Observations on DOE's Privatization Initiative for Complex Cleanup Projects
T-RCED-00-215: Published: Jun 22, 2000. Publicly Released: Jun 22, 2000.
Pursuant to a congressional request, GAO discussed the Department of Energy's (DOE) privatization initiative as it has been applied to DOE's nuclear waste cleanup program, focusing on: (1) what DOE has accomplished by privatizing such projects; and (2) the lessons that can be learned from these efforts.
GAO noted that: (1) for the complex cleanup projects GAO reviewed, DOE's privatization initiative has had little success in achieving cost savings, keeping the projects moving forward on schedule, or getting improvements in contractors' performance; (2) for example, on the Hanford tank waste project, DOE estimated savings of from $2.1 billion to $3.5 billion by using the privatization approach; (3) however, after dramatic growth in the project's estimated cost and concerns about the contractor's performance, DOE decided to terminate the contract; (4) similar problems on the Pit 9 project in Idaho led DOE to terminate that contract without achieving expected cost savings; (5) although DOE adopted privatization as a solution to its past contracting difficulties, recurring cost, schedule, and performance problems demonstrate that privatization has not been a successful alternative for complex cleanup projects; (6) several lessons can be learned from DOE's privatization efforts; (7) DOE cannot rely on privatization alone to fix its past contracting problems--instead, it must carefully evaluate privatization as just one of the many contracting and financing strategies that it can use to get the most out of federal cleanup dollars; (8) DOE's experience indicates that the two strategies that underpin the privatization initiative--fixed-price contracting and full private financing--will not work effectively for all cleanup projects; (9) rather, a complex matrix of decision factors must be analyzed before deciding how to contract for and finance a cleanup; (10) these factors include how much is known about the characteristics of the waste, the number of contractors willing to compete, the financing options, and the risks posed by the project and the entity that is best prepared to assume them; (11) GAO's review of the Hanford project indicates that future analyses of financing options need to: (a) use more realistic assumptions about cost growth for various types of contracts; and (b) better reflect the actual risks assumed by the government; and (12) because effective DOE management and oversight are critical to selecting the appropriate type of contract and financing mechanism, as well as to implementing the contract successfully, DOE needs to continue improving its technical, financial, and managerial oversight capabilities.