Department of Energy's Hanford Tank Waste Project--Schedule, Cost, and Management Issues
RCED-99-13: Published: Oct 8, 1998. Publicly Released: Oct 8, 1998.
- Full Report:
Pursuant to a congressional request, GAO provided information on the Department of Energy's (DOE) revised contracting approach for its Hanford Tank Waste Project, focusing on: (1) how DOE's current approach has changed from its original privatization strategy; (2) how this change has affected the project's schedule, cost, and estimated savings over conventional DOE approaches; (3) what risks DOE is now assuming with this change in approach; and (4) what steps DOE is taking to carry out its project oversight responsibilities. DOE contracted with BNFL, Inc. to treat about 10 percent of Hanford's tank waste.
GAO noted that: (1) the project as currently envisioned is substantially different from DOE's 1996 initial privatization strategy; (2) although the project award was made on the basis of a fixed-price contract, further competition between contractors and short-term demonstration facilities has been eliminated in favor of more permanent facilities that could operate for 30 years or more and, therefore, would be available to treat additional tank waste; (3) the design phase as well as the date when DOE and BNFL are to reach agreement on final contract price have been extended by 2 years to August 2000; (4) BNFL's specific project financing arrangements, which were to be established in May 1998, have been deferred until August 2000; (5) to ensure that BNFL can obtain affordable private financing, DOE has agreed to repay much of the project debt if BNFL defaults on its loans and DOE terminates the contract; (6) this is an unusual feature of a fixed-price contract because the government normally does not agree to pay a contractor's debt as an allowable cost; (7) the revised approach extends the completion date for processing the first portion of the waste from 2007 to 2017, and total costs rise from $4.3 billion to $8.9 billion; (8) the increased costs are mainly the result of DOE's decision to build permanent facilities that will take longer and cost more to design and build, and the higher financing costs and contractor profits involved in operating these facilities over a longer period of time; (9) DOE estimated that this approach would save 26 to 36 percent over contracting approaches it has used in the past; (10) because of questions about DOE's methodology for estimating savings, considerable caution is needed in assuming how much the revised approach will save; (11) the contract now calls for DOE to pay BNFL for most of the debt incurred in building and operating the facility if BNFL should default on its loans; (12) thus, DOE faces a financial risk not initially contemplated on the project that could be in the billions of dollars; (13) DOE agreed to assume this risk because it did not think BNFL would be able to obtain affordable financing unless the government provided some assurance that the loans would be repaid; (14) given that the project still has a number of technical uncertainties, DOE's financial risks are significant; (15) DOE has identified additional expertise it needs and has developed several management tools to strengthen its oversight of the project; and (16) the success of the project will depend on how well DOE implements these plans.
Matter for Congressional Consideration
Status: Closed - Not Implemented
Comments: Although the 106th Congress has not required DOE to report on the status of BNFL's technology testing, the cost-effectiveness of the project, or DOE's overall preparedness to oversee the project, DOE planned to do so in its annual report to Congress in July 2000. However, DOE terminated BNFL's contract in July 2000 and, therefore, did not submit a report to Congress on the project. In early September 2000, DOE initiated another procurement to select a new contractor for the project. DOE intends to use a more traditional cost-reimbursement contracting mechanism.
Matter: Congress may wish to require DOE to include in its annual status report on privatization contracts: (1) the results of BNFL's technology demonstration and testing using Hanford's waste; (2) a reassessment of the cost-effectiveness of the proposed approach including the results of DOE's analysis of different financing alternatives; and (3) DOE's overall preparedness to effectively oversee the project.
Recommendation for Executive Action
Status: Closed - Not Implemented
Comments: DOE agreed with GAO's recommendation and implementation was underway. For example, DOE established and staffed the Office of River Protection which strengthened DOE's oversight of the project. However, the second part of this recommendation is no longer applicable because in July 2000 DOE terminated its tank waste contract with BNFL Inc. (BNFL) due to significant and unacceptable cost growth in BNFL's project cost estimate, deficiencies in project design deliverables, and management problems. As a result, there is currently no commitment to provide support services under the contract. In September 2000 DOE issued a new request for proposals to begin the process of selecting a new tank waste contractor.
Recommendation: The Secretary of Energy should take immediate action to fully implement the Department's management and oversight plan for the Hanford tank waste project, including ensuring that: (1) the oversight team is fully staffed with the expertise required; and (2) adequate funding is available to provide the site support services called for in the contract.
Agency Affected: Department of Energy