This is the accessible text file for GAO report number GAO-14-231 
entitled 'Plutonium Disposition Program: DOE Needs to Analyze the Root 
Causes of Cost Increases and Develop Better Cost Estimates' which was 
released on February 20, 2014. 

This text file was formatted by the U.S. Government Accountability 
Office (GAO) to be accessible to users with visual impairments, as 
part of a longer term project to improve GAO products' accessibility. 
Every attempt has been made to maintain the structural and data 
integrity of the original printed product. Accessibility features, 
such as text descriptions of tables, consecutively numbered footnotes 
placed at the end of the file, and the text of agency comment letters, 
are provided but may not exactly duplicate the presentation or format 
of the printed version. The portable document format (PDF) file is an 
exact electronic replica of the printed version. We welcome your 
feedback. Please E-mail your comments regarding the contents or 
accessibility features of this document to Webmaster@gao.gov. 

This is a work of the U.S. government and is not subject to copyright 
protection in the United States. It may be reproduced and distributed 
in its entirety without further permission from GAO. Because this work 
may contain copyrighted images or other material, permission from the 
copyright holder may be necessary if you wish to reproduce this 
material separately. 

United States Government Accountability Office: 
GAO: 

Report to the Subcommittee on Energy and Water Development, and 
Related Agencies, Committee on Appropriations, House of 
Representatives: 

February 2014: 

Plutonium Disposition Program: 

DOE Needs to Analyze the Root Causes of Cost Increases and Develop 
Better Cost Estimates: 

GAO-14-231: 

GAO Highlights: 

Highlights of GAO-14-231, a report to the Subcommittee on Energy and 
Water Development, and Related Agencies, Committee on Appropriations, 
House of Representatives. 

Why GAO Did This Study: 

NNSA, a separately organized agency within DOE, manages the Plutonium 
Disposition program to dispose of surplus weapons-grade plutonium by 
burning it as MOX fuel—-a mixture of plutonium and uranium oxides-—in 
specially modified commercial nuclear reactors. In 2012, DOE 
forecasted cost increases of close to $3 billion over the previous 
estimates for the program's two construction projects, the MOX 
facility and the WSB for disposing of waste from the MOX facility. 

GAO was asked to review these cost increases and the life-cycle cost 
estimate. This report examines: (1) drivers NNSA identified for the 
cost increases; (2) the extent to which NNSA analyzed underlying 
causes of the cost increases; (3) steps NNSA took to hold construction 
contractors accountable for their role, if any, in the cost increases; 
and (4) the extent to which NNSA's most recent estimates met cost- and 
schedule-estimating best practices. GAO reviewed NNSA's draft life-
cycle cost estimate and contractor estimates of the MOX project's cost 
and WSB schedule, compared the estimates with cost- and schedule-
estimating best practices, and interviewed DOE and NNSA officials. 

What GAO Found: 

The Department of Energy's (DOE) National Nuclear Security 
Administration (NNSA) identified various drivers for the close to $3 
billion increase in the estimated cost of the Plutonium Disposition 
program's two construction projects—the Mixed Oxide (MOX) Fuel 
Fabrication Facility and the Waste Solidification Building (WSB). 
These drivers included DOE's approval of the MOX facility's cost and 
schedule estimates before design was complete and schedule delays in 
construction of the WSB. According to NNSA, the cost of critical 
system components for the MOX facility averaged 60 percent higher than 
estimated as a result of approval of estimates before design was 
complete. 

NNSA has not analyzed the underlying, or root, causes of the Plutonium 
Disposition program construction cost increases to help identify 
lessons learned and help address the agency's difficulty in completing 
projects within cost and schedule, which has led to NNSA's management 
of major projects remaining on GAO's list of areas at high risk of 
fraud, waste, abuse, and mismanagement. DOE's project management order 
requires that lessons learned be captured throughout a project to, 
among other things, benefit future endeavors. NNSA officials said 
that, because the order does not require a root cause analysis of cost 
increases, NNSA decides on a case-by-case basis whether to conduct 
one. Unlike a root cause analysis, the cost drivers NNSA identified 
provided few details about why the drivers existed, such as DOE's 
reasons for approving the MOX facility's cost and schedule estimates 
before the design was complete. Without a root cause analysis, it is 
uncertain whether NNSA will be able to accurately identify underlying 
causes of the increases to identify and implement corrective measures 
and identify lessons learned to apply to other projects. 

After determining that the performance of the contractors for the MOX 
facility and WSB contributed to cost increases, NNSA took steps to 
hold the contractors accountable by withholding fees specified under 
the contracts. In particular, as of November 2013, NNSA withheld $45.1 
million or close to one-third of the MOX contractor's fees, including 
fees tied to meeting the MOX project's cost and schedule estimates. In 
addition, NNSA withheld $7.7 million or about 40 percent of the WSB 
contractor's fees tied to various performance measures for the WSB, 
such as completing construction milestones. 

NNSA's most recent estimates for the Plutonium Disposition program did 
not fully reflect all the characteristics of reliable cost estimates 
(e.g., credible) and schedule estimates (e.g., well-constructed) as 
established by best practices for cost- and schedule-estimating, 
placing the program at risk of further cost increases. For example: 
(1) NNSA's draft April 2013 life-cycle cost estimate of $24.2 billion 
for the overall program was not credible because NNSA did not conduct 
an independent cost estimate to provide an unbiased test of whether 
the estimate was reasonable. (2) Because the MOX contractor's 
September 2012 proposal for increasing the cost of the MOX facility 
did not include a formal analysis to examine the effects of changing 
assumptions, it was minimally credible. (3) The WSB contractor's 
February 2013 monthly update to its schedule estimate was minimally 
well-constructed in that it contained activities that were not 
properly tied with the start or end date of other activities, which 
could potentially obscure the critical path determining the project's 
completion date. 

What GAO Recommends: 

GAO is recommending, among other things, that DOE conduct a root cause 
analysis of the Plutonium Disposition program's cost increases and 
ensure that future estimates of the program's life-cycle cost and cost 
and schedule for the program's construction projects meet all best 
practices for reliable estimates. DOE generally agreed with GAO's 
recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-14-231]. For more 
information, contact David C. Trimble at (202) 512-3841 or 
trimbled@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

NNSA Identified Various Cost Drivers for the Plutonium Disposition 
Program's Construction Projects: 

NNSA Has Not Analyzed Root Causes of the Cost Increases for the 
Plutonium Disposition Program's Construction Projects: 

NNSA Has Taken Steps to Hold Contractors Accountable for Cost 
Increases by Withholding Fees: 

Estimates for the Plutonium Disposition Program's Life-cycle Cost and 
Construction Projects Did Not Meet All Best Practices for Reliability: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Assessment of NNSA's Process for Developing a Life-cycle 
Cost Estimate for the Plutonium Disposition Program: 

Appendix III: Assessment of the MOX Contractor's Proposed Cost 
Estimate Compared with Industry Best Practices: 

Appendix IV: Assessment of the Waste Solidification Building's 
Schedule Estimate Compared with Industry Best Practices: 

Appendix V: Comments from the National Nuclear Security Administration: 

Appendix VI: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Types of Fees for Construction of the MOX Facility and 
Amounts Paid, Withheld, and Remaining to Be Earned as of November 2013: 

Table 2: Fees Paid and Withheld for Construction of the WSB through 
Fiscal Year 2012: 

Table 3: NNSA's Draft Life-cycle Cost Estimate for the U.S. Plutonium 
Disposition Program, as of April 2013: 

Table 4: Four Characteristics of a High-Quality Cost Estimate with 
Their Corresponding 12 Key Cost Estimating Steps (or Best Practices): 

Table 5: MOX Contractor's September 2012 Proposal for Increasing the 
Project's Cost: 

Table 6: Four Characteristics of a High-Quality Schedule Estimate with 
Their Corresponding Best Practices: 

Figures: 

Figure 1: Aerial Views of the Plutonium Disposition Program's 
Construction Projects: 

Figure 2: DOE and NNSA Organizational Structure for Management of the 
Plutonium Disposition Program: 

Abbreviations: 

DOE: Department of Energy: 

EVM: earned value management: 

FAR: Federal Acquisition Regulation: 

MIFT: MOX Irradiation, Feedstock, and Transportation: 

MOX: mixed oxide 

NNSA: National Nuclear Security Administration: 

NRC: Nuclear Regulatory Commission: 

PDCF: Pit Disassembly and Conversion Facility: 

PDIP: Plutonium Disposition and Infrastructure Program: 

WSB: Waste Solidification Building: 

[End of section] 

United States Government Accountability Office: 
GAO:
441 G St. N.W. 
Washington, DC 20548: 

February 13, 2014: 

The Honorable Mike Simpson: 
Chairman: 
The Honorable Marcy Kaptur: 
Ranking Member: 
Subcommittee on Energy and Water Development, and Related Agencies: 
Committee on Appropriations: 
House of Representatives: 

Plutonium is a man-made, radioactive element that poses a danger of 
nuclear weapons proliferation and a risk to human health and the 
environment. Under an agreement signed in 2000, the United States and 
Russia have each pledged to dispose of at least 34 metric tons of 
surplus weapons-grade plutonium no longer needed for defense purposes 
by burning it as mixed oxide (MOX) fuel in specially modified 
commercial nuclear reactors.[Footnote 1] Once used and removed from a 
reactor, the plutonium can no longer be readily used to make a nuclear 
weapon. The National Nuclear Security Administration (NNSA), a 
separately organized agency within the Department of Energy (DOE), 
manages the Plutonium Disposition program. As part of this program, 
NNSA entered into separate contracts for design and construction 
services for two facilities at DOE's Savannah River Site in South 
Carolina: (1) the MOX Fuel Fabrication Facility for producing MOX fuel 
for nuclear reactors and (2) the Waste Solidification Building (WSB) 
for disposing of liquid waste from the MOX facility.[Footnote 2] 

Under DOE's project management order[Footnote 3] and related policies 
and guidance, NNSA project directors are responsible for managing the 
MOX facility and WSB construction projects and overseeing the 
contractors that design and construct the facilities. Among other 
things, the project management order establishes a process for DOE and 
NNSA to review and approve a project's construction cost and schedule 
estimates, including changes to the estimates; report monthly on a 
project's cost and schedule performance; and conduct project reviews 
at least once per year. 

In February of 2013, NNSA's contract administration and project 
management were again included on GAO's list of areas at high risk of 
fraud, waste, abuse, and mismanagement.[Footnote 4] In particular, 
NNSA has experienced long-standing difficulties in completing major 
projects within cost and on schedule. As we testified in March 2013, 
DOE forecasted an increase in its estimated cost and schedule to 
complete the MOX facility and WSB.[Footnote 5] Specifically, in 2012, 
DOE forecasted a close to $3 billion increase in the estimated cost to 
complete the two facilities: 

* MOX facility. In April 2007, DOE approved a cost estimate for the 
MOX facility of $4.8 billion and start of operations in September 
2016.[Footnote 6] Construction began in August 2007. In 2012, at 
NNSA's direction to update the estimate, the MOX contractor submitted 
a proposal to increase the cost of the facility to $7.7 billion with 
the start of operations delayed to November 2019. DOE began evaluating 
the proposal and, pending the outcome of its evaluation, directed the 
contractor to use its proposed cost and schedule estimate as a 
provisional baseline for purposes of monthly reporting. 

* WSB. In December 2008, NNSA approved start of construction of the 
WSB and a cost estimate of $344.5 million and start of operations in 
September 2013.[Footnote 7] In February 2012, NNSA directed the WSB 
contractor to develop a plan to address potential cost and schedule 
overruns. In December 2012, NNSA approved an increase in the estimated 
cost to $414.1 million and a delay in the start of operations to 
August 2015. 

NNSA has not finalized a life-cycle cost estimate for the Plutonium 
Disposition program--that is, an estimate of all costs to complete the 
mission to dispose of surplus weapons-grade plutonium--but, in April 
2013, it completed a draft estimate of $24.2 billion. In addition to 
construction costs, the estimate included operation and maintenance of 
the MOX facility and WSB, as well as other components of the program, 
such as production of plutonium feedstock for the MOX facility. The 
life-cycle cost estimate also included $5.2 billion in actual costs 
through fiscal year 2012: $3.4 billion for the MOX facility, $265 
million for the WSB, and $1.5 billion for other components of the 
program. 

In 2013, in light of the cost increases for the Plutonium Disposition 
program's construction projects, the fiscal year 2014 budget request 
for NNSA stated that converting plutonium to MOX fuel may be 
unaffordable. The budget request announced that, as a result, NNSA 
would slow down activities associated with the current plutonium 
disposition strategy during an assessment of alternative plutonium 
disposition strategies. As of January 2014, this assessment had not 
yet been completed. 

To provide assistance to federal agencies in preparing cost and 
schedule estimates, we have compiled best practices used throughout 
government and industry. In March 2009 and May 2012, we issued guides 
identifying the characteristics of high-quality, reliable cost and 
schedule estimates, respectively.[Footnote 8] Specifically, the four 
characteristics of a high-quality cost estimate are comprehensive, 
well-documented, accurate, and credible, and the four characteristics 
of a high-quality schedule estimate are comprehensive, well-
constructed, credible, and controlled. 

You asked us to review issues related to the construction cost 
increases for the MOX facility and WSB and the life-cycle cost of the 
overall Plutonium Disposition program. This report examines: (1) 
drivers of the cost increases that NNSA identified for the Plutonium 
Disposition program's construction projects, (2) the extent to which 
NNSA analyzed underlying causes of the cost increases, (3) steps NNSA 
took under the contracts for the construction projects to hold the 
contractors accountable for their role, if any, in the cost increases, 
and (4) the extent to which NNSA's most recent estimates for the 
program's life-cycle cost and the cost and schedule for completing the 
program's construction projects met best practices for reliable cost 
and schedule estimates. 

To assess drivers of the cost increases, we reviewed the MOX 
contractor's September 2012 proposal for increasing the project's 
cost, the change to the WSB project's cost approved in December 2012, 
and other documents. In addition, we visited the Savannah River Site 
to observe construction progress for both projects and interviewed 
NNSA and contractor officials. Because the MOX facility represents 
most of the program's construction cost increase, we also analyzed the 
MOX contractor's system for tracking and reporting on cost and 
schedule performance. To determine the extent to which NNSA analyzed 
underlying causes of the cost increases, we reviewed DOE and NNSA 
documentation of the cost increases and interviewed NNSA officials. To 
determine steps taken to hold contractors accountable for their role 
in the cost increases, we reviewed the contracts for both projects, 
fees specified under the contracts, and NNSA's fee evaluations and 
other documentation supporting its fee determinations. In addition, we 
obtained NNSA data on fees it paid to and withheld from the MOX and 
WSB contractors. We assessed the reliability of the data by 
interviewing NNSA contracting officers responsible for administering 
the contracts and other means, and we determined that the data were 
sufficiently reliable for reporting on the fees NNSA paid and withheld. 

To assess the extent to which NNSA's most recent estimates of the 
program's life-cycle cost and the cost and schedule for completing the 
program's construction projects met best practices, we tailored our 
methodology to the differing stages of NNSA's development and approval 
of each estimate. Specifically, because NNSA had not finalized a life-
cycle cost estimate for the program or a revised cost and schedule 
estimate for the MOX facility, we assessed the most recent available 
estimates--spreadsheets dated April 2013 representing NNSA's draft 
life-cycle cost estimate and the MOX contractor's September 2012 
proposal for increasing the project's cost. We assessed the WSB 
schedule estimate because, as described in the GAO Schedule Assessment 
Guide, a reliable schedule can contribute to an understanding of the 
cost impact if a project does not finish on time. Specifically, we 
compared the contractor's February 2013 monthly update to its schedule 
estimate, which was the most recent available update when we conducted 
our analysis. Additional details on our objectives, scope, and 
methodology can be found in appendix I. 

We conducted this performance audit from November 2012 to February 
2014 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

Background: 

The end of the cold war left the United States with a surplus of 
weapons-grade plutonium. Much of this material is found in a key 
nuclear weapon component known as a pit. In 1997, DOE announced a plan 
to dispose of surplus, weapons-grade plutonium through an approach 
that included fabrication of plutonium into MOX fuel for use in 
domestic commercial nuclear reactors. In 2000, the United States and 
Russia entered into a Plutonium Management and Disposition Agreement, 
in which each country pledged to dispose of at least 34 metric tons of 
surplus, weapons-grade plutonium. Through a protocol to the agreement 
signed in 2010, the United States and Russia reaffirmed their 
commitment to dispose of surplus, weapons-grade plutonium as MOX fuel 
in nuclear reactors, and the agreement entered into force in 2011. 

The MOX facility is designed to remove impurities from plutonium 
feedstock obtained from nuclear weapon pits, form the plutonium into 
MOX fuel pellets, and fabricate pellets into fuel assemblies for use 
in a reactor. The MOX facility is a reinforced concrete structure 
measuring about 600,000 square feet (including support buildings) and, 
when complete, will include about 300 separate process systems using 
approximately 23,000 instruments; 85 miles of process piping; 500,000 
linear feet of conduit; 3,600,000 linear feet of power and control 
cable; and 1,000 tons of heating, ventilation, and air conditioning 
duct work. The WSB will be a 33,000 square foot reinforced concrete 
structure and will include tanks, evaporators, and solidification 
equipment to process radioactive liquid waste streams from the MOX 
facility into solid waste forms suitable for disposal at DOE sites in 
New Mexico and Nevada. Figure 1 shows aerial views of construction 
progress for the MOX facility and WSB as of June 2013 and July 2013, 
respectively. 

Figure 1: Aerial Views of the Plutonium Disposition Program's 
Construction Projects: 

[Refer to PDF for image: 2 photographs] 

MOX Fuel Fabrication Facility; 
Waste Solidification Building. 

Source: National Nuclear Security Administration. 

[End of figure] 

In addition to the MOX facility and WSB, NNSA's plans for the U.S. 
Plutonium Disposition program include the following two additional 
components: 

* MOX Irradiation, Feedstock, and Transportation (MIFT). Among other 
activities, this component includes: (1) production of plutonium 
feedstock for the MOX facility, (2) qualification of MOX fuel for use 
in commercial nuclear reactors, and (3) procurement and maintenance of 
shipping containers for plutonium feedstock and MOX fuel. 

* Plutonium Disposition and Infrastructure Program (PDIP). This 
component includes overall management and integration of the MOX 
facility and WSB projects and integration of the projects with 
activities falling under MIFT; preparation of environmental impact 
statements and records of decision for the program in accordance with 
the National Environmental Policy Act; support for infrastructure at 
the Savannah River Site, such as site roads; and other activities. 

NNSA's plans for producing plutonium feedstock previously included 
design and construction of a stand-alone Pit Disassembly and 
Conversion Facility (PDCF) at the Savannah River Site. As we reported 
in March 2010, NNSA never established a definitive cost and schedule 
estimate for the PDCF,[Footnote 9] but NNSA estimated in January 2011 
that the cost of the facility could range from $4.5 billion to $4.8 
billion. NNSA canceled the PDCF in January 2012 and, instead, proposed 
in a July 2012 draft environmental impact statement to meet the 
feedstock requirements for the MOX facility through existing 
facilities at DOE's Los Alamos National Laboratory and the Savannah 
River Site.[Footnote 10] According to NNSA's draft life-cycle cost 
estimate for the Plutonium Disposition program, NNSA spent $730.1 
million on the PDCF prior to its cancellation. 

In July 2012, NNSA also announced its preferred alternative for 
disposition of 13.1 metric tons of surplus plutonium not already 
included in the 34 metric tons planned for disposal as MOX fuel. The 
additional plutonium included pits declared excess to national defense 
needs, as well as surplus non-pit plutonium. According to NNSA 
officials, the preferred alternative would increase the amount of 
plutonium disposed as MOX fuel to about 42 metric tons. As of December 
2013, DOE had not issued a final supplemental environmental impact 
statement or record of decision on the facilities to be used to meet 
plutonium feedstock requirements for the MOX facility or on the 
disposition pathway for the 13.1 metric tons of surplus plutonium. 

NNSA's Office of Defense Nuclear Nonproliferation provides policy 
direction for the Plutonium Disposition program, develops and manages 
annual budgets and the life-cycle cost estimate for the overall 
program, and manages the MIFT and PDIP components of the program. 

NNSA's Office of Acquisition and Project Management is responsible for 
managing construction of the MOX facility and WSB projects within 
approved cost and schedule estimates. To do so, the office manages 
teams of federal project directors and federal staff that provide 
direction and oversight of the contractors for both projects, report 
monthly on the projects' cost and schedule performance, and evaluate 
contractors' performance in areas such as management of 
subcontractors. The office also conducts reviews of the construction 
projects to evaluate technical, cost, scope, and other aspects of the 
projects so that any necessary course corrections can be made. DOE's 
project management order requires that such reviews be conducted at 
least once per year. 

NNSA entered into cost-reimbursable contracts for construction of the 
MOX facility and WSB. A cost-reimbursable contract provides for 
payment of a contractor's allowable incurred costs to the extent 
prescribed in the contract.[Footnote 11] Agencies may use cost-
reimbursable contracts when uncertainties in the scope of work or cost 
of services prevent the use of contract types in which prices are 
fixed, known as fixed-price contracts. The MOX and WSB contracts 
included fees with payment tied to meeting or exceeding preestablished 
requirements or withholding of fees for any requirements not met, 
thereby reducing contractors' profits. Under the MOX contract, NNSA 
provided four types of fees that the contractor could earn: (1) 
incentive fees--a type of fee specifically tied to meeting a project's 
cost and schedule estimate; (2) milestone fees tied to on-time 
completion of construction milestones; (3) award fees, which are 
generally intended to motivate performance in areas other than cost 
and schedule, such as safety; and (4) fixed fees, a set amount a 
contractor receives for contract performance. In contrast, NNSA 
included only one type of fee for the WSB--a performance incentive fee 
under the contract for management and operation of the Savannah River 
Site, which included construction of the WSB. In order to provide the 
contractor performance incentives specifically related to construction 
of the WSB, NNSA established various performance measures, such as 
meeting the project's cost and schedule and completing construction 
milestones, and allocated portions of the fee to each performance 
measure. 

The contractors for the MOX facility and WSB work with subcontractors 
to construct the facilities. For example, the WSB contractor entered 
into a subcontract that included all construction activities for the 
WSB with the exception of early site work, such as installation of 
underground utilities. Once the construction subcontractor completes 
its work, the WSB contractor is responsible for start-up testing and 
operation of the facility. 

Under DOE's project management order, the Deputy Secretary of Energy 
is the senior DOE official accountable for all of the department's 
project acquisitions. In addition, the Deputy Secretary approves cost 
and schedule estimates for all major construction projects--defined as 
those with values of at least $750 million, which includes the MOX 
facility--and approves any cost increase over $100 million for a major 
or nonmajor project. The DOE Office of Acquisition and Project 
Management conducts external independent reviews to validate estimates 
prior to approval by the Deputy Secretary. Once estimates have been 
approved, this office monitors projects' cost and schedule performance 
and reports to the Deputy Secretary on a monthly basis. Figure 2 
depicts the roles of NNSA, DOE, and contractors in managing the 
Plutonium Disposition program. 

Figure 2: DOE and NNSA Organizational Structure for Management of the 
Plutonium Disposition Program: 

[Refer to PDF for image: illustration] 

Department of Energy (DOE): 

DOE Office of Management, Office of Acquisition and Project Management: 
Leads external independent reviews of the MOX facility and WSB to 
validate cost and schedule estimates prior to DOE approval of the 
estimates; monitors cost and schedule performance and reports to the 
Deputy Secretary of Energy on a monthly basis; and participates in 
NNSA's reviews of the projects. 

National Nuclear Security Administration (NNSA): 
* NNSA Office of Defense Nuclear Nonproliferation, Office of Fissile
Materials Disposition: Provides policy and budget guidance for the 
overall Plutonium Disposition program, manages the integration of the 
program's components, and develops the program's life-cycle cost 
estimate. 
* NNSA Office of Acquisition and Project Management: Manages the 
construction of the MOX facility and WSB, under approved cost and 
schedule estimates, and leads NNSA's reviews of the projects: 
- Federal project directors for the MOX facility and WSB: Lead a team 
of federal staff to provide day-to-day direction and oversight, 
evaluate contractor performance, and report on the projects' cost and 
schedule performance; 
- MOX and WSB contractors: Design, construct, and start up the 
facilities; manage subcontracts; and track and report to NNSA on cost 
and schedule performance. 

Source: GAO. 

[End of figure] 

The GAO Cost Estimating and Assessment Guide[Footnote 12] and the GAO 
Schedule Assessment Guide[Footnote 13] compiled best practices 
corresponding to the four characteristics of high-quality, reliable 
cost and schedule estimates, respectively: 

* The characteristics of a high-quality, reliable cost estimate are 
comprehensive, well-documented, accurate, and credible. For example, 
(1) a comprehensive estimate has enough detail to ensure that cost 
elements are neither omitted nor double counted, (2) a well-documented 
estimate allows for data it contains to be traced to source documents, 
(3) an accurate estimate is based on an assessment of most likely 
costs and has been adjusted properly for inflation, and (4) a credible 
estimate discusses any limitations because of uncertainty or bias 
surrounding data or assumptions. Our cost estimating guide also lays 
out 12 key steps that should result in high-quality cost estimates. 
For example, one of the steps is to conduct an independent cost 
estimate--that is, one generated by an entity that has no stake in 
approval of the project but uses the same detailed technical 
information as the project estimate. Having an independent entity 
perform such a cost estimate and comparing it with a project team's 
estimate provides an unbiased test of whether a project team's 
estimate is reasonable. 

* The four characteristics of a high-quality, reliable schedule are 
comprehensive, well-constructed, credible, and controlled. For 
example, (1) a comprehensive schedule includes all government and 
contractor activities necessary to accomplish a project's objectives, 
(2) a well-constructed schedule sequences all activities using the 
most straightforward logic possible, (3) a credible schedule uses data 
about risks and opportunities to predict a level of confidence in 
meeting the completion date, and (4) a controlled schedule is updated 
periodically to realistically forecast dates for activities. 

NNSA Identified Various Cost Drivers for the Plutonium Disposition 
Program's Construction Projects: 

NNSA identified various drivers of the cost increases for the MOX 
facility and WSB. NNSA's budget request for fiscal year 2014 
summarized the cost drivers that NNSA considered to be most 
significant. In addition, NNSA identified some of these drivers in 
earlier documents, including in reports of project reviews conducted 
in 2011 and 2012, in monthly status reports for the projects, and, for 
the WSB, in the document requesting approval for a cost increase. NNSA 
and contractor officials provided additional details on these drivers 
during interviews with us. 

Key drivers NNSA identified for the cost increase for the MOX facility 
included the following: 

* DOE's approval of the cost and schedule before design was complete. 
The head of NNSA's Office of Acquisition and Project Management told 
us that, judging from the MOX contractor's design costs during 
construction of the MOX facility, the overall design was about 58 
percent complete when DOE approved the project's cost and schedule 
estimate in April 2007. In contrast, according to DOE's project 
management order, to support the development of a cost estimate, the 
design of complex nuclear processing facilities needs to be closer to 
100 percent complete than the design of basic facilities, such as 
administrative buildings and general purpose laboratories. NNSA's 
budget request for fiscal year 2014 stated that the cost of critical 
system components for the MOX facility averaged 60 percent higher than 
estimated as a result of approval of these estimates before design was 
complete. According to NNSA and MOX contractor officials, after the 
contractor completed designs for critical system components, such as 
the gloveboxes used in the facility for handling plutonium and related 
infrastructure, equipment suppliers submitted higher bids than the 
contractor anticipated. For example, according to the contractor's 
Vice President of Operations, a vendor submitted a bid in 2008 that 
was four times the amount the same vendor had estimated in 2005. 

* Higher-than-anticipated costs to install equipment. For example, the 
MOX contractor estimated in its September 2012 proposal to increase 
the cost of the facility that the labor hours to install each foot of 
the approximately 85 miles of piping in the facility increased by as 
much as 26 percent and that, as facility designs became more 
definitive, the total amount of pipe increased by close to 33 percent 
over the previous estimate. In addition, according to NNSA, the number 
of safety systems needed to meet Nuclear Regulatory Commission (NRC) 
requirements was greater than anticipated, further adding to equipment 
installation costs.[Footnote 14] According to NNSA officials, NNSA and 
the contractor did not have a good understanding of the cost of 
designing the facility to meet NRC requirements related to 
demonstrating the ability to withstand an earthquake. The officials 
explained that the facility's design is based on a similar facility in 
France but that NRC regulatory requirements differ from those in 
France. 

* The contractor's difficulty identifying suppliers and subcontractors 
able to fabricate and install equipment meeting nuclear quality 
assurance criteria.[Footnote 15] According to NNSA's review of the MOX 
project in 2011, the project was experiencing the same issues 
identifying qualified suppliers and subcontractors as other nuclear 
projects across DOE. These issues included a higher than expected 
effort associated with attracting qualified vendors and, after vendors 
were selected, responding to questions or correcting noncompliance 
with requirements. For example, according to NNSA and the MOX 
contractor, the contractor needed to station quality assurance 
personnel at supplier and subcontractor locations to oversee 
activities. 

* Greater-than-expected turnover of engineering and technical staff. 
In particular, the project lost staff to other nuclear industry 
projects, including projects in neighboring states, resulting in a 
nearly complete turnover of construction management personnel over a 
period of several years and the need to provide training to 
replacement personnel. NNSA identified this driver in its budget 
request for fiscal year 2012. Specifically, the budget request stated 
that over 15 percent of the project's engineering and technical 
personnel had left for other nuclear industry jobs in the previous 
year with pay increases of at least 25 percent. The budget request 
further stated that finding experienced replacements had become 
difficult and expensive. According to the budget requests for fiscal 
years 2013 and 2014, the loss of experienced engineering and technical 
staff to other nuclear industry projects has continued. 

* Change in scope of the project to add capability to the MOX facility 
to produce plutonium feedstock. As part of its decision to cancel 
plans for a stand-alone PDCF and to instead meet feedstock 
requirements through existing facilities, NNSA directed the MOX 
contractor to include feedstock capability in its September 2012 
proposal to increase the cost of the facility. The contractor's 
proposal included an estimate of $262.3 million to add feedstock 
capability. 

In identifying these drivers of the cost increase for the MOX 
facility, NNSA did not identify the dollar amount associated with each 
cost driver. An NNSA official said that the MOX contractor's system 
for tracking and reporting on cost and schedule performance could 
potentially be used to determine dollar amounts that each driver added 
to the overall cost increase--which is one possible use of such a 
system--but that doing so would be time-consuming and difficult. As a 
result, NNSA officials could not substantiate the relative importance 
of the cost drivers. For example, NNSA officials said they had not 
conducted a formal analysis to back up an estimate, which they had 
made when we first discussed the cost drivers with them, that lack of 
design maturity of critical system components accounted for more than 
half of the increase. In reviewing the MOX contractor's system, we 
found that, as NNSA officials stated, using the system to determine 
the dollar amounts each driver added to the cost increase would be 
difficult--for example, because the system's identification of cost 
increases at a summary level, such as site construction support, did 
not correspond to the cost drivers identified by NNSA. 

Key cost drivers NNSA identified for the WSB included the following: 

* Higher-than-anticipated bids for the construction subcontract. 
[Footnote 16] According to the NNSA federal project director for the 
WSB, the WSB contractor received two bids in 2009 from prospective 
construction subcontractors that both came in at about $26 million 
higher than the contractor's estimate. NNSA officials did not explain 
the reason for the difference, stating that the bidders were not 
required to provide details of their estimates. The federal project 
director said that NNSA supported the WSB contractor awarding the 
construction subcontract, despite the higher cost, in order to 
maintain the schedule for completing the WSB in time to support the 
start-up of the MOX facility. According to NNSA officials, the project 
applied cost savings from earlier work to cover part of the increased 
cost of the construction subcontract and had sufficient contingency--
the portion of a project's budget that is available to account for 
uncertainties in the project's scope--to absorb the remainder of the 
increase. Consequently, however, contingency to absorb further cost 
increases as construction progressed was reduced. 

* Design errors, omissions, and inconsistencies. According to the NNSA 
federal project director, the WSB contractor and subcontractor made 
hundreds of design changes, which led to an additional cost increase 
in the construction subcontract. According to NNSA's log of design 
changes, as of August 2013, design changes increased the cost of the 
construction subcontract by about $15 million, from $91.5 million to 
$106.5 million. The federal project director said that, unlike the 
design of the MOX facility, the design of the WSB was about 90 percent 
complete at the start of construction. A September 2008 report of 
NNSA's independent review of the WSB prior to approval of the cost and 
schedule estimate found that the design was essentially complete. 
Nevertheless, according to the federal project director, design 
changes were needed because of constructability issues, such as 
equipment that met specifications in design documents not being 
available by the time the project reached construction. 

* Schedule delays resulting from the construction subcontractor not 
meeting required targets. According to the NNSA federal project 
director's feedback on the WSB contractor's performance in September 
2009, NNSA had concerns related to the project schedule and the 
ability to meet the completion date in part because of a delayed start 
in the construction subcontract. By the time NNSA approved the cost 
increase for the WSB in December 2012, schedule delays in the 
construction subcontract had grown to 15 months. The approved cost 
increase included about $30 million in the contractor's delay-related 
costs because NNSA's contract for the WSB is cost-reimbursable. 

The actual cost attributable to the WSB may be even higher depending 
on the outcome of a lawsuit filed by the subcontractor against the WSB 
contractor related to design changes and schedule delays that 
increased the subcontractor's costs in excess of the amount specified 
in its fixed-price subcontract. The approved cost increase for the WSB 
included contingency to account for the possibility of higher costs 
incurred by the construction subcontractor. 

NNSA Has Not Analyzed Root Causes of the Cost Increases for the 
Plutonium Disposition Program's Construction Projects: 

NNSA has not analyzed the underlying, or root, causes of the close to 
$3 billion in construction cost increases for the MOX facility and 
WSB.[Footnote 17] DOE's project management order requires that lessons 
learned be captured throughout a project to allow for the exchange of 
information within DOE in the context of project management and to 
benefit future endeavors. However, the project management order does 
not include a requirement for a root cause analysis of projects 
experiencing significant cost increases or schedule delays. NNSA 
officials said that they decide on a case-by-case basis whether to 
conduct a root cause analysis.[Footnote 18] In contrast, under the 
Weapon Systems Acquisition Reform Act of 2009, the Department of 
Defense must perform a root cause analysis of a cost increase that 
exceeds a certain threshold. 

Documentation NNSA provided to us on the cost drivers for the MOX 
facility and WSB do not provide clear details about the causes of the 
cost increases. Such details can be found in a root cause analysis, 
which would help address questions about why the drivers identified by 
NNSA occurred and help inform lessons learned. Key questions about the 
cause of the key drivers include the following: 

* DOE's reasons for approving a cost and schedule estimate for the MOX 
facility before the design was complete, even though a July 2006 
review of the project found that the cost estimate's basis on portions 
of the design that were less than 50 percent complete posed a risk to 
the project. Similarly, a root cause analysis would address why one of 
the drivers of the cost increase for the WSB identified by NNSA was 
design errors, omissions, and inconsistencies, given that a review 
prior to approval of the project's cost and schedule estimate found 
that most of the design was ready for construction. 

* The extent to which NNSA and its contractors shared responsibility 
for cost drivers, such as the greater-than-anticipated number of 
safety systems needed in the MOX facility to meet NRC requirements. 
According to NNSA officials, the department hired the MOX contractor 
because it considered the contractor to be well-qualified to engineer 
and estimate all of the safety systems for the facility, taking into 
account NRC requirements. However, the record for DOE's approval of 
the cost and schedule estimate for the facility shows that DOE was 
aware of complexities in adapting MOX technology to comply with NRC 
requirements. Specifically, the minutes from DOE's July 2006 meeting 
to request approval of the estimate stated that these complexities had 
already contributed to a $1.1 billion increase in the estimated cost. 

* The sufficiency of measures DOE took to ensure that the cost 
estimate for the MOX facility it approved in 2007 reflected an 
awareness of market conditions, such as the availability of suppliers 
and subcontractors with the ability and experience to meet nuclear 
quality assurance criteria. As required under the MOX contract, in 
October 2006--before DOE approved the cost and schedule estimate for 
the facility--the contractor submitted a construction market analysis 
report, which stated that the contractor had experienced trouble 
obtaining qualified suppliers and that the subcontractor pool using 
nuclear quality standards had been decreasing due to inactivity in the 
nuclear industry. However, the report provided limited detail and did 
not include recommendations to address availability of qualified 
suppliers. 

* The thoroughness of DOE's review, required under DOE's project 
management order, to ensure that the WSB contractor's system for 
tracking and reporting on cost and schedule performance provided 
accurate information. DOE recertified the contractor's system in 
December 2011 after identifying and closing out several corrective 
actions and continuous improvement opportunities. However, DOE found 
additional problems with the system after January 2012, when the WSB 
contractor informed NNSA that schedule delays for the project were 
greater than the contractor previously revealed. Based in part on the 
contractor's revelations, DOE reexamined the contractor's system and 
suspended its certification in November 2012. 

* The corrective actions NNSA and its contractors took after periodic 
project reviews identified problems, including problems cited by NNSA 
as drivers of cost increases for the MOX facility and WSB. For 
example, multiple reviews of the MOX facility found that costs to 
install equipment were underestimated. A July 2006 review found that 
installation for electrical; piping; and heating, ventilation, and air-
conditioning equipment were underestimated by close to $160 million 
and nearly 3 million labor hours. NNSA's project reviews of the 
facility in 2011 and 2012 continued to raise concerns about 
unrealistic installation rates. 

* The responsiveness of NNSA project managers to emerging cost and 
schedule issues. Without a review of the timing of NNSA initiating the 
process of increasing the projects' cost and schedule estimates, it is 
not clear whether NNSA acted in a timely manner or whether project 
cost and schedule indicators warranted earlier action. For example, an 
NNSA review of the MOX facility in the spring of 2011 found that the 
most significant risk to delivering the project within cost centered 
on the ability of the project team to identify about $364 million in 
savings to offset expected cost growth, but NNSA did not initiate the 
process of increasing the project's cost and schedule estimates until 
January 2012. 

Without a root cause analysis, it is uncertain whether NNSA will be 
able to accurately identify underlying causes of the cost increases 
for the MOX facility and WSB in order to identify and implement 
corrective measures and identify lessons learned to share with and 
apply to other DOE construction projects. 

NNSA Has Taken Steps to Hold Contractors Accountable for Cost 
Increases by Withholding Fees: 

After determining that the performance of the contractors for the MOX 
facility and WSB contributed to the projects' construction cost 
increases, NNSA took steps to hold the contractors accountable for 
their performance by withholding fees specified under the contracts. 
Specifically, NNSA withheld portions of two of the four types of the 
MOX contractor's fees and 41 percent of the WSB contractor's fees. 

NNSA Withheld Portions of Two of the Four Types of the MOX 
Contractor's Fees: 

NNSA withheld portions of two of the four types of fees that the MOX 
contractor could earn under the contract for construction of the 
facility--incentive fees and award fees. In total, NNSA withheld $45.1 
million or close to one-third of all fees the contractor could earn as 
of November 2013. Under the terms of the MOX contract, the contractor 
could still earn incentive fees that have been withheld, but only if 
it completes the overall project within cost and schedule. Table 1 
summarizes fees paid to and withheld from the contractor as of 
November 2013. 

Table 1: Types of Fees for Construction of the MOX Facility and 
Amounts Paid, Withheld, and Remaining to Be Earned as of November 2013: 

Fee type: Incentive[B]; 
Purpose: Encourage project completion within cost and schedule; 
Total available to be earned under the MOX contract: $76.9 million; 
Amount paid: $29.1 million; 
Amount withheld: $36.5 million; 
Percentage withheld: 56%; 
Amount remaining under the MOX contract[A]: $11.3 million. 

Fee type: Award[C]; 
Purpose: Ensure performance in areas other than cost and schedule; 
Total available to be earned under the MOX contract: $53.1 million; 
Amount paid: $24.0 million; 
Amount withheld: $8.6 million; 
Percentage withheld: 26%; 
Amount remaining under the MOX contract[A]: $20.5 million. 

Fee type: Milestone; 
Purpose: Motivate completion of critical tasks; 
Total available to be earned under the MOX contract: $61.0 million; 
Amount paid: $30.8 million; 
Amount withheld: 0; 
Percentage withheld: 0%; 
Amount remaining under the MOX contract[A]: $30.2 million. 

Fee type: Fixed; 
Purpose: Reward the contractor for work during contract negotiations; 
Total available to be earned under the MOX contract: $15.7 million; 
Amount paid: $15.7 million; 
Amount withheld: 0; 
Percentage withheld: 0%; 
Amount remaining under the MOX contract[A]: 0. 

Total: 
Total available to be earned under the MOX contract: $206.6 million; 
Amount paid: $99.6 million; 
Amount withheld: $45.1 million; 
Percentage withheld: 31%; 
Amount remaining under the MOX contract[A]: $62.0 million. 

Source: GAO analysis of NNSA records of fee payments to the MOX 
contractor. 

Note: Dollar figures do not add up to $206.6 million due to rounding. 

[A] The MOX contractor's September 2012 proposal for increasing the 
cost of the MOX facility included increases to incentive, milestone, 
and award fees specified under the contract. 

[B] The amount of remaining incentive fees covers fiscal years 2014 
and 2015. Of the $29.1 million in incentive fees paid to the 
contractor, $21.6 million remains provisional, meaning that NNSA can 
require that the fees be paid back as a result of the project not 
being completed within cost. In addition, under the terms of the MOX 
contract, the contractor could earn the $36.5 million in withheld 
incentive fees if it completes the overall project within cost and 
schedule. 

[C] NNSA made award fee payments for fiscal years 2008 through 2012, 
increasing the amount withheld from 11 percent in fiscal year 2008 to 
50 percent in fiscal year 2012. The amount remaining covers fiscal 
years 2013 through 2016. 

[End of table] 

Details of fees NNSA withheld and paid under the MOX contract include 
the following: 

* Incentive fees. NNSA did not pay $36.5 million or over half of the 
$65.6 million in incentive fees that the MOX contractor could earn 
from fiscal year 2008, when construction began, through fiscal year 
2013. Of the $29.1 million in incentive fees paid to the contractor, 
$21.6 million remains provisional, meaning that NNSA can require that 
the fees be paid back as a result of the project not being completed 
within cost.[Footnote 19] The amount not paid represented the 
contractor's entire incentive fees for fiscal years 2011 through 2013. 
Specifically, under the terms of the MOX contract, NNSA can withhold 
quarterly payments of incentive fees if an increase in the projected 
cost to complete the MOX facility exceeds $200 million. NNSA began 
withholding incentive fees for the first quarter of fiscal year 2011 
when, for the first time, the increase in the projected cost to 
complete the facility exceeded this threshold. NNSA memos for 
subsequent quarters in fiscal year 2011 noted that the project's cost 
and schedule metrics continued to worsen, reducing the likelihood of 
resumption of payments. In a July 2011 letter to the contractor 
explaining its rationale for not resuming payments, NNSA stated that 
it was sensitive to the potential impacts of the "nuclear 
renaissance"--the contractor's term for the resurgence of U.S. nuclear 
engineering and manufacturing capability after being dormant for more 
than 20 years, which the contractor stated limited the availability of 
qualified suppliers and subcontractors and led to staff turnover and 
higher-than-anticipated costs to install equipment. However, NNSA 
stated that such impacts would not necessarily overcome other evidence 
showing that the contractor was not meeting the overarching goal of 
the incentive fees, which is that the facility be completed within 
cost.[Footnote 20] 

* Award fees. NNSA withheld $8.6 million or about a quarter of the 
$32.6 million in award fees that the MOX contractor could earn from 
fiscal year 2008 through fiscal year 2012. The amount withheld 
included about half of the fees the contractor was eligible to earn in 
fiscal year 2012. NNSA's award fee evaluation for fiscal year 2012 
cited various factors, such as poor construction planning; less than 
optimal coordination of work; and overly conservative specifications 
for installation of fire doors, resulting in delays and unnecessary 
costs. In contrast, NNSA paid $24.0 million in award fees for 
performance in other areas, such as maintaining a high level of worker 
safety--an area in which the contractor has consistently performed 
well, according to NNSA's award fee evaluations. 

* Milestone fees. NNSA did not withhold any milestone fees and instead 
paid milestone fees of $30.8 million for tasks with deadlines ranging 
from February 2009 to March 2014. Examples of tasks for which NNSA 
paid milestone fees (some of which the MOX contractor completed early) 
included completing the roof, installing the first glovebox, 
constructing a technical support building, and completing a start-up 
plan for the facility. According to the NNSA officials, although NNSA 
did not withhold milestone fees, NNSA stopped paying any of the $30.2 
million in remaining milestones fees as part of an understanding with 
the contractor to renegotiate the amount of and conditions for earning 
milestone fees. 

* Fixed fees. According to the contracting officer, NNSA did not 
withhold any of the $15.7 million in fixed fees--the total amount of 
fixed fees for construction-related work under the MOX contract. NNSA 
included these fees in the contract to reward the contractor for work 
performed during contract negotiations, when other fees had not yet 
been negotiated. 

NNSA Withheld 41 Percent of the WSB Contractor's Fees through Fiscal 
Year 2012: 

In a March 2013 analysis of the WSB contractor's performance, the NNSA 
contracting officer for the WSB recommended that the contractor should 
be held accountable for performance failures that contributed to the 
project's cost increase. For example, the analysis stated that the 
contractor did not require the subcontractor to add crews or take 
other steps to correct delays until almost 2 years after the federal 
project director began expressing concerns about the delays. In 
accordance with this assessment, NNSA withheld $7.7 million or about 
40 percent of the $18.9 million in performance incentive fees that the 
WSB contractor could earn from fiscal year 2009, when construction 
began, through fiscal year 2012, for the portion of fees allocated to 
construction of the WSB under the management and operation contract 
for the Savannah River Site. Most of the fees withheld were for the 
contractor's performance in fiscal years 2011 and 2012 (see table 2). 
In particular, NNSA withheld $3.3 million of the $6.9 million in fees 
the contractor could earn in fiscal year 2011 and $3.9 million of the 
$4.0 million in fees the contractor could earn in fiscal year 2012. 
The fees withheld were tied to various performance measures, which DOE 
acquisition regulations require be established prior to the start of 
each evaluation period. Performance measures NNSA established included 
meeting the schedule for testing various types of equipment, providing 
engineering support to and coordinating with the construction 
subcontractor, and maintaining the project within pre-established cost 
and schedule metrics. 

The $3.3 million in fees withheld for fiscal year 2011 included $2 
million that NNSA took back--that is, was paid back by the contractor--
after making its fee determination for the contractor. Specifically, 
according to a December 2012 letter from the NNSA contracting officer 
to the contractor, the fiscal year 2011 fee determination was premised 
on the contractor's statements that schedule delays were recoverable 
and that the project would be completed within the approved cost 
estimate. Shortly after NNSA made its fee determination, however, the 
contractor notified NNSA that the project was further behind schedule 
than previously represented and that cost factors not included in the 
contractor's system for tracking and reporting on cost and schedule 
performance would result in a cost overrun. The contracting officer's 
letter stated that NNSA would have reduced the contractor's fee if it 
had known the extent of delays and cost overruns when it made its fee 
determination, and NNSA required the contractor to repay $4 million. 
In May 2013, NNSA agreed to a settlement with the contractor to reduce 
the amount taken back to $2 million after the contractor appealed 
NNSA's initial demand. 

Table 2: Fees Paid and Withheld for Construction of the WSB through 
Fiscal Year 2012: 

Fiscal year: 2009; 
Amount paid: $1.5 million; 
Amount withheld: less than $0.1 million[A]; 
Percentage withheld: 2%; 
Total available to be earned: $1.6 million. 

Fiscal year: 2010; 
Amount paid: $5.8 million; 
Amount withheld: $0.6 million; 
Percentage withheld: 9%; 
Total available to be earned: $6.4 million. 

Fiscal year: 2011; 
Amount paid: $3.7 million; 
Amount withheld: $3.3 million[B]; 
Percentage withheld: 47%; 
Total available to be earned: $6.9 million. 

Fiscal year: 2012; 
Amount paid: $0.2 million; 
Amount withheld: $3.9 million; 
Percentage withheld: 96%; 
Total available to be earned: $4.0 million. 

Total[C]: 
Amount paid: $11.2 million; 
Amount withheld: $7.7 million; 
Percentage withheld: 41%; 
Total available to be earned: $18.9 million. 

Source: GAO analysis of NNSA data on fees paid to the WSB contractor. 

Note: Dollar figures may not add up to totals due to rounding. 

[A] NNSA withheld $25,000 for fiscal year 2009. 

[B] The fees withheld for fiscal year 2011 included $2 million that 
NNSA took back from the amount it originally paid to the WSB 
contractor. 

[C] To provide an incentive to the contractor to improve its 
performance on the WSB, NNSA also set aside a total of $6 million in 
fees for the project in fiscal years 2013 and 2014. According to the 
NNSA contracting officer for the WSB, NNSA has not yet decided how to 
allocate fees for fiscal year 2015 under the overall management and 
operation contract for the Savannah River Site, including for the WSB 
project. 

[End of table] 

In addition to withholding fees, in a June 2012 letter to the 
contractor, NNSA's contracting officer questioned why she should not 
conclude that the contractor's actions rose to the level of gross 
negligence or willful misconduct, warranting disallowance of costs, 
meaning that the contractor would bear part of the cost increase 
resulting from the project's schedule delays.[Footnote 21] For 
example, the letter stated that the contractor's system for tracking 
and reporting on cost and schedule performance did not meet industry 
standards and impeded NNSA's ability to understand the potential 
impact of delays in construction of various segments of the project on 
the final delivery date. According to NNSA officials, NNSA is waiting 
until after completion of WSB construction, and total construction 
costs are known, to determine unallowable costs. 

Estimates for the Plutonium Disposition Program's Life-cycle Cost and 
Construction Projects Did Not Meet All Best Practices for Reliability: 

NNSA's most recent cost and schedule estimates for the Plutonium 
Disposition program did not fully reflect the characteristics of high-
quality, reliable estimates as established by best practices used 
throughout government and industry and documented in the GAO Cost 
Estimating and Assessment Guide and GAO Schedule Assessment Guide. 
Specifically, (1) NNSA's draft April 2013 life-cycle cost estimate for 
the overall program was partially comprehensive, partially well-
documented, and partially accurate but did not meet any of the best 
practices for a credible estimate; (2) the MOX contractor's September 
2012 proposal for increasing the cost of the MOX facility was 
substantially comprehensive but partially well-documented and accurate 
and minimally credible; and (3) the WSB contractor's February 2013 
monthly update to its schedule estimate was minimally well-constructed 
and partially met the other three characteristics of a reliable 
schedule--comprehensive, credible, and controlled.[Footnote 22] 

NNSA Did Not Follow All Key Steps for Developing a Reliable Life-cycle 
Cost Estimate for the Plutonium Disposition Program: 

In developing its draft April 2013 life-cycle cost estimate of $24.2 
billion for the Plutonium Disposition program, NNSA followed several 
of the 12 key steps for developing high-quality cost estimates, 
including defining the estimate's purpose, defining the program's 
characteristics, and obtaining the data. NNSA did not follow other key 
steps, however, such as conducting an independent cost estimate. As a 
result, the estimate was not reliable. In particular, NNSA's draft 
life-cycle cost was partially comprehensive, partially well-
documented, and partially accurate but did not meet any of the best 
practices for a credible estimate. 

Table 3 summarizes the major components of NNSA's draft April 2013 
life-cycle cost estimate. The estimate assumed that the MOX facility 
would start operations in November 2019 and that it would take 
approximately 15 years to complete the mission to dispose of 34 metric 
tons of surplus weapons-grade plutonium. 

Table 3: NNSA's Draft Life-cycle Cost Estimate for the U.S. Plutonium 
Disposition Program, as of April 2013: 

Facility or program component: MOX Fuel Fabrication Facility; 

Type of cost: Construction; 
Actual costs[A]: $3.436 billion; 
Projected costs[B]: $3.989 billion; 
Total: $7.424 billion. 

Type of cost: Operations and maintenance; 
Actual costs[A]: $2.7 million; 
Projected costs[B]: $8.256 billion; 
Total: $8.259 billion. 

Facility or program component: WSB; 

Type of cost: Construction; 
Actual costs[A]: $265.1 million; 
Projected costs[B]: $132.7 million; 
Total: $397.9 million. 

Type of cost: Operations and maintenance; 
Actual costs[A]: [Empty]; 
Projected costs[B]: $1.910 billion; 
Total: $1.910 billion. 

Facility or program component: PDCF; 
Type of cost: Construction; 
Actual costs[A]: $730.1 million; 
Projected costs[B]: [Empty]; 
Total: $730.1 million. 

Facility or program component: MIFT; 
Type of cost: Operations and maintenance; 
Actual costs[A]: $681.7 million; 
Projected costs[B]: $4.259 billion; 
Total: $4.941 billion. 

Facility or program component: PDIP; 
Type of cost: Operations and maintenance; 
Actual costs[A]: $65.2 million; 
Projected costs[B]: $427.6 million; 
Total: $492.8 million. 

Total: 
Actual costs[A]: $5.181 billion; 
Projected costs[B]: $18.974 billion; 
Total: $24.155 billion. 

Source: GAO analysis of NNSA data. 

Note: Dollar figures may not add up to totals due to rounding. 

[A] Actual costs cover fiscal year 1999 through fiscal year 2012. Data 
is based on actual costs incurred. 

[B] Projected costs cover fiscal year 2013 through fiscal year 2036. 
Data is based on projected funding required. 

[End of table] 

Table 4 lists the steps, or best practices, necessary for developing a 
high-quality cost estimate. Appendix II summarizes our assessment of 
NNSA's process for developing its draft life-cycle cost estimate 
against the steps that should result in the four characteristics of a 
high-quality cost estimate. 

Table 4: Four Characteristics of a High-Quality Cost Estimate with 
Their Corresponding 12 Key Cost Estimating Steps (or Best Practices): 

Characteristic: Comprehensive; 
12 Steps (or best practices): 
* Develop the estimating plan; 
* Determine the estimating structure. 

Characteristic: Well-documented; 
12 Steps (or best practices): 
* Define the estimate's purpose; 
* Define the program's characteristics; 
* Identify ground rules and assumptions; 
* Obtain the data; 
* Document the estimate; 
* Present the estimate to management for approval. 

Characteristic: Accurate; 
12 Steps (or best practices): 
* Develop the point estimate[A]; 
* Update the estimate to reflect actual costs and changes. 

Characteristic: Credible; 
12 Steps (or best practices): 
* Compare the point estimate to an independent cost estimate[A]; 
* Conduct a sensitivity analysis; 
* Conduct a risk and uncertainty analysis. 

Source: GAO. 

[A] As described in the GAO Cost Estimating and Assessment Guide, 
developing the point estimate and comparing it with an independent 
cost estimate are separate parts of a single step. For purposes of 
assessing the extent to which a cost estimate achieves the 
characteristics of a high-quality cost estimate, developing the point 
estimate contributes to accuracy, and comparing the point estimate 
with an independent cost estimate contributes to credibility. 

[End of table] 

Our assessment of NNSA's process for developing its draft life-cycle 
cost estimate included the following observations: 

* Comprehensive. The draft life-cycle cost estimate was partially 
comprehensive because work breakdown structures were developed for the 
MOX and WSB projects and other components of the program, but NNSA had 
not formalized a program-level work breakdown structure. A typical 
work breakdown structure provides a clear picture of what needs to be 
accomplished, how the work will be done, and a basis for identifying 
resources and tasks for developing a cost estimate. Without a program-
level work breakdown structure, NNSA cannot ensure that its life-cycle 
cost estimate captures all relevant costs, which can mean cost 
overruns. 

* Well-documented. The draft life-cycle cost estimate was partially 
well-documented because NNSA defined the estimate's purpose and the 
program's characteristics, but it did not develop a single document to 
describe data sources and steps taken in developing the estimate--such 
as applying escalation rates to account for inflation--so that the 
estimate could be replicated by someone other than those who prepared 
it. In addition, NNSA stated that a document identified the estimate's 
ground rules and assumptions but that the assumptions have changed 
frequently, hindering development of a life-cycle cost estimate. 
Examples of changes in assumptions not reflected in NNSA's draft April 
2013 estimate included the slowdown of activities during the 
assessment of alternative plutonium disposition strategies and NNSA's 
plans to increase the amount of plutonium disposed of as MOX fuel. 

* Accurate. The draft life-cycle cost estimate was partially accurate 
in that NNSA followed the best practice for developing a point 
estimate--a best guess at a cost estimate usually falling between best 
and worst case extremes. NNSA also updated the estimate periodically 
to include actual costs and changes to program and project 
requirements. However, NNSA did not use a formal system for tracking 
and reporting on cost and schedule performance to update the estimate, 
limiting the ability of someone other than those who prepared the 
estimate to check the estimate's accuracy and to identify when, how 
much, and why the program cost more or less than planned. 

* Credible. The draft life-cycle cost estimate was not credible 
because NNSA did not conduct an independent cost estimate to provide 
an unbiased test of whether its estimate was reasonable, a formal 
sensitivity analysis to examine the effects of changing assumptions 
and ground rules, or a risk and uncertainty analysis to assess 
variability in point estimates due to factors such as errors and cost 
estimators' inexperience or biases. NNSA conducted such analyses for 
portions of its life-cycle cost estimate, but not for the entire 
estimate. For example, NNSA's Plutonium Disposition program office 
arranged for another office within NNSA to conduct an independent 
assessment of the MOX facility's operations costs, but not for the 
program's entire life-cycle cost. 

NNSA did not follow all key steps for developing high-quality cost 
estimates in part because it did not have a requirement to develop its 
life-cycle cost estimate. According to NNSA officials, DOE's project 
management order includes requirements for development of cost and 
schedule estimates for a project, such as the MOX facility or WSB, but 
does not specify equivalent requirements for a program like Plutonium 
Disposition, which includes multiple projects, as well as supporting 
activities. As a result, when developing the life-cycle cost estimate 
for the Plutonium Disposition program, NNSA officials used an ad hoc 
approach to adapt requirements for managing projects in DOE's project 
management order. NNSA officials also said that its April 2013 life-
cycle cost estimate did not include all the steps of a high-quality, 
reliable estimate in part because NNSA considered the estimate to be 
draft and, therefore, had not fully implemented plans for developing 
it. 

In the absence of a specific requirement in DOE's project management 
order for developing a life-cycle cost estimate for a program, NNSA 
officials said they developed a life-cycle cost estimate for the 
Plutonium Disposition program for several reasons. According to these 
officials, these reasons included that the cost of the program is 
largely made up of capital projects, such as the MOX facility, and 
that requirements for congressional budget submissions specify that 
the full life-cycle cost of such projects be presented. In addition, 
each year NNSA must submit to Congress its estimated expenditures 
covering the fiscal year with respect to which the budget is submitted 
and at least the four succeeding fiscal years. NNSA officials said 
that, to accurately estimate expenditures for this 5-year period, they 
needed to develop a life-cycle cost estimate for the overall Plutonium 
Disposition program. An NNSA official noted that NNSA plans to use a 
version of its life-cycle cost estimate as a basis for evaluating 
alternative strategies to dispose of surplus weapons-grade plutonium. 

Contractor's Proposed Estimate for the MOX Facility Did Not Meet Most 
Best Practices for Reliability: 

The MOX contractor's September 2012 proposal for increasing the cost 
of the MOX facility was substantially comprehensive but was partially 
well-documented, partially accurate, and minimally credible. The 
contractor's estimate did not fully reflect the characteristics of a 
high-quality, reliable estimate in part because it was a proposal, as 
opposed to an approved cost estimate. For example, one of the best 
practices for a well-documented estimate--and a requirement of DOE's 
project management order--is that a cost estimate be reviewed and 
accepted by management. Because DOE had not approved it and instead 
postponed its review and approval pending the outcome of NNSA's 
assessment of alternative plutonium disposition strategies, the 
contractor's estimate partially met this best practice. This best 
practice would be met by DOE's completion of its review and approval 
of a new estimate for the MOX facility, assuming the assessment of 
alternative plutonium disposition strategies maintains the current 
strategy of disposing plutonium as MOX fuel. 

Though the contractor's September 2012 estimate did not fully reflect 
the characteristics of a high-quality estimate and cannot be 
considered reliable, the MOX contractor began using it as a 
provisional baseline for purposes of monthly reporting on the 
project's cost and schedule performance. Specifically, as directed by 
NNSA, the contractor began a transition in June 2012 to report its 
monthly performance against the contractor's proposed estimate of $7.7 
billion. The contractor completed the transition and ceased any 
reporting of performance against the previously approved estimate 
early in 2013. Managing projects that no longer have an approved cost 
and schedule estimate is a challenge because cost and schedule 
estimates provide a baseline for measuring progress. At a July 2013 
hearing, the Deputy Secretary of Energy noted that not having such a 
baseline is the point of maximum risk of unrestricted cost growth on a 
project. 

Appendix III summarizes our assessment of how well the MOX 
contractor's proposal met the characteristics of a high-quality 
estimate. Our assessment included the following observations: 

* Comprehensive. The proposal was substantially comprehensive in that 
it included all construction costs, as defined by the statement of 
work under the MOX contract. The proposal was not fully comprehensive, 
however, because it only partially met certain best practices for a 
comprehensive estimate, such as documenting all cost-influencing 
ground rules and assumptions. The proposal partially met this best 
practice because it did not provide justifications for some 
assumptions, such as not more than 10 percent of the supports for 
piping systems being nonstandard and requiring unique designs. 

* Well-documented. The proposal was partially well-documented because 
it described in sufficient detail the calculations performed and the 
estimating methodology used to derive the cost of each element in the 
work breakdown structure. However, it did not provide all types of 
information specified in best practices for a well-documented 
estimate, such as how data on labor and travel costs were normalized. 
Data normalization is often necessary to ensure comparability because 
data can be gathered from a variety of sources and in different forms 
that need to be adjusted before being used. 

* Accurate. The proposal was partially accurate in that it appeared to 
adjust cost elements for inflation and contained only a few minor 
mistakes, but the contractor did not update its proposal with actual 
costs incurred after it developed the proposal and submitted it to 
NNSA in September 2012. NNSA and contractor officials agreed that the 
estimate was no longer an accurate reflection of the cost to complete 
construction--for example, because the proposal assumed a higher level 
of funding than the project received in fiscal year 2013. The 
officials said that, if the MOX project continues, the contractor 
would need to prepare a new proposal that includes costs for work 
conducted after the initial proposal was developed. 

* Credible. The proposal was minimally credible because DOE halted its 
independent cost estimate of the proposal pending the outcome of 
NNSA's assessment of alternative plutonium disposition strategies. 
Moreover, the proposal did not include a formal sensitivity analysis 
to examine the effects of changing assumptions and ground rules, and 
it provided no evidence that major cost elements were cross-checked to 
determine whether alternative cost-estimating methods produced similar 
results. Finally, the proposal included an analysis of risks, such as 
difficulty attracting and retaining workers, and uncertainty in 
estimating materials and other costs. On the basis of this analysis, 
the proposal included a total of $713.1 million to account for risks 
and uncertainty--$641.4 million for the original scope of the MOX 
facility and $71.7 million for the addition of plutonium feedstock 
capability (see table 5). However, the contractor did not properly 
conduct or clearly document all steps in the analysis to determine the 
amount of funding to account for risks and uncertainty that could 
increase the cost of the project. 

Table 5: MOX Contractor's September 2012 Proposal for Increasing the 
Project's Cost: 

Scope of work covered by the proposal: MOX Fuel Fabrication Facility; 

Type of cost: Construction cost and fees[A]; 
Amount: $6,770.9 million. 

Type of cost: Allowances for risks and estimate uncertainty; 
Amount: $641.4 million. 

Scope of work covered by the proposal: Addition of plutonium feedstock 
capability; 

Type of cost: Construction cost and fees; 
Amount: $190.6 million. 

Type of cost: Allowances for risks and estimate uncertainty; 
Amount: $71.7 million. 

Total: 
Amount: $7.675 billion. 

Source: Shaw AREVA MOX Services, LLC. 

Note: Dollar figures do not add up to $7,674.7 million due to rounding. 

[A] The contractor's proposal included increases to incentive, 
milestone, and award fees specified under the MOX contract. 

[End of table] 

Contractor's Schedule Estimate for the WSB Did Not Meet Most Best 
Practices for Reliability: 

The WSB contractor's February 2013 monthly update to its schedule 
estimate did not fully reflect the characteristics of a high-quality, 
reliable schedule estimate as established by best practices. 
Specifically, the contractor's schedule estimate was minimally well-
constructed and partially met the other three characteristics of a 
reliable, high-quality schedule as measured against best practices--
comprehensive, credible, and controlled. Table 6 shows the 
characteristics of a high-quality schedule estimate and corresponding 
best practices. Appendix IV summarizes our assessment of how well the 
WSB contractor's February 2013 schedule estimate met the 
characteristics of a high-quality estimate. 

Table 6: Four Characteristics of a High-Quality Schedule Estimate with 
Their Corresponding Best Practices: 

Characteristic: Comprehensive; 
Best practices: 
* Capturing all activities; 
* Assigning resources to all activities; 
* Establishing the durations of all activities. 

Characteristic: Well-constructed; 
Best practices: 
* Sequencing all activities; 
* Confirming that the critical path is valid; 
* Ensuring reasonable total float. 

Characteristic: Credible; 
Best practices: 
* Verifying that the schedule is traceable horizontally and vertically; 
* Conducting a schedule risk analysis. 

Characteristic: Controlled; 
Best practices: 
* Updating the schedule with actual progress and logic; 
* Maintaining a baseline schedule. 

Source: GAO. 

[End of table] 

Our assessment of the WSB contractor's February 2013 schedule estimate 
included the following observations: 

* Comprehensive. The estimate was partially comprehensive in that it 
captured and established the durations of contractor and government 
activities to complete the project but did not capture the remaining 
detailed work to be performed by the construction subcontractor. 
Specifically, it reduced the subcontractor's 3,851 activities to 
complete its portion of the work to one placeholder activity. 
According to the NNSA federal project director, the WSB contractor 
reduced the subcontractor's activities to a placeholder because the 
subcontractor submitted unreliable schedules with repeated changes in 
the estimated completion date for its portion of work. 

* Well-constructed. The estimate was minimally well-constructed in 
that it sequenced activities in ways that can obscure a schedule's 
earliest completion date. In addition, the sequencing of activities 
included "merge points"--the convergence of many parallel activities 
into a single successor activity, which decreased the probability of 
successor activities starting on time. For example, performance of an 
assessment of readiness to operate the WSB was preceded by 212 
activities. NNSA officials explained that the merge points resulted 
from the need to complete activities in parallel to meet requirements 
set forth in DOE's project management order. 

* Credible. The estimate was partially credible in that the WSB 
contractor conducted a schedule risk analysis to determine the amount 
of schedule contingency--a reserve of extra time to account for risks 
and ensure completion of the project on time. However, a DOE review 
conducted prior to approval of an increase in the project's cost and a 
delay in the start of operations found that the results of the 
contractor's analysis were unreliable--for example, because project 
team members were not consulted regarding risk inputs. As a result, 
the schedule risk analysis did not clearly support the 12 months of 
schedule contingency included in the approved cost increase and 
schedule delay. 

* Controlled. The estimate was partially controlled in that, according 
to project officials, the schedule was updated weekly and used to 
measure performance, but no narrative accompanied weekly updates to 
provide decision makers with a log of changes and their effect, if 
any, on the schedule time frame. In addition, project officials did 
not provide documentation enabling the schedule to be validated, such 
as documentation describing sequencing of activities or assumptions 
used in developing the schedule. 

The NNSA federal project director and contractor's project leader said 
that the contractor had begun to correct problems in the contractor's 
schedule estimate--for example, by replacing the placeholder for the 
subcontractor's activities with a schedule of more detailed activities 
independently developed by the contractor. However, delays on the 
project continued after the contractor began correcting the problems. 
Notably, according to DOE's October 2013 monthly report on the WSB, 
continuing delays in completion of the construction subcontract--one 
of the key drivers NNSA identified for the WSB cost increase--already 
used up about 10 of the 12 months of schedule contingency, placing the 
project's completion date in jeopardy. 

Conclusions: 

NNSA has identified drivers of the close to $3 billion increase in the 
projected cost to complete the MOX facility and WSB and has taken 
steps to hold the MOX and WSB contractors accountable for their role 
in the cost increases by withholding and taking back fees. However, 
the various drivers identified by NNSA, such as DOE's approval of the 
cost and schedule estimate for the MOX facility before design was 
complete, do not provide the level of detail that can be found in a 
root cause analysis. In addition, DOE's project management order 
requires that lessons learned be captured throughout a project but 
does not include a requirement for a root cause analysis when a 
project exceeds its cost estimate, even when a project exceeds its 
cost estimate by billions of dollars. The decision whether to conduct 
such an analysis is instead made on a case-by-case basis. Because NNSA 
has not conducted a root cause analysis to identify the underlying 
causes of the cost increases for the MOX facility and WSB, it cannot 
provide assurance that it has correctly identified the underlying 
causes to ensure that they will not lead to further cost increases as 
the projects move forward. Further, without a root cause analysis, 
NNSA's ability to identify recommended solutions and lessons learned 
that could be applied to other projects is lessened. Conducting a root 
cause analysis of the cost increases for the MOX facility and WSB 
could help NNSA address its long-standing difficulties in completing 
projects within cost and on schedule, which has led to NNSA's project 
management remaining on GAO's list of areas at high risk of fraud, 
waste, abuse, and mismanagement. 

NNSA has drafted a life-cycle cost estimate of $24.2 billion for the 
Plutonium Disposition program--an important step toward presenting the 
full cost of NNSA's current strategy to dispose of surplus weapons-
grade plutonium as MOX fuel. A cost estimate that presents the full 
cost of NNSA's current plutonium disposition strategy is essential to 
inform NNSA's ongoing evaluation of alternative plutonium disposition 
strategies and provide Congress with a complete picture of the cost of 
the program. NNSA developed its life-cycle cost estimate even though 
neither DOE nor NNSA required the estimate. In particular, DOE's 
project management order does not explicitly require that life-cycle 
cost estimates be developed for programs like the Plutonium 
Disposition program that include both construction projects and other 
efforts and activities not related to construction, such as producing 
plutonium feedstock for the MOX facility. In the absence of such a 
requirement, NNSA followed several of the 12 key steps described in 
the GAO Cost Estimating and Assessment Guide for developing high-
quality, reliable cost estimates, but it did not follow other key 
steps. Because NNSA did not follow all of the steps, the life-cycle 
estimate for the Plutonium Disposition program is not reliable. 
Similarly, the contractors' cost and schedule estimates for the MOX 
facility and WSB did not meet all best practices compiled in GAO's 
guides for preparing high-quality, reliable cost and schedule 
estimates. Not meeting these best practices increased the risk of 
further cost increases and delays for the projects and, because the 
projects are components of NNSA's life-cycle cost estimate, for the 
overall Plutonium Disposition program. 

Recommendations for Executive Action: 

We are making six recommendations in this report to the Secretary of 
Energy. To identify lessons learned from and provide assurance of 
preventing recurrence of cost increases for the MOX facility and WSB, 
and to develop reliable cost estimates for the Plutonium Disposition 
program, we recommend that the Secretary of Energy direct the DOE and 
NNSA Offices of Acquisition and Project Management and the NNSA office 
responsible for managing the Plutonium Disposition program, as 
appropriate, to take the following four actions: 

* Conduct an analysis of the root causes of the cost increases for the 
MOX facility and WSB, such as the causes of the design changes that 
led to cost increases, and identify and prioritize recommended 
solutions. 

* Revise and update the program's life-cycle cost estimate following 
the 12 key steps described in the GAO Cost Estimating and Assessment 
Guide for developing high-quality cost estimates, such as conducting 
an independent cost estimate to provide an objective and unbiased 
assessment of whether the estimate can be achieved. 

* Ensure that the MOX contractor revises its proposal for increasing 
the cost of the MOX facility to meet all best practices for a high-
quality, reliable cost estimate--for example, by cross-checking major 
cost elements to determine whether alternative estimating methods 
produce similar results. 

* Ensure that the approved cost increase for the WSB is based on a 
schedule that the contractor has revised to meet all best practices 
for a high-quality, reliable schedule estimate, such as reflecting all 
activities (both government and contractor) needed to complete 
construction. 

To ensure that future DOE projects benefit from lessons learned that 
reflect the underlying causes of cost increases or schedule delays 
experienced by other projects, and that Congress and DOE have life-
cycle cost estimates for DOE programs that include individual 
construction projects, we further recommend that the Secretary of 
Energy take the following two actions to revise DOE's project 
management order or otherwise implement a departmentwide requirement: 

* Require a root cause analysis of all projects that experience cost 
increases or schedule delays exceeding a certain threshold established 
by DOE. 

* Require life-cycle cost estimates covering the full cost of programs 
that include both construction projects and other efforts and 
activities not related to construction. 

Agency Comments and Our Evaluation: 

We provided a draft of this product to DOE for comment. In written 
comments, reproduced in appendix V, NNSA stated that the agency and 
DOE generally agreed with our recommendations. In particular, NNSA 
concurred with four of our six recommendations and partially concurred 
with the other two. NNSA described actions it planned to take to 
implement the recommendations with which it concurred and time frames 
for taking these actions. NNSA also provided technical comments, which 
we incorporated into the report as appropriate. 

We are pleased that NNSA concurred with our recommendation to conduct 
an analysis of the root causes of the cost increases for the MOX 
facility and WSB and stated that it is planning to conduct such an 
analysis, which was not mentioned during the course of our review. 
NNSA also concurred with our recommendation to revise and update the 
Plutonium Disposition program's life-cycle cost estimate and stated 
that it would do so after a decision was made on the path forward for 
the program. The path forward could involve the use of alternative 
strategies to dispose of surplus weapons-grade plutonium. 

NNSA also concurred with our recommendation to ensure that the MOX 
contractor revises its proposal for increasing the cost of the MOX 
facility to meet all best practices for a high-quality, reliable cost 
estimate. In its comment letter, NNSA stated that it is working with 
the contractor to ensure that the cost estimating processes and 
procedures are updated such that the best practices are met. 

In addition, NNSA concurred with our recommendation to ensure that the 
approved cost increase for the WSB is based on a schedule that the 
contractor has revised to meet all best practices for a high-quality, 
reliable schedule estimate. In its comment letter, NNSA stated that it 
has revised the schedule since we reviewed it and that it now reflects 
all activities needed to complete construction. We did not review the 
update to the WSB contractor's schedule to confirm that it captured 
all activities to complete construction, which is one of the best 
practices associated with the characteristics of a high-quality 
schedule. Moreover, as detailed in appendix IV, the schedule we 
reviewed only partially or minimally met 7 of the other 9 best 
practices. To fully implement our recommendation, NNSA would need to 
ensure that the contractor has revised its schedule to meet all best 
practices for a high-quality, reliable schedule estimate. In its 
comment letter, NNSA stated that during the next project review, which 
is expected to occur by December 31, 2014, NNSA will review the 
schedule against best practices. 

NNSA partially concurred with our fifth recommendation that DOE 
require a root cause analysis of all projects that experience cost 
increases or schedule delays exceeding a certain threshold established 
by the department. In its comment letter, NNSA stated that DOE program 
offices currently perform tailored root cause analyses as part of the 
baseline change proposal process outlined in the department's project 
management order for increasing a project's cost and schedule 
estimates. NNSA stated that, as a result, the department does not 
believe that an update to the project management order is required. 
NNSA further stated that the department will review the lessons 
learned from NNSA's root cause analyses for the MOX and WSB projects 
to see what best practices may be of benefit to other projects. 
However, as we stated in the report, DOE's project management order 
does not include a requirement for a root cause analysis of projects 
experiencing significant cost increases or schedule delays, and NNSA 
officials said that they decide on a case-by-case basis whether to 
conduct a root cause analysis. Moreover, the order does not define 
what a root cause analysis is, how or when a root cause analysis 
should be conducted, or what is meant by a tailored analysis. In 
addition, NNSA's written comments did not provide information on the 
conditions that would trigger a root cause analysis. Leaving root 
cause analyses to an informal and undefined process within DOE program 
offices could result in such analyses not being conducted, not being 
conducted consistently, or not accurately identifying underlying 
causes of cost increases in order to identify and implement corrective 
measures and apply lessons learned to other DOE projects. We continue 
to believe that a root cause analysis should be conducted for all 
projects that experience cost increases or schedule delays above a 
threshold established by the department. We note that our 
recommendation is consistent with a requirement in the Weapon Systems 
Acquisition Reform Act of 2009; under the act, the Department of 
Defense must perform a root cause analysis of a cost increase that 
exceeds a certain threshold. 

NNSA partially concurred with our final recommendation that DOE 
require life-cycle cost estimates covering the full cost of programs 
that include both construction projects and other efforts and 
activities not related to construction. In its comment letter, NNSA 
stated that the department's project management order requires a 
comprehensive life-cycle cost analysis as part of the alternative 
selection process and that no further update to the order is required 
to address this recommendation. The intent of our recommendation goes 
beyond that of preparing a life-cycle cost estimate at the stage of 
selecting an alternative for a new capital asset project. Instead, the 
recommendation applies to departmental programs that include capital 
asset projects to meet the overall program need. As we stated in the 
report, NNSA did not follow all key steps for developing high-quality 
cost estimates in developing its draft April 2013 life-cycle cost 
estimate for the Plutonium Disposition program, which currently 
includes the MOX facility and WSB capital asset projects, in part 
because it did not have a requirement to develop it. NNSA's response 
to our recommendation suggests that the life-cycle cost estimates for 
the MOX and WSB projects that were required to be prepared years ago, 
when the projects were selected from among other alternatives, are the 
only life-cycle cost estimates needed to manage the Plutonium 
Disposition program. Furthermore, NNSA's response contradicts the fact 
that it concurred with our recommendation to revise and update the 
life-cycle cost estimate for the overall Plutonium Disposition program 
in accordance with cost estimating best practices. We continue to 
believe that our recommendation that the department require life-cycle 
cost estimates covering the full cost of programs that include 
construction projects should be implemented. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 7 days 
from the report date. At that time, we will send copies to the 
appropriate congressional committees, the Secretary of Energy, the 
NNSA Administrator, and other interested parties. In addition, the 
report will be available at no charge on the GAO website at 
[hyperlink, http://www.gao.gov]. 

If you or your staff members have any questions about this report, 
please contact me at (202) 512-3841 or trimbled@gao.gov. Contact 
points for our Offices of Congressional Relations and Public Affairs 
may be found on the last page of this report. GAO staff who made key 
contributions to this report are listed in appendix VI. 

Signed by: 

David C. Trimble: 
Director, Natural Resources and Environment: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

To assess drivers of the construction cost increases for the Mixed 
Oxide (MOX) Fuel Fabrication Facility and Waste Solidification 
Building (WSB) that the National Nuclear Security Administration 
(NNSA) identified, we reviewed the Department of Energy's (DOE) budget 
request for NNSA for fiscal year 2014, which provided a summary of the 
cost drivers for both projects. To assess cost drivers in further 
detail, we reviewed the MOX contractor's September 2012 proposal for 
increasing the project's cost, which discussed drivers from the 
contractor's perspective. We also reviewed DOE's December 2012 
document approving an increase in the estimated cost of the WSB and a 
delay in the start of operations, which summarized cost drivers and 
their impact on the project's cost and schedule. We visited the 
Savannah River Site to observe construction progress for both projects 
and interviewed NNSA and contractor officials responsible for managing 
the projects. We also interviewed officials from the NNSA Office of 
Fissile Materials Disposition, the NNSA Office of Acquisition and 
Project Management, and the DOE Office of Acquisition and Project 
Management. Separately, to understand how, if at all, cost drivers for 
the MOX facility were related to Nuclear Regulatory Commission (NRC) 
regulation and licensing of the construction and operation of the 
facility, we reviewed NRC construction inspection reports and related 
documents, and we interviewed NRC officials responsible for overseeing 
the facility's construction. In order to understand the components of 
cost growth for the MOX facility, which represented most of the 
Plutonium Disposition program's construction cost increase, we also 
analyzed the MOX contractor's earned value management (EVM) system 
that the contractor used to track and report on cost and schedule 
performance, including data from the EVM system on cumulative cost and 
schedule variance trends from July 2011 through April 2012 and the 
contractor's variance report for April 2012. 

To determine the extent to which NNSA analyzed underlying causes of 
the cost increases, we reviewed documents providing context for cost 
drivers. The documents we reviewed included NNSA Office of Acquisition 
and Project Management project review reports and monthly status 
reports; DOE Office of Acquisition and Project Management monthly 
status reports; DOE documents related to approval of the previous cost 
and schedule estimates for the MOX facility and WSB in April 2007 and 
December 2008, respectively; and documents related to specific cost 
drivers identified by NNSA, such as the MOX contractor's October 2006 
report on construction markets and DOE reports related to its 
suspension of the WSB contractor's system for tracking and reporting 
cost and schedule performance in November 2012. We also interviewed 
NNSA officials to determine the extent to which they had conducted or 
planned any analyses to identify underlying causes of cost increases 
for the Plutonium Disposition program's construction projects. 

To determine steps NNSA took to hold contractors accountable for their 
role in the cost increases for the Plutonium Disposition program's 
construction projects, we reviewed the contracts for the MOX facility 
and WSB, fees specified under the contracts, and NNSA's fee 
evaluations and other documentation supporting its fee determinations. 
We also interviewed NNSA contracting officers who were responsible for 
administering the MOX and WSB contracts regarding the terms of the 
contracts, fees specified under the contracts, and actions NNSA took 
or planned to take to hold contractors accountable for their role in 
the cost increases. We obtained NNSA data on fees it paid to and 
withheld from the contractors, and we assessed the reliability of the 
data by checking for obvious errors in accuracy and completeness; 
comparing the data with other sources of information, such as NNSA's 
fee determinations; and interviewing NNSA contracting officers who had 
knowledge of the data. We determined that NNSA's data on fees were 
sufficiently reliable for reporting on the fees paid to and withheld 
from the contractors. 

To assess the extent to which NNSA's most recent estimates of the 
Plutonium Disposition program's life-cycle cost and of the cost and 
schedule for completing the program's construction projects met best 
practices we have compiled in guides identifying the characteristics 
of high-quality, reliable cost and schedule estimates,[Footnote 23] we 
tailored our methodology to the differing stages of NNSA's development 
and approval of each estimate: 

* NNSA's life-cycle cost estimate for the Plutonium Disposition 
program. Because NNSA had not finalized a life-cycle cost estimate, we 
assessed NNSA's most recent available estimate--spreadsheets dated 
April 2013 representing NNSA's draft life-cycle cost estimate. In 
particular, we assessed the process NNSA used to develop the estimate 
against the 12 key steps described in the GAO Cost Estimating and 
Assessment Guide that should result in a high-quality, reliable cost 
estimate. To provide information on NNSA's process, NNSA officials 
responsible for developing the estimate filled out a data collection 
instrument we developed. The data collection instrument summarized 
each of the 12 key steps and provided space for NNSA officials to 
describe actions they had taken to meet the criteria for each step. To 
review the information provided by NNSA, we checked NNSA's April 2013 
estimate for obvious errors in accuracy and completeness and compared 
it with previous versions of the life-cycle cost estimate provided by 
NNSA. In addition, we interviewed NNSA officials to determine what 
requirements, if any, they followed for developing the estimate, their 
purpose for developing it, and their plans for presenting it for 
management approval. Finally, we interviewed NNSA officials from the 
Office of Analysis and Evaluation, which the Plutonium Disposition 
program had tasked with conducting an independent assessment of the 
MOX facility's operating costs. 

* NNSA's estimate to complete the MOX facility. Because NNSA had not 
approved a revised cost and schedule estimate for the MOX facility, we 
assessed the MOX contractor's September 2012 proposal for increasing 
the project's cost, which NNSA had directed the MOX contractor to use 
as a provisional baseline for purposes of monthly reporting. We 
compared data presented in various tables of the proposal for 
consistency and reviewed additional documents, including the technical 
baseline providing a detailed description of the MOX facility. We 
provided a draft of our assessment to NNSA and revised the draft, as 
appropriate, after discussing our assessment with NNSA program 
officials and the contractor. 

* NNSA's estimate to complete the WSB. We assessed the WSB schedule 
estimate that the cost increase for the project approved in December 
2012 was based on because, as described in the GAO Schedule Assessment 
Guide, a reliable schedule can contribute to an understanding of the 
cost impact if a project does not finish on time. Specifically, we 
compared the contractor's February 2013 monthly update to its schedule 
estimate, which was the most recent available update when we conducted 
our analysis, with the 10 best practices associated with the 
characteristics of a high-quality schedule. As part of our assessment, 
we reviewed documents related to the project's schedule, including 
NNSA's project execution plan for the WSB, the project's work 
breakdown structure, and the project's February 2013 update to the 
document showing the longest path to project completion. In addition, 
we interviewed the NNSA federal project director for the WSB and the 
WSB contractor's project leader and scheduler. We provided a draft of 
our assessment to NNSA and revised the draft, as appropriate, after 
discussing our assessment with NNSA program officials and the 
contractor. 

We conducted this performance audit from November 2012 to February 
2014 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: Assessment of NNSA's Process for Developing a Life-cycle 
Cost Estimate for the Plutonium Disposition Program: 

Best practice characteristic and overall assessment: Comprehensive: 
Partially met; 

Key steps to develop a high-quality cost estimate: Develop the 
estimating plan; 
Detailed assessment[A]: Partially met. NNSA assigned a team to develop 
and update the estimate but did not have a written plan for developing 
it. 

Key steps to develop a high-quality cost estimate: Best practice 
characteristic and overall assessment: Determine the estimating 
structure; 
Detailed assessment[A]: Partially met. Work breakdown structures to 
define in detail the work necessary to accomplish objectives were 
developed for the MOX and WSB projects and other components of the 
program, but NNSA had not formalized a program-level work breakdown 
structure. 

Best practice characteristic and overall assessment: Well-documented: 
Partially met; 

Key steps to develop a high-quality cost estimate: Define the 
estimate's purpose; 
Detailed assessment[A]: Substantially met. NNSA officials described 
the purpose as supporting annual budget requests, which include 
requirements that NNSA (1) present the full life-cycle cost of capital 
projects, such as the MOX facility, and (2) estimate expenditures for 
the fiscal year with respect to which the budget is submitted and at 
least the four succeeding fiscal years. 

Key steps to develop a high-quality cost estimate: Define the program's 
characteristics; 
Detailed assessment[A]: Substantially met. NNSA developed a program 
requirements document to identify the scope, functions, and 
requirements of the Plutonium Disposition program. NNSA documented 
performance characteristics for program components in contracts, 
technical baselines, and execution plans. 

Key steps to develop a high-quality cost estimate: Identify ground 
rules and assumptions; 
Detailed assessment[A]: Partially met. NNSA identified ground rules and 
assumptions in a document, but NNSA officials said that assumptions for 
the program change frequently, hindering development of a life-cycle 
cost estimate. 

Key steps to develop a high-quality cost estimate: Obtain the data; 
Detailed assessment[A]: Substantially met. NNSA collected data at the 
project level, where, according to NNSA, data were documented in 
contractor systems and estimates were developed by teams of 
knowledgeable staff using historical information, current cost and 
pricing information, engineering and vendor quotes, cost guides, and 
current material and labor costs. 

Key steps to develop a high-quality cost estimate: Document the 
estimate; 
Detailed assessment[A]: Minimally met. NNSA documented the estimate on 
spreadsheets, but it did not develop a single document to describe 
data sources and steps taken in developing the estimate so that it 
could be replicated by someone other than those who prepared it. 

Key steps to develop a high-quality cost estimate: Present the 
estimate to management for approval; 
Detailed assessment[A]: Not met. NNSA considered the estimate to be 
draft and predecisional, and NNSA officials said they did not have 
plans to present an estimate to management for approval until NNSA 
completes its reevaluation of its strategy for disposing of surplus 
weapons-grade plutonium. 

Best practice characteristic and overall assessment: Accurate: 
Partially met; 

Key steps to develop a high-quality cost estimate: Develop the point 
estimate[B]; 
Detailed assessment[A]: Partially met. NNSA developed a point 
estimate, but it did not use a program-level work breakdown structure 
to do so because it had not formalized such a structure. 

Key steps to develop a high-quality cost estimate: Update the estimate 
to reflect actual costs and changes; 
Detailed assessment[A]: Partially met. NNSA updated the estimate 
periodically to include actual costs and changes to program and 
project requirements, but it did not clearly document how changes 
affected the estimate. 

Best practice characteristic and overall assessment: Credible: Not met; 

Key steps to develop a high-quality cost estimate: Compare the point 
estimate to an independent cost estimate[B]; 
Detailed assessment[A]: Not met. NNSA did not conduct an independent 
cost estimate for the overall program's life-cycle cost estimate, and 
it had not completed independent cost estimates for the program's two 
construction projects. 

Key steps to develop a high-quality cost estimate: Conduct a 
sensitivity analysis; 
Detailed assessment[A]: Not met. NNSA did not conduct a formal 
sensitivity analysis at the program level. 

Key steps to develop a high-quality cost estimate: Conduct a risk and 
uncertainty analysis; 
Detailed assessment[A]: Not met. NNSA did not conduct a risk 
and uncertainty analysis at the program level. 

Source: GAO analysis of information from NNSA. 

[A] The ratings we used in this analysis are as follows: "Not met" 
means NNSA provided no evidence that satisfies the key step. "Minimally 
met" means NNSA provided evidence that satisfies a small portion of the 
key step. "Partially met" means NNSA provided evidence that satisfies 
about half of the key step. "Substantially met" means NNSA provided 
evidence that satisfies a large portion of the key step. "Fully met" 
means NNSA provided complete evidence that satisfies the entire key 
step. 

[B] As described in the GAO Cost Estimating and Assessment Guide, 
developing the point estimate and comparing it with an independent cost 
estimate are separate parts of a single step. For purposes of assessing 
the extent to which a cost estimate achieves the characteristics of a 
high-quality cost estimate, developing the point estimate contributes 
to accuracy, and comparing the point estimate with an independent cost 
estimate contributes to credibility. 

[End of table] 

[End of section] 

Appendix III: Assessment of the MOX Contractor's Proposed Cost 
Estimate Compared with Industry Best Practices: 

Best practice characteristic and overall assessment: Comprehensive: 
Substantially met; 

Best practice: The cost estimate includes all life-cycle costs; 
Detailed assessment[A]: Met. The estimate covered construction and 
startup costs; at NNSA's direction, the estimate excluded operation 
and maintenance costs. 

Best practice: The cost estimate completely defines the program, 
reflects the current schedule, and is technically reasonable; 
Detailed assessment[A]: Substantially met. The estimate was based on 
NNSA's statement of work and the contractor's technical baseline for 
the original scope of the MOX facility. 

Best practice: The cost estimate work breakdown structure is product-
oriented, traceable to the statement of work/objective, and at an 
appropriate level of detail to ensure that cost elements are neither 
omitted nor double-counted; 
Detailed assessment[A]: Partially met. The work breakdown structure 
clearly outlined the end product and major work of the project, but 
some cost elements were missing from the work breakdown structure. 

Best practice: The estimate documents all cost-influencing ground rules 
and assumptions; 
Detailed assessment[A]: Partially met. The estimate documented that it 
was based on a profile of NNSA's projected annual funding to complete 
the project but did not provide justifications for some assumptions, 
such as not more than a set amount of work being nonstandard. 

Best practice characteristic and overall assessment: Well documented: 
Partially met; 

Best practice: The documentation captures the source data used, the 
reliability of the data, and how the data were normalized; 
Detailed assessment[A]: Partially met. The estimate was based on 
actual costs through May 2012 and used a database of labor and other 
costs, but it did not state whether or how all data had been 
normalized to ensure data comparability. 

Best practice: The documentation describes in sufficient detail the 
calculations performed and the estimating methodology used to derive 
each element's cost; 
Detailed assessment[A]: Met. The estimate used a combination of expert 
opinion and extrapolation from actual data to develop estimates for 
and sum up individual cost elements of the work breakdown structure. 

Best practice: The documentation describes, step by step, how the 
estimate was developed so that a cost analyst unfamiliar with the 
program could understand what was done and replicate it; 
Detailed assessment[A]: Partially met. The estimate used quantities of 
materials and labor hours to develop estimates for individual cost 
elements but did not document how these quantities were estimated. 

Best practice: The documentation discusses the technical baseline 
description and the data in the baseline is consistent with the 
estimate; 
Detailed assessment[A]: Partially met. The estimate agreed with NNSA's 
statement of work and the contractor's technical baseline for the 
original scope of the MOX facility, but the technical baseline did not 
cover the addition of capability to supply plutonium feedstock. 

Best practice:The documentation provides evidence that the cost 
estimate was reviewed and accepted by management; 
Detailed assessment[A]: Partially met. DOE began a review of the 
proposed estimate but did not approve it. 

Best practice characteristic and overall assessment: Accurate: 
Partially met; 

Best practice: The cost estimate results are unbiased, not overly 
conservative or optimistic, and based on an assessment of most likely 
costs; 
Detailed assessment[A]: Minimally met. The estimate was higher than 
needed to achieve an 85 percent confidence level--the level directed 
by NNSA--that the final cost would be less than the estimate. 

Best practice: The estimate has been adjusted properly for inflation; 
Detailed assessment[A]: Substantially met. The estimate appeared to 
adjust cost elements for inflation, but adjustments were not well-
documented. 

Best practice: The estimate contains few, if any, minor mistakes; 
Detailed assessment[A]: Met. The estimate contained few minor 
mistakes, and calculations within the estimate were internally 
consistent. 

Best practice: The cost estimate is regularly updated to reflect 
significant changes in the program so that it always reflects current 
status; 
Detailed assessment[A]: Partially met. The estimate was based on 
actual costs through May 2012 and did not reflect updated costs from 
the contractor's system for tracking and reporting cost and schedule 
performance. 

Best practice: Variances between planned and actual costs are 
documented, explained, and reviewed; 
Detailed assessment[A]: Minimally met. The estimate explained variances 
between planned and actual costs at a high level but not at the cost 
element level. 

Best practice: The estimate is based on a historical record of cost 
estimating and actual experiences from other comparable programs; 
Detailed assessment[A]: Partially met. The estimate did not explain to 
what extent it was based on historical data from other similar 
programs or facilities. 

Best practice: The estimating technique for each cost element was 
used appropriately; 
Detailed assessment[A]: Substantially met. The estimating method used--
developing the estimate at the lowest level of the work breakdown 
structure, one piece at a time, with the sum of the pieces becoming 
the estimate--was appropriate for a project under way. 

Best practice characteristic and overall assessment: Credible: 
Minimally met; 

Best practice: The cost estimate includes a sensitivity analysis that 
identifies a range of possible costs based on varying major 
assumptions, parameters, and data inputs; 
Detailed assessment[A]: Not met. The estimate did not include a 
sensitivity analysis. 

Best practice: A risk and uncertainty analysis was conducted that 
quantified the imperfectly understood risks and identified the effects 
of changing key cost driver assumptions and factors; 
Detailed assessment[A]: Partially met. The estimate included a risk 
and uncertainty analysis but did not properly conduct or clearly 
document all steps in the analysis. 

Best practice: Major cost elements were cross-checked to see whether 
results were similar; 
Detailed assessment[A]: Not met. The estimate provided no evidence that 
major cost elements were cross-checked. 

Best practice: An independent cost estimate was conducted by a group 
outside the acquiring organization to determine whether other 
estimating methods produce similar results; 
Detailed assessment[A]: Not met. DOE halted its independent cost 
estimate of the contractor's proposed estimate as part of DOE's 
decision to reevaluate its strategy for disposing of surplus weapons-
grade plutonium. 

Source: GAO analysis of the MOX contractor's September 2012 proposal 
for increasing the cost of the MOX facility. 

[A] The ratings we used in this analysis are as follows: "Not met" 
means the proposal provided no evidence that satisfies the best 
practice. "Minimally met" means the proposal provided evidence that 
satisfies a small portion of the best practice. "Partially met" means 
the proposal provided evidence that satisfies about half of the best 
practice. "Substantially met" means the proposal provided evidence 
that satisfies a large portion of the best practice. "Fully met" means 
the proposal provided complete evidence that satisfies the entire best 
practice. 

[End of table] 

[End of section] 

Appendix IV: Assessment of the Waste Solidification Building's 
Schedule Estimate Compared with Industry Best Practices: 

Best practice characteristic and overall assessment: Comprehensive: 
Partially met; 

Best practice: Capturing all activities; 
Detailed assessment[A]: Minimally met. The schedule estimate's 2,429 
activities to complete the project included one summary activity in 
place of the construction subcontractor's 3,851 activities and, 
therefore, did not capture the remaining detailed work to be performed 
by the subcontractor. 

Best practice: Assigning resources to all activities; 
Detailed assessment[A]: Partially met. The schedule estimate assigned 
resources, such as labor and materials, to only about half of the 
remaining 2,429 activities. 

Best practice: Establishing the durations of all activities; 
Detailed assessment[A]: Substantially met. The schedule estimate 
included activity durations that were generally short enough to be 
consistent with the needs of effective planning. 

Best practice characteristic and overall assessment: Well-constructed: 
Minimally met; 

Best practice: Sequencing all activities; 
Detailed assessment[A]: Minimally met. The schedule estimate sequenced 
activities in ways that decreased the probability of activities 
starting on time and contained activities that were not properly tied 
with the start or end date of other activities, which could potentially 
obscure the critical path, which determines the project's earliest 
completion date. 

Best practice: Confirming that the critical path is valid; 
Detailed assessment[A]: Partially met. Changes to the critical path 
were evaluated monthly and tracked in monthly status reports, but 
constraints in scheduled dates of certain activities convoluted the 
critical path. 

Best practice: Ensuring reasonable total float; 
Detailed assessment[A]: Minimally met. The schedule estimate included 
high total float values--the amount of time by which an activity can 
slip without affecting a completion date--potentially resulting in an 
inaccurate assessment of the project's completion date. 

Best practice characteristic and overall assessment: Credible: 
Partially met; 

Best practice: Verifying that the schedule is traceable horizontally 
and vertically; 
Detailed assessment[A]: Substantially met. The schedule estimate was 
traceable horizontally (i.e., across sequenced activities) and 
vertically (i.e., between activities and subactivities). 

Best practice: Conducting a schedule risk analysis; 
Detailed assessment[A]: Minimally met. The WSB contractor conducted a 
schedule risk analysis, but the results of the analysis were unreliable 
for determining the likelihood of the project's completion date and did 
not align with DOE's revised cost and schedule estimate. 

Best practice characteristic and overall assessment: Controlled: 
Partially met; 

Best practice: Updating the schedule with actual 
progress and logic; 
Detailed assessment[A]: Partially met. According to project officials, 
the schedule was updated weekly, but no narrative accompanied the 
weekly updates. 

Best practice: Maintaining a baseline schedule; 
Detailed assessment[A]: Minimally met. Project officials stated that 
they used the schedule to measure performance, but they did not 
provide thorough documentation enabling the schedule to be validated, 
such as a narrative providing a log of changes and their effects. 

Source: GAO analysis of the WSB contractor's schedule estimate, as 
updated in February 2013. 

[A] The ratings we used in this analysis are as follows: "Not met" 
means the schedule estimate provided no evidence that satisfies the 
best practice. "Minimally met" means the schedule estimate provided 
evidence that satisfies a small portion of the best practice. 
"Partially met" means the schedule estimate provided evidence that 
satisfies about half of the best practice. "Substantially met" means 
the schedule estimate provided evidence that satisfies a large portion 
of the best practice. "Fully met" means the schedule estimate provided 
complete evidence that satisfies the entire best practice. 

[End of table] 

[End of section] 

Appendix V: Comments from the National Nuclear Security Administration: 

Department of Energy: 
National Nuclear Security Administration: 
Washington, DC 20585: 

January 24, 2014: 

Mr. David Trimble: 
Director: 
Natural Resources and Environment: 
Government Accountability Office: 
Washington, DC 20458: 

Dear Mr. Trimble: 

Thank you for the opportunity to review the Government Accountability 
Office's (GAO) draft report titled "Plutonium Disposition Program: DOE 
Needs to Analyze the Root Causes of Cost Increases and Develop Better 
Cost Estimates, GA0-14-231." I understand the GAO conducted this 
review to examine: 1) drivers the National Nuclear Security 
Administration (NNSA) identified for the project cost increases; 2) 
the extent to which NNSA analyzed underlying causes of cost increases; 
3) steps taken to hold construction contractors accountable for their 
role; and 4) the extent to which NNSA' s most recent estimates met 
cost and schedule estimating best practices. Based on its findings, 
the GAO provided six recommendations for executive action to further 
enhance project analysis and application of best practices in future 
estimate development. 

NNSA and the Department of Energy (DOE) generally agree with GAO's 
recommendations, and the enclosure to this letter provides our 
detailed response to each, including planned actions, clarifications 
of actions already taken, and timelines for implementing 
recommendations where appropriate. In addition, we have provided 
general and technical comments for GAO's consideration to enhance the 
clarity and factual accuracy of the report. 

NNSA is committed to effectively managing its major projects. Since 
the time of the original cost increases reviewed in the report, NNSA 
has been driving continued enhancements to contract and project 
management practices through a reorganized Office of Acquisition and
Project Management. Some of the resulting project management 
improvements that will positively impacting our largest, most complex 
nuclear work going forward include: establishing more defined 
processes for holding contractors accountable for their performance; 
better engaging senior leadership in project status and delivery; and 
conducting periodic peer reviews using subject matter experts from 
across the DOE complex. 

In addition to the aforementioned improvements, the Department's new 
requirements for independent cost estimates by non-proponent 
organizations at the various Critical Decision gateways will 
significantly improve project performance. Further, we are 
aggressively pursuing improving cost estimating practices, including 
issuing guidance that incorporates GAO's 12 Steps for a High Quality 
Cost Estimate in the latest revision of the NNSA Independent Cost
Estimating Procedure and ensuring subject matter experts in the area 
of cost estimating have the appropriate credentials. NNSA is also a 
major part of the new Contract and Project Management Working Group 
established by the Secretary of Energy. We are confident these and 
other reforms will facilitate continuous improvement in our management 
of projects as these new initiatives mature and are institutionalized. 

We appreciate the efforts of the auditors and will work aggressively 
to continue to enhance contract and project management across the 
enterprise. If you have any questions regarding this response, please 
contact Dean Childs, Director, Office of Audit Coordination and Internal
Affairs, at (301) 903-1341. 

Sincerely, 

Signed by: 

Cynthia A. Lersten: 
Associate Administrator for Management and Budget: 

Enclosure: 
The National Nuclear Security Administration Response to the GAO Draft 
Report Titled "Plutonium Disposition Program: DOE Needs to Analyze the 
Root Causes of Cost increases and Develop Better Cost Estimates, GAO-
14-231" 

The government Accountability Office (GAO) recommended the National 
Nuclear Security Administration (NNSA) and the Department of Energy 
(DOE): 

Recommendation 1: Conduct an analysis of the root causes of the cost 
increases for the Mixed Oxide Fuel Fabrication Facility (MOX) and 
Waste Solidification Building (WSB), such as the causes of the design 
problems that led to cost increases for projects, and identify and 
prioritize recommended solutions. 

Management Response: Concur. 

NNSA plans to complete the root cause analyses for MOX and WSB by 
September 30, 2014. 

Recommendation 2: Revise and update the [Plutonium Disposition} 
program's lifecycle cost estimate following the 12 key steps described 
in the GAO Cost Estimating and Assessment Guide for developing high-
quality cost estimates, such as conducting an independent cost 
estimate to provide an objective and unbiased assessment of whether 
the estimate can be achieved. 

Management Response: Concur. 

NNSA will revise and update the plutonium disposition program's 
lifecycle cost estimate following the 12 key steps described in the 
GAO Cost Estimating and Assessment Guide. In April 2013,NNSA announced 
that it would slow down activities associated with the current
plutonium disposition strategy while assessing options. NNSA agrees 
that a sound lifecycle estimate is necessary; however, until the path 
forward for the program is determined, it would not be cost effective 
to pursue a revised estimate. Therefore, a revised lifecycle cost 
estimate will be developed within one year of the decision on the path 
forward for plutonium disposition. 

Recommendation 3: Ensure that the MOX contractor revises its proposal 
for increasing the cost of the MOX facility to meet all best practices 
for a high-quality, reliable cost estimate (For example, by cross-
checking major cost estimates to determine whether alternative 
estimating methods produce similar results). 

Management Response: Concur. 

NNSA is working with the MOX facility contractor to ensure that the 
cost estimating processes and procedures are updated such that the GAO 
best practices are met. The estimated completion date for this 
activity is July 31, 2014. Further, when a new cost estimate/proposal 
is requested from the contractor, the direction will include ensuring 
that GAO best practices are incorporated to ensure it is a high 
quality, reliable estimate. 

Recommendation 4: Ensure that the approved cost increase for the WSB 
is based on a schedule that the contractor has revised to meet all 
best practices for a high-quality, reliable scheduled estimate, such 
as reflecting all activities (both government and contractor) needed 
to complete construction. 

Management Response: Concur. 

NNSA has revised the schedule since the GAO auditors reviewed it, and 
it now reflects all activities needed to complete construction. During 
the next project review, NNSA will review the schedule against best 
practices. This project review is expected to occur by December 31,
2014. 

Recommendation 5: Revise DOE's project management order to require a 
root cause analysis of all projects that experience cost increases or 
schedule delays exceeding a certain threshold established by DOE. 

Management Response: Partially Concur. 

The Departmental Program Offices currently perform tailored Root Cause 
Analyses to inform the Acquisition Executive as to the driver(s) for 
cost increases and schedule delays as part of the Baseline Change 
Proposal process outlined in DOE 0 413.3B. Therefore, the Department 
does not believe further update to the Order is required to address 
this recommendation. However, the Department will review the lessons 
learned from the NNSA's root cause analyses for the MOX and WSB 
projects to see what best practices may be of benefit to other 
projects. Any additional guidance will be issued via the appropriate 
Departmental directive. 

Recommendation 6: Revise DOE's project management order to require 
lifecycle cost estimates covering the full cost of programs that 
include both construction projects and other efforts and activities 
not related to construction. 

Management Response: Partially Concur. 

DOE Order 413.3B, Program and Project Management for the Acquisition 
of Capital Assets, requires a comprehensive lifecycle cost analysis as 
part of the alternative selection process. Therefore, no further 
update to this Order is required to address this recommendation. 

[End of section] 

Appendix VI: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

David C. Trimble, (202) 512-3841 or trimbled@gao.gov: 

Staff Acknowledgments: 

In addition to the individual named above, Daniel Feehan, Assistant 
Director; Remmie Arnold; Antoinette Capaccio; Juaná S. Collymore; 
Joseph Cook; Tisha Derricotte; Emile Ettedgui; Cristian Ion; Alison 
O'Neill; Cheryl Peterson; and Karen Richey made key contributions to 
this report. 

[End of section] 

Footnotes: 

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

[2] The contractor for the MOX facility is Shaw AREVA MOX Services, 
LLC. The contractor for the WSB is Savannah River Nuclear Solutions, 
LLC. Design and construction management of the WSB is included in the 
contract between Savannah River Nuclear Solutions and DOE for 
management and operation of the Savannah River Site. 

[3] DOE, Program and Project Management for the Acquisition of Capital 
Assets, DOE Order 413.3B (Washington, D.C.: Nov. 29, 2010). 

[4] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-13-283] (Washington, D.C.: February 
2013). In our 2013 High-Risk Update, we narrowed the focus of NNSA's 
high-risk designation to major contracts and projects, those with 
values of at least $750 million, to acknowledge progress made in 
managing smaller value efforts. 

[5] GAO, Department of Energy: Concerns with Major Construction 
Projects at the Office of Environmental Management and NNSA, 
[hyperlink, http://www.gao.gov/products/GAO-13-484T] (Washington, 
D.C.: Mar. 20, 2013). 

[6] In December 2008, as a result of funding reductions for fiscal 
year 2008, DOE approved a revised cost estimate for the MOX facility 
of $4.9 billion and a 1-month delay in the start of operations to 
October 2016. 

[7] As described in NNSA's acquisition strategy, the WSB's start of 
operations included a buffer to allow for delays without having an 
impact on start-up testing of the MOX facility. 

[8] GAO, GAO Cost Estimating and Assessment Guide: Best Practices for 
Developing and Managing Capital Program Costs, [hyperlink, 
http://www.gao.gov/products/GAO-09-3SP] (Washington, D.C.: March 
2009); and GAO, GAO Schedule Assessment Guide: Best Practices for 
Project Schedules, [hyperlink, 
http://www.gao.gov/products/GAO-12-120G] (Washington, D.C.: May 2012). 

[9] GAO, Nuclear Nonproliferation: DOE Needs to Address Uncertainties 
with and Strengthen Independent Safety Oversight of Its Plutonium 
Disposition Program, [hyperlink, 
http://www.gao.gov/products/GAO-10-378] (Washington, D.C.: Mar. 26, 
2010). 

[10] DOE, Draft Surplus Plutonium Disposition Supplemental 
Environmental Impact Statement, DOE/EIS-0283-S2 (Washington, D.C.: 
July 2012). 

[11] A cost is allowable if, among other things, it is reasonable, 
allocable to the contract at issue, and meets certain accounting 
standards and the terms of the contract. Federal Acquisition 
Regulation (FAR), 48 C.F.R. § 31.201-2 (2013). In general, a cost is 
allocable to a given contract if it is incurred specifically for the 
contract; benefits both the contract and other work, and can be 
distributed to them in reasonable proportion to the benefits received; 
or is necessary to the overall operation of the business, although a 
direct relationship to any particular cost objective cannot be shown. 
FAR, 48 C.F.R. § 31.201-4 (2013). 

[12] [hyperlink, http://www.gao.gov/products/GAO-09-3SP]. 

[13] [hyperlink, http://www.gao.gov/products/GAO-12-120G]. 

[14] The NRC, an independent oversight agency, has general licensing 
and related regulatory authority over the construction and operation 
of the MOX facility. 42 U.S.C. § 5842 (2013). NRC issued a 
construction authorization for the facility in 2005. A license to 
operate the facility will only be issued by the NRC once it verifies 
that the facility's principal structures, systems, and components are 
properly constructed. 

[15] Nuclear quality assurance criteria cover the design, fabrication, 
construction, and testing of structures, systems, and components used 
in nuclear power plants and other nuclear facilities. 10 C.F.R. pt. 
50, app. B (2013). 

[16] The subcontract included all construction activities for the WSB 
with the exception of early site work, such as installation of 
underground utilities. 

[17] As described by DOE in an April 2008 report on its departmentwide 
effort to assess underlying causes for its project management 
challenges, a root cause analysis is a process involving the 
individuals knowledgeable of and directly responsible for managing DOE 
contracts and projects answering a challenging series of questions as 
to why a situation, event, or condition existed. The process continues 
with the identification, prioritization, and implementation of 
recommended solutions or corrective measures. 

[18] For example, NNSA tasked a construction management contractor to 
identify the root causes associated with the need to increase the 
height of the Uranium Processing Facility planned for construction in 
Oak Ridge, Tennessee, to ensure that processing equipment would fit 
into the facility. The change to the facility's design resulted in 
approximately $540 million in additional costs. The root cause 
analysis focused not only on identifying lessons learned but also on 
understanding why the space within the facility became a major design 
issue late in the final design and recommending actions to fix the 
identified causes to prevent recurrence of similar negative outcomes. 
For further information on the cost increase for this facility, see 
GAO, Nuclear Weapons: Factors Leading to Cost Increases with the 
Uranium Processing Facility, [hyperlink, 
http://www.gao.gov/products/GAO-13-686R] (Washington, D.C.: July 12, 
2013). 

[19] The NNSA contracting officer for the MOX facility said that, as 
an alternative to taking back the provisional fees, NNSA may seek to 
use the $21.6 million to modify the MOX contract's cost-sharing 
provision to provide the contractor an incentive to limit further cost 
increases. The contract included a provision whereby the contractor 
would earn a portion of every dollar that total allowable, final 
project costs are less than the project's approved cost estimate, as 
adjusted for purposes of calculating the amount of cost share. In 
contrast, the contractor would owe a portion of every dollar that 
final project costs exceed the project's approved cost estimate, as 
adjusted. 

[20] In technical comments on a draft of this report, NNSA stated 
that, because it hired a contractor with knowledge of both the 
marketplace for nuclear work and the MOX project requirements, it 
expected project estimates submitted by the contractor to account for 
any risk associated with the nuclear renaissance. 

[21] In order for the government to reimburse a contractor's costs, 
the costs must be reasonable. FAR, 48 C.F.R. § 31.201-2, -3 (2013). 
Evidence of gross negligence or willful misconduct could provide a 
basis for a contracting officer or court to disallow costs as 
unreasonable under the regulation, but a contractor's actions do not 
need to rise to this level to be determined unreasonable, See Kellogg 
Brown & Root Servs. v. United States, 2013 U.S. App. LEXIS 18447, at 
*21-2, (D.C. Cir. Sept. 5, 2013). 

[22] We based the ratings used in our analysis on the average of 
ratings for individual best practices included in each characteristic: 
"Not met" means an estimate provided no evidence that satisfied the 
best practice. "Minimally met" means an estimate provided evidence 
that satisfied a small portion of the best practice. "Partially met" 
means the estimate provided evidence that satisfied about half of the 
best practice. "Substantially met" means the estimate provided 
evidence that satisfied a large portion of the best practice. "Fully 
met" means the estimate provided complete evidence that satisfied the 
entire best practice. 

[23] [hyperlink, http://www.gao.gov/products/GAO-09-3SP] and 
[hyperlink, http://www.gao.gov/products/GAO-12-120G]. 

[End of section] 

GAO's Mission: 

The Government Accountability Office, the audit, evaluation, and 
investigative arm of Congress, exists to support Congress in meeting 
its constitutional responsibilities and to help improve the 
performance and accountability of the federal government for the 
American people. GAO examines the use of public funds; evaluates 
federal programs and policies; and provides analyses, recommendations, 
and other assistance to help Congress make informed oversight, policy, 
and funding decisions. GAO's commitment to good government is 
reflected in its core values of accountability, integrity, and 
reliability. 

Obtaining Copies of GAO Reports and Testimony: 

The fastest and easiest way to obtain copies of GAO documents at no 
cost is through GAO's website [hyperlink, http://www.gao.gov]. Each 
weekday afternoon, GAO posts on its website newly released reports, 
testimony, and correspondence. To have GAO e-mail you a list of newly 
posted products, go to [hyperlink, http://www.gao.gov] and select 
"E-mail Updates." 

Order by Phone: 

The price of each GAO publication reflects GAO's actual cost of 
production and distribution and depends on the number of pages in the 
publication and whether the publication is printed in color or black 
and white. Pricing and ordering information is posted on GAO's 
website, [hyperlink, http://www.gao.gov/ordering.htm]. 

Place orders by calling (202) 512-6000, toll free (866) 801-7077, or 
TDD (202) 512-2537. 

Orders may be paid for using American Express, Discover Card, 
MasterCard, Visa, check, or money order. Call for additional 
information. 

Connect with GAO: 

Connect with GAO on facebook, flickr, twitter, and YouTube.
Subscribe to our RSS Feeds or E mail Updates. Listen to our Podcasts.
Visit GAO on the web at [hyperlink, http://www.gao.gov]. 

To Report Fraud, Waste, and Abuse in Federal Programs: 

Contact: 
Website: [hyperlink, http://www.gao.gov/fraudnet/fraudnet.htm]; 
E-mail: fraudnet@gao.gov; 
Automated answering system: (800) 424-5454 or (202) 512-7470. 

Congressional Relations: 

Katherine Siggerud, Managing Director, siggerudk@gao.gov: 
(202) 512-4400: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7125: 
Washington, DC 20548. 

Public Affairs: 

Chuck Young, Managing Director, youngc1@gao.gov: 
(202) 512-4800: 
U.S. Government Accountability Office: 
441 G Street NW, Room 7149: 
Washington, DC 20548. 

[End of document]