Department of Energy's Contract Management for the National Nuclear Security Administration and Office of Environmental Management
The Department of Energy (DOE), the largest civilian contracting agency in the federal government, relies primarily on contractors to carry out its diverse missions and operate its laboratories and other facilities. Approximately 90 percent of DOEs budget is spent on contracts and large capital asset projects. GAO designated contract managementwhich includes both contract administration and project managementas a high-risk area in 1990 because DOEs record of inadequate management and oversight of contractors has left the department vulnerable to fraud, waste, abuse, and mismanagement. In January 2009, to recognize progress made at the Office of Science, GAO narrowed the focus of its high-risk designation to two DOE program elementsthe National Nuclear Security Administration (NNSA) and Office of Environmental Management (EM). Together, these two programs accounted for almost 65 percent of DOEs fiscal year 2012 discretionary funding of more than $26 billion. This year, GAO is further narrowing the focus of its 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.
DOE has continued to take many steps to address contract and project management weaknesses, including (1) demonstrating strong commitment and top leadership support, (2) developing a corrective action plan that identifies effective solutions, and (3) demonstrating progress toward implementing corrective measures. These are three of the five criteria for removal from GAOs High Risk List. Since GAOs February 2011 high risk update, GAO has focused on evaluating the extent to which DOE has met the two remaining criteria for removal: (1) having the capacity (people and resources) to resolve the problems and (2) monitoring and independently validating the effectiveness and sustainability of corrective measures. In this regard, GAO has found that DOE has made progress toward implementing corrective measures for projects considered nonmajor, those projects with values less than $750 million. While work remains to ensure that further improvements are made and all improvements are sustained, to recognize progress GAO is further narrowing its focus of this high-risk designation to major projects and contracts, those with values of $750 million or greater. These contracts include those for capital asset projects as well as management and operating contracts for national laboratories and nuclear production plants that are government owned and contractor operated.
DOE continues to demonstrate strong commitment and top leadership support for improving contract and project management in EM and NNSA, building on its corrective action plan developed in 2008. In December 2010, the Deputy Secretary convened a DOE Contract and Project Management Summit to discuss strategies for additional improvement in contract and project management. The participants identified six barriers to improved performance and reported in April 2012 on the status of initiatives to address these barriers. In addition, DOE has continued to release guides for implementing its revised order for Program and Project Management for the Acquisition of Capital Assets (DOE O 413.3B), such as for cost estimating, using earned value management, and for forming project teams. Further, DOE has taken steps to enhance project management and oversight by requiring peer reviews and independent cost estimates for projects with values of more than $100 million and by improving the accuracy and consistency of data in DOEs central repository for project data.
The steps DOE has taken are very important but have not yet consistently improved contract and project management of major projects in NNSA and EM. GAOs recent work on major projects and DOEs own reporting on the status of these projects show continued need for improvement. As of August 2012, NNSA was managing three major projects with estimated costs totaling as much as $17.2 billion. EM was managing seven major projects with estimated costs totaling as much as $48.5 billion. As part of this high risk update, GAO examined these 10 projects but was only able to analyze changes in schedule estimates for 5 projects and cost estimates for 7 projects because of limitations in the data. For these projects, GAO determined that DOE has added as much as 38.5 years to their initial schedules and $16.5 billion to original cost estimates with further delays and cost increases anticipated. For example, since GAO reported in February 2011 that NNSAs project to design and construct a new Uranium Processing Facility at the Y-12 National Security Complex had experienced nearly seven-fold cost growth from its 2004 estimate to the current estimate of between $4.2 billion and $6.5 billion, comments from the Defense Nuclear Facilities Safety Board at a public meeting in October 2012 indicate that the facility will be redesigned to correct issues concerning processing equipment with the potential for significant additional cost and schedule delay. Further, GAO reported in March 2012, that NNSAs project to design and construct a new plutonium facility at Los Alamos National Laboratory had experienced a nearly six-fold increase to between $3.7 billion and $5.8 billion before being deferred for at least 5 years. In addition, GAO is currently conducting work on NNSAs project to construct its Mixed Oxide Fuel Fabrication Facility at the Savannah River Site, to which NNSA recently added $2 billion to the projects cost estimate even as the facility nears completion. In December 2012, GAO also reported that the estimated cost to construct the Waste Treatment and Immobilization Plant (WTP) at the Hanford Site in Hanford, Washington, has tripled to $13.4 billion since its inception in 2000, and the scheduled completion date has slipped by nearly a decade to 2019. Significant additional cost increases and schedule delays are likely to occur because DOE has not fully resolved the technical challenges faced by the project. Further, In May 2011, GAO reported that the Department of Defense and NNSA had experienced difficulty in scoping the study of the planned refurbishment of the B61 nuclear bomb that was initially estimated to cost about $4 billion. A July 2012 Department of Defense estimate suggested the cost of this refurbishment will be about $10 billion.
In addition to its focus on individual cleanup and construction projects, GAO has increased its oversight attention on high value management and operating (M&O) contracts. One of the six barriers DOE identified in its Contract and Project Management Summit was that the department needed to improve its ability to hold both federal employees and contractors accountable for project and contract performance and to award fees to contractors consistent with project performance and/or operational targets. In addition, DOE reported that the department needs to improve its process for documenting contractor performance. Consistent with DOEs assessment, GAO has found weaknesses particularly in the quality of the information contractors provide to DOE to manage programs and to make cost- and risk-informed decisions. For example, building on 2010 findings that NNSA could not accurately identify the total cost to operate and maintain its nuclear weapons facilities, in July 2012, GAO further found that NNSA does not thoroughly review contractor-provided budget estimates before it incorporates them into its proposed annual budget. According to NNSA officials, the agencys trust in its contractors minimizes the need for formal review of its budget estimates. Moreover, to address concerns about the proportion of NNSA weapons laboratories funds used for indirect costs, such as general and administrative costs that indirectly support a program, GAO is currently reviewing and will be reporting in mid-2013 on the extent of NNSAs steps to assess the accuracy, reliability, and reasonableness of its contractors indirect costs.
In its corrective action plan, DOE recognized that having sufficient people and other resources to resolve its contract and project management problems was one of the top 10 issues facing the department. Specifically, the plan said that the department lacked an adequate number of federal contracting and project personnel with the appropriate skills (such as cost estimating, risk management, and technical expertise) to plan, direct, and oversee project execution. In April 2012, GAO reported on issues related to NNSAs workforce planning efforts. Specifically, GAO reported that NNSA and its site contractors face shortages in qualified critically skilled candidates and an aging workforce. NNSA and its site contractors told us that they are engaged in workforce planning to avoid potential critical skill gaps, but NNSA did not expect to complete NNSA-wide workforce plans until 2013. In December 2012, GAO reported that EMs workforce plans do not consistently identify mission-critical occupations and skills and current and future shortfalls in these areas for its federal workforce. In addition, many EM workforce plans indicate that EM may soon face shortfalls in a number of important areas, including project and contract management. EM officials said that they recognize these issues and have taken a number of steps to address them, including conducting a skills assessment to identify key occupational series to target for succession planning. GAO recommended, among other things, that EM clearly identify critical occupations and skills in its workforce plans.
DOE has made progress in managing nonmajor projects, and, in recognition of this progress, GAO is narrowing the focus of its high-risk designation to major contracts and projects. In GAOs February 2011 high risk update, GAO reported that DOE had been restructuring its portfolio of projects to break large projects into smaller, more manageable components where possible. As such, over the last 2 years, GAO has conducted oversight of nonmajor projects to determine the extent to which corrective actions have been implemented and whether project performance has improved. GAO found that in large part these nonmajor projects were being completed, but that project management guidance and documentation could continue to be strengthened. Specifically,
- GAO reported in its October 2012 report on EMs cleanup projects funded by the American Recovery and Reinvestment Act that at the time of its analysis 78 of 112 projects had been completed. Of those completed projects, 92 percent met the performance standard of completing project work scope without exceeding the cost target by more than 10 percent, according to EM data. GAO made four recommendations to DOE in this report aimed at improving how EM manages and documents projects, particularly with respect to establishing key performance parameters such as project scope targets and baselines for cost and schedule. DOE concurred with all of GAOs recommendations, recognizing that improvements could be made and that lessons learned from these projects can be applied to EMs broader portfolio of projects and activities.
- GAOs December 2012 report on NNSA and EM nonmajor projects found that, of the 71 EM and NNSA nonmajor projects reviewed, GAO was able to determine performance for 44 projects. Among these 44 projects, 21 met or are expected to meet all three of their performance targets for (1) scope of work delivered, (2) cost, and (3) completion date; of the remaining 23 projects, 13 met or are expected to meet two of these three targets, and only 1 project did not meet any of its targets. For the remaining 27 projects, many lacked sufficiently documented performance targets for scope, cost, or completion date, which prevented GAO from determining whether they met their performance targets. GAOs December 2012 report included recommendations to DOE to clearly define, document, and track the scope, cost, and completion date targets for each of its projects, as required by DOEs project management order. DOE agreed with these recommendations.
In recognition of these results coupled with DOEs continued efforts and commitment by top leadership to address contract and project management weaknesses, GAO will be focusing more on major contracts and projects. However, GAO will continue to monitor nonmajor projects to ensure that progress in this area continues and is sustained through related work and follow-up on GAOs report recommendations. With additional and sustained attention to adequately setting and documenting performance baselines and further demonstration that these actions result in improved performance, nonmajor project performance issues will have been sufficiently addressed.
DOEs removal from the High Risk List requires meeting all five of GAOs long-established criteria. DOE has already demonstrated and must continue to sustain leadership commitment and progress implementing corrective measures and also ensure the successful implementation of its corrective action pan. Additional actions are needed to meet the remaining two criteria. DOE needs to commit sufficient people and resources to resolve its contract management problems. Furthermore, DOE must monitor and independently validate the effectiveness and sustainability of its corrective measures, particularly for major projects, but also for nonmajor projects. Specifically, DOE must ensure that the corrective measures it is taking result in sustained improvements to the achievement of cost, schedule, and scope targets and that federal managers are receiving and validating accurate and reliable information from contractors that can be used to make decisions and to hold them and the department accountable for performance.