Controlling Federal Costs for Coal Liquefaction Program Hinges on Management and Contracting Improvements

PSAD-81-19: Published: Feb 4, 1981. Publicly Released: Feb 4, 1981.

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The Federal Government and private industry jointly financed two pilot plants to demonstrate direct liquefaction processes for producing synthetic fuels from coal, which became operational in 1980. The Department of Energy (DOE) has estimated that total costs for each of these solvent-refined coal plants will exceed its baseline estimate. The construction of two larger facilities, which will process up to 6,000 tons of coal a day, is scheduled to begin in 1981.

A review of the two pilot projects revealed inadequacies in DOE contracting practices and a failure by DOE to properly plan, manage, and monitor the projects. On one of the projects, DOE contractual agreements with prime contractors were made before the design scheme for the plant was complete. Several problems were experienced in the construction of this plant due to poor judgment and lack of management over the project by DOE and contractors. The initial agreements regarding the ceilings imposed on sharing in cost growth for the plant lacked sufficient investments from private sponsors. In addition, DOE staffing was inadequate at both projects to effectively monitor progress and contribute to timely decisions.

Recommendations for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Energy should obtain a more equitable percentage of investment from private sponsors for all phases of the energy projects to assure they share in the risks and fully apply their expertise towards assuring sound management, including adequate controls over cost and schedule.

    Agency Affected: Department of Energy

  2. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Energy should encourage the use of fixed-price contracts when it becomes practicable for the contractors to define their remaining efforts and quantities required.

    Agency Affected: Department of Energy

  3. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Energy should establish a format for existing monthly project reports (prepared by contractors) to provide data needed by DOE to effectively monitor the projects.

    Agency Affected: Department of Energy

  4. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Energy should provide adequate DOE support staff to monitor the various phases of its projects and to assure that management tasks, such as property control, inventories, and subcontracting, assigned to private industry are done within regulations and with adequate management controls.

    Agency Affected: Department of Energy

  5. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Energy should assure that projects are properly planned and designed sufficiently before they start to avoid disruptions and to hold design changes to a minimum.

    Agency Affected: Department of Energy

  6. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Energy should provide to Congress an assessment of the effect of the escalating costs of the solvent refined coal plants and the risks involved in scaling up to the 6,000-ton-a-day facilities, along with other relevant factors, will have on the feasibility and affordability of both projects and the ability of DOE to reach its program objectives.

    Agency Affected: Department of Energy

 

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