Modernizing the Nuclear Security Enterprise:

The National Nuclear Security Administration's Proposed Acquisition Strategy Needs Further Clarification and Assessment

GAO-11-848: Published: Sep 20, 2011. Publicly Released: Sep 20, 2011.

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The National Nuclear Security Administration (NNSA)--a semiautonomous agency within the Department of Energy (DOE)-- proposed in March 2010 a new acquisition strategy that includes consolidating the management and operating (M&O) contracts for two of its eight sites--the Y-12 National Security Complex (Y-12) in Tennessee and the Pantex Plant in Texas--and consolidating all construction projects for all of its sites under a single, enterprise-wide contract. NNSA anticipates that this strategy will reduce costs, enhance mission performance, and improve construction management. NNSA's sites are overseen by colocated federal site offices. GAO was asked to assess NNSA's preliminary proposals for (1) a consolidated M&O contract for Y-12 and Pantex and (2) an enterprise-wide construction contract. GAO reviewed analyses supporting NNSA's acquisition strategy; examined agency directives and guidance; and interviewed DOE, NNSA, and contractor officials.

Based on the analysis supporting its proposed acquisition strategy, NNSA expects that the proposed consolidation of the M&O work at its Y-12 and Pantex Plants will increase efficiencies and save $895 million in nominal dollars, primarily through efficiency gains and other improvements in support services (i.e., integrated budget and finance systems, more uniform training and human resources practices), that could result in the potential elimination of about 1,000 support service jobs over the next 10 years. NNSA selected these sites because both have M&O contracts with terms that expire in 2012, as well as similar nuclear production operations. Anticipated savings from this proposed consolidation, however, are uncertain because of the assumptions NNSA used when calculating these savings, the limited details available about the actual work that will be consolidated, and the adequacy of historical data used in the analysis. NNSA officials said that savings will be more accurately determined as industry provides feedback on the recently released draft request for proposal. In addition to cost savings, a number of NNSA and contractor officials have raised other issues with a consolidated M&O contract proposal, including uncertainty about the number of actual staff reductions that can be achieved and the need for a federal oversight plan for the new consolidated contract. In addition, NNSA's analysis suggests that efficiencies may also be achieved under its existing contracts through improved management practices. However, NNSA has not developed a plan for implementing these improved management practices at all of its sites. NNSA also anticipates several potential benefits, including cost savings, associated with awarding a single, enterprise-wide construction contract. It is uncertain, however, whether these benefits will be realized because of a number of issues. For example, NNSA's projected savings from a consolidated construction contract--approximately $120 million in nominal dollars over a 5- year period--are uncertain because NNSA lacks an accurate total cost baseline of its ongoing and planned construction projects and because it is likely that the construction contract will exclude major projects, such as the Uranium Processing Facility and Chemistry and Metallurgy Research Replacement facility, out of concern that this consolidated contract would disrupt ongoing design and construction efforts. Collectively, these two facilities represent about 85 percent of NNSA's total planned construction projects through fiscal year 2016. In addition, NNSA has not conducted, consistent with federal standards of internal control and cost-estimating best practices, an assessment of risks associated with awarding an enterprise-wide construction contract, such as costs and benefits expected enterprise-wide and at each site for both proposed consolidated contracts. NNSA officials and contractors said that NNSA may need increased federal oversight to integrate the work of existing M&O and consolidated construction contractors. GAO recommends, among other things, that NNSA develop a plan for implementing the improved management practices identified by its analysis and assess the costs, risks, and benefits of the consolidated construction contract to better define and inform its acquisition strategy and to take appropriate future actions. NNSA generally agreed with GAO's findings and recommendations.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: NNSA's 2009 Acquisition Strategy Team Report (analysis) recommended 18 improved management practices that would make changes to the current management of all eight of its sites that could lead to process improvements and cost savings. Some of these practices included substituting commercial best practices and industrial standards for DOE directives, standardizing security force equipment, improving enterprise-wide collection and analysis of costs, and streamlining contractor pension and health benefits plans. We recommended that NNSA develop a plan for implementing these actions. While NNSA has not developed a unified plan, it has examined most of the 18 practices and has implemented some of them. For example, in GAO-14-208, we found that NNSA had formed a security commodity team to standardize security equipment across NNSA sites and better leverage NNSA's buying power for purchasing security equipment. In 2010 and 2011, this team entered into two 5-year agreements with vendors allowing NNSA sites to receive discounts on purchases of protective masks, uniforms, and other equipment. In addition, NNSA also made progress in standardizing security budgets across its sites to better allow the enterprise-wide collection and analysis of costs. NNSA also examined enterprise-wide substituting commercial best practices and industrial standards for DOE directives as it has done at its Kansas City Plant for a number of years. NNSA, however, concluded that such a move was not suitable for nuclear and other high hazard operations carried out at many NNSA sites. We reported on this in GAO-14-588. In addition, as we reported in GAO-11-378, DOE has made some progress on overseeing contractor postretirement benefits. With these and other actions, we consider this recommendation, narrowly defined by GAO-11-848, as closed and implemented. However, we note that NNSA still has not developed, as it sought in 2009, a coherent contracting strategy nor has it closely coordinated the above actions into a unified implementation plan. In addition, this implementation does not affect our designation of NNSA's and DOE's Office of Environmental Management's (EM) as being at high risk of fraud, waste, abuse, and mismanagement in the area of contract administration and project management. The actions taken represent important efforts, but the results have not yet been evaluated. We will continue to monitor this area in current and future work.

    Recommendation: In order to manage NNSA's contracts as effectively and efficiently as possible, the Secretary of Energy should direct the Administrator of NNSA to develop a plan for implementing the 18 improved management practices identified by its analysis, as appropriate, to improve its current contract management practices.

    Agency Affected: Department of Energy

  2. Status: Closed - Implemented

    Comments: NNSA addressed this recommendation. More specifically, NNSA issued a request for quotations on September 22, 2011 for a Blanket Purchase Agreement for the work scope which provided better detail and information on the proposal. NNSA subsequently awarded the Purchasing Agreement in February 2012.

    Recommendation: If NNSA continues to pursue its two-part acquisition strategy, the Secretary of Energy should direct the Administrator of NNSA to issue a draft request for proposals (RFP) for the enterprise-wide construction proposal to better define and inform the agency's strategy.

    Agency Affected: Department of Energy

  3. Status: Closed - Implemented

    Comments: The National Defense Authorization Act (NDAA) for fiscal year 2013, as amended in the NDAA for fiscal year 2014, requires the NNSA Administrator to submit a report to congressional defense committees describing the costs and benefits of its competition of M&O contracts not later than 30 days after it awards a contract or, if the contract award is protested, after the date the bid protest on that award is resolved. The act also requires GAO to submit a report to the congressional defense committees that reviews NNSA's report. On June 16, 2014, more than 3 months after the deadline, NNSA submitted its report to Congress. Our report reviews the extent to which NNSA's report addressed each required topic and the clarity and completeness of the information provided. In December 2011, NNSA issued a request for proposals for a consolidated M&O contract for the Pantex and Y-12 sites.

    Recommendation: If NNSA continues to pursue its two-part acquisition strategy, the Secretary of Energy should direct the Administrator of NNSA to, using updated information gathered through the draft RFPs and recent budget projections and cost estimates, analyze the consolidated M&O proposal and the enterprise-wide construction proposal to better define and inform the agency's strategy. Consistent with federal standards for internal control and cost-estimating best practices, this analysis should assess the costs, risks, and benefits expected enterprise wide and at each site. This analysis should be used by NNSA as it prepares its final RFPs for each proposal.

    Agency Affected: Department of Energy

  4. Status: Closed - Implemented

    Comments: Consistent with our recommendation, NNSA established the federal NNSA Production Office (NPO) to ensure the safe, secure and cost-effective management of the Pantex Plant, Amarillo, Texas, and the Y-12 National Security Complex, Oak Ridge, Tennessee in June 2012. According to NNSA, the transition to NNSA Production Office began in February 2012 with the naming of the manager of the new organization. In addition, NNSA selected a new geographically dispersed functional leadership team. NNSA established the NPO, which involved the merger of two federal field offices, some seven months before the 2013 contract award.

    Recommendation: If NNSA continues to pursue its two-part acquisition strategy, the Secretary of Energy should direct the Administrator of NNSA to, using the results of the federal site office study, develop an integrated federal site office structure applicable to both proposals to prepare the site offices before the transition to the new contracts to better define and inform the agency's strategy.

    Agency Affected: Department of Energy

 

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