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Structure and Workforce Planning Issues Remain As NNSA Conducts 
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Report to the Chairman, Subcommittee on Strategic Forces, Committee on 
Armed Services, U.S. Senate:

United States General Accounting Office:

GAO:

June 2004:

National Nuclear Security Administration:

Key Management Structure and Workforce Planning Issues Remain As NNSA 
Conducts Downsizing:

GAO-04-545:

GAO Highlights:

Highlights of GAO-04-545, a report to the Chairman, Subcommittee on 
Strategic Forces, Committee on Armed Services, U.S. Senate:  

Why GAO Did This Study:

The National Nuclear Security Administration (NNSA), a separately 
organized agency within the Department of Energy (DOE), is responsible 
for the management and security of the nation’s nuclear weapons, 
nonproliferation, and naval reactor programs. NNSA oversees contractors 
that operate its facilities to ensure that activities are effective and 
in line with departmental policy. In December 2002, NNSA began 
implementing a major reorganization aimed at solving important long-
standing organizational issues. GAO reviewed NNSA’s overall 
reorganization efforts to assess (1) the extent to which it is 
addressing in practice the past problems concerning the unclear 
delineation of authority and responsibility, (2) workforce planning, 
and (3) its impact on federal oversight of contractor activities. 

What GAO Found:

NNSA’s reorganization has addressed some past problems by better 
delineating lines of authority and improving communication; however, 
NNSA has not formalized a program management structure that identifies 
program managers or details their responsibilities and qualifications 
as they relate to the direction and oversight of contractor activity 
under the new organization. Without first resolving such key management 
issues, NNSA cannot, among other things, ensure the improved discipline 
and accountability it seeks in managing its programs. 

NNSA’s reorganization is not likely to ensure that the agency has 
sufficient staff with the right skills in the right places because NNSA 
downsized its federal workforce without first determining the critical 
skills and capabilities needed to meet its mission and program goals. 
Consequently, NNSA will not know the composition of its workforce until 
it completes the 17 percent workforce reduction on September 30, 2004—
the deadline specified in the reorganization plan—and then determines 
the knowledge, skills, and capabilities of its remaining employees. 
Without a functional long-term workforce plan, NNSA runs the risk of 
facing further, more serious staff shortages or skill imbalances, 
thereby diminishing its ability to adequately oversee its contractors.

NNSA’s implementation of a proposed risk-based approach to rely more 
on contractors’ assurances and self-assessments and less on NNSA’s 
direct oversight may be premature because it has not yet established a 
program management structure or long-term workforce plan for ensuring 
sufficient staff with the right skills in the right places. Under this 
proposal, contractors will develop comprehensive assurance systems, or 
systems of management controls, and NNSA will primarily rely upon these 
contractor systems and controls to ensure that contractors properly 
execute their work. Although the overall concept of a risk-based 
approach to federal oversight has merit, NNSA’s proposed transition to 
conduct less direct federal oversight could be compromised by 
outstanding reorganization issues. 

NNSA Workforce Downsizing Progress: 

[See PDF for image]

Note: This graph reflects NNSA’s adjustments, as of March 6, 2004. It 
excludes certain offices not significantly affected by downsizing.

[End of figure]

What GAO Recommends:

GAO is making recommendations to the Secretary of Energy and the 
Administrator of NNSA to increase the likelihood that NNSA’s 
reorganization will achieve NNSA’s goals of increased management 
discipline and contractor oversight. In its comments, NNSA agreed in 
principle with GAO’s recommendations, but felt its ongoing efforts 
were not sufficiently recognized. We have recognized NNSA’s efforts, 
but believe more needs to be done to ensure effective program 
management and contractor oversight.

www.gao.gov/cgi-bin/getrpt?GAO-04-545.

To view the full product, including the scope and methodology, click on 
the link above. For more information, contact Robin Nazzaro at (202) 
512-3841 or nazzaror@gao.gov.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

NNSA's Reorganization Has Delineated Lines of Authority, but More 
Clarification Is Needed for Specific Program Management and Oversight 
Functions:

NNSA's Reorganization Will Not Ensure Sufficient Staff with the Right 
Skills in the Right Places to Meet the Agency's Mission and Program 
Goals:

NNSA's Proposed Transition to Less Direct Federal Oversight Could Be 
Compromised by Outstanding Reorganization Issues:

Conclusions:

Recommendations for Executive Action:

Agency Comments and Our Evaluation:

Appendix I: Comments from the National Nuclear Security Administration:

Appendix II: GAO Contact and Staff Acknowledgments:

GAO Contact:

Acknowledgments:

Figures:

Figure 1: NNSA's Organization Prior to December 2002:

Figure 2: NNSA's New Organization:

United States General Accounting Office:

Washington, DC 20548:

June 25, 2004:

The Honorable Wayne Allard: 
Chairman, Subcommittee on Strategic Forces, 
Committee on Armed Services: 
United States Senate:

Dear Mr. Chairman:

For years, the Department of Energy (DOE) has experienced long-standing 
management problems with its nuclear weapons programs, including 
unclear delineation of management authorities and responsibilities that 
have contributed to significant cost overruns on major projects and 
security problems at the national laboratories.[Footnote 1] In 1999, 
the Congress created the National Nuclear Security Administration 
(NNSA) under Title 32 of the National Defense Authorization Act for 
Fiscal Year 2000 to correct the problems that plagued DOE. NNSA, a 
separately organized agency within DOE, is responsible for the 
management and security of the nation's nuclear weapons, 
nonproliferation, and naval reactor programs. Since its inception, 
however, NNSA has experienced its own management and security 
problems.[Footnote 2]

NNSA conducts nuclear weapon and nonproliferation-related national 
security activities in research and development laboratories, 
production plants, and other facilities.[Footnote 3] Specifically, NNSA 
operates three national nuclear weapon design laboratories--Lawrence 
Livermore National Laboratory, California; Los Alamos National 
Laboratory, New Mexico; and the Sandia National Laboratories, New 
Mexico and California--and four nuclear weapons production sites--the 
Pantex Plant, Texas; theY-12 Plant, Tennessee; the Kansas City Plant, 
Missouri; and the Savannah River Site, South Carolina, as well as the 
Nevada Test Site. To implement its programs, NNSA relies on site 
contractors to manage the day-to-day site operations and to adhere to 
DOE policies when operating the laboratory, production, or other 
facilities within the complex. Because many NNSA sites handle special 
nuclear material, including nuclear weapons, plutonium, and highly 
enriched uranium, effective federal oversight is critical to ensuring 
that national security, human health and safety, and the environment 
are not adversely affected.

For the last several years, we have monitored NNSA's efforts to 
implement Title 32. In April 2001, we testified that NNSA's efforts to 
establish a new organization looked promising.[Footnote 4] However, 
among other things, we highlighted the need for NNSA to clearly define 
the roles and responsibilities of headquarters and field staff, and to 
establish clear lines of authority between NNSA and its contractors. In 
May 2001, in response to a series of external and internal studies 
detailing persistent management problems, NNSA announced plans to 
reorganize its headquarters operations. In December 2001, we noted that 
NNSA had set several important goals for its overall reorganization 
efforts, including establishing clear and direct lines of 
communication, clarifying the roles and responsibilities of NNSA's 
headquarters and field offices, and integrating and balancing 
priorities across NNSA's missions and infrastructure.[Footnote 5] 
However, we found that NNSA's headquarters reorganization did not 
contain a clear definition of the roles and responsibilities of the 
headquarters organizational units.

In addition to reorganizing its headquarters, in February 2002, NNSA 
proposed a reorganization of its entire operation aimed at solving 
important long-standing organizational issues. Specifically, NNSA 
proposed a new organizational structure that would (1) remove a layer 
of management by making existing operations offices into support 
offices, (2) locate NNSA operational oversight close to laboratories 
and plants by strengthening its site offices, and (3) streamline 
federal staff and hold federal staff and contractors more accountable. 
In February 2002, we testified that with the proposed new 
organizational structure, resolution of NNSA's long-standing 
organizational issues appeared to be within NNSA's grasp.[Footnote 6] 
However, we noted that NNSA's lack of a long-term strategic approach to 
ensure a well-managed workforce precluded it from identifying its 
current and future human capital needs, including the size of the 
workforce, its deployment across the organization, and the knowledge, 
skills, and capabilities needed to fulfill its mission. Finally, in 
December 2002, the Administrator of NNSA directed the implementation of 
the overall reorganization proposed in February 2002. Specifically, 
NNSA began implementing a new organizational structure that would (1) 
remove a layer of management by abolishing its three Operations 
Offices; (2) locate NNSA operational oversight close to laboratories 
and plants by strengthening its site offices; (3) consolidate business 
and technical support functions, such as procurement and contracting, 
in a single service center organization located in Albuquerque, New 
Mexico; and (4) adopt a challenging staff reduction target of about 17 
percent to be achieved by the end of fiscal year 2004.

You asked us to review NNSA's overall reorganization efforts to assess 
(1) the extent to which NNSA's reorganization is addressing in practice 
the past problems concerning the unclear delineation of authority and 
responsibility, (2) the likelihood that NNSA's reorganization will 
result in sufficient staff with the right skills in the right places to 
meet its mission and program goals, and (3) how NNSA's reorganization 
will impact its proposed plan for federal oversight of contractor 
activities.

To assess the extent to which NNSA's reorganization addressed past 
problems concerning the unclear delineation of authority and 
responsibility, we visited NNSA headquarters, the new Albuquerque 
Service Center, and four of the eight NNSA site offices and interviewed 
officials and reviewed pertinent documents on the effect of the 
reorganization on NNSA's delineation of authority and responsibility. 
We developed a general list of interview questions--i.e., a semi-
structured interview guide--to assist with our interviews of each NNSA 
site office manager.[Footnote 7] To assess NNSA's efforts to ensure 
that NNSA had sufficient staff with the right skills in the right 
places to meet its mission and program goals, we reviewed NNSA 
workforce planning documents and interviewed NNSA officials, including 
using the interview guide for site office manager interviews, to 
determine if its plans had sufficient information to address NNSA's 
future staffing needs and to identify emerging skill gaps. In addition, 
we reviewed our reports on human capital management and workforce 
planning.[Footnote 8] To assess NNSA's proposed plan for federal 
oversight of contractor activities under the new reorganization, we 
interviewed NNSA headquarters officials, site office managers (using 
the interview guide), and contractor officials, and reviewed documents 
pertaining to the ongoing implementation of this proposed oversight 
approach at Sandia National Laboratories. We focused our review on 
NNSA's Office of Defense Programs because, according to NNSA officials, 
it was most affected by the December 2002 reorganization, and because 
the Office of Defense Programs, which manages weapons activity 
programs, accounts for about 73 percent of NNSA's Fiscal Year 2005 
budget request.

We conducted our review from June 2003 through April 2004 in accordance 
with generally accepted government auditing standards.

Results in Brief:

NNSA's reorganization has resulted in some progress in delineating 
lines of authority and improving communication between NNSA 
headquarters and its field offices, thus addressing some past problems; 
however, at the working level, NNSA has yet to determine who will give 
specific program direction to its contractors and how the actions of 
these program managers will be coordinated. Specifically, NNSA 
officials report that the new structure has improved communication 
between headquarters and the field by eliminating a layer of 
management--the three operations offices--and consolidating 
administrative support functions into a new service center located in 
Albuquerque, New Mexico. In addition, the reorganization has 
strengthened the hand of local NNSA site office managers by granting 
them additional authority to manage contractors, specifically holding 
the site office managers accountable for the day-to-day security and 
safety of site operations. Important issues remain to be resolved. 
Specifically, NNSA has yet to formalize a program management structure 
that identifies its program managers, what their responsibilities and 
qualifications should be, and what their specific role will be in 
directing and overseeing contractor activity under the new 
organization. Moreover, NNSA has not determined how program managers, 
who are responsible for ensuring that program goals and requirements 
are met, will interact with contracting officers and their designated 
representatives, who are responsible for carrying out specific 
technical functions, such as monitoring and inspection.

NNSA's reorganization is not likely to ensure that it has sufficient 
staff with the right skills in the right places because NNSA chose to 
downsize its federal workforce without determining what critical skills 
and capabilities it needed to meet its mission and program goals. In 
December 2001, we reported that NNSA did not have the coherent human 
capital and workforce planning strategies it needed to develop and 
maintain a well-managed workforce over the long run. Consequently, we 
recommended that NNSA develop a thorough human capital and workforce 
planning strategy. Instead of developing a workforce plan, according to 
a senior NNSA official, NNSA managers relied on their judgment about 
how much to reduce the federal staff and where those reductions should 
occur in carrying out its December 2002 reorganization. Consequently, 
NNSA will not know the composition of its workforce until it completes 
the 17 percent workforce reduction on September 30, 2004--the deadline 
specified in the reorganization plan--and then determines the 
knowledge, skills, and capabilities of its remaining employees. While 
NNSA did develop a workforce plan in December 2003, which attempted to 
establish a framework for long-term workforce planning, this plan is of 
limited use without current statistics on workforce, positions, and 
organizational structures. We have found that when downsizings take 
place in such an unstructured environment agencies experienced 
significant challenges to deploying people with the right skills, in 
the right places, at the right time and performing its missions 
economically, efficiently, and effectively. In NNSA's case, early 
indications are that the lack of planning is already contributing to 
skill imbalances. For example, NNSA site offices are 39 staff short of 
their targets and some site offices, namely Pantex, Y-12, and Los 
Alamos, are having some difficulty filling critical skills in safety 
and security. At the Albuquerque Service Center, significant skill gaps 
exist for contract specialists--it has only 26 of 54 contract 
specialist positions filled. Without a functional long-term workforce 
plan, NNSA runs the risk of facing further, more serious staff 
shortages or skill imbalances, thereby affecting its ability to 
adequately oversee its contractors and ensure the safety and security 
of its various facilities in the future.

NNSA's implementation of its proposed approach to rely more on 
contractors' assurances and self-assessments and less on NNSA's direct 
oversight may be premature because NNSA's reorganization has not yet 
generated or established a program management structure for directing 
and overseeing contractor activity or a long-term workforce plan for 
ensuring that it has sufficient staff with the right skills in the 
right places. According to the draft proposal, contractors will develop 
a comprehensive contractor assurance system, or system of management 
controls, and NNSA will primarily rely upon these systems and controls 
to ensure that the contractors' missions and activities are properly 
executed in an effective, efficient, and safe manner. Under this 
proposal, NNSA will use a risk-based, graded approach to its oversight 
and tailor the extent of federal oversight to the quality and 
completeness of the contractors' assurance systems and to evidence of 
acceptable contractor analysis of contractor performance. If 
implemented, NNSA's oversight functions will include review and 
analysis of contractor performance data, direct observations of 
contractor work activities in nuclear and other facilities, annual 
assessments of overall performance under the contract, and 
certifications by the contract or independent reviewers that the major 
elements of risk associated with the work performed are being 
adequately controlled. NNSA has already begun taking steps to 
accommodate implementation of the new contractor oversight approach in 
parallel with its reorganization. Although the overall concept of a 
risk-based approach to federal oversight has merit, the unresolved 
issues stemming from NNSA's major ongoing reorganization may affect its 
ability to effectively carry out this approach while successfully 
meeting its responsibility for safe and secure operations.

In order to increase the likelihood that NNSA's reorganization will 
achieve NNSA's goal of increased management discipline and 
accountability in program management and contractor oversight, we are 
recommending that NNSA establish a structure for its program 
management, complete and implement a data-driven workforce plan for the 
longer term, and postpone any decrease in the level of NNSA's direct 
federal oversight of contractors until it has a program management 
structure in place and has completed its workforce plan.

In commenting on our draft report, NNSA agreed in principle with our 
recommendations; however, it felt that it already had efforts underway 
to address them. Specifically, with respect to our recommendation about 
program management, NNSA stated that it has established a formal 
process for using appropriately designated officials to direct 
contractor activity and that its formal program management policy was 
nearly established. We recognize in our report NNSA's effort to develop 
processes and formalize its program management policy; however, we 
believe that NNSA needs not only a policy, but also a structure and 
implementation guidance so that the managers providing direction to 
NNSA's contractors are clearly identified and can be held accountable. 
With respect to our recommendation on workforce planning, NNSA agreed 
with our recommendation, but it disagreed that its current plan was 
based on short-term or arbitrary management judgments. In this respect, 
our conclusions were based on discussions with knowledgeable senior 
agency officials at NNSA headquarters and site offices as well as a 
review of NNSA management council minutes. More importantly, we 
continue to believe in, and NNSA does not dispute, the need for a long-
term data driven workforce plan that will ensure that NNSA meets its 
long-term goals. Finally, regarding our last recommendation on federal 
oversight of contractors, NNSA stated that it had no intention of 
further decreasing direct oversight of contractors, was hiring staff to 
fill vacant positions at site offices, and that its proposed contractor 
assurance systems would only be implemented after a site manager/
contracting officer was convinced that the contractor's system would be 
at least as effective as the current system. While we are pleased that 
NNSA has stated that it will not decrease its direct oversight, our 
recommendation is intended to ensure that NNSA has the critical systems 
it needs in place to perform its function--effective, direct federal 
oversight.

Background:

NNSA, a separately organized agency within DOE, is responsible for the 
management and security of the nation's nuclear weapons, 
nonproliferation, and naval reactor programs. To conduct these 
activities, NNSA's fiscal year 2005 request is about $9 billion, with 
about $6.6 billion targeted for nuclear weapons programs managed by 
NNSA's Office of Defense Programs. For many years, various external 
studies have found problems with the organization of NNSA's principal 
activity--the Office of Defense Programs. For example, one such study 
found a dysfunctional management structure with convoluted, confusing, 
and often contradictory reporting channels, [Footnote 9] while another 
study cited ambiguities and overlaps in the roles of headquarters and 
the Albuquerque Operations Office as a primary source of inefficiencies 
and conflict within the program. [Footnote 10] In December 2000, we 
reported organizational problems at three levels--within the Office of 
Defense Program's headquarters functions, between headquarters and the 
field offices, and between contractor-operated sites and their federal 
overseers.[Footnote 11] These problems resulted in overlapping roles 
and responsibilities for the federal workforce overseeing the nuclear 
weapons program and confusion and duplication of effort for the 
contractors implementing the program at sites within the nuclear 
weapons complex.

In December 2002, NNSA formally announced the beginning of an overall 
reorganization and workforce reduction intended to enhance its 
operational efficiency and programmatic effectiveness. Prior to its 
December 2002 reorganization, NNSA's organization consisted of multiple 
layers. In particular, under the Office of Defense Programs--NNSA's 
largest program--seven area offices reported to three operations 
offices that in turn reported to the Deputy Administrator for Defense 
Programs. The Deputy Administrator then reported to the Administrator. 
Figure 1 shows NNSA's prior organization.

Figure 1: NNSA's Organization Prior to December 2002:

[See PDF for image]

[End of figure]

To remove a layer of management, NNSA closed the Albuquerque, Oakland, 
and Nevada operations offices. The new organization consists of eight 
site offices located at each of NNSA's major contractors, one service 
center located in Albuquerque, New Mexico, and headquarters program 
offices that all report directly to the Administrator. NNSA 
headquarters sets requirements, defines policies, and provides high-
level guidance. Site office managers are the designated contracting 
officers responsible for delivering federal direction to the contractor 
at each site and for ensuring the site's safe and secure operation. The 
site office managers also manage each NNSA site office. Under the 
realignment, a single service center has been established in 
Albuquerque, New Mexico, to provide business and technical support 
services to the eight site offices and headquarters programs. Prior to 
the reorganization, about 200 staff provided these services in the 
Oakland and Nevada operations offices and in offices in Germantown, 
Maryland, and Washington, D.C. These services are now being 
consolidated in the new service center, resulting in the reassignment 
of the 200 staff to the Albuquerque service center. Figure 2 shows 
NNSA's new organization structure. NNSA plans to staff the service 
center with 475 employees, down from 678 in December 2002.

Figure 2: NNSA's New Organization:

[See PDF for image]

[End of figure]

As part of its reorganization, NNSA decided to reduce the size of its 
federal staff. Originally, NNSA set an overall staff reduction target 
of 20 percent. However, in August 2003, NNSA reduced the target to 17 
percent. The current target includes a 26 percent reduction at 
headquarters and a 30 percent reduction at the service center. Three 
site offices--Kansas City, Nevada, and Savannah River--are experiencing 
reductions, although overall staff size at all eight site offices will 
increase by 16 employees. NNSA is relying on a combination of buyouts, 
directed reassignments, and attrition to achieve these targets by its 
September 30, 2004, deadline.

Standards that we have developed require federal agencies to establish 
and maintain an effective system of internal controls over their 
operations.[Footnote 12] Such a system is a first line of defense in 
safeguarding assets and preventing and detecting errors. Under our 
standards, managers should, among other things, ensure that their 
staffs have the required skills to meet organizational objectives, that 
the organizational structure clearly defines key areas of authority and 
responsibility, that progress be effectively measured, and that 
operations be effectively monitored.

In addition to these internal control standards, in January 2001, and 
again in January 2003, we identified strategic human capital management 
as a governmentwide, high-risk area after finding that the lack of 
attention to strategic human capital planning had created a risk to the 
federal government's ability to perform its missions economically, 
efficiently, and effectively.[Footnote 13] In that context, we have 
stated that strategic workforce planning is needed to address two 
critical needs: (1) aligning an organization's human capital program 
with its current and emerging mission and programmatic goals and (2) 
developing long-term strategies for acquiring, developing, and 
retaining staff to achieve programmatic goals.[Footnote 14] There are 
five key principles that strategic workforce planning should address 
irrespective of the context in which the planning is done. It should:

* involve top management, employees, and other stakeholders in 
developing, communicating, and implementing the strategic workforce 
plan;

* determine the critical skills and competencies that will be needed to 
achieve current and future programmatic results;

* develop strategies that are tailored to address gaps in number, 
deployment, and alignment of human capital approaches for enabling and 
sustaining the contributions of all critical skills and competencies;

* build the capability needed to address administrative, educational, 
and other requirements important to support workforce planning 
strategies; and:

* monitor and evaluate the agency's progress toward its human capital 
goals and the contribution that human capital results have made toward 
achieving programmatic results.

In light of shortcomings in strategic human capital management reported 
by us, the President's Management Agenda identified strategic 
management of human capital as a governmentwide initiative. Established 
in August 2001, the President's Management Agenda identified a strategy 
for improving the management and performance of the federal government. 
The agenda included five governmentwide initiatives: the strategic 
management of human capital, competitive sourcing, improved financial 
performance, expanded electronic government, and budget and performance 
integration.

Regarding strategic management of human capital, two principals are 
considered central to its success. One, people are assets whose value 
can be enhanced through investment. As with any investment, the goal is 
to maximize value while managing risk. Two, an organization's human 
capital approach should be designed, implemented, and assessed by the 
standards of how well they help the organization achieve results and 
pursue its mission. Effective strategic workforce planning is 
considered an essential element of strategic human capital management. 
Also called human capital planning, it focuses on developing long-term 
strategies for acquiring, developing, and retaining an organization's 
total workforce (including full-and part-time federal staff and 
contractors) to meet the needs of the future.

NNSA's Reorganization Has Delineated Lines of Authority, but More 
Clarification Is Needed for Specific Program Management and Oversight 
Functions:

NNSA's reorganization has resulted in some progress in delineating 
lines of authority between NNSA headquarters and its field offices, 
thus addressing some past problems; however, at the working level, NNSA 
has not formalized a program management structure that identifies its 
program managers or what their responsibilities and qualifications 
should be, particularly regarding their role in directing and 
overseeing contractor activity under its new organization. Furthermore, 
the reorganization has created gaps in the responsibility for important 
safety oversight that need to be addressed. Without first clarifying 
such key management issues, NNSA cannot, among other things, ensure the 
improved discipline and accountability it seeks in managing its 
programs.

By delineating lines of authority between NNSA headquarters and its 
field offices, NNSA's reorganization has addressed past problems, such 
as communications problems resulting from overlapping roles and 
responsibilities of the federal workforce overseeing the nuclear 
weapons program. For example, according to NNSA site office managers, 
the streamlined structure has improved vertical communication because 
communication channels between headquarters and the field are more 
direct and do not involve an extra layer of management in the 
operations offices. Site office managers also state that by now 
reporting directly to the NNSA Administrator's office, the time 
required to make decisions has been reduced. In addition, the 
realignment provides NNSA site office managers with additional 
authority to manage contractors and assigns them responsibility for the 
day-to-day security and safety of contractor operations. As a result, 
it has strengthened the hand of local NNSA site office managers who now 
have the authority to shut down operations at the sites, if necessary, 
due to security or safety concerns.

Despite this progress NNSA's reorganization still suffers from two 
shortcomings. First, the reorganization plan does not yet fully 
delineate the authority and responsibility of program managers, who are 
responsible for ensuring that program goals and requirements are met, 
or reconcile these responsibilities with the mutual responsibilities of 
contracting officers and their designated representatives who manage 
the contract. Specifically, under the new reorganization, the 
contracting officer is responsible for appointing contracting officer 
representatives to carry out specific functions, such as monitoring, 
inspection, and other functions of a technical nature not involving a 
change in the scope, cost, or terms and conditions of the contract. 
These contracting officer representatives then assist in directing and 
overseeing the contractor for the programs that they represent. NNSA is 
attempting to improve program management accountability and discipline 
by requiring program managers to direct all work to the contractors 
through a contracting officer or a designated contracting officer 
representative instead of through the now defunct operations offices or 
by bypassing the formal contract administrators and informally 
directing the contractor, as was done in the past.

NNSA's policy on program management, however, is still being developed. 
NNSA's Assistant Deputy Administrator for the Office of Program 
Integration told us that the exact number of program managers within 
the Office of Defense Programs has yet to be determined because 
disagreement exists within the program about who currently is or is not 
a program manager. Furthermore, NNSA has not yet articulated its 
qualification standards for program managers. These standards are 
important to program success. As we noted in our report on NNSA's 
Stockpile Life Extension Program, problems with the W-87 refurbishment 
were caused, in part, because the assigned program manager was not 
qualified to perform all required tasks and was not enrolled in DOE's 
project management qualification program.[Footnote 15] Senior NNSA 
officials in headquarters expect NNSA's policy to be issued by May 
2004, and implementation plans for this policy to be developed by 
summer 2004. NNSA officials told us that even after the policy is 
issued, its implementation is expected to take some time because it 
will likely require a change in the behavior and culture of program 
managers and the manner in which they operate.

NNSA's delay in issuing program management policy and appointing 
program managers is currently creating confusion. According to NNSA's 
existing policy concerning the appointment of contracting officer 
representatives, headquarters-based program officials must first be 
designated as program managers before they can be designated as 
contracting officer representatives for a site.[Footnote 16] As a 
result, any uncertainty surrounding the number of program managers and 
their responsibilities has the potential to disrupt the appointment of 
contracting officer representatives. However, despite the present 
uncertainty surrounding the designation of program managers, site 
offices are appointing contracting officer representatives. For 
example, the Sandia Site Office appointed 25 of its 36 contracting 
officer representatives using available NNSA headquarters staff, as of 
June 2003. However, NNSA provided us with a list of its designated 
program managers as of December 2003 (the latest date for which data 
were available) that did not officially recognize 21 of the 25 
headquarters-based contracting officer representatives that had been 
formally appointed by the Sandia Site Office. Until NNSA fully 
implements its policies to delineate program management authority and 
responsibility, it remains unclear under the new reorganization and 
management structure how program management authorities and 
responsibilities will be exercised in the day-to-day management of 
contractors and site operations and NNSA cannot ensure that the full 
discipline and accountability it seeks through its reorganization is 
fully achieved or that its long-standing organizational structure 
problems are corrected.

The second outstanding problem with NNSA's reorganization is that it 
has created gaps in the responsibility for safety oversight that need 
to be addressed. For example, managers at NNSA's Pantex Site Office, 
which oversees the contractor operating the Pantex Plant--an assembly/
disassembly plant for nuclear weapons in Amarillo, Texas--stated that 
authority and responsibility for certain safety-related oversight is 
unclear. Specifically, according to the Pantex Site Office manager, 
when the realignment abolished the Albuquerque Operations Office, it 
left a void regarding who would take over certain nuclear explosive 
safety oversight activities previously performed by that office. Among 
other things, nuclear explosives safety oversight includes activities 
such as evaluating the adequacy of controls associated with tooling, 
testers, and operational processes to prevent and/or minimize the 
consequences of an accident involving nuclear explosives. While NNSA's 
Assistant Deputy Administrator for Military Application and Stockpile 
Operations--an NNSA program--assumed overall responsibility for 
nuclear explosive safety, NNSA has not resolved exactly who is to 
provide the day-to-day oversight previously conducted by the 
Albuquerque Operations Office. In this regard, the Pantex Site Office 
manager stated that there is no clear procedure for conducting 
oversight to ensure the prevention of deliberate, unauthorized use of a 
nuclear weapon--an important goal of NNSA. The Pantex Site Office 
manager--the risk acceptance official for the site--stated that he 
would therefore not authorize the continuation of certain work related 
to one current weapon system requiring use of a particular safety 
process. Furthermore, in October 2003, NNSA issued its safety-oriented 
"Functions, Responsibilities, and Authorities Manual" intended to 
clarify issues concerning delineation of authority. However, according 
to the Assistant Manager for Nuclear Engineering at the Pantex Site 
Office, the manual still does not clarify the authority and 
responsibility of nuclear explosives safety oversight. Senior NNSA 
headquarters officials stated that they are aware of problems 
concerning nuclear explosive safety oversight and that corrective 
action plans have been recently developed and are scheduled to be 
implemented through 2006.

The Defense Nuclear Facilities Safety Board recently expressed broader 
concerns in a December 8, 2003, letter to NNSA's Administrator that 
many orders, directives, standards, supplemental directives, and site 
office procedures, which had been issued to help ensure the safe 
operation of NNSA's defense nuclear facilities, have not been modified 
to reflect current roles and responsibilities within NNSA. The board 
further stated that in some cases, particularly those involving 
supplemental directives that the now-defunct Albuquerque Operations 
Office had issued, the documents may no longer have a clear owner 
within the NNSA organization, and deviations from the processes that 
these directives prescribed are now becoming more frequent within NNSA.

NNSA's Reorganization Will Not Ensure Sufficient Staff with the Right 
Skills in the Right Places to Meet the Agency's Mission and Program 
Goals:

NNSA's reorganization is not likely to ensure that it has sufficient 
staff with the right skills in the right places because NNSA chose to 
downsize its federal workforce without first determining what critical 
skills and capabilities it needed to meet its mission and program 
goals. Consequently, NNSA will not know the composition of its 
workforce until it completes the 17 percent workforce reduction on 
September 30, 2004--the deadline specified in the reorganization plan-
-and then determines the knowledge, skills, and capabilities of its 
remaining employees. Without a functional long-term workforce plan, 
NNSA runs the risk of facing further, more serious staff shortages or 
skill imbalances, thereby affecting its ability to adequately oversee 
its contractors.

In December 2001, in addressing NNSA's use of its excepted service 
authority, we reported that NNSA did not have the coherent human 
capital and workforce planning strategies it needed to develop and 
maintain a well-managed workforce over the long run.[Footnote 17] As a 
result, we recommended that NNSA not allocate any additional excepted 
service positions until it developed comprehensive human capital and 
workforce planning strategies. Subsequently, in February 2002, we 
testified that NNSA's lack of a long-term strategic approach to ensure 
a well-managed workforce precluded it from identifying its current and 
future human capital needs, including the size of the workforce, its 
deployment across the organization, and the knowledge, skills, and 
abilities needed to fulfill its mission.[Footnote 18]

Despite these earlier recommendations to develop thorough human capital 
and workforce planning strategies, NNSA embarked on a major initiative, 
expected to span nearly 2 years, not only to reorganize, but also to 
reduce the size of its workforce. NNSA's December 2002 reorganization 
plan called for a reduction in its federal workforce from 1,695 to 
1,356 staff, or a reduction of about 20 percent, by September 30, 2004. 
The planned 20 percent reduction involved a 29 percent reduction in 
headquarters staff, a 26 percent reduction in administrative support 
staff through the closure of the three operations offices and the 
consolidation of administrative support staff in a new Service Center, 
and a 6 percent reduction in Site Office staff. A senior NNSA official 
stated that "getting things done" was a primary factor in deciding to 
quickly implement the reorganization and workforce reduction. As such, 
NNSA officials stated that the staff reduction targets were based more 
on judgment than a rigorous workload analysis. A senior NNSA official 
explained that NNSA managers knew that there was work overlap and 
redundancy in the organization, but were concerned that a more formal, 
rigorous analysis of requirements or workload could hamper what they 
believed was an urgent need to achieve organizational realignment and 
workforce reduction results. The official also said that NNSA 
management had decided that if and when staffing changes became 
necessary, such adjustments would then be made.

The NNSA Administrator implemented what it termed a managed staffing 
process soon after the workforce reduction target was announced in an 
effort to focus on its short-term staff reduction targets and deadline. 
He asked NNSA headquarters, service center, and site office managers to 
report their organization's existing functions and staff in 2003, their 
anticipated changes to functions and associated staff requirements by 
the end of fiscal year 2004, and any staff surplus or deficit. Based on 
regular updates of this information, the NNSA Administrator has 
adjusted the total staff reduction target twice since December 2002, 
once in April 2003 and a second time in August 2003, to its current 17 
percent target--primarily to accommodate an increase of 38 positions. 
This new target is to be accomplished by an increase of 23 positions in 
headquarters and 40 positions in the site offices, respectively, and a 
decrease of 25 positions at the Albuquerque Service Center. A February 
2004 status report stated that NNSA created and staffed the 38 new 
positions to perform functions not previously identified, or for which 
original staffing targets were not adequate for mission accomplishment.

NNSA is progressing towards its staff reduction targets and deadline 
primarily through buyouts, directed reassignments, and attrition 
combined with a freeze on hiring and promotions, although exceptions 
can be allowed to fill critical positions. A total of 174 staff have 
thus far taken the buyout, which could be as high as $25,000 per person 
depending on such factors as length of federal service and grade level. 
NNSA human capital managers report that 99 of the 200 administrative 
support staff in Oakland, Las Vegas, Germantown, and Washington, D.C., 
offices have formally stated that they would relocate to the 
Albuquerque Service Center. However, officials are not sure how many 
staff will actually relocate because, for example, they believe that 
some staff do not really want to relocate and are seeking alternative 
employment. As of March 6, 2004, NNSA is 13 staff short of achieving 
its 17 percent staffing reduction target.

NNSA has also begun a number of specific workload reduction initiatives 
intended to accomplish its mission with fewer federal personnel. 
However, the outcome of these initiatives may not be known for some 
time so their affect on NNSA's workforce capabilities both in the 
short-term and long-term cannot be predicted. For example, in the area 
of safety, NNSA reduced the number of Site Office Facility 
Representatives from 68 in December 2002 to 53 in December 2003. Site 
Office Facility Representatives are typically responsible for day-to-
day oversight of contractor operations to ensure that the contractor's 
work practices and performance are being completed in a safe and 
environmentally responsible manner. NNSA is pursuing changes to the 
Facilities Representative Program, among other things, to allow for 
greater coverage in areas of higher risk to the public, such as nuclear 
safety, and reduced coverage of standard industrial hazard facilities. 
NNSA is also considering shifting federal responsibility for employee 
safety to the contractor.

While continuing to pursue its short-term workforce reduction goals, 
NNSA began to develop a framework to determine its long-term human 
capital needs. In December 2003, NNSA issued a workforce plan designed 
to comprehensively meet the requirements of DOE's Human Capital 
Management Improvement Program and the strategic workforce planning 
aspect of the President's Management Agenda. The framework specifically 
identified strategic workforce planning as a means to mitigate the 
impact of losing a large percentage of the NNSA workforce and as the 
process for ensuring that the right people with the right skills are in 
the right place at the right time. The workforce planning model for the 
longer term--Workforce Plan 2004--called for the analysis of present 
workforce competencies, the identification of competencies needed in 
the future, a comparison of future needs with the present workforce in 
order to identify competency gaps and surpluses, the preparation of 
plans for building the workforce needed in the future, and an 
evaluation process to ensure that the workforce planning model remains 
valid and that mission objectives are being met.

Despite this effort, NNSA's workforce plan is of limited usefulness 
because it depends on workforce data that are either already obsolete 
or not yet available. For example, the number, skill, position, and 
location of employees are a moving target and subject to continuous 
change until the downsizing effort is completed in September 2004. 
Furthermore, several NNSA site office managers acknowledged that their 
workforce focus has been on their short-term downsizing objective. A 
senior NNSA official agreed that the agency's workforce planning needed 
to be more long-term, but added that under the circumstances of NNSA's 
organizational downsizing, management primarily focused on meeting 
short-term needs. NNSA human capital officials also told us that NNSA's 
decreased reliance on DOE for practically all human capital management, 
resulting from NNSA's creation as a separately organized agency under 
DOE in 2000, required the building of a human resource structure, 
staff, and operation, which has taken some time to get up and running. 
NNSA plans to update information in its workforce plan, including its 
workforce composition and skills, as well as determine workforce needs 
for the long-term. With this information, NNSA can then conduct a skill 
gap analysis that is necessary to target recruitment, hiring, and 
training programs long-term.

As we have found in other government agencies, by carrying out 
downsizing without sufficient consideration of the strategic 
consequences, NNSA runs the risk of not having the right skills in the 
right place at the right time, thereby affecting its ability to 
adequately oversee its contractors and ensure the safety and security 
of its various facilities in the future. The situation may be further 
exacerbated by the fact that, according to NNSA estimates, 35 percent 
of NNSA employees will be eligible to retire in the next 5 years. The 
lack of adequate strategic and workforce planning in the course of 
downsizing efforts can negatively affect the agency's ability to 
provide quality service and lead to such negative effects as the loss 
of institutional memory and an increase in work backlogs. The impact of 
gaps in the numbers and skills of staff used to carry out its 
contractor oversight mission is already becoming apparent. For example, 
NNSA site offices are 39 staff short of their targets and some site 
offices, namely Pantex, Y-12, and Los Alamos, are having some 
difficulty filling critical skills in safety and security. At the 
Albuquerque Service Center, significant skill gaps exist for 
accountants and contract specialists. For example, the service center 
has only 26 of 54 contract specialist positions filled. NNSA's 
preoccupation with more short-term downsizing objectives and staffing 
strategy without the benefit of a strategic human capital plan may have 
contributed to the workforce imbalances it now is experiencing.

NNSA's Proposed Transition to Less Direct Federal Oversight Could Be 
Compromised by Outstanding Reorganization Issues:

NNSA's implementation of its proposed risk-based approach to rely more 
on contractors' assurances and self-assessments and less on NNSA's 
direct oversight may be premature because NNSA's reorganization has not 
yet established a program management structure or long-term workforce 
plan for ensuring that it has sufficient staff with the right skills in 
the right places. Others and we have reported on a number of problems 
over the years related to NNSA's performance of effective federal 
oversight of its contractors. Against this backdrop, NNSA has begun 
taking steps to accommodate implementation of the new contractor 
oversight approach in parallel with its reorganization. Under this new 
approach, contractors will develop comprehensive contractor assurance 
systems, or systems of management controls, and NNSA will primarily 
rely upon these systems and controls to ensure that contractors 
properly execute their missions and activities. Although the overall 
concept of a risk-based approach to federal oversight has merit, the 
unresolved issues stemming from NNSA's major ongoing reorganization may 
compromise its ability to effectively carry out this approach while 
successfully meeting its responsibility for safe and secure operations.

NNSA's reliance on contractors to operate its facilities and carry out 
its missions makes effective oversight of contractor activities 
critical to its success. Over the years, we have reported on problems 
related to NNSA's performance of effective federal oversight of its 
contractors. For example:

* In May 2003, we reported on problems with NNSA's oversight, 
particularly regarding assessing contractors' security 
activities.[Footnote 19] We noted that, without a stable and effective 
management structure and with ongoing confusion about security roles 
and responsibilities, inconsistencies had emerged among NNSA sites on 
how they assessed contractors' security activities. Consequently, we 
stated that NNSA could not be assured that all facilities are subject 
to the comprehensive annual assessments that DOE policy requires.

* Weaknesses in NNSA oversight also occurred at the Lawrence Livermore 
National Laboratory. Specifically, in our May 2003 report on a new 
waste treatment facility at the laboratory,[Footnote 20] we concluded 
that a delay in initiating storage and treatment operations at the new 
facility occurred because NNSA managers did not carry out their 
oversight responsibilities to provide clear requirements and ensure 
contractor compliance with these requirements.

* In July 2003, we reported on problems with NNSA's oversight, 
particularly with regard to cost and schedule, of the Stockpile Life 
Extension Program.[Footnote 21] In particular, we found that Life 
Extension Program managers used reports that contained only limited 
information on cost growth and schedule changes against established 
baselines. We also found that program managers believed that they had 
not been given adequate authority to properly carry out the life 
extensions.

* In February 2004, we reported on problems with NNSA's oversight with 
regard to business operations at the Los Alamos National 
Laboratory.[Footnote 22] Beginning in the summer of 2002, a series of 
problems with business operations surfaced at the Los Alamos National 
Laboratory, raising questions about the effectiveness of controls over 
government purchase cards and property. Among the questions raised were 
allegations of fraudulent use of government purchase cards and purchase 
orders, concerns about the adequacy of property controls over items 
such as computers, and disputed rationales for the laboratory's firing 
of two investigators. DOE and NNSA identified multiple causes for these 
business operations problems, one of which was that NNSA's oversight 
was too narrowly focused on specific performance measures in the 
contract rather than on overall effectiveness.

In addition to these concerns, DOE 's Office of Inspector General has 
raised broader concerns about the adequacy of oversight. For example, 
in November 2003, DOE's Office of Inspector General released its annual 
report on management challenges, including oversight of contracts and 
project management as two of three internal control challenges facing 
the department.[Footnote 23]

Against this backdrop and in the midst of a major reorganization and 
staff reduction effort, NNSA is proposing to change its contractor 
oversight approach. NNSA's August 2003 draft Line Oversight and 
Contractors' Assurance System policy would rely more on contractor 
self-assessment and reporting, among other methods, and less on NNSA's 
direct oversight.[Footnote 24] The proposal would require a 
comprehensive contractor assurance system, or system of management 
controls, to be in place and would primarily rely upon these systems 
and controls to ensure that its missions and activities are properly 
executed in an effective, efficient, and safe manner. NNSA would use a 
risk-based, graded approach to its oversight and tailor the extent of 
federal oversight to the quality and completeness of the contractors' 
assurance systems and to evidence of acceptable contractor performance. 
NNSA's oversight functions would include review and analysis of 
contractor performance data, direct observations of contractor work 
activities in nuclear and other facilities, annual assessments of 
overall performance under the contract, and certifications by the 
contractor or independent reviewers that the major elements of risk 
associated with the work performed are being adequately controlled. 
NNSA stated in its draft policy and in public meetings before the 
Defense Nuclear Facilities Safety Board that the department plans to 
phase in this new oversight approach over the next few years.

NNSA has already begun taking steps to accommodate implementation of 
the new contractor oversight approach in parallel with its 
reorganization. For example, the new contract effective October 1, 
2003, between Sandia Corporation and NNSA's Sandia Site Office 
describes 10 key attributes for its assurance system, such as having 
rigorous, risk-based, and credible self-assessments, feedback, and 
improvement activities, and using nationally recognized experts and 
other independent reviewers to assess and improve its work process and 
to carry out independent risk and vulnerability studies. Sandia's 
contractor plans to implement "assurance systems" beginning with its 
low-risk activities in fiscal year 2004, and medium-and high-risk 
activities in fiscal year 2005. Once satisfied that the contractor's 
assurance system is effective and results in an improvement in the 
contractor's performance in key functional areas, NNSA will consider 
conducting oversight at the assurance systems level rather than at the 
level of individual transactions. At the time of our review, NNSA 
officials at the Sandia Site Office did not know how they would assess 
or validate the contractor assurance system or what level of assurance 
they would require before they would shift from "transactional" 
oversight to "systems level" oversight.

Although the overall concept of a risk-based approach seems reasonable, 
we are concerned about NNSA's ability to effectively carry it out. For 
example, considerable effort is needed at the Los Alamos and Lawrence 
Livermore National Laboratories to successfully implement a risk-based 
approach to laboratory oversight.[Footnote 25] According to the 
Associate Director for Operations at the Los Alamos National 
Laboratory, the laboratory's ability to manage risk is at a beginning 
level of maturity. Other officials at the Los Alamos laboratory, 
including officials from the Performance Surety Division and the 
Quality Improvement Office, said that the laboratory and NNSA have 
different perceptions of risks at the laboratory and how to manage 
those risks. In our February 2004 report, we expressed concerns about 
NNSA's oversight approach and warned that such autonomy for the 
laboratories was inadvisable this soon into the process of recovery 
from a string of embarrassing revelations. We recommended that NNSA 
needs to maintain sufficient oversight of mission support activities to 
fulfill its responsibilities independently until the laboratories have 
demonstrated the maturity and effectiveness of contractor assurance 
systems and the adequacy of the contractor's oversight have been 
validated. NNSA disagreed with our view of its proposal to rely more on 
a contractor's system of management controls and less on NNSA's own 
independent oversight, but acknowledged that there have been problems 
with oversight in the past. NNSA officials remained convinced that the 
proposed risk-based approach will be successfully implemented, 
resulting in improved contractor oversight.

We continue to be concerned about whether NNSA is ready to move to its 
proposed system. For example, during this review, officials from NNSA's 
Nevada Site Office expressed concerns about the performance of the 
management and operating contractor for the Nevada Test Site, citing 
repeated problems with contractor's compliance with basic procedures. 
For example, officials from NNSA's Nevada Site Office expressed concern 
that there were repeated incidents where the contractor did not follow 
lock-out/tag-out procedures, resulting in, for example, the contractor 
drilling holes into wires that would cause power systems to shut down. 
Furthermore, the Defense Nuclear Facilities Safety Board, in recent 
public meetings, has expressed concerns about nuclear safety under the 
proposed NNSA contractor assurance policy and said that NNSA should not 
delegate responsibility for such an inherently high-risk area of 
operations. Finally, because NNSA has not fully determined (1) who will 
give program direction to its contractors and (2) through a 
comprehensive workforce plan, that it has sufficient staff with the 
right skills in the right places, NNSA's proposed approach to rely more 
on contractors' assurances and self-assessments and less on NNSA's 
direct oversight may be premature.

Conclusions:

NNSA is concurrently making significant and fundamental changes to its 
organization, workforce composition, and contractor oversight approach 
that require careful management forethought, strategy, and analysis. 
Preliminary indications are that some of these changes have had a 
positive effect on certain aspects of NNSA, but the final impact of 
these changes will not be apparent for several years. Specifically, 
NNSA's reorganization has resulted in some progress in delineating 
authority and improving communication between headquarters and the 
field. However, the reorganization has not resolved confusion regarding 
authority over program management. In addition, by downsizing its 
federal workforce without first determining what critical skills and 
capabilities it needed, NNSA's workforce reduction targets were more 
arbitrary than data-driven, contributing to short-term skill imbalances 
and making data-driven workforce planning for the longer term more 
difficult. Specifically, NNSA cannot begin to conduct a formal, 
substantive skill gap analysis to plan for the long term until it 
completes the current workforce reduction and collects critical 
workforce data on knowledge, skills, and competencies, among other 
things. Finally, because important program management and workforce 
issues still need to be resolved, NNSA's implementation of its proposal 
to rely more on contractors' assurances and self-assessments and less 
on NNSA's direct oversight appears to be premature.

Recommendations for Executive Action:

In order to increase the likelihood that NNSA's reorganization will 
achieve NNSA's goal of increased management discipline and 
accountability in program management and contractor oversight, we are 
making three recommendations to the NNSA Administrator and the 
Secretary of Energy:

* establish a formal program management structure, policy, and 
implementation guidance for directing the work of its contractors, 
especially concerning how program managers will interact with 
contracting officers at site offices to help direct and oversee 
contractor activity;

* complete and implement data-driven workforce planning for the longer 
term that (1) determines the critical skills and competencies that will 
be needed to achieve current and future programmatic results, including 
contractor oversight; (2) develops strategies tailored to address gaps 
in number, skills and competencies, and deployment of the workforce; 
and (3) monitors and evaluates the agency's progress toward its human 
capital goals and the contribution that human capital results have made 
toward achieving programmatic results, and:

* postpone any decrease in the level of NNSA's direct federal oversight 
of contractors until NNSA has a program management structure in place 
and has completed its long-term workforce plan.

Agency Comments and Our Evaluation:

We provided NNSA with a draft of this report for review and comment. 
NNSA agreed in principle with our recommendations; however, it felt 
that it already had efforts underway to address them. Specifically, 
with respect to our recommendation about program management, NNSA 
stated that it has established a formal process for using appropriately 
designated officials to direct contractor activity and that its formal 
program management policy was nearly established. We recognize in our 
report NNSA's effort to develop processes and formalize its program 
management policy; however, we believe that NNSA needs not only a 
policy, but also a structure and implementation guidance so that the 
managers providing direction to NNSA's contractors are clearly 
identified and can be held accountable. With respect to our 
recommendation on workforce planning, NNSA agreed with our 
recommendation, but it disagreed that its current plan was based on 
short-term or arbitrary management judgments. In this respect, our 
conclusions were based on discussions with knowledgeable senior agency 
officials at NNSA headquarters and site offices as well as a review of 
NNSA management council minutes. More importantly, we continue to 
believe in, and NNSA does not dispute, the need for a long-term data 
driven workforce plan that will ensure that NNSA meets its long-term 
goals. Finally, regarding our last recommendation on federal oversight 
of contractors, NNSA stated that it had no intention of further 
decreasing direct oversight of contractors, was hiring staff to fill 
vacant positions at site offices, and that its proposed contractor 
assurance systems would only be implemented after a site manager/
contracting officer was convinced that the contractor's system would be 
at least as effective as the current system. While we are pleased that 
NNSA has stated that it will not decrease its direct oversight, our 
recommendation is intended to ensure that NNSA has the critical systems 
it needs in place to perform its function--effective, direct federal 
oversight.

As arranged with your office, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
after the date of this report. At that time, we will send copies to the 
Secretary of Energy and the Administrator of NNSA, the Director of the 
Office of Management and Budget, and appropriate congressional 
committees. We will make copies available to others on request. In 
addition, the report will also be available at no charge on the GAO Web 
site at http://www.gao.gov.

If you or your staff have any questions about this report, please call 
me at (202) 512-3841. Major contributors to this report are listed in 
appendix II.

Sincerely yours,

Signed by: 

Robin M. Nazzaro: 
Director, Natural Resources and Environment:

[End of section]

Appendix I: Comments from the National Nuclear Security Administration:

Department of Energy:

National Nuclear Security Administration:  
Washington, DC 20585:

MAY 25 2004:

Robin Nazzaro: 
Director:
Natural Resources and Environment: 
General Accounting Office: 
Washington, DC 20548-0001:

Dear Ms. Nazzaro:

The National Nuclear Security Administration (NNSA) appreciates the 
opportunity to have reviewed the General Accounting Office (GAO) draft 
report, GAO-04-545, "National Nuclear Security Administration: Key 
Management Structure and Workforce Planning Issues Remain As NNSA 
Conducts Downsizing." We understand that this draft report is the 
result of GAO's efforts to assess: (1) the extent to which NNSA is 
addressing in practice the past problems concerning the unclear 
delineation of authority and responsibility; (2) our workforce 
planning; and, (3) the impacts our efforts have on federal oversight of 
contractor activities.

Based on conclusions described in the report, GAO is subsequently 
recommending that NNSA: (1) establish a formal program management 
structure for directing the work of our contractors; (2) complete and 
implement data-driven workforce planning for the longer term; and, (3) 
postpone any decrease in the level of NNSA's direct federal oversight 
of contractors until NNSA has this structure and plan in place. Our 
comments are focused on the conclusions and recommendations contained 
in the draft report.

While NNSA agrees with the desirability of each of GAO's 
recommendations, we disagree with the implications that these steps are 
not in progress. First, NNSA has established a formal process for 
assuring the direction to contractors flows through appropriately-
designated officials and our formal program management policy is nearly 
established. Second, NNSA undertook a thorough workforce analysis 
before standing-up our new organizational structure and beginning the 
process of redeploying employees. GAO's review was undertaken in the 
midst of the realignment process. Subsequently to that review, NNSA's 
effort to close staffing gaps are well underway. The determination of 
the critical skills needed to meet mission and program goals is an 
iterative process; the GAO assertion that NNSA will not understand its 
requirements until after the re-engineering is complete is wrong. 
Finally, NNSA has no intention of further decreasing direct 
oversight of contractors. We are hiring staff to fill vacant positions 
at our site offices and our contractor assurance systems are only 
implemented after a site manager/ contracting officer is convinced that 
the system will provide assurance at least as effectively as the 
current system.

As the Administrator reported to the Secretary at the end of Fiscal 
Year 2003, the standup and subsequent re-engineering of NNSA has been a 
complex undertaking. We are operational and are organized to maintain 
the nuclear weapon stockpile; prevent the proliferation of weapons of 
mass destruction; provide the Navy with effective nuclear propulsion; 
ensure the readiness of the nuclear security enterprise; and, to be a 
responsive and accountable organization. Our Federal managers continue 
to take measures to implement appropriate controls for results-oriented 
management; assess the adequacy of management controls in Federal 
programs and operations; identify needed improvements; take 
corresponding corrective action; and report on these controls. While we 
agree with GAO that there is much still to be accomplished, we have 
taken national missions that have been in existence through the 
inception of the Cold War, molded them into a separate agency, 
reorganized, and re-engineered without losing sight of our national 
goals. Our organizational structure and processes and procedures for 
managing an organization of this size allow us to address those 
challenges warranting increased emphasis or appearing to have reached a 
heightened level of urgency.

The Administrator's assertions to the Secretary are as important today 
as they were in his Fiscal Year 2003 report that NNSA is adopting 
management tools and practices to do our job better and more 
efficiently. We are using creative personnel practices to ensure the 
best talent is recruited, retained, and rewarded, and all employees are 
accountable to the Administrator for performance in achieving their 
elements of the NNSA's mission. The re-engineering concept that was 
developed jointly by managers throughout the organization provides the 
basis for moving technical staff to where the work is performed, and 
centralizing common business and administrative functions to improve 
the quality of oversight and increase efficiency. With our strong 
leadership, a committed workforce, modern technical and planning tools, 
and the continued support of the Congress and the President's 
Administration, NNSA is making a positive difference for America.

In regards to GAO's recommendation on the establishment of a formal 
program management structure, it is important to note that the various 
business functions utilized within NNSA are not singular in nature. 
While NNSA agrees that the Program Management structure needs to be 
formalized, we reiterate the fact that we have the Business Operating 
Policy document in the final review and comment phase. Additionally, 
this formal process is intertwined with NNSA's 
comprehensive work authorization system which, in-and-of-itself, is 
tightly coupled to the financial and to the contracting mechanisms. The 
work authorization process is also captured in a Business Operating 
Policy document that codifies the ability of Contracting Officers to 
acknowledge and accept the scope of work directed by the Federal 
Program Managers and subsequently to modify the operating contracts. 
NNSA also wants to point out that the report states, on page 12, that 
according to our existing policy concerning the appointment of 
Contracting Officer Representatives, Headquarters program officials 
must first be designated as program managers before they can be 
designated as CORs. This is not completely correct. Within our weapons 
program we have CORs that are supervisors of program managers.

Regarding the recommendation related to the postponement of any 
decrease in the level of NNSA's direct federal oversight until it has a 
program management structure in place and has completed it workforce 
plan, NNSA has embarked on an aggressive reorganization schedule. 
Restructuring such as NNSA has performed during the last two years is 
an intensive effort that has serious impacts on the morale of the 
workers. Dragging the process out only continues the ineffective time 
period associated with any restructuring. The fact that NNSA has moved 
forward in its downsizing should serve as the catalyst to ensure that 
both the Federal employees and the Contractors redefine oversight by 
prioritizing on the highest risk activities with the resources they 
each have. Hiring more resources would not necessarily improve 
oversight while increasing cost to the taxpayer. GAO should take into 
consideration that the oversight policy associated with the Contractor 
Assurance Systems is being phased in within NNSA along with NNSA's 
restructure. The Sandia Contract contains a "transition" statement 
which states the following: "...The Contractor's Management systems 
that exist on October 1, 2003 will continue until the Contractor 
addresses the applicable requirements contained in Contract Clauses H-
2 through H-10. For changes that do require NNSA approval, the 
Contractor will not implement a change until it is formally approved by 
the Contracting Officer." This statement in the contract allows the 
NNSA to address the relative risk before accepting changes. Since the 
Site Offices are actually increasing in size, a phased approach makes 
sense. For sites like Los Alamos or Pantex, who have more difficulty in 
staffing their sites because of their locations, a phased approach is 
provided for.

While completing and implementing data-driven workforce planning for 
the longer term may be an appropriate recommendation, NNSA believes 
that GAO reached a conclusion significantly different than one that 
NNSA is working from. Although it is true that NNSA's current staff 
reduction goals have been relatively short-term in nature, being 
targeted to the end of Fiscal Year 2004, they are not based on short-
term or arbitrary management judgements, as the report would 
indicate. NNSA has conducted a logical, methodical, fact-based analysis 
in designing its long-term Re-engineering and Restructuring 
Initiatives. These initiatives are designed to meet the mandates and 
expectations of Congress to improve the overall management of the 
weapons and nonproliferation programs, while enhancing overall program 
and worker performance, minimizing skill gaps, and identifying 
heretofore unmet critical hiring needs. Teams of program managers and 
staff analysts worked during much of 2002 to establish an 
organizational baseline and to benchmark, validate, and align functions 
within defined major organizational units as part of NNSA's well-
documented re-engineering initiative, resulting in the Matrix of NNSA 
Functions and Activities by Location, which provided the template for 
NNSA's major reorganization in December 2002. Since the stand-up of the 
NNSA's new management and organization structures, much has continued 
to be done to develop and refine NNSA's workforce planning and ongoing 
restructuring initiatives. NNSA feels strongly enough about this 
subject that we welcome the opportunity to provide documentation in 
evidence to support NNSA's conclusions.

I have provided additional comments as an enclosure to support the NNSA 
conclusion we have reached regarding the workforce planning and human 
capital issues.

Should you have any questions regarding this response, please contact 
Richard Speidel, Director, Policy and Internal Controls Management. He 
may be contacted at 202-586-5009.

Sincerely yours,

Signed by: 

Michael C. Kane:

Associate Administrator for Management and Administration:

Enclosure: 

[End of section]

Appendix II: GAO Contact and Staff Acknowledgments:

GAO Contact:

James Noel (202) 512-3591:

Acknowledgments:

In addition to the individual named above, Arturo Holguin, Robert 
Kigerl, Jonathan McMurray, Christopher Pacheco, Anthony Padilla, Judy 
Pagano, and Ellen Rubin made key contributions to this report.

FOOTNOTES

[1] U.S. General Accounting Office, Nuclear Weapons: Improved 
Management Needed to Implement Stockpile Stewardship Program 
Effectively, GAO-01-48 (Washington, D.C.: Dec. 14, 2000).

[2] See for example, 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) 
and U.S. General Accounting Office, Nuclear Security: NNSA Needs to 
Better Manage Its Safeguards and Security Program, GAO-03-471 
(Washington, D.C.: May 3, 2003). 

[3] The Office of Naval Reactors is managed as a separate entity within 
NNSA.

[4] U.S. General Accounting Office, Department of Energy: Views on the 
Progress of the National Nuclear Security Administration in 
Implementing Title 32, GAO-01-602T (Washington, D.C.: Apr. 4, 2001).

[5] U.S. General Accounting Office, NNSA Management: Progress in the 
Implementation of Title 32, GAO-02-93R (Washington, D.C.: Dec. 12, 
2001).

[6] U.S. General Accounting Office, Department of Energy: NNSA 
Restructuring and Progress in Implementing Title 32, GAO-02-451T 
(Washington, D.C.: Feb. 26, 2002).

[7] For the site offices we did not visit, we used the interview guide 
to conduct telephone interviews. Also, the practical difficulties of 
administering a semi-structured interview guide may introduce errors, 
commonly referred to as nonsampling errors. For example, measurement 
errors are introduced if difficulties exist in how a particular 
question is interpreted or in the sources of information available to 
respondents in answering a question. To reduce measurement error, we 
conducted two pretests with site office managers to make sure questions 
and response categories in our interview guide were interpreted in a 
consistent manner. We made relevant changes to the questions based upon 
these pretests.

[8] See U.S. General Accounting Office, Human Capital: A Self-
Assessment Checklist for Agency Leaders, GAO/OCG-00-14G (Washington, 
D.C.: Sept. 2000); U.S. General Accounting Office, A Model Of Strategic 
Human Capital Management, GAO-02-373SP (Washington, D.C.: March 15, 
2002); and U.S. General Accounting Office, Human Capital: Key 
Principles for Effective Strategic Workforce Planning, GAO-04-39 
(Washington, D.C.: Dec. 11, 2003).

[9] President's Foreign Intelligence Advisory Board, Science At Its 
Best, Security At Its Worst, (Washington, D.C.: June 1999).

[10] Institute for Defense Analyses, The Organization and Management of 
the Nuclear Weapons Program, (Washington, D.C.: March 1997).

[11] GAO-01-48.

[12] U.S. General Accounting Office, Standards for Internal Control in 
the Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 
1999).

[13] See U.S. General Accounting Office, High-Risk Series: An Update, 
GAO-01-263 (Washington, D.C.: January 2001), and U. S. General 
Accounting Office, High Risk Series: An Update, GAO-03-119 (Washington, 
D.C.: January 2003). Also, see U.S. General Accounting Office, 
Performance and Accountability Series--Major Management Challenges and 
Program Risks: A Governmentwide Perspective, GAO-01-241 (Washington, 
D.C.: January 2001). In addition, see the accompanying 21 reports 
(numbered GAO-01-242 through GAO-01-262) on specific agencies. 

[14] GAO-04-39. 

[15] U.S. General Accounting Office Nuclear Weapons: Opportunities 
Exist to Improve the Budgeting, Cost Accounting, and Management 
Associated with the Stockpile Life Extension Program, GAO-03-583 
(Washington, D.C. July 28, 2003).

[16] In commenting on our report, NNSA stated that for its weapons 
programs, it does have contracting officer representatives that are 
supervisors of program managers.

[17] GAO-02-93R.

[18] GAO-02-451T.

[19] U.S. General Accounting Office, Nuclear Security: NNSA Needs to 
Better Manage Its Safeguards and Security Program, GAO-03-471 
(Washington, D.C.: May 30, 2003).

[20] U.S. General Accounting Office, Radioactive Waste: DOE Has Acted 
to Address Delay in New Facility at Livermore Laboratory, but 
Challenges Remain, GAO-03-558 (Washington, D.C.: May 15, 2003).

[21] U.S. General Accounting Office, Nuclear Weapons: Opportunities 
Exist to Improve the Budgeting, Cost Accounting, and Management 
Associated with the Stockpile Life Extension Program, GAO-03-583 
(Washington, D.C.: July 28, 2003).

[22] U.S. General Accounting Office, Department of Energy: Mission 
Support Challenges Remain at Los Alamos and Lawrence Livermore National 
Laboratories, GAO-04-370 (Washington, D.C.: Feb. 27, 2004). 

[23] Department of Energy, Management Challenges at the Department of 
Energy, DOE/IG-0626 (Washington, D.C.: Nov. 12, 2003).

[24] Historically, NNSA has depended upon a combination of contractor 
controls and direct federal oversight to help manage the risks 
associated with the work conducted at its laboratories. However, there 
are diverse views on the proper balance between federal oversight and 
reliance on contractors' systems of internal controls. Since 1990, 
others and we have criticized NNSA for inadequate federal oversight and 
failure to hold contractors accountable. In contrast, a 1995 Secretary 
of Energy Advisory Board task force report on alternative futures for 
the national laboratories criticized DOE for excessive oversight and 
micromanagement of contractors' activities.

[25] U.S. General Accounting Office, Department of Energy: Mission 
Support Challenges Remain at Los Alamos and Lawrence Livermore National 
Laboratories, GAO-04-370 (Washington, D.C.: Feb. 27, 2004).

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