternative 
Technologies for Bulk-Only Chemical Agent Disposal Facilities 
(Washington, D.C.: 2000). 

[15] Price data for DuPont were not included as part of Parsons' 2005 
market research pricing for hazardous waste treatment. 

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