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 noted that: (1) DOE chose a fixed-price approach for the project because DOE officials believed that, a fixed price would help limit the project's total costs and provide an incentive for contractors to use efficient practices in carrying out the cleanup by shifting the risk of nonperformance to the contractor; (2) the M&O contractor awarded the subcontract to LMAES on the basis of several 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; (3) because of reservations about the maturity of the technologies, the M&O contractor expanded the test phase of the procurement to include pilot scale testing of key aspects of the proposed systems; (4) estimated project completion is at least 26 months behind the original schedule, the waste retrieval and processing facilities are not ready, and no retrieval or treatment of wastes has begun; (5) 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; (6) LMAES estimates that its costs have already exceeded the subcontract price and has requested $257 million, as well as a new cost-based subcontract to reimburse the company for all future costs; (7) these changes, if implemented, would bring the total subcontract price to well over twice its original $200-million value; (8) the company's basis for requesting more money is its view that project problems are largely attributable to DOE and its M&O contractor; (9) DOE and the M&O contractor disagree with that assessment and instead point mainly to the subcontractor's insufficient application of technical and management skills; (10) discussions are continuing, but whatever the outcome of the disagreement is, the Pit 9 project, as originally conceived, is clearly a failure; (11) it cannot be completed in the timeframe or within the price agreed to by the subcontractor; and (12) this has important future implications because DOE's planned investment in privatization cleanup projects is growing; DOE included over $1 billion in its fiscal year 1998 budget request for 11 such projects.