Department of Energy
Status of Contract and Project Management Reforms Gao ID: GAO-03-570T March 20, 2003DOE spends more money on contracts than any other civilian federal agency because it relies primarily on contractors to operate its sites and carry out its diverse missions. These missions include maintaining the nuclear weapons stockpile, cleaning up radioactive and hazardous waste, and supporting basic energy and science research activities. For fiscal year 2001, DOE spent about 90 percent of its total annual budget, or about $18.2 billion, on contracts. Of that amount, DOE spent about $16.2 billion on contracts to manage or operate 28 major DOE sites. For over a decade, GAO, DOE's Office of Inspector General, and others have identified problems with DOE's contracting practices and the performance of its contractors. Projects were late or never finished; project costs escalated by millions and sometimes billions of dollars; and environmental conditions at the sites did not significantly improve. At the same time, contractors were earning a substantial portion of the profit (fee) available under the contract. Because of these problems, since 1990 we have designated DOE contract management as a high-risk area vulnerable to fraud, waste, abuse, and mismanagement. To address these and other problems, DOE began a series of reforms in the 1990s that were intended to, among other things, strengthen DOE's contracting and project management practices, hold contractors more accountable for their performance, and demonstrate progress in achieving the agency's missions. In this context, contracting practices include, among other things, selecting the type of contract (such as fixed price), deciding whether to ask contractors to compete for the contract or offer it only to a single contractor, and determining the performance measures that will be used to assess and reward the contractor's performance. Similarly, project management practices include, among other things, planning, organizing, and tracking project activities and costs; training to ensure expertise of federal project managers; and project reporting and oversight. In addition, in February 2002, DOE's environmental management team launched an improvement initiative that places additional emphasis on contracting and project management reforms in the cleanup program, which represents almost a third of the department's overall budget. This initiative followed a review by DOE managers, who concluded that the waste cleanup program was not achieving the desired results and that further improvements were needed to make the program effective, including improvements in contracting and project management. This testimony focuses on (1) describing DOE's progress in implementing contracting and project management reforms, (2) assessing the extent to which these reforms have resulted in improved contractor performance, and (3) providing observations on DOE's latest improvement efforts.
Since the mid-1990s, DOE has made some progress in implementing initiatives to improve both its contracting practices and its management of projects, but it continues to encounter difficulties in implementing these reforms. Contract reform began in 1994 and consisted primarily of initiatives in three key areas--developing alternative contracting approaches, increasing competition for contracts among potential bidders, and using performance-based incentives in the contracts. For example, DOE now requires performance-based contracts at all of its major sites. These contracts incorporate performance-based statements of work and identify performance measures and objectives that DOE will use to evaluate the contractors' performance. DOE has also increased the proportion of contractors' fees tied to achieving the performance objectives. Nevertheless, difficulties remain in implementing the reforms. DOE continues to modify and test its performance measures by, for example, developing multiyear and multisite measures that are more closely aligned with the department's missions. Regarding project management reforms, DOE began its reform effort in 1999 in response to recommendations from the National Research Council that were intended to improve DOE's oversight and management of projects. Among other things, DOE implemented new policy and guidance for developing and controlling projects and established a project office to lead the initiative. However, in November 2001 the National Research Council reported that, although DOE had taken some positive steps to address its recommendations, the department still did not adequately plan projects before starting them and had no training program for federal project managers. DOE is continuing its efforts to implement its project management initiative. While DOE has made some progress in implementing its contracting and project management initiatives, available information raises doubts about the extent to which these reforms have resulted in improved contractor performance. DOE has developed little objective information to demonstrate whether the reforms have improved results. However, in September 2002, we reported that, based on a comparison of 25 major DOE projects in 1996 with 16 major projects in 2001, it did not appear that DOE's contractors had significantly improved their performance over the period. In both sets of projects, over half had both schedule delays and cost increases. And the proportion of projects with significant cost increases and schedule delays was actually higher in 2001 than in 1996. For example, 38 percent of the projects we reviewed in 2001 had doubled their initial cost estimates, compared with 28 percent in 1996. Furthermore, problems with individual projects and with site operating contracts continue to appear. These include a 3-year delay and $2.1 billion cost increase to submit the license application for the Yucca Mountain waste repository project in Nevada and allegations of contractor fraud, waste, and abuse at the Los Alamos National Laboratory in New Mexico. In 2002, we saw DOE's management team take encouraging steps that could help to foster improvements in contract and project management. The Environmental Management program, which administers DOE's waste cleanup program, completed a frank and open assessment of problems with the program and initiated a number of additional reforms. These initiatives included improving contract and project management and streamlining business practices. DOE has also been working on agencywide initiatives, including developing an integrated budgeting and program results information system and placing increased emphasis on human capital initiatives to develop the department's future leaders. Although these management actions are encouraging, making these new policies a matter of practice will require strong leadership, clear lines of accountability and responsibility, and effective management systems to monitor results.
GAO-03-570T, Department of Energy: Status of Contract and Project Management Reforms
This is the accessible text file for GAO report number GAO-03-570T
entitled 'Department of Energy: Status of Contract and Project
Management Reforms' which was released on March 20, 2003.
This text file was formatted by the U.S. General Accounting Office
(GAO) to be accessible to users with visual impairments, as part of a
longer term project to improve GAO products‘ accessibility. Every
attempt has been made to maintain the structural and data integrity of
the original printed product. Accessibility features, such as text
descriptions of tables, consecutively numbered footnotes placed at the
end of the file, and the text of agency comment letters, are provided
but may not exactly duplicate the presentation or format of the printed
version. The portable document format (PDF) file is an exact electronic
replica of the printed version. We welcome your feedback. Please E-mail
your comments regarding the contents or accessibility features of this
document to Webmaster@gao.gov.
Mr. Chairman and Members of the Committee:
We are pleased to be here today to discuss the status of contract and
project management reforms in the Department of Energy (DOE). DOE
spends more money on contracts than any other civilian federal agency
because it relies primarily on contractors to operate its sites and
carry out its diverse missions. These missions include maintaining the
nuclear weapons stockpile, cleaning up radioactive and hazardous waste,
and supporting basic energy and science research activities. For fiscal
year 2001, DOE spent about 90 percent of its total annual budget, or
about $18.2 billion, on contracts. Of that amount, DOE spent about
$16.2 billion on contracts to manage or operate 28 major DOE sites.
For over a decade, GAO, DOE‘s Office of Inspector General, and others
have identified problems with DOE‘s contracting practices and the
performance of its contractors. Projects were late or never finished;
project costs escalated by millions and sometimes billions of dollars;
and environmental conditions at the sites did not significantly
improve. At the same time, contractors were earning a substantial
portion of the profit (fee) available under the contract. Because of
these problems, since 1990 we have designated DOE contract management
as a high-risk area vulnerable to fraud, waste, abuse, and
mismanagement.
To address these and other problems, DOE began a series of reforms in
the 1990s that were intended to, among other things, strengthen DOE‘s
contracting and project management practices, hold contractors more
accountable for their performance, and demonstrate progress in
achieving the agency‘s missions. In this context, contracting practices
include, among other things, selecting the type of contract (such as
fixed-price), deciding whether to ask contractors to compete for the
contract or offer it only to a single contractor, and determining the
performance measures that will be used to assess and reward the
contractor‘s performance. Similarly, project management practices
include, among other things, planning, organizing, and tracking project
activities and costs; training to ensure expertise of federal project
managers; and project reporting and oversight.
In addition, in February 2002, DOE‘s environmental management team
launched an improvement initiative that places additional emphasis on
contracting and project management reforms in the cleanup program,
which represents almost a third of the department‘s overall budget.
This initiative followed a review by DOE managers, who concluded that
the waste cleanup program was not achieving the desired results and
that further improvements were needed to make the program effective,
including improvements in contracting and project management.
In this context, my testimony today focuses on (1) describing DOE‘s
progress in implementing contracting and project management reforms,
(2) assessing the extent to which these reforms have resulted in
improved contractor performance, and (3) providing observations on
DOE‘s latest improvement efforts. My testimony is based on our past
work in this area as well as the findings of DOE‘s Inspector General
and the National Research Council, who, at DOE‘s request, independently
reviewed DOE‘s project management practices.
In summary:
Since the mid-1990s, DOE has made some progress in implementing
initiatives to improve both its contracting practices and its
management of projects, but it continues to encounter difficulties in
implementing these reforms. Contract reform began in 1994 and consisted
primarily of initiatives in three key areas--developing alternative
contracting approaches, increasing competition for contracts among
potential bidders, and using performance-based incentives in the
contracts. For example, DOE now requires performance-based contracts at
all of its major sites. These contracts incorporate performance-based
statements of work and identify performance measures and objectives
that DOE will use to evaluate the contractors‘ performance. DOE has
also increased the proportion of contractors‘ fees tied to achieving
the performance objectives. Nevertheless, difficulties remain in
implementing the reforms. For example, numerous studies and reports
found that DOE‘s performance-based contracts had ineffective
performance measures. DOE continues to modify and test its performance
measures by, for example, developing multiyear and multisite measures
that are more closely aligned with the department‘s missions. Regarding
project management reforms, DOE began its reform effort in 1999 in
response to recommendations from the National Research Council that
were intended to improve DOE‘s oversight and management of projects.
Among other things, DOE implemented new policy and guidance for
developing and controlling projects and established a project office to
lead the initiative. However, in November 2001 the National Research
Council reported that, although DOE had taken some positive steps to
address its recommendations, the department still did not adequately
plan projects before starting them and had no training program for
federal project managers. DOE is continuing its efforts to implement
its project management initiative.
While DOE has made some progress in implementing its contracting and
project management initiatives, available information raises doubts
about the extent to which these reforms have resulted in improved
contractor performance. DOE has developed little objective information
to demonstrate whether the reforms have improved results. However, in
September 2002, we reported that, based on a comparison of 25 major DOE
projects in 1996 with 16 major projects in 2001,[Footnote 1] it did not
appear that DOE‘s contractors had significantly improved their
performance over the period. In both sets of projects, over half had
both schedule delays and cost increases. And the proportion of projects
with significant cost increases and schedule delays was actually higher
in 2001 than in 1996. For example, 38 percent of the projects we
reviewed in 2001 had doubled their initial cost estimates, compared
with 28 percent in 1996. Furthermore, problems with individual projects
and with site operating contracts continue to appear. These include a
3-year delay and $2.1 billion cost increase to submit the license
application for the Yucca Mountain waste repository project in Nevada
and allegations of contractor fraud, waste, and abuse at the Los Alamos
National Laboratory in New Mexico.
In 2002, we saw DOE‘s management team take encouraging steps that could
help to foster improvements in contract and project management. The
Environmental Management program, which administers DOE‘s waste cleanup
program, completed a frank and open assessment of problems with the
program and initiated a number of additional reforms. These initiatives
included improving contract and project management and streamlining
business practices. DOE has also been working on agencywide
initiatives, including developing an integrated budgeting and program
results information system and placing increased emphasis on human
capital initiatives to develop the department‘s future leaders.
Although these management actions are encouraging, making these new
policies a matter of practice will require strong leadership, clear
lines of accountability and responsibility, and effective management
systems to monitor results.
Before I discuss these issues in greater detail, I would like to
explain why improving DOE‘s contracting and project management
practices is so important.
Background:
DOE‘s missions include developing, maintaining, and securing the
nation‘s nuclear weapons capability; cleaning up the environmental
legacy resulting from over 50 years of producing nuclear weapons; and
conducting basic energy and science research and development. The
department carries out these diverse missions at over 50 major
installations in 35 states. DOE‘s contractors manage and operate these
facilities and sites and undertake the construction of new facilities
under the direction of department employees in program offices at DOE
headquarters and in its field offices. With a DOE workforce of about
16,000 employees and over 100,000 contractor staff, the department
relies heavily on its contractors to accomplish its missions. Because
DOE spends about 90 percent of its annual budget on contracts, DOE‘s
ability to direct, oversee, and hold accountable its contractors is
crucial for mission success and overall effectiveness.
In 1990, we designated DOE contract management as a high-risk area
vulnerable to fraud, waste, abuse, and mismanagement because DOE relies
on contractors to carry out its missions and because of its history of
both inadequate management and oversight and failure to hold its
contractors accountable for results. In our January 2001 report on
DOE‘s major management challenges, we broadened the definition of
contract management to include both contracting and project
management.[Footnote 2] This expanded definition reflects our view that
contracting and project management activities and responsibilities are
interrelated and that effective performance in both areas is essential
if DOE is to achieve its mission goals. In January 2003, we reported
that the high-risk designation for DOE contract management still
applies.[Footnote 3]
DOE Has Made Progress in Implementing Contracting and Project
Management Reforms, but Difficulties Remain:
Since the mid-1990s, DOE has made progress in its efforts to improve
both its contracting practices and its management of projects, but the
department continues to face problems in implementing these reforms. In
1994, DOE began evaluating its contracting practices and implementing a
series of reforms intended to improve results by enhancing contractor
performance. Because of continued problems with the management and
oversight of DOE‘s projects, the conference report accompanying DOE‘s
fiscal year 1998 Energy and Water Development Appropriations Act
directed DOE to obtain an independent review of its project management
capabilities. DOE contracted with the National Research Council
(Council) for this study, and in 1999 began its project management
initiative to implement the Council‘s recommendations.[Footnote 4]
Contract Reforms Focused on Developing Alternative Contracting
Approaches, Increasing Competition, and Using Performance-Based
Contracts:
As we reported in September 2002, the department has made progress in
implementing three key contract reform initiatives--developing
alternative contracting approaches, increasing competition, and
converting to performance-based contracts--although DOE continues to
encounter challenges in implementing these initiatives.[Footnote 5]
Using Alternative Contracting Approaches:
One of the major focuses of DOE‘s contract reform initiative was to
develop alternatives to the traditional contracts used to manage and
operate its major sites and facilities. Under these traditional
’management and operating“ contracts, one primary contractor performed
almost all of the work at a site, the contractor had broadly defined
statements of work, and DOE reimbursed the contractor for virtually all
costs. As a result, work under these contracts focused more on annual
work plans and budgets rather than on specific schedule and cost
targets for accomplishing work. In implementing alternatives to these
contracting arrangements, DOE intended to use the best contracting
alternative given the required work and the objectives and risks
associated with that work. To accomplish that goal, the department
encouraged the use of different contracting approaches, such as fixed-
price contracts that would shift the risk for performance to the
contractor rather than the government, or ’closure contracts,“ which
tie the contractor‘s fee to cleaning up and closing a site rather than
meeting annual targets.
However, DOE did not always systematically determine the best contract
type for a given situation and thus experienced problems with
implementation. For example, we reported in May 1998 that DOE‘s use of
fixed-price contracting was appropriate when projects were well-defined
and when uncertainties could be allocated between DOE and the
contractor.[Footnote 6] When these conditions did not exist, cost
overruns and schedule delays could occur. DOE has used fixed-price
contracts for both small, relatively simple projects, such as laundry
services, as well as for large, complex cleanup projects. We reported
that this approach was generally not successful in controlling costs on
large, complex cleanup projects, such as the project to retrieve high-
level tank wastes and prepare the wastes for disposal at DOE‘s Hanford,
Washington, site because of the high level of technical uncertainty and
risk. To more systematically select the type of contract, DOE has been
developing and implementing a formal strategy to evaluate contracting
and financing alternatives and the associated business and technical
risks before deciding on the best contracting approach.
Increasing Competition:
Federal law generally requires federal agencies to use competition in
selecting a contractor. However, until the mid-1990s DOE contracts for
the management and operation of its sites generally fit within an
exception that allowed for the use of noncompetitive procedures. As
part of its contract reform initiative, DOE changed its contracting
rules to set competition as the standard approach to awarding
contracts. Under these revised regulations, the percentage of major
site contracts awarded competitively (competed) increased to 56 percent
as of 2001, up from 38 percent as of 1996. By 2001, 10 of the 11
contracts that had not been competed were for managing research and
development centers which are statutorily exempt from mandatory
competition.[Footnote 7] Despite this exemption, DOE evaluates these
contracts towards the end of their current contract term to determine
whether they should be extended or competed.
DOE has thus far decided on noncompetitive extensions for these
contracts for research and development centers, including some for
contractors that have experienced performance problems. For example, in
2001, DOE extended the managing and operating contracts with the
University of California, the contractor operating Los Alamos and
Lawrence Livermore National Laboratories. The University of California
has operated these sites for 50 years or more and is the only
contractor ever to have operated them. In recent years, we and other
organizations have reported significant problems with laboratory
operations and management at these two laboratories--particularly in
the areas of safeguards, security, and project management.[Footnote 8]
Although congressional committees and others have called for DOE to
compete these contracts, DOE so far has opted to address these
performance problems with specific contract provisions. However, it
remains to be seen whether DOE will be successful in improving the
University of California‘s performance using this approach.
Using Performance-Based Contracts:
Before DOE initiated its contract reforms, major site contracts
generally had broad statements of work that focused more on annual
budgets and work plans rather than specific results to be achieved.
Fees under these contracts usually consisted of a base amount that was
guaranteed (fixed) plus an award amount that was paid if the contractor
met general performance expectations.[Footnote 9] In the mid-1990s, DOE
began restructuring its major site contracts to use results-oriented
statements of work and to incorporate performance incentive fees that
were designed to reward the contractor if it met or exceeded specific
performance expectations in priority areas. As of 2002, DOE reported
that all of its major site contracts incorporated performance-based
techniques to define requirements and measure results. To further
emphasize the importance of the performance-based approach, DOE has
increased the proportion of contractor fees tied to achieving the
performance objectives to 70 percent in fiscal year 2001, from 34
percent in fiscal year 1996.
Despite this progress, development of good performance measures has
continued to be a challenge for DOE. Numerous studies and reports found
that DOE‘s performance-based contracts contained ineffective
performance measures. For example, in 2001, DOE‘s Office of Inspector
General reported on the performance measures in three major site
contracts.[Footnote 10] According to this report, DOE was not focusing
on high-priority outcomes, was loosening performance requirements over
time without adequate justification, and was failing to match
appropriately challenging contract requirements with fee amounts. The
department disagreed with this report, stating that it was not
appropriate to evaluate the overall success of performance-based
contracts by looking at individual performance measures. However, DOE
continues to modify and test its performance measures to focus on
developing performance incentives that are more directly linked to the
priority missions at a site. For example, DOE has developed multiyear
incentives in the management and operating contract for the Hanford
site, and multisite incentives that tie together activities at four
production sites. Nevertheless, the department acknowledges that it
must make further progress in this area.
Project Management Reforms Ranged from New Policy and Guidance to an
Improved System to Track Project Performance:
DOE‘s initiative to reform project management stems from 1999 National
Research Council recommendations for improving DOE project management.
The Council reported that DOE‘s construction and environmental
remediation projects take much longer and cost about 50 percent more
than comparable projects by other federal agencies or projects in the
private sector. It also reported that DOE‘s project management
practices fell far short of best practices in a number of areas, when
compared with other government agencies and the private sector. The
areas included DOE‘s policies and procedures; documentation and
reporting; project planning and controls; risk management; project
reviews, acquisition, and contracting; organizational structure,
responsibility, and accountability; and the selection, training, and
skills of personnel.
Since 1999, when DOE established the Office of Engineering and
Construction Management to lead the project management initiative, the
department has been working to implement the Council‘s recommendations.
In particular, in 2000, DOE issued a new policy, order, and guidance on
managing and controlling projects. In 2001, DOE established new
guidance that required the approval of projects of $5 million and above
at the assistant secretary level or higher, and a project tracking
system and monthly status reports on all projects with total costs over
$5 million. Furthermore, in 2002, DOE established a performance goal
that 85 percent of its major projects would have less than a 10-percent
variance in either cost or schedule.
Despite these steps, many implementation challenges remain. In a
November 2001 follow-up report, the Council noted that although DOE had
taken positive steps in response to the recommendations in the 1999
report,[Footnote 11] change had been inordinately slow, and there was
no evidence that DOE‘s project management practices in the field had
actually improved. Furthermore, DOE still had inadequate up-front
project planning, no consistent system for evaluating the relative
risks of projects, and no project management training program in place.
The Council concluded that DOE was not in control of many of its
projects and had virtually abdicated its ownership role in overseeing
and managing its contracts and contractors.
Available Information Raises Doubts About Extent to Which Contract and
Project Management Reforms Have Improved Contractor Performance:
DOE has little objective information demonstrating whether its reforms
have resulted in improved contractor performance. Instead of measuring
outcome-oriented performance results, DOE has primarily gauged progress
by measuring the implementation of the initiatives and by reviewing
individual contracts. While DOE can point to examples of success,
objective performance information on overall results is scarce. Indeed,
the evidence on DOE major projects that we developed suggests that
contractor performance may not have improved.
Contractor Performance May Not Have Improved:
In our September 2002 report, as a potential indicator of contractor
performance, we evaluated changes in cost and schedule for 16 of DOE‘s
major projects as of 2001 and compared them with similar information we
developed on DOE‘s major projects in 1996. We found no indication of
improved performance; in both groups of projects, over half of the
ongoing projects were experiencing significant cost increases, schedule
delays, or both. Furthermore, as shown in table 1, the proportion of
projects experiencing cost increases of more than double the initial
cost estimates or schedule delays of 5 years or more increased over the
6-year period. For example, the initial cost estimate in 1998 for the
spent nuclear fuels dry storage project at the Idaho Falls site was
$123.8 million, with a completion date of 2001. In 2002, the cost
estimate for this project was $273 million, with a completion date of
2006. Appendix I contains additional information on DOE‘s ongoing major
projects as of December 2001.
Table 1: Cost Overruns and Schedule Delays for Ongoing Projects in 1996
Compared with Ongoing Projects in 2001:
Number of projects reviewed; Number of projects: 1996: 25[A]; Number of
projects: 1996: [Empty]; Number of projects: 2001: 16[B]; Number of
projects: 2001: [Empty].
Projects with a cost estimate of more than double the initial cost
estimate; Number of projects: 1996: 7; Number of projects: 1996: (28%);
Number of projects: 2001: 6; Number of projects: 2001: (38%).
Projects with schedule delays of 5 years or more; Number of projects:
1996: 8; Number of projects: 1996: (32%); Number of projects: 2001: 6;
Number of projects: 2001: (38%).
[A] We evaluated 34 projects in 1996 with estimated costs greater than
$100 million. However, nine of the projects were environmental
restoration projects, and DOE‘s original and/or current cost estimates
did not estimate costs through project completion. In 1998, DOE divided
these environmental restoration projects into multiple projects at each
site. Therefore, we excluded these projects from our current analysis.
[B] There are 10 additional projects with total project costs greater
than $200 million, but those projects had either recently started or
have been suspended.
Source: GAO.
[End of table]
The projects we reviewed--with estimated costs ranging from $270
million to $8.4 billion--may not be representative of all DOE
projects.[Footnote 12] Although this comparison provides only a limited
measure of contractor performance, it does raise questions about the
overall impact of DOE‘s initiatives on improving contractor
performance.
Anecdotal Evidence Provides No Overall Measure of Improved Performance:
Most of DOE‘s evidence of progress has been anecdotal. On this basis,
DOE can certainly point to some successes. For example:
Officials at DOE‘s Albuquerque operations office pointed out that after
competing the contract for the Pantex site, the new contractor met
production levels that were not achieved by the previous contractor.
In a 1999 internal review of its performance-based contracting
practices,[Footnote 13] DOE reported that ’anecdotal evidence supports
that the proper use of well-structured, performance-based incentives is
leading to improvements in performance at some DOE sites.“ One of the
examples cited was at Rocky Flats, where DOE reported that contractor
performance had improved with a new contractor, selected in 1995, and
with performance-based incentives in the contract.
However, we have identified numerous projects or sites where
performance problems continued to occur. For example:
The National Ignition Facility at Lawrence Livermore National
Laboratory in California is designed to produce intense pressures and
temperatures to simulate in a laboratory the thermonuclear conditions
created in nuclear explosions. We reported in August 2000 that the
estimated cost of the facility had increased from $2.1 billion to $3.3
billion and that the scheduled completion date had been extended by 6
years to 2008.[Footnote 14] We attributed these major cost and schedule
changes to inadequate management by the contractor and DOE oversight
failures.
Paducah, Kentucky, is the site of DOE facilities used to enrich uranium
for use in nuclear power plants. There is considerable waste material
on site and significant on-site and off-site ground water
contamination. In 2000, we reported that DOE‘s cleanup plan contained
several assumptions and uncertainties that could significantly increase
the time and add billions of dollars to the cost of cleaning up the
site.[Footnote 15] For example, not all areas needing cleanup were
included in the plan and assumptions about available funding to address
the problems were unrealistic.
The Yucca Mountain Site Characterization Project, Nevada, is developing
a high-level waste repository. The original project baseline estimated
a total project cost of $6.3 billion and an October 2001 date for
submitting a license application. DOE‘s latest estimate is that the
license application will not be submitted until December 2004, with an
estimated cost of almost $8.4 billion. We reported in December 2001
that DOE had stopped using the baseline to manage the project and was
using estimates that were never approved or incorporated into the
official project baseline.[Footnote 16] Using baseline and change
control procedures is essential to ensuring that the project is being
managed effectively.
Los Alamos National Laboratory, New Mexico, is one of DOE‘s primary
locations for research on nuclear weapons. Allegations of contractor
fraud, waste, and abuse and of poor internal controls by the University
of California, which operates the laboratory for DOE, have surfaced in
the last few months and have led to numerous investigations (currently
ongoing) and questions about the adequacy of DOE‘s oversight of
laboratory activities and personnel.
Problems are also beginning to emerge at the Hanford site in Washington
State, where a contract is in place to address the high-level tank
wastes. We learned recently that, although the baseline for this $4
billion project was established in May 2002, as of January 2003, the
project was already 10 months behind schedule, and the contractor was
estimating cost increases and other adjustments to the contract that
could total over $1 billion. DOE withheld provisional fee payments to
the contractor in January 2003, based on this ’unacceptable
performance.“:
Although interesting and sometimes revealing, anecdotal information
provides no overall measure of whether the performance of DOE‘s
contractors is improving or getting worse. DOE appears to have
recognized the limitations of anecdotal information and is taking steps
to implement a departmentwide project analysis and reporting system.
Such a system, if successfully implemented, could provide the
information needed to conduct overall assessments of contractor
performance.
Achieving Improved Contractor Performance Will Require Commitment and
Perseverance:
DOE‘s most recent management initiatives indicate that the department
is aware it still has a long way to go in improving contractor
performance. While the limited progress to date is discouraging, the
frank admission of problems in the cleanup program and subsequent
improvement efforts are an encouraging sign. The 2002 ’top-to-bottom“
review of the Environmental Management program concluded that process
rather than cleanup results had become the basis for cleanup
approaches, contracts, and performance measures.[Footnote 17] Only
about one-third of the budget was going toward actual cleanup; the
remainder was spent on maintenance, support activities, and fixed
costs. Furthermore, the review team concluded that DOE‘s financial
liability would continue to grow well beyond the $220 billion estimated
at the time if significant changes to the program were not made. The
team‘s report stated that without higher performance standards and
breakthrough business processes, cost growth and schedule delays would
continue to obstruct cleanup, and the risk to workers, the public, and
the environment would not be reduced.
The report recommended a series of initiatives to address these
problems. These initiatives include developing an accelerated, risk-
based cleanup strategy; improving contract management and establishing
more meaningful performance measures for contractors; improving project
management; and streamlining business practices. In addition, the
report recommended implementing an effective human capital strategy to
increase the technical expertise of DOE staff and improve
accountability for results.
In addition to the efforts of the Environmental Management program, DOE
is working on improving its agencywide management information systems
and human capital systems. For example, in 2001, DOE began developing a
unified planning, programming, budgeting, and evaluation process to
integrate budget and program results information. Also in 2001, DOE
began developing a training and certification program for federal
project management, and strategies to address skill gaps in its
contracting and project management workforce.
DOE has a long way to go before it can claim that its contracting and
project management problems are over. As we have reported before,
making new policy a matter of practice requires strong leadership,
especially in an organization like DOE, which has diverse missions, a
confusing organizational structure, and a weak culture of
accountability.[Footnote 18] But the scope and magnitude of the reforms
being contemplated in the Environmental Management program indicate to
us for the first time that the management team has seen and understood
the full extent of the challenges DOE faces. And because DOE expects to
spend hundreds of billions of dollars in future years on missions
important to the well-being of the American people, such as cleaning up
nuclear wastes and ensuring the safety and reliability of our nuclear
weapons, there are compelling reasons to ensure that it has in place an
effective set of contracting and project management practices and
controls.
- - - --:
Thank you, Mr. Chairman and Members of the Committee. That concludes my
testimony. I would be pleased to respond to any questions that you may
have.
Contacts and Acknowledgements:
For further information on this testimony, please contact Ms. Robin
Nazzaro at (202) 512-3841. Individuals making key contributions to this
testimony included Carole Blackwell, Bob Crystal, Doreen Feldman, Stan
Stenersen, Bill Swick, and Arvin Wu.
Appendix I:
Cost and Schedule Performance on DOE‘s Major Projects, as of December
2001:
As we reported in September 2002, table 2 shows the original and
revised cost estimates and completion dates for ongoing DOE projects
with estimated costs greater than $200 million. We excluded from the
table 10 additional DOE projects with estimated costs greater than $200
million because the projects were suspended or only recently started as
of December 2001.
Table 2: Original and Revised Cost Estimates and Schedule for DOE
Projects with Estimated Costs Greater than $200 Million as of December
2001:
Project name and construction line number[A]:
Advanced Mixed Waste Treatment Project (97-PVT-2)[C]; Cost: Original
cost estimate[B]: $1,078.9; Cost: Revised cost estimate: $1,087.7[D];
Schedule: Original completion date: December 2002; Schedule: Revised
completion date: December 2002.
Project name and construction line number[A]:
Civilian Radioactive Waste Management Program[E]; Cost: Original cost
estimate[B]: 6,300.0[F]; Cost: Revised cost estimate: 8,394.6;
Schedule: Original completion date: October 2001[F]; Schedule: Revised
completion date: December 2004.
Project name and construction line number[A]:
Dual-Axis Radiographic Hydrodynamic Test Facility (97-D-102)[G]; Cost:
Original cost estimate[B]: 30.0[H]; Cost: Revised cost estimate: 269.7;
Schedule: Original completion date: September 1990; Schedule: Revised
completion date: December 2002.
Project name and construction line number[A]: East
Tennessee Technology Park Three-Building Decontamination and
Decommissioning and Recycle Project (OR-493); Cost: Original cost
estimate[B]: 283.9; Cost: Revised cost estimate: 348.1; Schedule:
Original completion date: December 2003; Schedule: Revised completion
date: March 2004.
Project name and construction line number[A]:
Facilities Capability Assurance Program (88-D-122)[I]; Cost: Original
cost estimate[B]: N/A[J]; Cost: Revised cost estimate: 445.6; Schedule:
Original completion date: N/A[J]; Schedule: Revised completion date:
June 2000.
Project name and construction line number[A]:
Hanford Tank Waste Treatment and Immobilization Plant (01-D-416); Cost:
Original cost estimate[B]: 12,488.0[K]; Cost: Revised cost estimate:
4,350.0; Schedule: Original completion date: 2007; Schedule: Revised
completion date: 2007.
Project name and construction line number[A]:
High-Level Waste Removal from Filled Waste Tanks (93-D-187)[L]; Cost:
Original cost estimate[B]: 88.6[M]; Cost: Revised cost estimate:
1,550.5; Schedule: Original completion date: September 1999[M];
Schedule: Revised completion date: September 2028.
Project name and construction line number[A]:
Initial Tank Retrieval Systems (94-D-407); Cost: Original cost
estimate[B]: 245.0[N]; Cost: Revised cost estimate: 274.9; Schedule:
Original completion date: March 2000[N]; Schedule: Revised completion
date: December 2015.
Project name and construction line number[A]:
National Ignition Facility (96-D-111); Cost: Original cost estimate[B]:
1,073.6; Cost: Revised cost estimate: 2,248.1; Schedule: Original
completion date: June 2002; Schedule: Revised completion date:
September 2008.
Project name and construction line number[A]:
Silos; Cost: Original cost estimate[B]: N/A; Cost: Revised cost
estimate: 338.1; Schedule: Original completion date: N/A; Schedule:
Revised completion date: December 2006.
Project name and construction line number[A]:
Spallation Neutron Source (99-E-334); Cost: Original cost estimate[B]:
1,332.8; Cost: Revised cost estimate: 1,411.7; Schedule: Original
completion date: September 2005; Schedule: Revised completion date:
June 2006.
Project name and construction line number[A]:
Spent Nuclear Fuel Dry Storage (98-PVT-2)[O]; Cost: Original cost
estimate[B]: 123.8; Cost: Revised cost estimate: 273.0; Schedule:
Original completion date: June 2001; Schedule: Revised completion date:
December 2005.
Project name and construction line number[A]:
Hanford Spent Nuclear Fuels; Cost: Original cost estimate[B]: 714.8;
Cost: Revised cost estimate: 1,600.0; Schedule: Original completion
date: 2001; Schedule: Revised completion date: September 2006.
Project name and construction line number[A]: Tank
Farm Restoration and Safe Operations (97-D-402); Cost: Original cost
estimate[B]: 289.2; Cost: Revised cost estimate: 285.3; Schedule:
Original completion date: June 2005; Schedule: Revised completion date:
June 2005.
Project name and construction line number[A]:
Tritium Extraction Facility (98-D-125)[P]; Cost: Original cost
estimate[B]: 390.7; Cost: Revised cost estimate: 401.0; Schedule:
Original completion date: June 2005; Schedule: Revised completion date:
March 2006.
Project name and construction line number[A]:
Weldon Springs Site Remedial Action Project; Cost: Original cost
estimate[B]: 357.7[Q]; Cost: Revised cost estimate: 905.2; Schedule:
Original completion date: September 1995[Q]; Schedule: Revised
completion date: September 2002.
Source: GAO analysis of DOE and National Research Council data.
[A] Projects that are not funded as construction line items do not have
project numbers. All costs, unless otherwise specified, are ’total
project costs.“ The cost data were obtained from DOE Congressional
budget requests and other DOE-provided data. The term N/A means cost or
schedule not available or not yet developed.
[B] For consistency we used, when available, preliminary budget
estimates submitted to Congress as the basis for original cost
estimates.
[C] Total project cost for construction projects typically includes
only the design, construction, and startup costs that precede
production operations. Total project cost for this project also
includes estimated costs for over 10 years of production operations and
other associated costs. The revised completion date refers to
completion of the construction phase.
[D] The contractor has submitted a ’Request for Equitable Adjustment“
of over $48 million due to a six-month schedule slip the project
experienced as a result of a delay in the issuance of environmental
permits. Because the Request for Equitable Adjustment is still under
review, the $48 million is not included in the revised cost estimate.
[E] The original baseline for this program included construction of the
exploratory studies facility and, if suitable, a site recommendation
and a license application. The current scope of the program was
broadened in 1997 to include all elements of the Civilian Radioactive
Waste Management Program, which now includes development of license
application, design and construction of Yucca Mountain Repository,
licensing interactions with the Nuclear Regulatory Commission, and
development of a transportation system. The revised completion date is
only for the license application.
[F] We reported in 1996 that the current cost and completion date for
the Yucca Mountain Site Characterization Project were $4,300 million
and March 2002, respectively. In 1997, DOE expanded the project to
include the entire Civilian Radioactive Waste Management Program.
[G] The original scope of this project at initial authorization in 1988
included two buildings and two single pulse flash x-ray machines. The
project has since undergone several changes in scope, which now
includes three buildings, a containment vessel to reduce emissions to
the environment, a single pulse machine, and a multiphase machine.
[H] This amount is a total estimated cost from the fiscal year 1988
Budget Request, which does not include other project costs. Other
project costs include supporting research and development and plant
support costs during construction, activation, and startup. There was
no requirement for a total project cost estimate in 1988.
[I] This project has a few subprojects completing closeout activities
and two still underway. DOE anticipates additional funding needs and a
schedule extension to complete the final two subprojects.
[J] We reported in 1996 that the current cost for the Facilities
Capability Assurance Program was $447 million and the completion date
was not available. No cost estimate was available when the project was
originally proposed.
[K] This original cost estimate from the fiscal year 2001 Budget
Request was based upon the privatization concept and included plant
operations through fiscal year 2018.
[L] DOE expanded the original scope of this project in fiscal year 1994
to incorporate three ongoing projects, which increased the total
project cost from $88.6 million to $828 million and the project
completion date from 1999 to 2008 in the fiscal year 1996 budget. The
cost and schedule were revised again in fiscal year 2000 to include,
among other projects, the equipment and infrastructure required to
remove the high level waste inventory from nine additional tanks.
[M] We reported in 1996 that the current cost and completion date for
the High Level Waste Removal project were $828.2 million and September
2008, respectively. DOE expanded the scope of this project in 1994.
[N] We reported in 1996 that the current cost and completion date for
the Initial Tank Retrieval System project were $358.2 million and March
2010, respectively.
[O] The original and revised estimated costs include design,
construction, startup, and operating costs. The revised completion date
refers to completion of the construction and startup phase.
[P] In June 2002 DOE‘s Office of Inspector General reported that the
total project cost for the Tritium Extraction Facility could increase
to as much as $500 million and that the facility may not be completed
until December 2006.
[Q] We reported in 1996 that the current cost and completion date for
the Weldon Springs Remedial Action Project were $865.0 million and
2001, respectively.
[End of table]
(360322):
FOOTNOTES
[1] U.S. General Accounting Office, Contract Reforms: DOE Has Made
Progress, but Actions Needed to Ensure Initiatives Have Improved
Results, GAO-02-798 (Washington, D.C.: Sept. 13, 2002).
[2] U.S. General Accounting Office, Major Management Challenges and
Program Risks: Department of Energy, GAO-01-246 (Washington, D.C.: Jan.
2001).
[3] U.S. General Accounting Office, Major Management Challenges and
Program Risks: Department of Energy, GAO-03-100 (Washington, D.C.: Jan.
2003).
[4] National Research Council, Improving Project Management in the
Department of Energy (Washington, D.C.: June 1999).
[5] U.S. General Accounting Office, Contract Reform: DOE Has Made
Progress, but Actions Needed to Ensure Initiatives Have Improved
Results, GAO-02-798 (Washington, D.C.: Sept. 13, 2002).
[6] U.S. General Accounting Office, Department of Energy: Alternative
Financing and Contracting Strategies for Cleanup Projects, GAO/RCED-98-
169 (Washington, D.C.: May 29, 1998).
[7] The one exception was the major site contract for the management of
DOE‘s West Valley Demonstration Project in New York state. According to
DOE procurement officials, the contract has been extended because of
the limited amount of cleanup work remaining at the site and the lack
of interest by other contractors to compete for the work.
[8] For example, see U.S. General Accounting Office, Department of
Energy: Key Factors Underlying Security Problems at DOE Facilities,
GAO/T-RCED-99-159 (Washington, D.C.: Apr. 20, 1999); U.S. General
Accounting Office, Nuclear Security: Improvements Needed in DOE‘s
Safeguards and Security Oversight, GAO/RCED-00-62 (Washington, D.C.:
Feb. 24, 2000); and A Special Investigative Panel, President‘s Foreign
Intelligence Advisory Board, Science at its Best, Security at its
Worst: A Report on Security Problems of the U.S. Department of Energy
(Washington, D.C.: June 1999).
[9] The contract fee is the amount DOE pays to the contractor over the
allowable costs under the contract.
[10] U.S. Department of Energy, Use of Performance-Based Incentives at
Selected Departmental Sites, DOE/IG-0510 (Washington, D.C.: Jul. 9,
2001).
[11] National Research Council, Progress in Improving Project
Management at the Department of Energy--2001 Assessment (Washington,
D.C.: Nov. 2001).
[12] As of January 2002, DOE records indicated at least 42 ongoing
projects with estimated costs greater than $100 million. We did not
review all of DOE‘s capital projects with costs over $100 million
because of the level of effort that would have been required, since DOE
does not maintain centralized information on those projects.
Furthermore, five of the ongoing projects we reviewed in 2001 began
before the advent of DOE‘s contract reform initiatives.
[13] U.S. Department of Energy, Follow-up Assessment of the
Effectiveness of Actions Taken to Improve Performance-Based Incentives
in Performance-Based Management and Management and Integration
Contracts (Washington, D.C.: Mar. 31, 1999).
[14] U.S. General Accounting Office, National Ignition Facility:
Management and Oversight Failures Caused Major Cost Overruns and
Schedule Delays, GAO/RCED-00-271 (Washington, D.C.: Aug. 8, 2000).
[15] U.S. General Accounting Office, Nuclear Waste Cleanup: DOE‘s
Paducah Plan Faces Uncertainties and Excludes Costly Cleanup
Activities, GAO/RCED-00-96 (Washington, D.C.: Apr. 28, 2000).
[16] U.S. General Accounting Office, Nuclear Waste: Technical,
Schedule, and Cost Uncertainties of the Yucca Mountain Repository
Project, GAO-02-191 (Washington, D.C.: Dec. 21, 2001).
[17] U.S. Department of Energy, A Review of the Environmental
Management Program (Washington, D.C.: Feb. 4, 2002).
[18] U.S. General Accounting Office, Department of Energy: Fundamental
Reassessment Needed to Address Major Mission, Structure, and
Accountability Problems, GAO-02-51 (Washington, D.C.: Dec. 21, 2001).
