Nuclear Waste

Cleaning up facilities that during the past 50 years have produced the nation's supply of nuclear materials for weapons is an enormous and complex challenge. To reduce cleanup costs and spur greater progress, the Energy Department (DOE) is pursuing a new contracting strategy, which it calls "privatization." This approach relies on the use of a competitively awarded fixed-price performance contract, through which DOE purchases waste cleanup services from a private contractor. One of DOE's first privatization projects intended to clean up radioactive wastes is the Pit 9 project at the Idaho National Engineering and Environmental Laboratory. Estimated completion of the project is at least 26 months behind schedule. The waste retrieval and processing facilities are not ready, and no retrieval or treatment of wastes has begun. Instead, DOE has been assessed nearly $1 million in fines by the state of Idaho and the Environmental Protection Agency for failing to meet deadlines for submitting acceptable design documents. The subcontractor--Lockheed Martin Advanced Environmental Systems--estimates that its costs have already exceeded the subcontract price and has requested $257 million for its work through June 30, 1997, as well as a new cost-based subcontract to reimburse the company for all future costs. These changes would bring the total subcontract price for the Pit 9 cleanup to well over twice its original $200 million value. GAO concludes that the Pit 9 project is clearly a failure--it simply cannot be completed in the time frame or within the price agreed to by the subcontractor. This has important implications because DOE has included more than $1 billion in its fiscal year 1998 budget for 11 privatization cleanup projects. GAO summarized this report in testimony before Congress; see: Nuclear Waste: Department of Energy's Pit 9 Cleanup Project Is Experiencing Problems, by Victor S. Rezendes, Director of Energy, Resources, and Science Issues, before the Subcommittee on Oversight and Investigations, House Committee on Commerce. GAO/T-RCED-97-221, July 28 (15 pages).

GAO noted that: (1) DOE chose a fixed price approach for the project because Department officials believed a fixed price would help limit the project's total cost and provide an incentive for contractors to use efficient practices in carrying out the cleanup by shifting the risk of nonperformance to the contractors; (2) DOE officials believed they had a better chance of achieving these goals with a fixed-price approach than with a cost-reimbursement approach, even though uncertainties existed about the actual wastes in the pit; (3) DOE also directed its management and operating (M&O) contractor at the Idaho falls site to conduct the procurement process for the selection of a subcontractor and to oversee the project; (4) the M&O contractor awarded the subcontract to Lockheed Martin Advanced Environmental Systems on the basis of several key factors, including the adequacy of its technical proposal, its apparent technical and managerial expertise, its successful completion of the test phase, the price, about $200 million, and a guarantee of performance under which the company would return all payments received if its treatment system failed to work properly; (5) estimated completion of the project is at least 26 months behind the original subcontract schedule; (6) the waste retrieval and processing facilities are not ready, and no retrieval or treatment of wastes has begun; (7) instead, DOE has been assessed $940,000 in fines by its regulators, the state of Idaho and the Environmental Protection Agency, for failure to meet deadlines for submitting acceptable design documents; (8) Lockheed Martin Advanced Environmental Systems estimates that its costs have already exceeded the subcontract produce and has requested $257 million for its work through June 30, 1997, as well as a new cost-based subcontract to reimburse the company for all future costs; (9) discussions are continuing, and the outcome of the disagreement is uncertain; (10) meanwhile, because of these contract difficulties and the related legal implications, the M&O contractor has hired outside legal counsel for the Pit 9 project and, under the terms of the M&O contract, DOE is responsible for paying those legal fees; (11) whatever the outcome, the Pit 9 project, as originally conceived, is clearly a failure; (12) it simply cannot be completed in the time frame or within the price agreed to by the subcontractor; and (13) this has important future implications because DOE's planned investment in privatization cleanup projects is growing, the Department included over $1 billion in its fiscal year 1998 budget request for 11 such projects.