Nuclear Waste

Cleaning up the radioactively contaminated building, soil, and groundwater resulting from more than 50 years of producing nuclear material for weapons is a major undertaking for the Department of Energy (DOE). DOE projects that it will cost as much as $195 billion to complete this job and provide long-term monitoring of the remaining sites through 2070. DOE primarily contracts with private sector firms to clean up these sites. In the past, this effort was generally done under cost-reimbursement contracts by contractors that managed and operated many of DOE's facilities. DOE financed the operations and paid the contractors regardless of what was actually accomplished. DOE began its privatization initiative in 1995 as a way to reduce costs, speed the cleanup of its contaminated sites, and improve contractors' performance. Concerns have surfaced, however, about whether DOE's privatization initiative has yielded significant results when applied to its more complex cleanup projects. This testimony discusses (1) what DOE has accomplished by privatizing such projects and (2) GAO's observations on 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.