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Report to the Committee on Government Reform, House of Representatives: 

June 2004: 

NUCLEAR WASTE: 

Absence of Key Management Reforms on Hanford's Cleanup Project Adds to 
Challenges of Achieving Cost and Schedule Goals: 

[Hyperlink, http: //www.gao.gov/cgi-bin/getrpt?GAO-04-611]: 

GAO Highlights: 

Highlights of GAO-04-611, a report to the Committee on Government 
Reform, House of Representatives:  

Why GAO Did This Study: 

The Department of Energy’s (DOE) Hanford Site in Washington State 
houses DOE’s largest and most complex nuclear cleanup project—treating 
and preparing for disposal 55 million gallons of high-level radioactive 
waste. In 2000, DOE awarded an 11-year, $4.3 billion contract to 
design, construct, and test treatment facilities at Hanford. GAO was 
asked to review (1) efforts to accelerate the project’s completion, 
(2) implementation on this project of agencywide management reforms, 
and (3) the challenges resulting from any unimplemented reforms.

What GAO Found: 

DOE’s initial approach called for treating 10 percent of the site’s 
high-level waste by 2018 and for operating the plant until treatment 
was completed in 2046—well past a regulatory deadline to complete 
treatment by 2028. In 2002, DOE decided to accelerate cleanup by about 
20 years and reduce the project’s $56 billion cost by $20 billion. In 
the short term, however, several factors, including the accelerated 
approach and contractor performance problems, have lengthened 
construction time and raised contract costs by $1.4 billion to $5.7 
billion.

Because of long-standing problems that preceded Hanford’s contract, 
DOE has instituted reforms in both contract and project management. 
DOE’s 2000 Hanford contract implemented the contract performance 
reforms, including linking contractor fees to cost and schedule 
performance. The contract did not, however, implement project 
management reforms, such as an overall plan to accomplish waste 
treatment by the regulatory deadline. 

Not implementing project management reforms at the outset has added to 
the risks in cleaning up Hanford’s tank waste. First, to start quickly, 
DOE committed to a “fast-track” process in which design, technology 
development, and construction are performed concurrently on different 
aspects of the project. For projects of Hanford’s complexity, this 
approach is not compatible with controlling costs and schedules. 
Second, DOE has delayed completing analyses needed to determine the 
most cost-effective approach to waste separation and may have missed 
savings opportunities of at least $50 million a year. Third, DOE has 
not adequately defined or communicated the potential effects of a 
legal challenge to its overall plan for minimizing how much high-level 
waste is disposed of in an underground repository. Unless effectively 
managed, an adverse legal outcome could increase project costs by tens 
of billions of dollars.

High-level Vitrification Plant at Hanford’s Waste Treatment 
Construction Site, March 2004

[See PDF for image]

[End of figure]

What GAO Recommends: 

GAO recommends that DOE (1) follow more closely its project management 
guidance when acquiring complex nuclear waste treatment plants, 
especially by avoiding a fast-track, concurrent design-build approach, 
and (2) develop and provide to Congress a plan that includes an 
estimate of the costs and time frames needed to treat and dispose of 
DOE’s high-level tank wastes if most of these wastes must be disposed 
of in an underground high-level waste repository. In commenting on the 
report, DOE generally agreed with the recommendations, including 
improving its cost estimates, but was unwilling to develop an 
alternative treatment plan for high-level waste until the legal issues 
are decided. GAO believes that any cost estimate DOE develops should 
be based on a specific plan.

www.gao.gov/cgi-bin/getrpt?GAO-04-611.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Robin M. Nazzaro at 
(202) 512-3841 or nazzaror@gao.gov.

[End of section]

Contents: 

Letter: 

Results in Brief: 

Background: 

DOE Has Revised Its Cleanup Approach to Reduce Costs and Save Time in 
the Long Term but Has Increased the Cost of Its Major Construction 
Project in the Short Term: 

Contract Performance Reforms Were in Place at Start of Project, Project 
Management Reforms Were Added Later: 

Not Implementing Key Project Management Reforms at Start of the 
Construction Project Has Added to DOE's Challenges: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendixes: 

Appendix I: Scope and Methodology: 

Appendix II: Analysis of DOE's Cost-Saving Estimates: 

Appendix III: Comments from the Department of Energy: 

Appendix IV: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Staff Acknowledgments: 

Tables: 

Table 1: Key Events in the Hanford Waste Treatment Project: 

Table 2: Comparison between DOE's Previous Approach (December 2000) and 
Accelerated Approach (August 2002) for Processing Hanford's Tank Waste: 

Table 3: GAO Analysis of DOE's Cost-Savings Estimate for the Hanford 
Tank Waste Treatment Project: 

Figures: 

Figure 1: Aerial View of the Waste Treatment Plant, March 2004: 

Figure 2: Key Construction Project Dates: DOE's Previous Approach 
Compared with Its Accelerated Approach: 

Abbreviations: 

AEA: Atomic Energy Act of 1954: 

AEC: Atomic Energy Commission: 

CHG: CH2M Hill Hanford Group: 

DOE: Department of Energy: 

EPA: Environmental Protection Agency: 

ERDA: Energy Research and Development Administration: 

NRC: Nuclear Regulatory Commission: 

OMB: Office of Management and Budget: 

Letter June 10, 2004: 

The Honorable Thomas M. Davis: 
Chairman: 
The Honorable Henry A. Waxman: 
Ranking Minority Member: 
Committee on Government Reform: 
House of Representatives: 

The Department of Energy (DOE) spends almost $20 billion a year--about 
90 percent of its fiscal year 2003 budget--on contracts, including 
those for operating its installations. These operations include 
extensive projects for treating and storing radioactive and hazardous 
wastes accumulated over more than 50 years of nuclear weapons 
production--a task DOE has estimated will cost more than $142 billion 
(fiscal year 2003 dollars) and will not be completed until 2035. DOE's 
success has been mixed, with some cleanup projects going well but 
others producing few or no results after the expenditure of hundreds of 
millions of dollars. We and others have criticized DOE for failing to 
hold its contractors accountable for results and for inadequate 
management and oversight of its projects. In response, starting in the 
mid-1990s, DOE undertook two main reform initiatives--both were 
designed to improve contractor performance in carrying out major 
projects. The contract performance initiative, which DOE formalized in 
1996, included ensuring that DOE begins projects by using the 
appropriate contract type, encouraging greater competition in contract 
bids, and linking contract award fees more closely to contractor 
performance. The project management initiative, started in 1999 and 
resulting in new management guidance in 2003, required DOE and its 
contractors to implement certain management practices, such as 
following a more disciplined decision-making process for defining, 
planning, and carrying out major projects.

You asked us to review the impact of these management reform efforts at 
DOE's largest and most complex cleanup project--the waste treatment 
project[Footnote 1] at DOE's Hanford Site in Washington State. 
Hanford's waste treatment project involves more than 55 million gallons 
of radioactive and hazardous waste--enough to fill an area the size of 
a football field to a depth of more than 150 feet--stored in 177 
underground tanks. DOE has managed this waste over the years as high-
level waste.[Footnote 2] The overall project involves two major steps: 
(1) designing, constructing, and testing a waste treatment 
plant[Footnote 3] (the construction project) and (2) operating this 
plant and others in subsequent years to process and prepare the tank 
waste for permanent disposal (the operations project). In 2000, after 
DOE had announced its agencywide contract and project management 
reforms, it awarded an 11-year, $4.3 billion contract for the 
construction project. In April 2003--as part of a nationwide effort 
that DOE started in 2002 to reduce the costs and schedule for cleaning 
up many of its sites--DOE revised Hanford's waste treatment project, 
accelerating it to help meet a 2028 deadline that the department had 
agreed to with Washington State in 1989. Our analysis examines the 
interaction of these four separate efforts--the contract performance 
initiative, the project management initiative, DOE efforts to 
accelerate cleanup at its sites, and the waste treatment project at 
Hanford. Specifically, this report examines (1) the DOE accelerated 
approach for addressing Hanford's tank waste, including any changes in 
the construction project's cost or schedule; (2) the extent to which 
DOE's contract and project management reforms have been implemented on 
the construction project; and (3) the challenges resulting from any 
unimplemented reforms on the potential for completing the waste 
treatment project successfully.

This report is based on detailed work we conducted at DOE's Hanford 
Site near Richland, Washington, and on our analysis of cost and 
schedule information and legal documents pertaining to the waste 
treatment project. We also reviewed DOE's contract reform and project 
management initiatives, including our prior reports on those 
initiatives. To evaluate the technical aspects of the Hanford waste 
treatment project, we obtained the assistance of a physicist with 
extensive experience in the nuclear field. A detailed discussion of our 
scope and methodology appears in appendix I. We conducted our review 
from July 2003 through May 2004 in accordance with generally accepted 
government auditing standards.

Results in Brief: 

DOE's accelerated waste treatment approach calls for significant 
changes in treating and disposing of Hanford's tank wastes as a way of 
saving both time and money when the waste treatment facilities begin 
operation. Under the approach of its December 2000, $4.3 billion 
contract with Bechtel National, Inc. (Bechtel National), DOE estimated 
that cleaning up the waste would cost about $56 billion and take until 
about 2046. The accelerated approach calls for completing waste 
treatment by 2028; by reducing cleanup by almost 20 years, DOE 
estimates it will save about $20 billion. The accelerated approach came 
about 2 years after the construction contractor, operating under the 
assumptions of DOE's previous approach, had begun to design, build, and 
test the waste treatment plant. DOE increased the contract amount for 
the construction project by $1.4 billion, to $5.7 billion, to reflect 
the accelerated approach's added production capacity, contractor 
performance problems, additional design work, and better estimates. DOE 
also lengthened by 16 months the time for designing and building the 
plant. To keep the construction project on schedule despite the 
increase, however, DOE decided to shorten the commissioning phase--the 
period for testing the plant to ensure that it will work properly once 
operations begin--by nearly the same amount. As a result, DOE has 
maintained its schedule to begin operation of the waste treatment plant 
by 2011.

DOE's 2000 contract implemented the department's contract performance 
initiative but not its project management initiative. Elements of the 
contract initiative in place at the contract's start included ensuring 
that a competitive process for bidding the 2000 contract was followed 
and paying contractor performance fees on the basis of the cost and 
time required to successfully complete the plant. Because it was under 
pressure to meet regulatory milestones and keep the project moving 
forward, however, DOE awarded the contract without fully implementing 
its project management initiative, which the department had developed 
but not yet issued in final form. For example, the initiative calls for 
developing, at the beginning of a project, an approach that can meet 
mission requirements. The initial contract DOE awarded, however, called 
for designing and building a plant that would not be able to complete 
the cleanup by 2028, the time frame DOE agreed to with Washington 
State. Similarly, the project management initiative calls for a 
project's cost and schedule to be validated before setting a firm 
project price. At the time of contract award, however, DOE's cost and 
schedule estimates had not been fully validated to determine if they 
were realistic. Since 2002, DOE has implemented various steps called 
for in the project management initiative, such as developing a more 
realistic baseline and increasing project contingency.

DOE's decision not to implement the project management initiative at 
the start of the construction project has added to the risk and 
uncertainty the department faces in completing both the construction 
and operations projects. The initiative's main purpose is to minimize 
problems that have plagued DOE in the past by taking such steps as 
avoiding or mitigating high-risk strategies for constructing 
facilities, as well as by conducting rigorous analyses to support key 
decisions. In awarding the 2000 contract without these steps being 
fully implemented, DOE has adopted a high-risk strategy at Hanford. 
According to Hanford project officials, implementing project management 
steps subsequently, as DOE has begun to do under its accelerated 
approach, is intended to provide a more disciplined method for keeping 
the project's cost and schedule on track. In our view, however, these 
steps cannot eliminate the risk and uncertainty resulting from the 
department's decision not to implement the project management 
initiative from the start. This risk and uncertainty comes from three 
main sources: 

* Using a fast-track management approach. DOE has committed to a "fast-
track" process in which many design, technology development, and 
construction activities are performed simultaneously, thereby 
significantly increasing the risk of cost increases and schedule delays 
as the construction project progresses. Performance so far on the 
construction project has been mixed--problems have already contributed 
to the $1.4 billion construction cost increase. Furthermore, our review 
indicates that cost, schedule, and performance problems continue, 
although they have not yet affected the revised project baseline. For 
example, construction activities, such as building interior walls, have 
outpaced design, leading to delays in finishing the walls and the need 
to temporarily reassign construction workers to other tasks. In 
addition, efforts to resolve key technical challenges, including 
incorporating alternative treatment technologies, continue to fall 
behind and threaten to affect the overall project's baseline. Hanford's 
construction project manager acknowledged that the contract schedule 
for building and testing the plant and concurrently resolving technical 
issues was and still is high risk. Although he and other DOE officials 
stated they have taken adequate steps to mitigate this risk, DOE, since 
contract award, has continued to encounter significant technical and 
other problems. Given the risk inherent in this project, we and outside 
experts believe that further cost increases, as well as schedule 
delays, are likely.

* Not fully evaluating cost-saving possibilities beyond the 
construction phase. DOE started and is moving forward on the waste 
treatment project without fully completing or conducting some of the 
rigorous analyses needed to determine the most desirable approach for 
separating waste components before further treatment. For example, as 
specified in its construction contract, DOE plans to use a material 
called "resin" to separate high-level components from the waste. The 
resin DOE selected in 2000 is available only from a single supplier, 
and DOE officials have been slow to study alternative resins that could 
reduce operating costs of the separation facility. Instead, DOE has 
continued to depend on the production capability and pricing 
constraints of the single supplier, even though other--potentially less 
expensive--alternative resins exist. Finally, in late February 2004, 
DOE decided to more fully assess the cost and risks of relying on a 
single supplier for the resin. But because of the time required to test 
and certify an alternative resin, the new material may not be available 
in time for commissioning and beginning operation of the separation 
facility. As a result, DOE's project manager estimated that this lost 
opportunity could increase project operation costs by at least $50 
million a year. DOE's slowness in pursuing an alternative resin stemmed 
from its focus on achieving the near-term goal of having an operating 
plant by 2011 and its belief that pursuing the alternative, cost-saving 
option could jeopardize achieving that goal.

* Inadequate planning to assess and mitigate the effects of a legal 
challenge to DOE's overall approach to treating and disposing of high-
level radioactive waste. DOE's strategy for treating the waste--not 
only at Hanford, but also at its other high-level waste sites at 
Savannah River and the Idaho National Laboratory--is predicated on a 
key legal assumption that has been successfully challenged in court. 
The treatment strategy rests heavily on DOE's ability to determine that 
a majority of its tank waste can be classified as other than high-level 
waste and treated with less expensive technologies. DOE recently lost a 
court decision on this matter and is appealing the ruling. DOE has also 
pursued, unsuccessfully as of May 2004, a legislative remedy that has 
instead raised concerns about whether the department is attempting to 
avoid treating some of its waste in an appropriate manner. If DOE has 
to change its current approach to treating and disposing of its waste, 
the change would have a major impact on cleanup of Hanford's tank 
wastes as well as those at DOE's other high-level waste sites. DOE has 
developed only rough estimates of potential cost and schedule impacts 
that this legal challenge poses, including near-term delays and overall 
effects on cleanup. These estimates for the Hanford Site range from 
about $350 million for delays if the lawsuit is resolved in DOE's 
favor, to possibly more than $19 billion in delays and changes to the 
program if the decision against DOE is upheld. The Hanford estimate is 
part of a complexwide estimate of more than $100 billion if the lawsuit 
is not resolved in DOE's favor. Our review indicates that these 
estimates may be significantly understated. During our review, DOE 
officials said they believe that their cost estimates and risk-
mitigation plans are adequate, and that no further analysis is needed 
because DOE will ultimately succeed in the appeal or its legislative 
efforts. In our view, however, a more thorough analysis and full 
disclosure are needed concerning the potential risk this legal issue 
poses to the waste treatment project at Hanford and DOE's other sites, 
including potential impacts on the project's cost and schedule and the 
environmental risks associated with further delays. We believe full 
disclosure is important so that policy makers and others can undertake 
a more informed debate about DOE's high-level waste program.

We are recommending that DOE (1) more closely follow its project 
management order and implementing guidance when developing and carrying 
out complex nuclear waste cleanup projects at Hanford and other DOE 
sites and (2) develop and disclose to Congress a full and complete 
estimate of the costs and time frames required to dispose of Hanford's 
and the rest of DOE's high-level tank wastes if, to comply with the 
law, DOE must dispose of a majority of its tank wastes in a high-level 
waste repository.

DOE agreed to follow more closely its project management order and 
guidance and to develop more complete information on the costs if DOE 
is required to dispose of a majority of its tank wastes in a high-level 
waste repository. However, DOE said it was unwilling to develop an 
alternative treatment and disposal plan until the outcome of the legal 
appeal has been determined. We believe that to be meaningful, any cost 
and schedule estimates DOE develops should be based on a specific 
alternative treatment plan.

Background: 

DOE's Hanford Site in southeastern Washington State was established in 
1943 to produce nuclear materials for the nation's defense. This 
production mission entailed dissolving used ("spent") nuclear fuel to 
remove plutonium, uranium, and other materials and generated large 
volumes of high-level radioactive wastes. The wastes' radioactive 
components decay in a process in which atoms of a radioactive element 
(also known as a "radionuclide") spontaneously release dangerous 
radiation. Even short periods of exposure to intense radiation can 
cause health problems, including radiation sickness, burns, and even 
death. Because of the intense radiation emitted from high-level waste, 
the waste must be isolated and handled remotely behind heavy shielding. 
Some of the radioactive components can be very mobile in the 
environment and, if not checked, may migrate quickly to contaminate 
soils and groundwater. In addition to radioactive components, DOE's 
high-level waste generally also contains hazardous components--
including solvents, caustic soda, and heavy metals such as chromium. 
Radioactive waste components combined with hazardous components are 
referred to as "mixed wastes."

Although DOE stopped producing nuclear material at Hanford in 1989, 
high-level waste tanks on the site now contain more than 55 million 
gallons of sludge, liquid, and a sandlike material called "saltcake." 
This Hanford tank waste represents about 35 percent of the 
radioactivity and almost 60 percent of the high-level waste inventory 
(by volume) within DOE. Hanford's 177 underground waste tanks were 
constructed between 1943 and 1986. The oldest 149 tanks have single-
layer walls, or shells, and DOE has reported that 67 of these tanks are 
assumed to have leaked waste into the soil. All of the single-shell 
tanks are beyond their design life. The 28 newest tanks have double-
shells and are still in use, and DOE reports that these tanks have not 
leaked. Since 1989, DOE has spent about $7 billion to manage the waste 
and explore possible ways to treat and dispose of the wastes. As of May 
2004, none of the high-level waste at Hanford has been treated for 
final disposal.

Treatment and disposal of high-level waste produced at DOE facilities, 
including Hanford, are governed by a number of federal laws that define 
the role of DOE and the Nuclear Regulatory Commission (NRC) in waste 
management. The Atomic Energy Act of 1954 (AEA) and the Energy 
Reorganization Act of 1974 established responsibility for the 
regulatory control of radioactive materials, including DOE's high-level 
wastes.[Footnote 4] The Energy Reorganization Act of 1974 assigned NRC 
the function of licensing facilities that are authorized for long-term 
storage of high-level radioactive waste generated by DOE and 
others.[Footnote 5] The Nuclear Waste Policy Act of 1982, as amended, 
defines high-level radioactive waste as "highly radioactive material 
resulting from the reprocessing of spent nuclear fuel, including liquid 
waste produced directly in reprocessing, and any solid material derived 
from such liquid waste that contains fission products in sufficient 
concentrations, and…other highly radioactive material that the 
[NRC]…determines…requires permanent isolation."[Footnote 6] The act 
also established a process for developing and siting a geologic 
repository (a permanent site deep underground) for the disposal of 
high-level waste and spent fuel.

DOE's past efforts to treat and dispose of Hanford's tank wastes have 
been costly but have resulted in little progress. DOE's initial cleanup 
strategy, developed in 1989, was to immobilize the wastes stored in the 
28 most modern tanks because the department knew the most about the 
waste constituents in those tanks. DOE planned to defer until at least 
2003 in deciding what to do with the waste in the remaining 149 tanks. 
The department spent about $23 million on renovating a World War II-era 
facility, in which it planned to conduct initial waste processing, 
before determining that the facility could not be upgraded to meet 
environmental standards. DOE abandoned this project in 1991. DOE 
continued designing a waste treatment facility, known as the Hanford 
Waste Vitrification Plant,[Footnote 7] that, beginning in late 1991, 
was expected to process the waste from all 177 tanks. The resulting 
design, however, was too small to treat all of the waste in a time 
frame acceptable to regulators. In addition, under this scenario, DOE 
would have completed the treatment facility before other aspects of the 
waste treatment program were fully developed--such as retrieving the 
wastes from the tanks. DOE abandoned this plan in 1993, after spending 
$418 million. DOE's next cleanup attempt, begun in 1995, involved 
shifting more of the project and performance risk from DOE itself to 
its contractor through an approach called "privatization." Under a 
fixed-price contract using this approach, the contractor would design, 
finance, build, commission, and operate waste treatment facilities on 
the Hanford Site for DOE. The department would pay the contractor for 
successfully processed waste placed in canisters. The first phase of 
this project was to involve treating about 10 percent of the waste, at 
a contract price of $3.2 billion. Between 1996 and 2000, however, the 
proposed contract price soared to more than $14 billion. In June 2000, 
DOE canceled the contract, after spending about $300 million, mostly on 
plant design. In December 2000, DOE awarded a new $4.3 billion "cost-
reimbursable" contract with performance fee to complete the waste 
treatment plant that the previous contractor had begun to 
design.[Footnote 8] In August 2002, DOE revised the project to more 
effectively meet regulatory milestones. DOE renegotiated the contract 
in April 2003 to reflect this revision and to address construction 
problems. In this report, we refer to DOE's December 2000 plan as the 
"previous approach" and the August 2002 strategy as the "accelerated 
approach." (Table 1 summarizes key project events discussed in this 
report.)

Table 1: Key Events in the Hanford Waste Treatment Project: 

Date: December 2000; 
Activity: Award of plant construction contract to Bechtel National 
(previous approach).

Date: July and September 2002; 
Activity: Independent reviews of the construction contract cost and 
schedule.

Date: April 2003; 
Activity: Bechtel National contract modification approved (accelerated 
approach).

Date: May 2005; 
Activity: Alternative treatment demonstration to begin.

Date: July 2011; 
Activity: Bechtel National contract planned completion date.

Date: February 2018; 
Activity: Regulatory milestone to complete treatment of 10 percent of 
the waste by volume (25 percent of the radioactivity).

Date: December 2028; 
Activity: Regulatory milestone to complete treatment of Hanford's tank 
waste.

Date: 2046; 
Activity: Previous DOE baseline date for completing treatment of 
Hanford's tank waste.

Source: Compiled by GAO from DOE data.

[End of table]

Problems at Hanford and other DOE sites have led DOE to institute 
reforms in contract and project management. DOE relies almost entirely 
on contractors to carry out its production, research, and cleanup 
missions. The department's history of inadequate management and 
oversight and of failure to hold its contractors accountable for 
results led us in the early 1990s to designate DOE contract and project 
management as a high-risk area vulnerable to fraud, waste, abuse, and 
mismanagement. In response to these and other criticisms, DOE took 
steps to reform its contracting and project management practices. On 
the contracting side, in February 1994, DOE issued a report--Making 
Contracting Work Better and Cost Less--containing 48 recommendations in 
three key areas: selecting alternatives to traditional contracting 
arrangements used for management and operation of its sites, increasing 
competition to improve performance, and developing and using 
performance-based contracting tools. On the project management side, 
after a series of critical reviews by the National Academy of Sciences 
and others, DOE issued order 413.3 in October 2000, which defined 
requirements for DOE project management. These requirements include 
following a formal planning and decision process; developing key 
management tools, including an acquisition strategy;[Footnote 9] and 
implementing effective management practices, such as minimizing 
project risk by developing mitigation strategies. DOE has implemented 
order 413.3 through detailed guidance it adopted in March 2003.
[Footnote 10]

DOE carries out its tank waste cleanup program under the leadership of 
DOE's Assistant Secretary for Environmental Management and in 
consultation with a variety of regional and local stakeholders. In 
addition to the Environmental Protection Agency (EPA) and state 
environmental agencies, which have regulatory authority in the states 
where the sites are located, stakeholders include county and local 
governmental agencies, citizen groups, advisory groups, and Native 
American tribes. These stakeholders make known their views through 
various public involvement processes, including site-specific advisory 
boards. Over the years, much of the cleanup activity has been 
implemented under compliance agreements between DOE and regulatory 
agencies. These compliance agreements provide for establishing legally 
enforceable schedule milestones governing the work to be done. The 
operation of Hanford's tank waste program is regulated under the 
Hanford Federal Facility Agreement and Consent Order between DOE and 
Washington State's Department of Ecology and EPA. This agreement, 
commonly called the "Tri-Party Agreement," was signed in May 
1989.[Footnote 11] At Hanford, DOE manages the project through its 
Office of River Protection, which is a congressionally established 
organization created in December 1998 to manage tank waste issues. The 
office has a staff of about 110 DOE employees and a fiscal year 2004 
budget of about $1.1 billion. It manages Hanford's tank waste cleanup 
through two main contracts: a construction contract with Bechtel 
National for a tank waste treatment plant and a tank farm operations 
contract with CH2M Hill Hanford Group (CHG). Through its contract, CHG 
manages various activities in support of the waste treatment project, 
including planning for the overall project, developing alternative 
treatment technologies, storing the tank waste until treatments are 
available, and preparing to retrieve the waste from the tanks for 
treatment.

DOE Has Revised Its Cleanup Approach to Reduce Costs and Save Time in 
the Long Term but Has Increased the Cost of Its Major Construction 
Project in the Short Term: 

By accelerating and otherwise adjusting its previous approach to the 
tank waste project--which was unlikely to meet required deadlines--DOE 
estimates that it can shorten the project's overall time frame by 
almost 20 years and lower the cost from more than $50 billion to less 
than $30 billion. To achieve these goals, DOE has expanded the capacity 
of the reconfigured treatment facilities and made other changes to the 
construction phase of the project. These changes, plus contractor 
performance problems, have increased the $4.3 billion construction 
contract signed in 2000 by 33 percent, or $1.4 billion, bringing the 
total contract price for the construction project to $5.7 billion. DOE 
still expects to begin operating the waste treatment plant by 2011.

DOE's Previous Cleanup Approach Unlikely to Meet the Required 
Deadlines: 

DOE's December 2000 previous approach to the tank waste project did not 
define project activities beyond 2018. The department's plan consisted 
of (1) a first phase during which facilities would be constructed and 
about 10 percent of the waste would be processed by 2018 and (2) a 
second phase during which treatment capacity would be added and the 
remaining waste would be treated. The plan involved constructing three 
main treatment facilities--a waste separation facility, a high-level 
waste vitrification facility, and a low-activity waste vitrification 
facility--as well as various support facilities. Once the plant was 
commissioned, DOE intended to separate 10 percent of the waste by 
volume (and about 25 percent of the total radioactivity) into high-
level and low-activity portions of the waste[Footnote 12] and then 
vitrify the separated wastes in two treatment facilities, one for high-
level waste and the other for low-activity waste. DOE plans to 
eventually dispose of the high-level waste in a geologic repository. 
Although DOE had planned to stabilize the low-activity waste through 
vitrification as well, it plans to dispose of this waste at a facility 
to be constructed on the Hanford Site. To accomplish treating 10 
percent of the waste by 2018, DOE designed treatment facilities with 
the capacity of 1.5 metric tons per day of high-level waste glass and 
30 metric tons per day of low-activity waste glass. Although DOE 
reported that this treatment capacity was sufficient for the project's 
first phase, it was not sufficient for treating the remaining 90 
percent of the waste. Therefore, near the end of the first phase of the 
operations project in 2018, DOE intended either to expand the existing 
treatment facilities' capacity or to adopt another approach. DOE had 
agreed with its regulators--the state of Washington and EPA--to more 
fully define the project's second phase by 2005.[Footnote 13]

Under the previous approach, for the second phase of the operations 
project, DOE planned to expand the capacity of the treatment facilities 
in 2018 to 6 metric tons per day of high-level waste glass and 60 
metric tons per day of low-activity waste glass and to extend project 
activities until 2046--18 years beyond the date agreed upon with 
regulators. This decision came from a DOE assessment of the 
requirements for the project's second phase, which led the department 
to conclude that it could not finish waste treatment by 2028. To meet 
its regulatory commitment to complete treating all of the waste by 
2028, DOE recognized that it would need considerable capacity beyond 
what could be added to the first-phase treatment facilities. However, 
DOE also determined that it was not feasible to obtain the several 
billions of additional dollars needed to construct waste treatment 
facilities beyond what was already under construction. DOE officials 
concluded at the time that the proposed expansion was the best the 
department could do, and that it would need to renegotiate the current 
2028 regulatory deadline for completing waste treatment with EPA and 
the Washington State Department of Ecology.

Accelerated Approach Defined a Complete Project That Would Meet 
Regulatory Deadlines and Reduce Costs: 

In August 2002, DOE defined an accelerated approach to address the 
processing of Hanford's tank wastes. According to the department, this 
new approach would reduce environmental risk more quickly, save 
billions of dollars over the previous approach, and allow DOE to meet 
its regulatory commitment to complete waste processing by 2028. This 
accelerated approach grew out of a DOE-wide effort to reexamine cleanup 
and to find ways to accelerate risk reduction and reduce overall 
cleanup costs. In addition, DOE officials saw the accelerated 
initiative as a possible vehicle for completing tank waste treatment by 
2028 instead of 2046.

DOE's accelerated approach at Hanford differs substantially from the 
department's previous approach and has three main elements: 

* Increasing the capacity of treatment facilities now under 
construction. Under the accelerated approach, the waste treatment plant 
was modified to increase waste treatment capacity. Instead of one 
"melter" able to produce 1.5 metric tons of waste glass per day in the 
high-level waste vitrification facility and three melters able to 
produce a total of 30 metric tons of waste glass per day in the low-
activity waste vitrification facility, DOE decided to incorporate two 
higher capacity melters for treating high-level waste and two higher 
capacity melters for treating low-activity waste. DOE expects the 
expanded facilities to have the capacity for 6 metric tons of high-
level waste glass and 36 metric tons of low-activity waste glass per 
day. Figure 1 shows the plant under construction.

Figure 1: Aerial View of the Waste Treatment Plant, March 2004: 

[See PDF for image] 

[End of figure] 

* Finding an alternative treatment approach for about 60 percent of the 
low-activity waste. Under the accelerated approach, DOE has researched 
a number of alternative ways to treat a large portion of the low-
activity waste at facilities other than the low-activity waste plant 
now under construction. The main alternative DOE is currently 
investigating involves vitrifying about 60 percent of the low-activity 
waste directly in the disposal container--a process called "bulk 
vitrification." In 2004, DOE plans to begin constructing a pilot 
facility to further develop and demonstrate the bulk vitrification 
process. If the 2-year test is successful, DOE plans to construct a 
bulk vitrification facility near the other waste treatment facilities 
now under construction. In addition, DOE continues to support 
development of another potential treatment technology for this waste, a 
thermal treatment process called "steam reforming."

* Disposing of waste whose characteristics are consistent with 
transuranic waste without vitrifying it.[Footnote 14] As another 
alternative for treating part of the waste, DOE has identified 2 to 3 
million gallons of tank waste that it manages as high-level waste but 
believes the waste does not require treatment and disposal as high-
level waste. DOE has reported that its analysis of tank records shows 
that waste in those tanks does not come from reprocessing of spent fuel 
and, therefore, does not meet the legal definition of high-level waste. 
DOE plans to manage this waste as transuranic waste and, after drying 
and packaging the waste, ship it to the Waste Isolation Pilot Plant in 
New Mexico for disposal. DOE estimates that this approach, if approved 
by regulators, could shorten the operating project time frame by at 
least 3 years.

DOE expects that its accelerated approach will enable it to avoid 
building another large waste treatment plant and still meet the 
regulatory deadline of completing waste processing by 2028.[Footnote 
15] DOE also expects that accelerating treatment to a completion date 
of 2028 will reduce overall project costs from about $56 billion to 
about $27 billion. The difference between the two DOE estimates is $29 
billion, but DOE has stated publicly that it expects to achieve savings 
of $20 billion by accelerating the project. However, we believe that 
DOE's cost-savings estimate is significantly overstated. (See app. II 
for a discussion of our concerns about DOE's cost-savings estimate.) 
Table 2 summarizes the overall differences between DOE's previous 
approach and its accelerated approach.

Table 2: Comparison between DOE's Previous Approach (December 2000) and 
Accelerated Approach (August 2002) for Processing Hanford's Tank Waste: 

Element of approach: Daily treatment capacity of treatment facilities: 
High-level waste glass; 
Previous approach: Capacity from 2011 to 2018: 1.5 metric tons/day; 
Previous approach: Capacity after 2018: 6 metric tons/day; 
Accelerated approach: 6 metric tons/day;

Element of approach: Daily treatment capacity of treatment facilities: 
Low-activity waste glass; 
Previous approach: Capacity from 2011 to 2018: 30 metric tons/day; 
Previous approach: Capacity after 2018: 60 metric tons/day; 
Accelerated approach: 36 metric tons/day.

Element of approach: Role of alternative treatment approaches, such as 
bulk vitrification; 
Previous approach: Capacity from 2011 to 2018: None; 
Previous approach: Capacity after 2018: None; 
Accelerated approach: Treat 60 percent of low-activity waste.

Element of approach: Overall treatment completed; 
Previous approach: Capacity from 2011 to 2018: N/A; 
Previous approach: Capacity after 2018: 2046; 
Accelerated approach: 2028.

Element of approach: Life-cycle cost (2003 to completion in nominal 
dollars); 
Previous approach: Capacity from 2011 to 2018: N/A; 
Previous approach: Capacity after 2018: $56 billion[A]; 
Accelerated approach: $27 billion[A]. 

Source: Compiled by GAO from DOE data.

[A] The difference between the two DOE estimates is $29 billion, but 
DOE has stated publicly that it expects to achieve a savings of $20 
billion by accelerating the project. Neither savings figure represents 
savings DOE can expect to realize, however, because its cost estimates 
have not been properly developed. To address these problems, we used a 
present-value analysis, in which dollars are discounted to a common 
year to reflect the time value of money. See appendix II for a 
comparison of DOE's estimated savings with our calculation.

[End of table]

Accelerated Approach and Other Project and Contractor Performance 
Issues Have Lengthened the Design and Construction Phases and Increased 
Contract Price by $1.4 Billion: 

DOE renegotiated its contract with Bechtel National to address several 
factors, including accelerating the overall project to adjust for the 
project's changed scope, revising the project schedule to increase 
construction time, resolving contractor claims, and overcoming 
contractor performance problems that had occurred to that point. The 
project's changed scope required design rework and other equipment and 
facility changes to add capacity in the treatment facilities and to 
separate a planned analytical laboratory from the waste separation 
facility. For example, in the high-level waste treatment facility, the 
contractor had to increase individual floor heights, resulting in the 
building height increasing 7 feet, to ease the complexity of 
construction and for added operational flexibility. DOE has estimated 
that these changes in scope will cost about $250 million.

DOE and Bechtel National have also agreed that about $325 million in 
increased cost stems from Bechtel's engineering and project management 
problems as well as from delays in completing design work. DOE and 
Bechtel National have not agreed on the cause of the remaining $850 
million in cost increases, which resulted from estimation errors and 
omissions and from various design and construction issues. However, DOE 
and Bechtel National resolved the disputed $850 million by changing the 
contract and modifying the performance incentives to hold the 
contractor more responsible for future cost increases. As a result of 
the contract renegotiation, the contract price has risen by $1.4 
billion (33 percent), to $5.7 billion. In addition, the dates for 
certain interim steps of the construction project have been modified, 
although the completion date for the contract remains the same so that 
DOE can maintain its schedule to begin operations of the waste 
treatment plant by 2011 (see fig. 2): 

Figure 2: Key Construction Project Dates: DOE's Previous Approach 
Compared with Its Accelerated Approach: 

[See PDF for image] 

[A] Cold commissioning refers to testing facilities using simulated 
tank waste.

[B] Hot commissioning refers to testing facilities using actual tank 
waste.

[End of figure] 

Contract Performance Reforms Were in Place at Start of Project, Project 
Management Reforms Were Added Later: 

When the contract was originally awarded in 2000, DOE implemented key 
elements of its contract performance initiative but chose not to 
implement its project management reforms. At the time, DOE had just 
adopted the project management reforms resulting from its project 
management initiative, but implementing guidance was not in place. As 
the waste treatment project got under way and performance problems 
began to surface, DOE began to put in place many of the project 
management initiative's key elements.

Key Contract Performance Reforms Were in Place When Contract Was 
Awarded: 

At the time of the December 2000 contract award, DOE was implementing 
key elements of its contract performance initiative throughout the DOE 
complex to help improve contractor performance and achieve project cost 
and schedule goals. These elements included ensuring that the type of 
contract was appropriate for a project's characteristics and risk 
level, competing contracts to ensure that the government receives the 
best offer, and using performance-based incentives to reward 
contractors for good performance and penalize them for poor 
performance. DOE has worked toward implementing this contract 
initiative, which includes these key elements, since 1994.[Footnote 16]

The December 2000 Hanford waste treatment project construction contract 
incorporated key provisions of DOE's contract performance initiative. 
For example: 

* In accordance with a key element of its 1994 contract performance 
initiative to select a project-appropriate contract type, DOE decided 
on a cost-reimbursement contract type for the waste treatment plant. 
Following our criticisms of DOE's earlier privatization 
approach,[Footnote 17] DOE decided that a cost-reimbursement contract 
with incentive fees would be more appropriate than a fixed-price 
contract using a privatization approach for the Hanford project and 
would better motivate the contractor to control costs through incentive 
fees.

* DOE decided that a competitive procurement was appropriate for the 
Hanford project. After holding a series of meetings with interested 
vendors to discuss contract options and how to promote competition, DOE 
established an open competition for which two competing teams--Bechtel 
National and Fluor Vitrification Group--offered proposals. DOE selected 
the Bechtel National team, concluding that it offered the best 
technical approach and project management, the highest qualifications 
of key personnel, and the best record of past performance.

* Finally, DOE put in place a performance-based approach to hold the 
winning contractor accountable for meeting cost and schedule targets. 
For example, DOE provided Bechtel National with an opportunity to earn 
up to $276 million in cost incentives if it met a target cost of $3.97 
billion. In addition, the contract provided Bechtel National with $20 
million more if it met the schedule date of February 2007 for specified 
testing of the facility. Nevertheless, although the contractor could 
earn the fee for meeting these goals, the contract also included a 
provision that retaining all fees above the minimum guaranteed fee was 
conditional upon the successful completion of plant testing once 
construction was complete. If the contractor did not successfully test 
the plant at the end of construction, it would have to repay all of the 
incentive fees above the minimum. A DOE official involved with the 
project at the time said this provisional fee concept was intended to 
follow the contract reform initiative in holding the contractor 
accountable for the quality of work performed.

After the contract was awarded, however, costs began to increase and 
delays to occur. In response, DOE further adjusted the contract's 
incentive structure to encourage the contractor to perform better. For 
example, the initial contract fee structure stipulated that the 
contractor would receive a minimum fee of $79 million regardless of 
performance and set a maximum total fee of $595 million. In a 2003 
contract modification, DOE eliminated the minimum guaranteed fee and 
required the contractor to meet a performance standard to earn any 
fees. The revised contract sets a maximum fee of $425 million, as 
follows: $200 million for meeting a target cost, $60 million for 
meeting four construction completion milestones, $54 million for 
meeting other schedule requirements, and $111 million for meeting 
performance-testing criteria demonstrating the facility's ability to 
treat the waste. DOE made this change following a 2002 review that 
concluded that the original incentives were not functioning 
effectively, because the cost had risen to a point where the contractor 
was no longer incentivized to contain costs. In internal contracting 
documents, DOE noted that the current incentive structure is better 
balanced and should increase the contractor's motivation to control 
costs and, at the same time, improve on-time performance and operations 
quality.

Project Management Reforms Were Not in Place at Contract Award: 

Unlike the contract performance initiative, which has existed since 
1994, DOE's project management initiative had just been issued at the 
time of the 2000 contract award. Its provisions were in the early 
stages of implementation throughout DOE, and no formal implementation 
guidance had been issued.[Footnote 18] Based on good project management 
practices, this project management initiative establishes a more 
rigorous decision-making process containing specific requirements to be 
completed at each project decision point. These requirements include 
preparing an overall project strategy, performing up-front planning, 
and having a thorough design and review of these plans by headquarters. 
The initiative also requires conducting risk evaluations of the 
projects; comparing budgeted with actual expenditures; and completing 
certain requirements, such as a significant portion of design, before 
proceeding with construction.

Because DOE had not issued formal guidance under its project management 
initiative, reforms that the department did not implement in the 
December 2000 contract included the following: 

* The project management initiative requires that a project acquisition 
strategy be developed during the early planning stages of a project. At 
the time of contract award for the construction project, however, DOE 
did not have an approved acquisition strategy describing how it planned 
to meet long-term goals for treating all of Hanford's tank waste by 
regulatory deadlines. Without such a plan, DOE could not demonstrate 
whether the plant being built under the construction contract would 
meet the long-term goals.

* DOE's project management initiative stresses that projects must 
undergo thorough up-front planning. This process includes waiting until 
a design is at a certain level of completion before setting a firm 
project price. For simple, less-complex projects, the project 
management initiative recommends that a design be up to 35 percent 
complete before setting the project price. Although the initiative does 
not give a definitive completion design level for more complex 
projects, according to the Deputy Director for Project Management in 
DOE's Office of Engineering and Construction Management, the aggregate 
design of a complex project should adhere to a similar standard, so 
that a sufficient level of design is completed in order to make a 
reasonably accurate cost estimate. Waiting until a design is more 
complete, especially on projects like the Hanford waste treatment plant 
that are complex, one-of-a-kind nuclear facilities, allows DOE to 
identify many of the design uncertainties and to estimate costs more 
accurately. Contrary to guidance adopted in March 2003, however, DOE 
set its December 2000 contract price when the design was less than 15 
percent complete.

* The project management initiative recommends that a project's 
baseline be reviewed and validated throughout the life of the project. 
According to independent reviews performed in 2002, DOE awarded the 
Hanford construction contract with a project cost baseline--$3.97 
billion--that had not been appropriately validated.[Footnote 19] 
Instead, the contract included a requirement that the contractor review 
the previous contractor's design and cost--or perform a "due diligence" 
review--after signing the contract to assess needed changes to ensure 
that the facility would meet requirements. The independent reviewers 
concluded that this due diligence requirement had left it ambiguous 
regarding whether changes in the project's scope proposed by the 
contractor would be allowed as contract cost increases. As a result, 
the project was more vulnerable to increasing costs.

* DOE's project management initiative recommends that cost and schedule 
baselines be fully achievable and that, to ensure a "high" confidence 
of success, they build in appropriate contingency funding in case of 
unforeseen events--that is, additional funding and schedule flexibility 
based on a project's degree of risk. In the December 2000 contract, 
however, DOE accepted a project cost and schedule baseline that had 
only a 50 percent chance of succeeding on time and within budget, 
according to an internal DOE assessment of the construction contract. A 
subsequent independent review of the project found that both the 
project cost and the contingency allowance were too low for a project 
of this complexity, and the reviewers recommended raising the estimated 
project cost and the contingency allowance to provide the project with 
an 80 percent chance of success.

DOE proceeded with the December 2000 contract award without putting 
these key project management requirements in place for two main 
reasons. First, according to the former Deputy Manager of the Hanford 
waste treatment project, the department believed that it had already 
met the intent of its project management initiative--for example, 
defining the "mission need," or what the project was intended to 
accomplish, and specifying certain design and engineering requirements 
in the early planning and design stages under the previous contractor. 
DOE also had a system in place to monitor financial information and 
report on the project's financial status, as required under the project 
management initiative. Furthermore, the December 2000 contract included 
requirements for the contractor to develop project management documents 
either identical or similar to those under the project management 
initiative. For example, the contract required the contractor to 
develop a project execution plan, summarizing critical information 
necessary to manage a project. The contract also required a quarterly 
risk assessment report, which met certain project management 
requirements for effective risk management. At the time, the then 
Assistant Secretary of Environmental Management said that, with these 
steps, the project had met the "equivalent" of many project management 
requirements and could move forward, despite not having officially 
followed the requirements for the earlier planning stages. Second, 
these decisions were made while the department was undergoing 
regulatory pressure to keep the cleanup moving forward. For example, 
after canceling the earlier (privatization) contract in June 2000, DOE 
committed to awarding a new construction contract by January 2001, and 
the state of Washington was threatening to take legal action if DOE 
missed that deadline. DOE had agreed to begin construction by July 
2001, and it wanted to demonstrate that it could meet this regulatory 
milestone.

Since 2002, DOE Has Been Implementing Management Practices Aimed at 
Strengthening Management of the Construction Contract: 

Two independent reviews in the midst of performance problems after the 
2000 contract award identified significant project management 
deficiencies and recommended fuller implementation of project 
management reforms. These reviews found that many of the required 
project-planning documents were either in draft form or inadequately 
prepared. For example, the reviewers found that DOE's draft project 
execution plan was outdated and incomplete. In addition, the reviewers 
noted that the December 2000 contract cost estimate was understated, 
and, therefore, the actual cost of the project had not been 
communicated to DOE headquarters or to Congress. Furthermore, the 
reviewers observed that the aggressive schedule in the baseline was 
unrealistic. Maintaining such a schedule would compound the risk of 
further unanticipated cost increases. The reviewers recommended that 
the baseline not be approved with its existing schedule, but rather 
that the cost and schedule targets be increased to a more realistically 
attainable goal. In addition to recommendations from these reviews to 
more fully implement project management requirements, directions in 
2002 from the Assistant Secretary for Environmental Management strongly 
emphasized adhering to project management requirements on all DOE 
projects.

Following the independent reviews' recommendations, DOE has been 
implementing its project management initiative on Hanford's waste 
treatment project, putting in place certain requirements lacking in the 
December 2000 contract, including the following: 

* Developing a project acquisition strategy. DOE is now developing a 
plan (acquisition strategy) for how it will meet overall waste 
treatment goals for the project. This strategy addresses how DOE can 
process all of its waste by the 2028 regulatory milestone. As of May 
2004, this acquisition strategy was under development.

* Setting a contract price after design is at a greater level of 
completion. When DOE renegotiated the construction contract price of 
nearly $6 billion in its April 2003 modification, plant design was 
about 40 percent complete. A March 2003 internal DOE review of the 
proposed change to the contract price, which is based on a greater 
level of design completion, stated that the new price appears to be 
more reasonable.

* Proceeding with a baseline that has been reviewed and approved. The 
Hanford waste treatment project is now operating under a baseline that 
has been validated and approved by DOE headquarters, and additional 
management practices have been put into place by the current management 
to take a more disciplined approach to keeping the project cost and 
schedule on track. When it renegotiated the contract price in April 
2003, DOE had established a "minimum essential" initiative in which it 
identified areas of work, such as construction of a container storage 
building, that it believed were not essential to successful project 
operation, thus helping to reduce the project's overall cost. At the 
contract renegotiation, DOE identified about $67 million in work that 
was unnecessary to the project and could be eliminated.

* Increasing contingency funding for unforeseen cost increases. The 
April 2003 revised project baseline included $550 million in 
contingency funding to allow DOE an 80 percent chance of meeting the 
contract cost and schedule. To better control the use of this funding, 
DOE also implemented a joint DOE-contractor managed board to authorize 
which unforeseen cost increases will be funded using contingency funds. 
DOE established this board to more tightly ensure that unforeseen 
project changes do not increase the current cost baseline. In addition 
to this contingency, DOE also set aside another $100 million for 
unforeseen technical and programmatic risks.

Even with these steps, further concerns about the project's baseline 
cost and schedule exist. For example, out of concern about the 
reliability of the project's renegotiated cost and schedule, the 
conference report accompanying the Energy and Water Development 
Appropriations Act for 2004 directed the U.S. Army Corps of Engineers 
to conduct a detailed, independent review of the project's cost and 
schedule baseline. The report is to be issued to the House and Senate 
Committees on Appropriations and may be available to the public by 
early summer 2004.

Not Implementing Key Project Management Reforms at Start of the 
Construction Project Has Added to DOE's Challenges: 

DOE's decision not to implement the project management initiative at 
the beginning of the Hanford waste treatment construction project has 
increased the risks and uncertainties the department will face in 
completing both the construction project and the operations project to 
clean up the Hanford Site. Three main consequences of DOE's failure to 
implement project management reforms earlier are heightened risk from 
using a fast-track approach for plant construction, missed potential 
cost-saving opportunities, and lack of a sufficient risk management 
strategy for DOE to address legal challenges to its waste treatment 
strategy.

Fast-track Project Management Approach Increases the Risk of 
Encountering Problems: 

To minimize the time required to complete construction, DOE has 
followed a fast-track approach to the construction project, carrying 
out plant design, construction, and technology development activities 
simultaneously. Under this approach, design and construction activities 
take place in stages, with construction of some sections of a facility 
under way before those sections are fully designed. DOE's project 
management initiative, however, cautions that such a fast-track, 
design-build approach should be used only in limited situations, such 
as when work scope requirements are well defined, the project is not 
complex, and technical risks are limited. When these conditions do not 
exist, a fast-track approach is a risky management strategy. According 
to DOE's project management guidance, a fast-track approach to large, 
complex, one-of-a-kind projects is inherently high risk.

The construction project at Hanford departs from conditions appropriate 
for fast-track management. For example, DOE has acknowledged that the 
waste treatment plant is the largest, most complex environmental 
cleanup project in the United States. The plant incorporates waste 
treatment processes that have never previously been combined into 
facilities the size and capacity of those envisioned at Hanford. 
Furthermore, key uncertainties still exist regarding the condition of 
the waste to be treated and the best technologies to use for certain 
treatment processes.

Despite these risks, DOE has chosen this approach to keep the 
construction project moving forward so that the plant can be completed 
in time to meet regulatory milestones. DOE selected a contractor for 
the December 2000 contract award that, it believed, had experience with 
the fast-track approach and would be able to maintain the contract 
schedule. DOE also took steps to manage the increased risk associated 
with a fast-track approach, establishing contingency funding measures 
in case of unforeseen occurrences and linking performance fees 
specifically to cost and schedule goals.

Despite the risk-mitigation actions taken in 2003, the fast-track 
approach may result in continuing problems on the construction project. 
For example: 

* Construction is outpacing design, resulting in delays in completing 
planned work. Although DOE doubled the funding for engineering and 
other professional services to help ensure that design work was 
completed on schedule, construction has outpaced design. This lag has 
delayed completion of interior walls in the treatment facilities and 
led to the need to temporarily reassign construction workers to other 
tasks. According to the DOE construction project manager, the project 
baseline has not yet been affected, but if the problem persists, both 
cost and schedule could be affected.

* Shortening the facility commissioning period may limit plant 
reliability. In its April 2003 contract modification, DOE extended the 
construction schedule by 16 months because of delays and design 
changes. To complete the construction project by 2011 while increasing 
the construction phase, DOE reduced by nearly the same period the 
commissioning phase, when the facilities' complex treatment processes 
will be tested and brought into sound working order. Because of this 
shorter commissioning time, DOE reduced the testing to be conducted on 
actual wastes. As a result, the contractor plans to test only two of 
Hanford's four waste types during this period. According to experts we 
contacted, including former DOE and contractor officials and industry 
technology development managers who have been involved in plant start-
up operations, this commissioning approach could overlook significant 
problems until after the plant becomes fully operational. These experts 
have noted that corrective actions at that time could be more costly 
and time-consuming than if the problems were found during the 
commissioning phase. DOE Hanford managers have countered that although 
the period for testing plant operations using actual wastes has been 
reduced, the period for testing simulated waste has been expanded by 
several months. While they expect operational challenges during the 
commissioning period, DOE officials believe that their current 
commissioning strategy will be sufficient to test the plant adequately.

* Resolving key technical challenges for processing the waste has 
fallen behind. To keep the construction project on schedule, DOE has 
acknowledged that it needs to expedite the resolution of key technical 
challenges facing the project. One such challenge involves the 
generation of hydrogen gas during waste separation activities. The 
Defense Nuclear Facilities Safety Board stated in October 2002 and 
again in September 2003 that problems with this flammable gas, 
involving buildup of gas in excess of safety limits, could result in 
significant safety and operational problems. Bechtel National has been 
addressing this issue through design changes. However, even though it 
has been more than 1 year since the Board first raised this issue, this 
problem has yet to be fully resolved. An even more critical technical 
challenge involves how the wastes are mixed during treatment processes. 
To expedite resolution of this technical challenge, Bechtel National 
initially decided to rely on computer modeling of special mixers, 
called "pulse jet mixers." But because computer modeling did not 
provide adequate assurance that the mixers would work, the contractor 
decided in April 2003, just 9 months before the design configuration 
for the mixers was to be completed, to conduct more stringent tests. 
Efforts to resolve the uncertainties associated with the mixers have 
delayed the testing schedule by more than 4 months, increased costs by 
more than $15 million, and postponed the purchase of several thousand 
feet of pipe for the treatment facilities. In March 2004, Bechtel 
National reported that modifying the facility design to reflect 
improvements to the mixers could require an additional $70 million and 
take about 16 months to complete. In its March 2004 monthly contract 
status report, Bechtel National stated that such delays have affected 
the project's critical path and will increase costs.

* Depending on a technology not fully tested on Hanford tank wastes to 
meet regulatory milestones. To meet its regulatory milestone for 
completing treatment of Hanford's tank waste by 2028, DOE is attempting 
to incorporate a technology before its effectiveness has been fully 
demonstrated on Hanford's tank wastes. For example, DOE is relying 
heavily on the assumption that a treatment technology called "bulk 
vitrification" will succeed. Although this technology is being managed 
outside of the scope of DOE's construction project, it is critical to 
the cleanup program because the technology is expected to treat up to 
60 percent of the Hanford's low-activity waste. DOE's current plans 
depend on this technology to meet its 2028 cleanup date, even though 
its effectiveness has not been fully tested. As a result, to 
demonstrate that this technology will work on Hanford's tank wastes, 
DOE has adopted an aggressive schedule to begin constructing a pilot 
facility later in 2004 and to conduct formal testing over about 2 
years, beginning in May 2005. Although initial tests with simulated 
waste have led DOE to consider this technology promising, Hanford's 
waste management director has stated that the size and treatment 
capacity of a full-scale plant cannot be confirmed until testing is 
completed. Because DOE is relying on bulk vitrification to process the 
majority of low-activity waste, any problems in developing this 
treatment capability will likely extend the duration of the waste 
treatment project and increase its overall cost. DOE's initial schedule 
may already be threatened because awarding a contract to build the test 
facility is about 6 months behind schedule.

Beyond these potential problems with the construction project, the 
fast-track approach raises other concerns. First, DOE's construction 
project manager has acknowledged that the schedule for constructing and 
testing facilities and concurrently resolving technical issues 
continues to be high risk. In addition, Bechtel National reported in 
January 2004 that it was concerned about being able to meet its planned 
construction schedule. Second, engineering and construction experts we 
contacted within the industry, national research organizations, and 
academia expressed concern that proceeding with DOE's fast-track 
approach could create higher costs, schedule delays, and facilities not 
fully capable of treating the waste. Third, a 2002 study by the 
National Research Council reported that DOE should proceed with caution 
when managing "first-of-a-kind" projects using a fast-track 
approach.[Footnote 20] The council concluded that developing technology 
concurrently with project engineering, design, and construction 
activities increases an already high degree of uncertainty. The council 
said such projects are risky, costly, and likely to produce facilities 
needing significant modifications to ensure that they will work 
properly. Fourth, the Defense Nuclear Facilities Safety Board cautioned 
in June 2002, and again in March 2004, that a fast-track approach could 
lead to expensive plant modifications or to the acceptance of increased 
public health and safety risks. Finally, DOE's record with the fast-
track approach on complex nuclear cleanup facilities is not good.
[Footnote 21] DOE could not identify for us a single instance where 
this approach to constructing a large, complex nuclear cleanup facility 
resulted in a project that was completed on time and within budget.

Delays in Evaluating Risks and Costs Associated with Waste Separations 
May Cost $50 Million or More: 

DOE has delayed evaluating the most desirable approach to take in 
separating waste components before further waste treatment can occur. 
Separating Hanford's waste into its various components is crucial to 
DOE's treatment and disposal plans, and, as of April 2004, DOE was 
relying on a single supplier of a costly key substance in the 
separation process. Waste separation involves sequential filtering and 
removing major high-level constituents, such as cesium-137 and 
strontium-90, from the waste. The separation process at Hanford 
includes a technology called "ion exchange," in which the waste flows 
through columns containing a specially designed substance, or resin, 
that chemically collects specific high-level waste components on its 
surface as they pass through the columns. The high-level waste 
components are then washed from the resin and accumulated as part of 
the high-level waste stream. Bechtel National will obtain this resin 
from a single, small supplier.

DOE faces two significant risks regarding resin supply: acquiring the 
resin in sufficient quantities to operate the separation facility and 
the cost of the resin DOE selected. The first risk is that DOE decided 
to acquire the resin from a small supplier that may not have the long-
term production capacity to supply the resin in required quantities--
about 6,250 gallons per year. In a December 2003 letter to Bechtel 
National, the manufacturer stated it can produce 1,600 gallons of resin 
over a 12-month period to meet initial commissioning needs. Although 
the manufacturer assured Bechtel National that it will eventually be 
able to produce enough resin for full-scale treatment operations, as of 
April 2004, contractor and DOE management officials had not verified 
that the supplier actually has this capacity. These officials stated 
that they are relying on the manufacturer's December 2003 assurance 
that it can produce the quantity of resin needed for full-scale 
operations. Bechtel National stated that it is not responsible for 
ensuring that the supplier can provide resin beyond its plant 
commissioning commitments. The second risk is the potentially high cost 
of purchasing the resin from a single source without price competition. 
Information obtained in December 2003 indicates that the resin may cost 
about $10,000 per gallon. Over a single year of operating the 
separation facility, resin costs alone could amount to about $62 
million. According to the project's research and technology manager, 
however, it may be possible to use an alternative, that may be an 
equally effective but significantly less expensive resin, that may be 
available from commercial suppliers. This alternative resin may cost 
about $1,000 to $2,000 per gallon, or about $6 million to $12 million 
per year. DOE and contractor officials, including the research and 
technology manager and the project's manager, confirmed that pursuing 
an alternative resin could substantially increase the reliability of 
supply and reduce plant operating costs.

DOE has taken steps to address these project risks, but delays in 
developing a viable risk-mitigation strategy may cost DOE $50 million a 
year or more in lost savings opportunities. As early as its December 
2000 contract award date, DOE recognized that depending on a single 
resin source was high risk. Although Bechtel National began evaluating 
alternative resins in 2002, DOE took no formal action on the issue 
until 2003. After we and others raised this issue with DOE in early 
2003, the department modified the contract in April 2003 to require the 
contractor to continue research on alternative resins for use as an 
option to the resin specified in the December contract. Initial testing 
on alternative resins, completed by the contractor in late 2003, showed 
promising results for a resin costing significantly less than the 
original. Given the estimated cost of the two resins, the potential 
cost savings of using the alternative resin for 1 year of operation 
could result in a savings of between $50 million to $56 million, 
according to the project manager. The contractor, however, did not 
aggressively pursue development of an alternative resin, even though it 
was authorized to do so, deciding to defer any significant exploration 
of alternative resins until fiscal year 2007 or later. The contractor 
explained that an alternative resin was not needed to achieve its 
contractual commitment of delivering an operational facility. In 
addition, the contractor was unsure whether it could successfully 
develop another resin in time for plant commissioning and said that 
spending money on an alternative resin could worsen projected 2005 and 
2006 funding constraints.

In late February 2004, DOE directed Bechtel National to test and 
qualify an alternative resin in time for commissioning the separation 
facility. Although testing an alternative resin is important in 
properly managing project risk, with the limited time to certify an 
alternative resin, DOE could for several years after treatment 
operations begin be exposed to the risk of having an uncertain supply 
of resin available to support waste separation operations and of having 
to pay a higher cost for the resin. The contractor will have about 2 
years to fully test and qualify an alternative resin if the resin is to 
be available for procurement by mid-2006 and for plant commissioning in 
2008. Two years may be too little time because the qualifying process 
took nearly 10 years for the original resin. Even if the contractor can 
successfully qualify the resin within 2 years, it will still have to 
obtain sufficient quantities for plant commissioning. The contractor's 
research and technology manager told us that this schedule is extremely 
tight and will be challenging to meet. Thus, DOE may for considerable 
time be dependent on the production capability and pricing of a single 
supplier for a substance critical to the waste separation process.

DOE Has Not Adequately Assessed or Mitigated a Legal Challenge to Its 
High-level Waste Treatment Strategy: 

A third challenge DOE must address to successfully manage its waste 
treatment project is to fully assess the risks of a legal challenge to 
its approach for treating and disposing of the tank wastes and to 
develop an adequate mitigation strategy for addressing those risks. 
DOE's project management initiative requires that the department assess 
significant risks, quantify the potential impacts, and develop a 
mitigation plan for addressing these risks. DOE, however, has not fully 
assessed the risks associated with the legal challenge, has only very 
rough estimates of the potential impacts on the waste treatment 
project's cost and schedule, and has not developed a comprehensive 
mitigation strategy.

Legal Challenge to DOE's High-level Waste Treatment and Disposal 
Strategy Threatens to Derail Cleanup: 

DOE had developed a process for determining the conditions under which 
some of its tank wastes could be considered for disposal as other than 
high-level waste. This process was defined in DOE order 435.1 and was 
generally called a process for determining that certain waste resulting 
from reprocessing is "waste incidental to reprocessing."[Footnote 22] 
To meet criteria set forth in this order for considering tank wastes as 
other than high-level wastes, DOE had to determine that the waste (1) 
has been or will be processed to remove key radioactive components to 
the maximum extent technically and economically practical; (2) will be 
disposed of in conformance with the safety requirements for low-level 
waste as established in NRC regulations; and (3) will be put in a solid 
physical form and not exceed radioactivity levels set by NRC for the 
most radioactive category of low-level waste, referred to as "Class C 
standard."[Footnote 23] Once satisfied that these requirements were met 
for a specific segment of the waste, DOE planned to obtain a technical 
review of this determination from NRC. NRC's role was to determine 
whether DOE had appropriately followed the criteria in order 
435.1.[Footnote 24] After a favorable determination from NRC, DOE would 
have considered the waste segment to be "incidental" waste for purposes 
of treating and disposing of the waste.

The legal basis of DOE's plan to apply different treatment and disposal 
approaches to segments of its tank wastes has been challenged in the 
courts. In March 2002, a lawsuit filed by the Natural Resources Defense 
Council and others challenged DOE's authority to proceed with its 
planned approach. The plaintiffs argued that DOE's plan violated the 
Nuclear Waste Policy Act by allowing high-level radioactive waste to be 
classified and treated as something other than high-level waste. In a 
brief in support of their position, plaintiffs expressed the concern 
that DOE would use its incidental waste determination process to 
permanently leave intensely radioactive waste in the tanks after only 
minimal treatment. In a July 2, 2003, federal district court ruling, 
the court agreed with the plaintiffs that the portion of DOE's order 
435.1 setting out its incidental waste determination process violated 
the Nuclear Waste Policy Act and found that that part of the order was 
invalid. The court concluded that the act "allows DOE to treat the 
solids to remove fission products, thereby permitting reclassification 
of the waste," but does not permit the same option for the liquid 
portion of the waste, which may not be reclassified and must be treated 
as high-level waste.[Footnote 25] This ruling poses a significant 
barrier to DOE's plan to segment the tank wastes for treatment and 
disposal purposes, and it raises the possibility that DOE might need to 
find an alternative strategy to its accelerated approach for cleaning 
up Hanford's tank wastes. DOE has appealed this decision.

DOE's Risk Assessment and Mitigation Planning Are Inadequate: 

DOE's project management initiative defines risk as "the measure of the 
potential inability to achieve overall project objectives within 
defined scope, cost, schedule and technical constraints" and emphasizes 
that all projects should have a risk assessment and mitigation 
strategy. Such an assessment must identify any technical, cost, or 
schedule risks to the project; quantify potential cost and schedule 
impacts; and develop and implement a strategy to mitigate or properly 
manage those risks. According to the Deputy Director for Project 
Management in DOE's Office of Engineering and Construction Management, 
which oversees implementation of DOE's project management initiative, 
managers should analyze both the consequence to the project if the risk 
occurs and the likelihood of a risk's occurring. He noted that if the 
potential impact to the project is significant and the likelihood of a 
risk occurring is highly probable, DOE managers must develop a formal 
risk-mitigation plan detailing the potential risks, impacts, and 
actions taken and planned to best mitigate the risk. The project 
management initiative describes effective risk management as "an 
essential element of every project" and makes it clear that risk 
management should occur continuously throughout a project.

DOE has not conducted a thorough risk assessment of the potential 
effects of the legal challenge on the Hanford tank waste treatment 
project. Although a draft internal study concludes that the legal 
challenge presents a high risk to DOE's high-level waste 
program,[Footnote 26] DOE has only very rough estimates of the 
consequences for its cleanup program. These estimates, which are not 
part of Hanford's formal risk management plan, cover both near-term 
impacts on cost and schedule if the lawsuit delays cleanup but is 
ultimately resolved in DOE's favor and long-term impacts if the outcome 
continues to go against DOE. The department estimated that in the near 
term, a 2-year slip in cleanup would cost an additional $350 million 
at Hanford. We found no analysis supporting this estimate.[Footnote 27] 
DOE officials said this $350 million near-term estimate was not tied to 
specific activities on the waste treatment project but represented the 
approximate cost of an extra year of maintaining waste in the tanks. 
Regarding the long-term impacts if DOE must treat and dispose of all of 
its tank wastes as high-level waste, DOE has provided rough, 
unvalidated estimates for both the Hanford site ($19 billion) and its 
entire high-level waste program (more than $100 billion). Again, we 
found little rigorous analysis to support either estimate. For example, 
the $19 billion Hanford estimate is based, in part, on a configuration 
and capacity of the low-activity treatment facility that DOE is no 
longer considering because that configuration could result in an 
unacceptably high heat load. The Hanford estimate also includes a 
potential cost of $6 billion to remove and dispose of 149 tanks after 
waste has been retrieved. Information that DOE provided to us in April 
2004, however, indicates this cost could be closer to $67 billion. 
Further, the $19 billion Hanford estimate does not include the 
additional costs to DOE for disposing of approximately 86,000 more 
canisters of treated waste than currently planned in a deep geological 
repository. On the basis of a recent disposal estimate of $650,000 per 
canister, this cost alone could add $56 billion to the Hanford 
estimate.[Footnote 28] The estimate for Hanford is part of DOE's 
complexwide estimate of "more than $100 billion" cost impact if 
outcomes continue to go against DOE. These revised Hanford estimates 
and other recent information from DOE indicate that the department's 
complexwide estimate of more than $100 billion may also be 
significantly understated. For example, within its $100 billion 
estimate, DOE included $30 billion for disposal of additional canisters 
that would be produced complexwide. In response to our request, 
however, DOE acknowledged the $30 billion was too low and recalculated 
the figure, resulting in a revised estimate of more than $90 billion 
for this component of its complexwide estimate.

A main aspect of DOE's risk-mitigation planning--its pursuit of a 
legislative remedy--has also been inadequate.[Footnote 29] Regarding 
the legislative remedy, DOE has not been effective in developing 
complete and objective supporting information and effectively 
communicating that information to decision makers or other 
stakeholders. In addition to using only rough estimates, DOE has raised 
stakeholder concerns about its true intentions. For example, after the 
court ruling, DOE drafted proposed language to amend the Nuclear Waste 
Policy Act of 1982, as amended, to give DOE specific authority to make 
incidental waste determinations.[Footnote 30] The state of Washington 
and others raised concerns that the proposed language would leave DOE 
with too much discretion regarding how to make these determinations. 
The state of Washington has been concerned that DOE may use such 
authority to permanently and inappropriately leave highly radioactive 
waste in the tanks. To date, DOE has not been effective in countering 
these concerns or in explaining to its stakeholders or other decision 
makers why the incidental waste determination process is in the 
public's best interest.

The potential consequences for Hanford's tank waste project, and for 
DOE's other high-level waste sites, could be far-reaching and 
significant. DOE's own analysis suggests several consequences could 
occur. In the worst case, wastes could remain on-site untreated for 
longer periods of time, posing a continued threat to workers, the 
public, and the environment. Complexwide, DOE would likely need to find 
a different strategy to treat all of its tank waste for disposal at a 
geologic repository. Treated waste, at much larger volumes than now 
estimated, could overwhelm the currently planned geologic repository, 
hastening the need for additional repository capacity. For example, DOE 
estimates that it would need to send an additional 180,000 canisters of 
waste from all sites to a repository if it must dispose of most of its 
waste as high-level waste. DOE's current plans call for sending about 
20,000 canisters to a repository. Furthermore, the plant now under 
construction at Hanford may not be configured to most effectively treat 
waste if all of the waste is destined for a repository. For example, 
all of the tank wastes may need to be treated through the waste 
treatment plant, making supplemental technology development 
unnecessary. Since the current plant would be unable to process all of 
the tank waste by 2028 without using supplemental technologies, DOE may 
need to consider alternatives, such as building a second waste 
treatment plant. DOE does not currently have estimates of these 
scenarios.

Despite these deficiencies in risk assessment and mitigation planning, 
DOE believes its current risk assessment and mitigation plan are 
sufficient. According to DOE, its cost estimates were intended only to 
illustrate potential impacts to its high-level waste program in a 
worst-case scenario, and, because the department believes it will 
ultimately be successful either in the appeals process or through 
legislative avenues, a more detailed risk assessment is not needed. In 
our view, the uncertainties associated with this legal challenge to its 
waste treatment program are precisely why DOE needs a thorough and 
objective assessment of the risks and a mitigation plan that includes 
complete and effective communication with decision makers and other 
stakeholders.

Conclusions: 

After years of effort and after spending hundreds of millions of 
dollars and making several false starts, DOE is now constructing a 
plant to use in treating and preparing for disposal of a major portion 
of Hanford's high-level tank wastes. But DOE began plant construction 
before it had a complete acquisition strategy in place, and it is 
carrying out technology development, plant design, and construction 
activities simultaneously. In going forward, DOE faces significant 
challenges that will likely continue to affect cost and completion 
dates, including the challenge of continuing to manage concurrent 
development, design, and construction. DOE will need to minimize the 
cost and schedule growth that will likely continue and to take full 
advantage of cost-reduction opportunities over the life of the project. 
DOE must also carefully assess and manage the implications of legal 
challenges to its overall approach to treating and disposing of high-
level tank wastes. We believe that full disclosure of the potential 
impacts to its high-level waste program is important so that policy 
makers and others can undertake a more informed debate.

Recommendations for Executive Action: 

We recommend that the Secretary of Energy take the following two 
actions: 

* follow more closely DOE's project management order and implementing 
guidance when acquiring complex nuclear waste treatment plants at 
Hanford and other DOE sites, especially by avoiding a fast-track, 
concurrent approach to the design, technology development, 
construction, and testing of such plants, and: 

* develop and provide to Congress a plan that includes an estimate of 
the costs and time frames needed to treat and dispose of Hanford's and 
the rest of DOE's high-level tank wastes if the current court ruling is 
upheld and if a majority of DOE's tank wastes must be disposed of in a 
high-level waste repository.

Agency Comments and Our Evaluation: 

We provided a draft of this report to DOE for review and comment. In 
written comments, DOE's Assistant Secretary for Environmental 
Management generally agreed with the report's recommendations. The 
Assistant Secretary also provided technical comments as an enclosure to 
the letter, which we have incorporated as appropriate. DOE's written 
comments on our draft report are included in appendix III.

Regarding the report's two recommendations, DOE agreed to follow more 
closely its project management guidance when acquiring complex nuclear 
waste treatment plants, especially by avoiding a fast-track, concurrent 
approach to designing and constructing such plants. Concerning our 
recommendation to develop and provide to Congress a plan that includes 
an estimate of the costs and time frames to treat and dispose of DOE's 
high-level wastes, if a majority of the wastes must be disposed of in a 
high-level waste repository, DOE agreed that it should develop more 
complete information on the costs to give Congress a better sense of 
the magnitude of those costs. However, DOE said it was unwilling to 
develop an alternative treatment and disposal plan until the outcome of 
the legal appeal has been determined. In our view, to be meaningful, 
any cost and schedule estimates that DOE develops should be based on a 
specific alternative treatment plan.

In an enclosure to the letter, DOE disagreed with our view that it 
should use present values when disclosing the cost savings between 
alternative approaches. DOE said that present-value techniques tend to 
hide the full value of future costs due to discounting, and that using 
current dollars provides for a more direct comparison with a project's 
life-cycle cost and DOE's budget. However, although using current 
dollar estimates may be appropriate for budget purposes, as we discuss 
in our report, standard economic analysis as well as Office of 
Management and Budget guidelines (see app. II), state that present-
value analysis is the standard methodology to use for comparing costs 
of different alternatives that occur at different times (e.g., DOE's 
accelerated and baseline approaches). Present-value analysis reflects 
the time value of money--that cost savings are worth more if they are 
incurred sooner and worth less if they occur in the future. Contrary to 
DOE's comment that present-value techniques "hide" the full value of 
future costs, present-value analysis reveals the true costs of projects 
and is the appropriate method to use to reliably estimate and compare 
costs.

DOE also disagreed with our statement that its $20 billion cost-savings 
estimate for the Hanford waste treatment project is overstated and 
misleading. We believe DOE's $20 billion cost-saving estimate is 
overstated because it is not based on a present-value analysis as 
discussed above, and the estimate is misleading because it is a point 
estimate that does not consider uncertainties inherent in the waste 
treatment project and implies a degree of accuracy that is not 
warranted. Furthermore, as we noted in the report, DOE's $20 billion 
cost-saving estimate could not be derived from DOE's reported costs for 
its baseline and accelerated approaches. (See app. II.)

As arranged with your offices, unless you publicly announce its 
contents earlier, we plan no further distribution of this report until 
30 days after the date of this report. At that time, we will send 
copies to other interested congressional committees and to the 
Secretary of Energy. We will also make copies available to others upon 
request. In addition, the report will be available at no charge on the 
GAO Web site at [Hyperlink, http://www.gao.gov].

If you or your staff have any questions on this report, please call me 
on (202) 512-3841. Other staff contributing to this report are listed 
in appendix IV.

Signed by: 

Robin M. Nazzaro: 
Director, Natural Resources and Environment: 

[End of section]

Appendixes: 

Appendix I: Scope and Methodology: 

To develop information on the Department of Energy's (DOE) cleanup 
strategy for Hanford tank waste and how the strategy has evolved since 
December 2000, we analyzed information and documents provided by DOE 
officials and contractors at the Hanford Site and DOE headquarters. We 
also toured the project's construction site. To assess the construction 
contract, including its cost and schedule, we reviewed the contract; 
contract modifications; and related documents, including the 
contractor's monthly progress reports and independent and headquarters 
reviews, and analyzed various related studies. We also discussed the 
progress of the project with Washington State regulators and 
Environmental Protection Agency officials; DOE headquarters officials, 
including the Assistant Secretary for Environmental Management; and 
Bechtel National, Inc., (Bechtel National) officials. To assist in 
evaluating the technical aspects of DOE's approaches, we obtained 
assistance from our technical consultant, Dr. George Hinman, who has a 
Doctor of Science degree in physics and is Professor Emeritus at 
Washington State University. Dr. Hinman has extensive nuclear energy 
experience in industry, government, and academia. To develop 
information on the impact of DOE's initiative to accelerate cleanup of 
the waste, we reviewed DOE reports and studies and discussed them with 
key headquarters and field staff. We also reviewed various studies on 
the proposed supplemental technologies and other methods being 
considered by DOE and discussed them with program officials at the 
Hanford Site and DOE headquarters. We also discussed these issues with 
Washington State regulators. We relied on dollar figures as provided by 
DOE but took various steps--such as reviewing cost validation reports, 
analyzing budget formulation documents, documenting cost estimating 
assumptions, and obtaining clarifications from DOE budget officials--to 
ensure that these data were sufficiently reliable for purposes of this 
report. To estimate the potential savings from accelerating the 
project, we analyzed DOE's life-cycle cost estimates using a 
commercially available risk analysis program called "Crystal Ball" (see 
app. II). We did not assess DOE's efforts to address any waste 
remaining in the tanks after retrieval is completed or DOE's plans to 
close the tanks. Both of these topics were outside the scope of our 
review.

To examine the extent to which DOE's contract performance initiative 
and project management initiative have been implemented on the Hanford 
project, we reviewed DOE's contract reform report--Making Contracting 
Work Better and Cost Less--and DOE order 413.3 and its implementing 
guidance. We interviewed DOE headquarters officials from the Office of 
Engineering and Construction Management and the Office of Procurement 
Assistance. We reviewed the original and modified contract, related 
project management documentation, and various reviews of the project. 
We gathered documentation on contract reforms and project management 
reforms at Hanford and also interviewed DOE officials at Hanford. We 
discussed contract management and project management issues with 
outside experts, including staff from the National Academy of Sciences, 
the U.S. Army Corps of Engineers, experts who took part in the 2002 
reviews of the waste treatment contract, and staff from the Department 
of the Navy's Nuclear Naval Program.

To determine the impact of DOE's fast-track, design-build plant 
construction approach on contract success, we reviewed various DOE and 
contractor studies and interviewed knowledgeable officials. In 
addition, we discussed this approach with several independent experts, 
including a former senior manager of DOE's environmental management 
program, an Exxon operations manager involved in facility start-up 
operations, and our technical consultant, to obtain their views on any 
benefits or potential risks DOE is facing. To determine the potential 
cost and schedule impact associated with the resin needed for DOE's 
waste separation plant, we reviewed DOE and contractor studies, risk 
assessments, and cost and schedule evaluations. We discussed the 
implications of these studies with the officials involved; our 
consultant, Dr. Hinman; and DOE and contractor officials.

To address the legal challenge DOE faces, we obtained DOE's summary 
estimates of life-cycle cost and schedule impacts to its high-level 
waste program at its three high-level waste sites if DOE lost the 
current court challenge. We also obtained summary information relating 
to DOE's estimate of near-term cost increases to its overall high-level 
waste program if a 2-year delay in the program occurred. DOE provided a 
summary table that showed, by site, such information--including 
additional years of treatment processing needed if litigation outcome 
was unfavorable, additional number of high-level waste canisters that 
would need to be produced, and additional storage costs. For the 
Hanford Site, we also requested, and DOE provided, more detailed 
analysis supporting its summary near term and longer term estimates. 
The information DOE provided included a summary cost comparison of four 
different waste treatment scenarios, including the current approach DOE 
is following. We also obtained from DOE basic assumptions used in 
calculating these scenarios and qualifications to these data. We 
discussed the Hanford estimates with DOE officials. In addition, we 
obtained from key DOE officials responses to a series of questions 
focusing on the reliability of the Hanford estimates. These questions 
covered issues such as the methodology used to develop the estimates, 
internal review of the estimates, and confidence level associated with 
the estimates. Also, because these same estimates--for DOE's entire 
high-level waste program, not just Hanford--were reported in note 17 in 
DOE's Fiscal Year 2003 Performance and Accountability Report (financial 
statements), we interviewed the auditors who performed the review of 
the financial statements for DOE. We obtained the auditors' supporting 
documentation and discussed with them the reliability of these 
estimates. Given our review of the documentation provided by DOE and 
our discussions with DOE officials, we have reservations about the 
reliability of these data. These issues are discussed in this report.

For determining DOE's risk-mitigation efforts, we gathered 
documentation relevant to DOE's legislative proposal. We discussed 
DOE's risk-mitigation strategy with officials from the state of 
Washington. We also asked DOE to provide its assessment of its risk-
mitigation efforts for the Hanford waste treatment project as a result 
of the lawsuit concerning its waste treatment and disposal strategy. We 
did not evaluate DOE's litigation strategy.

We conducted our review from July 2003 through May 2004 in accordance 
with generally accepted government auditing standards.

[End of section]

Appendix II: Analysis of DOE's Cost-Saving Estimates: 

DOE has estimated that by accelerating cleanup of the high-level tank 
wastes at its Hanford Site, it can realize savings of as much as $20 
billion by shortening the time frame for completing the project by 
almost 20 years and better aligning waste treatment and disposal 
approaches with the wastes' characteristics. Our review of DOE's 
savings estimate suggests that the estimate is overstated and 
misleading. The savings estimate is overstated because DOE did not 
consider the time value of money or properly adjust its estimates for 
inflation. The savings estimate is misleading because DOE used point 
estimates of costs that do not consider uncertainties inherent in this 
type of analysis, such as projecting costs for new or untested 
technologies or treatment options.

* DOE's savings estimate is overstated because it did not consider the 
time value of money or properly adjust for inflation. According to 
standard economic analysis and guidance developed by the Office of 
Management and Budget (OMB),[Footnote 31] cost-comparison analyses 
should be based on life-cycle costs of competing alternatives with 
future costs discounted to present values, that is, adjusted both for 
inflation and the time value of money. According to this guidance, DOE 
should have first converted the annual expected costs of cleanup for 
both its baseline estimate and its accelerated approach estimate to 
their present value in 2003 and then compared the two present-value 
costs. In contrast, DOE's comparison of its baseline estimate with its 
accelerated estimate is based on values that are simply the sum of 
current dollar values of future costs. As a result, DOE's methodology 
does not reflect an accurate comparison of its baseline estimate with 
the accelerated approach estimate.

* DOE's cost-saving estimate is misleading because it did not consider 
uncertainties inherent in DOE's waste cleanup program. According to OMB 
guidance, agencies should attempt to characterize the nature and source 
of uncertainty associated with their data and report data uncertainties 
or the full range of values within which their estimates can fall. 
Uncertainties inherent in DOE's tank waste program include the future 
costs of new technologies and waste treatment options that are not 
fully tested and the overall duration of waste treatment activities. 
For example, DOE expects to reduce treatment costs significantly based 
on a technology called "bulk vitrification." The life-cycle cost 
estimate developed for this technology, however, is preconceptual and 
will likely increase as this technology is developed, according to the 
bulk vitrification project manager. DOE has not developed an estimate 
of the range of possible costs for this technology and has not 
reflected this uncertainty in its cost-savings estimate.

To correct for DOE's methodological errors and illustrate their 
potentially significant effect, we obtained DOE's available annual cost 
and budget estimates for the project, but we considered the effects of 
the time value of money and inflation. In addition, although we were 
not able to adjust DOE's cost-savings estimate to demonstrate the 
effects of all uncertainties, for illustrative purposes we included the 
uncertainty associated with changes in interest rates. Rather than 
using one interest rate in the savings estimate, as DOE did, we 
included in our analysis a range of interest rates, which resulted in a 
range of possible project costs.[Footnote 32]

Table 3 summarizes the differences in the cost-savings estimate between 
DOE's approach and our present-value analysis that reflects the 
uncertainty associated with future interest rates. Our analysis shows 
that the estimated savings from DOE's accelerated approach could range 
from $10 billion to $13 billion, with a mean value of $12 billion. In 
other words, the estimated cost savings DOE can expect from 
implementing its accelerated cleanup approach is about $12 billion, or 
about half of the projected savings the department has reported.

Table 3: GAO Analysis of DOE's Cost-Savings Estimate for the Hanford 
Tank Waste Treatment Project: 

Dollars in billions.

Description of estimates: DOE's life-cycle cost estimates for fiscal 
year 2001 baseline and 2003 accelerated approach (current dollars); 
Baseline estimate: $56[A]; 
Accelerated estimate: $27[B]; 
Estimated savings: $20[C].

Description of estimates: GAO's present-value analysis results for the 
DOE baseline and accelerated estimate (constant 2003 dollars); 
Baseline estimate: $26[D]; 
Accelerated estimate: $14[D]; 
Estimated savings: $12[D].

Description of estimates: Range of present-value analysis results 
(constant 2003 dollars); 
Baseline estimate: $23-$29[E]; 
Accelerated estimate: $13-$15[E]; 
Estimated savings: $10-$13[E]. 

Source: GAO analysis of DOE data.

[A] According to the project's budget team leader, this figure is the 
approved 2001 baseline (including adjustments).

[B] This figure is Hanford's approved 2003 accelerated estimate.

[C] The actual difference is $29 billion. Since implementation of its 
accelerated initiative, DOE has stated publicly that it expects to 
achieve savings of $20 billion.

[D] These figures represent the means of our present-value analysis.

[E] Values represent the maximum and minimum of the range of estimated 
values from the present-value analysis when uncertainties are 
incorporated.

[End of table]

[End of section]

Appendix III: Comments from the Department of Energy: 

Department of Energy: 
Washington, DC 20585: 
May 25, 2004:

Ms. Robin M. Nazzaro:

Director, Natural Resources and Environment: 
U.S. General Accounting Office:
441 G Street, N.W.: 
Washington, DC 20548:

Dear Ms. Nazzaro:

We have reviewed your draft report entitled Absence of Key Management 
Reforms on Hanford 's Cleanup Project Adds to Challenges of Achieving 
Cost and Schedule Goals (GAO-04-611). I appreciate the opportunity to 
comment on this report and our specific comments are enclosed.

Your report contains two recommendations for executive action. The 
first recommendation, which I accept, concerns the Department of 
Energy's (DOE) project management initiative when acquiring complex 
waste treatment plants. Specifically, you recommend avoiding approaches 
where design, construction, and technology development are performed 
concurrently. DOE Order 413.3, Program and Project Management for the 
Acquisition of Capital Assets, which the Office of Environmental 
Management (EM) program now follows, addresses the concerns you raised 
in your report.

The second recommendation involves providing a plan to Congress 
detailing cost and schedule impacts to the EM program if most of the 
tank waste must be disposed in the repository. A recent court ruling 
raises legal uncertainty that the DOE can manage some of its spent 
nuclear fuel reprocessing (i.e., tank) wastes, as non-high-level waste. 
You state that the DOE has not performed a formal risk assessment and 
does not have an integrated strategy to deal with this possibility. 
While we have not performed a formal risk assessment, the DOE does have 
an integrated strategy involving legal and legislative actions.

The DOE has appealed this ruling and, as the U.S. General Accounting 
Office (GAO) recommended, has been in dialogue with both state 
governments in which DOE's tank wastes are located, and applicable 
congressional delegations to develop language that provides for 
appropriate authorities for making determinations of how the waste 
should be disposed, that preserve DOE's Atomic Energy Act authorities 
and the states' environmental regulatory authorities. The results of 
these initiatives are likely to define the legal landscape that in turn 
will shape DOE's options for disposal of this waste. Since such a 
revision would require significant time, effort, and considerably 
increased costs, we believe it prudent to wait until we know the 
outcome of these initiatives. Thus, while DOE agrees with GAO that it 
should continue to develop more complete information about the 
potential costs that disposal of most or all of the tank waste and the 
tanks themselves at a repository would entail, we believe that the 
purpose should be to give Congress a better sense of the magnitude of 
what would be involved, and not necessarily to provide a complete 
revised strategy, which DOE believes should at least await completion 
of the appellate process.

If you have any further questions, please call me at (202) 586-7709 or 
Mr. Eugene C. Schmitt, Deputy Assistant Secretary for Environmental 
Cleanup and Acceleration, at (202) 586-0755.

Sincerely,

Signed by: 

Jessie Hill Roberson: 
Assistant Secretary for Environmental Management:

Enclosure:  

[End of section]

Appendix IV: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Robin M. Nazzaro (202) 512-3841 William R. Swick (206) 287-4800: 

Staff Acknowledgments: 

In addition to those individuals named above, Chris Abraham, Ellen Chu, 
Bob Crystal, Doreen Eng, Doreen Feldman, George Hinman, Nancy Kintner-
Meyer, Mehrzad Nadji, Tom Perry, Emily Pickrell, and Stan Stenersen 
made key contributions to this report.

(360372): 

FOOTNOTES

[1] This project is officially known as the River Protection Project. 
The Columbia River flows through the site, and the cleanup is designed 
in part to keep contamination from reaching the river. In this report, 
we refer to the project as the "waste treatment project."

[2] For this report, we use the term "high-level waste" to refer to the 
waste that DOE is managing as high-level waste. DOE's Hanford Site is 
one of three DOE sites with high-level wastes needing treatment; the 
other two are the Savannah River Site in South Carolina and the Idaho 
National Laboratory.

[3] The waste treatment plant consists of one facility to separate the 
waste, two facilities to treat separated portions of the waste, and one 
laboratory and other supporting facilities.

[4] The AEA authorized the Atomic Energy Commission (AEC) to provide 
for the safe storage of radioactive waste from defense-related 
activities. 42 U.S.C. § 2121(a)(3). Later, the Energy Reorganization 
Act of 1974 abolished the AEC, transferring responsibilities to the 
Energy Research and Development Administration (ERDA)--DOE's 
predecessor--and NRC. 42 U.S.C. §§ 5814, 5841. In 1977, ERDA was 
abolished, and its functions were transferred to the newly established 
DOE, explicitly leaving the management of the government's radioactive 
waste in the hands of DOE. 42 U.S.C. §§ 7151(a), 7133(a)(8).

[5] 42 U.S.C. § 5842.

[6] 42 U.S.C. § 10101(12).

[7] Vitrification is a thermal process of mixing the waste with glass-
forming materials and melting it into glass. The glass is then poured 
into canisters for long-term storage or disposal.

[8] Cost-reimbursement contracts provide for payment of allowable 
incurred costs as prescribed in the contract. These contracts establish 
an estimate of total cost and set a ceiling that the contractor may not 
exceed, except at its own risk, without the approval of the contracting 
officer. 

[9] An acquisition strategy establishes a framework within which 
detailed project planning and execution are accomplished. An 
acquisition strategy defines an acceptable approach to meeting mission 
requirements and the relationships between essential project elements, 
such as project management, worker safety, and contract administration.

[10] In this report, we refer to DOE's order 413.3 and implementing 
guidance as its "project management initiative."

[11] The purpose of the Tri-Party Agreement is to ensure that 
environmental impacts associated with past activities are addressed and 
that environmental laws are complied with. The agreement covers many 
other site activities in addition to the tank wastes. It also outlines 
a process for modifying the agreement if needed.

[12] There is no statutory or regulatory definition of low-activity 
waste. At Hanford, DOE defines it as solidified waste that qualifies as 
mixed low-level waste because it is treated to remove radionuclides to 
below 10 C.F.R. Part 61 Class C concentrations and has been shown to 
meet performance objectives equivalent to those in 10 C.F.R. Part 61 
Subpart C. In this report, we refer to this portion of the waste as 
"low-activity waste."

[13] In the Tri-Party Agreement, DOE has agreed to retrieve and treat 
at least 99 percent of the waste altogether. If the department 
succeeds, about 500,000 gallons of waste, known as the "tank heel," 
will remain when the tanks are closed. Tank heel waste and DOE's method 
of tank closure are outside the scope of our review.

[14] Transuranic waste is defined as waste containing radionuclides 
with atomic numbers higher than 92 (the atomic number of uranium) and 
half-lives longer than 20 years in concentrations exceeding 100 
nanocuries per gram. 42 U.S.C. § 2014(e)(e), 40 C.F.R. § 191.02(i).

[15] The Tri-Party Agreement requires DOE to report by January 2005 on 
the status of its revised approach and submit by January 2006 an 
updated plan for completing waste processing.

[16] In 1996, we reported on DOE's implementation of the contract 
performance initiative and noted that although the department had begun 
to apply the initiative's principles in newly negotiated contracts, 
full implementation of the initiative's requirements could take years. 
See U.S. General Accounting Office, Department of Energy: Contract 
Reform Is Progressing, but Full Implementation Will Take Years, GAO/
RCED-97-18 (Washington, D.C.: Dec. 10, 1996). Again in 2002, we 
reported that although DOE had made progress in implementing key 
requirements on its projects, it needed to take additional actions to 
ensure that its projects were achieving the improved results this 
initiative was intended to achieve. See U.S. General Accounting Office, 
Contract Reform: DOE Has Made Progress, but Actions Needed to Ensure 
Initiatives Have Improved Results, GAO-02-798 (Washington, D.C.: Sept. 
13, 2002). Further, a 1999 review by the National Research Council 
noted that DOE has taken steps to reform its contracting practices but 
cautioned that major challenges remained, such as to consistently 
negotiate contracts that are favorable to the government. See National 
Research Council, Improving Project Management in the Department of 
Energy (Washington, D.C.: June 1999).

[17] See U.S. General Accounting Office, Nuclear Waste: Observations on 
DOE's Privatization Initiative for Complex Cleanup Projects, GAO/T-
RCED-00-215 (Washington, D.C.: June 22, 2000).

[18] DOE order 413.3--formally adopted in October 2000--identified the 
basic requirements that DOE officials were to follow in managing their 
projects. Guidance outlining how the initiative's requirements should 
be implemented was not adopted until March 2003.

[19] See U.S. Department of Energy, External Independent Review, 
Independent Cost Review: CD-3C Review of the Waste Treatment and 
Immobilization Plant Project (Washington, D.C.: September 2002), and 
Report of the Independent Team for the Hanford Waste Treatment Plant 
Project Review (Washington, D.C.: July 1, 2002).

[20] See National Research Council, Progress in Improving Project 
Management at the Department of Energy, 2002 Assessment (Washington, 
D.C.: National Academies Press, 2003).

[21] We have reported on the cost and schedule problems associated with 
DOE's use of a fast-track, design-build approach in our reviews of 
other DOE projects. For example, see U.S. General Accounting Office, 
Nuclear Waste: Hanford Tank Waste Program Needs Cost, Schedule, and 
Management Changes, GAO/RCED-93-99 (Washington, D.C.: Mar. 8, 1993); 
Nuclear Waste: Department of Energy's Project to Clean Up Pit 9 at 
Idaho Falls Is Experiencing Problems, GAO/RCED-97-180 (Washington, 
D.C.: July 28, 1997); Nuclear Waste: Process to Remove Radioactive 
Waste from Savannah River Tanks Fails to Work, GAO/RCED-99-69 
(Washington, D.C.: Apr. 30, 1999); and Nuclear Waste: Management 
Problems at the Department of Energy's Hanford Spent Fuel Storage 
Project, GAO/T-RCED-98-119 (Washington, D.C.: May 12, 1998).

[22] The phrase "waste incidental to reprocessing" refers to wastes 
resulting from reprocessing spent nuclear fuel that DOE considers not 
to be high-level waste.

[23] As specified in NRC regulations (10 C.F.R. § 61.55(a)(2)(iii)), 
Class C low-level waste must meet the most rigorous requirements for 
low-level waste form to ensure stability and requires additional 
measures at the disposal site to protect against inadvertent intrusion.

[24] Although order 435.1 does not require DOE to obtain NRC's 
concurrence with its incidental waste determinations, DOE did so to 
obtain an independent assessment of its evaluation of waste as 
incidental to reprocessing.

[25] Natural Resources Defense Council v. Abraham, 271 F.Supp.2d 1260 
(D. Idaho 2003).

[26] See Department of Energy, High-Level Waste--Risk Reduction Project 
(HLW-RPP): Managing Waste to Reduce Risk--HLW (Washington, D.C.: May 
20, 2003).

[27] During DOE's fiscal year 2003 financial statement audit, DOE 
provided its independent auditors with the $350 million estimate for 
Hanford, based on a delay in selecting a supplemental technology for 
treating low-activity waste. According to the contractor's project 
manager, however, as of April 2004, DOE was moving forward with trying 
to award a contract to test and develop bulk vitrification, the 
technology DOE has tentatively selected to treat a majority of 
Hanford's low-activity waste.

[28] DOE originally estimated $30 billion to dispose of approximately 
180,000 additional canisters at a geological repository. DOE did not 
define how much of the $30 billion applied to each site, but recently 
the department recalculated those costs and acknowledged that this cost 
could be $43 billion at Hanford alone (based on a per canister cost of 
$500,000). We used the most recent per canister disposal cost of 
$650,000 provided to us by the department in arriving at our estimate 
of $56 billion.

[29] DOE's other main risk-mitigation approach involves appealing the 
court ruling. After the July 2003 decision, DOE appealed to the Ninth 
Circuit Court of Appeals. As of May 2004, no date had been set for oral 
arguments in this case.

[30] Before the court ruling, we had recommended that DOE seek 
clarification of its authority from Congress. See U.S. General 
Accounting Office, Nuclear Waste: Challenges to Achieving Potential 
Savings in DOE's High-Level Waste Cleanup Program, GAO-03-593 
(Washington, D.C.: June 17, 2003).

[31] OMB Circular No. A-94, Guidelines and Discount Rates for Benefit-
Cost Analysis of Federal Programs (Washington, D.C.: Oct. 29, 1992).

[32] We assumed that real (adjusted for inflation) annual interest 
rates would range from a minimum of 2.92 percent to 5.39 percent with 
the likeliest value of 3.84 percent. We used an Excel spreadsheet and a 
commercially available risk analysis program, called "Crystal Ball," to 
perform this analysis. This program randomly selects values for the 
interest rate from the given range and uses each value in the 
spreadsheet to calculate the savings.

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