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Report to the Subcommittee on Energy and Water Development, Committee 
on Appropriations, U.S. Senate: 

United States Government Accountability Office: 
GAO: 

October 2009: 

Nuclear Weapons: 

National Nuclear Security Administration Needs to Better Manage Risks 
Associated with Modernization of Its Kansas City Plant: 

GAO-10-115: 

GAO Highlights: 

Highlights of GAO-10-115, a report to the Subcommittee on Energy and 
Water Development, Committee on Appropriations, U.S. Senate. 

Why GAO Did This Study: 

Built in 1943, the Kansas City Plant (KCP)––the National Nuclear 
Security Administration’s (NNSA) primary production plant for 
manufacturing nonnuclear components of nuclear warheads and bombs––is 
to be modernized because of its age and the high cost of maintenance 
and operation. Among other changes, NNSA plans to relocate KCP to a new 
facility and increase components obtained from external suppliers from 
about 54 to 70 percent. KCP’s continued supply of these components is 
essential for maintaining a reliable nuclear weapons stockpile. 

GAO was asked to determine (1) how KCP developed plans for 
modernization, (2) actions KCP has taken to ensure uninterrupted 
production of components, and (3) actions KCP has taken to address the 
risks of outsourcing. GAO reviewed planning documents and met with 
officials from NNSA, KCP, and Sandia National Laboratories, which 
designs many of the components produced at KCP. 

What GAO Found: 

KCP evaluated several alternatives on behalf of NNSA to modernize its 
facility based on whether the alternative (1) was consistent with NNSA’
s goals for maintaining a smaller facility for producing nuclear 
weapons and one that could quickly adapt to change, (2) met NNSA’s 
commitments to Congress to operate a new facility by 2012, and (3) 
minimized costs and implementation risks. Based on KCP’s analyses of 
alternatives, NNSA chose to have a private developer build a new 
building in Kansas City 8 miles from the current facility, which NNSA 
would then lease through the General Services Administration (GSA) for 
a period of 20 years. However, in evaluating a financing method, KCP 
compared alternatives using cost estimates limited to 20 years. Twenty 
years is far shorter than the useful life of a production facility that 
is properly maintained; the current facility has operated for more than 
60 years. NNSA and KCP officials acknowledge that while leasing a 
facility through GSA under a 20-year scenario is less costly than 
purchasing, it can be more costly over the longer term. Because KCP’s 
analysis did not consider costs beyond 20 years, NNSA cannot be certain 
if other alternatives, such as purchasing the facility, might have 
offered lower costs over the longer term. 

KCP officials developed extensive plans to ensure that the production 
of components is not interrupted because of the transition to the new 
facility. However, its schedule—which is critical to ensuring that the 
move does not disrupt production—does not fully adhere to best 
practices GAO identified for schedule development and related DOE 
scheduling guidance. In February 2009, GAO assessed KCP’s schedule and 
found that, among other things, KCP had not adequately sequenced all 
activities in its schedule in the order in which they are to be carried 
out. GAO followed up in July 2009 and found that although KCP officials 
have made progress in addressing several of these problems, the 
schedule still has some shortcomings. 

KCP has taken steps to mitigate some risks of increased outsourcing, 
but NNSA has not provided adequate oversight or clear and up-to-date 
export control guidance tailored for NNSA production and laboratory 
sites to effectively manage associated nuclear weapons proliferation 
risks. As such, KCP has not implemented a formal, risk-based approach 
to identify specific components and technologies that may be used by 
potential adversaries to develop or advance their nuclear capabilities. 
Lacking effective NNSA-specific guidance and a risk-based approach, KCP 
instead treats all components as if they pose equal proliferation 
risks. As such, items such as a common, commercially available screw 
are considered to be at the same level of proliferation risk as a 
complex mechanism designed to arm nuclear weapons. Further, KCP’s 
primary means of addressing this issue rests on its suppliers’ self-
enforced compliance with a contract clause that outlines the suppliers’ 
responsibility to abide by applicable export control laws. Under this 
broadly applied approach to managing export control––where all 
components are treated as equal risks––NNSA may be missing 
opportunities at KCP to systematically identify and more effectively 
mitigate those risks that pose the greatest threats. 

What GAO Recommends: 

GAO is recommending, among other things, that NNSA ensure that future 
cost analyses consider the full useful life of the facility, revise the 
KCP relocation schedule to be consistent with Department of Energy 
(DOE) guidance and GAO-identified best practices, and develop a risk-
based approach for managing technologies that could advance 
adversaries’ nuclear capabilities. In commenting on a draft of this 
report, NNSA generally agreed with our recommendations. 

View [hyperlink, http://www.gao.gov/products/GAO-10-115] or key 
components. For more information, contact Gene Aloise at (202) 512-3841 
or aloisee@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background and Overview of Plans for Modernizing NNSA's KCP Facility: 

KCP Evaluated Several Alternatives for Modernizing Its Facility but Did 
Not Fully Analyze the Long-Term Impact of Some Financing Options: 

KCP Is Taking Steps to Ensure Uninterrupted Production, Including 
Efforts to Address Scheduling Problems We Identified: 

KCP Has Begun Taking Steps to Mitigate Some Outsourcing Risks but Could 
Better Safeguard Technologies That Pose Nuclear Proliferation Risks: 

Conclusions: 

Recommendations for Executive Action: 

Agency Comments and Our Evaluation: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: GAO Assessment of KCP's Relocation Schedule: 

Appendix III: Comments from the National Nuclear Security 
Administration: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: KCP's Comparison of Financing Options: 

Table 2: KCP's Progress in Meeting GAO-Identified Best Practices for 
Scheduling: 

Figure: 

Figure 1: Production of Nonnuclear Components in the U.S. Nuclear 
Weapons Complex: 

Abbreviations: 

DOD: Department of Defense: 

DOE: Department of Energy: 

DOJ: Department of Justice: 

GSA: General Services Administration: 

KCP: Kansas City Plant: 

NNSA: National Nuclear Security Administration: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

October 23, 2009: 

The Honorable Byron L. Dorgan: 
Chairman: 
The Honorable Robert Bennett: 
Ranking Member: 
Subcommittee on Energy and Water Development: 
Committee on Appropriations: 
United States Senate: 

Built in 1943, the Kansas City Plant (KCP)--the National Nuclear 
Security Administration's (NNSA) primary production plant for 
manufacturing nonnuclear components of nuclear warheads and bombs--is 
being modernized because of its age and the high cost of maintenance 
and operation. KCP produces or procures more than 100,000 parts 
annually--ranging from nuts and bolts to complex radars--comprising 
about 85 percent of the components that go into a typical nuclear 
weapon. NNSA, a separately organized agency within the Department of 
Energy (DOE), owns the building, equipment, and components produced at 
KCP, and NNSA's Kansas City Site Office provides local oversight of all 
activity. Honeywell Federal Manufacturing and Technologies (Honeywell) 
manages and operates the KCP facility for NNSA. In response to a July 
2005 report of the Secretary of Energy Advisory Board's infrastructure 
task force,[Footnote 1] and NNSA's 2006 strategic plan on 
infrastructure,[Footnote 2] which proposed ways to transform the 
nuclear weapons complex, NNSA directed KCP to develop plans for 
modernizing its production facilities based on its goals of developing 
a smaller, more responsive production infrastructure--one that will 
ultimately support a smaller nuclear weapons stockpile--while 
continuing to maintain and refurbish the weapons currently in the 
stockpile. KCP outlined three key avenues for achieving NNSA's goals, 
including (1) purchasing more components from external suppliers; (2) 
implementing a more commercial-like business process; and (3) building 
a smaller, modern, state-of-the-art, and more flexible manufacturing 
facility by 2012. KCP's current plans are expected to result in an 18- 
month relocation to a new facility, an increase in outsourcing of 
components from 54 to 70 percent, and a reduction in KCP's 
manufacturing footprint from about 3 million to 1 million square feet. 
KCP estimates that these measures will save about $100 million 
annually. 

Because KCP produces or procures components that are used to maintain 
the nation's nuclear weapons stockpile, any disruptions in production 
at KCP could negatively affect the nuclear weapons stockpile. Another 
important consideration--particularly as KCP increases purchases of 
components from external suppliers, or outsourcing--is ensuring that 
NNSA protects components and technologies, including weapons-related 
design drawings, unique production processes, and information that, 
although mostly unclassified, could be used by potential adversaries to 
develop or advance their nuclear capabilities. Recent GAO testimonies 
and a grand jury indictment have described events where foreign 
entities sought dual-use items--items that can be used for both 
commercial and military applications. In fact, we covertly purchased 
two such items--a triggered spark gap and an accelerometer--and shipped 
dummy copies overseas to demonstrate the ease with which real, illegal 
shipments could be affected.[Footnote 3] These events also demonstrate 
potential nuclear proliferation risks and gaps in the nation's system 
for controlling the export of these items.[Footnote 4] KCP regularly 
outsources the production of these types of dual-use items--which may 
have been designed at the nuclear weapons laboratories with unique 
weapons design characteristics, such as very high tolerances to extreme 
environments--raising questions as to whether these items may be more 
vulnerable to export. 

In this context, you asked us to determine (1) how KCP developed plans 
for modernizing the facility, (2) actions KCP has taken to ensure 
uninterrupted production of components needed to support the weapons 
stockpile during and after the transition to the new facility, and (3) 
actions KCP has taken to address the risks and potential consequences 
of increased outsourcing of nonnuclear components. 

To determine how KCP developed plans for modernizing the current 
facility, we reviewed NNSA and Honeywell documents describing the 
project's goals, approach, and rationale for key decisions on what 
actions to take, where to locate the facility, and how to finance it. 
We also interviewed officials at NNSA's Kansas City Site Office, 
Honeywell, and relevant subcontractors. Under our long-standing policy 
of not addressing issues in ongoing litigation, we did not evaluate 
KCP's analysis of location alternatives because a lawsuit was filed in 
October 2008 that among other things challenged the extent and adequacy 
of DOE's consideration of alternatives to its plans for replacing the 
KCP facility.[Footnote 5] To determine the actions KCP has taken to 
ensure uninterrupted production of components, we reviewed agency and 
contractor documents describing transition plans and talked to 
officials at Sandia National Laboratories (Sandia) in New Mexico, which 
designs many of the nonnuclear components that are produced at KCP. We 
also evaluated the reliability of KCP's relocation schedule using GAO- 
identified best practices for effective scheduling,[Footnote 6] many of 
which are also identified by DOE in its guidance on establishing 
performance baselines.[Footnote 7] To determine the actions KCP has 
taken to address the risks associated with outsourcing, we reviewed 
agency and contractor documents, including KCP's outsourcing strategy 
and export control process and relevant export control laws and 
regulations, and interviewed key KCP, Sandia, and NNSA officials 
responsible for overseeing nuclear nonproliferation activities. 

We conducted this performance audit from November 2008 through October 
2009 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. Appendix I 
contains a detailed description of our scope and methodology. 

Background and Overview of Plans for Modernizing NNSA's KCP Facility: 

The KCP facility, NNSA's primary site for producing or procuring 
nonnuclear components, is the first site within the nuclear weapons 
complex scheduled for significant modernization. KCP does not possess 
weapons-grade nuclear materials, but it supplies approximately 85 
percent of the nonnuclear components that compose a typical nuclear 
weapon--ranging from simple items like nuts and bolts to more complex 
components, such as radars, arming and firing mechanisms, and critical 
nuclear safety devices meant to prevent accidental detonation. The 
facility has a footprint of nearly 3 million square feet and costs 
about $400 million per year to operate. Currently, about 127,000 square 
feet of this space is devoted to stored inventory, including production 
equipment, tooling, gauges, and testers. 

Modernizing the KCP Facility: 

The production infrastructure of the nuclear weapons complex is aging 
and becoming increasingly outdated. A 2001 Department of Defense (DOD) 
review of the nation's nuclear policy found that the nuclear weapons 
production infrastructure needed to be repaired and made more flexible 
so that it could adapt to the changing needs of the nuclear weapons 
stockpile.[Footnote 8] Subsequently, NNSA developed the strategic 
Complex Transformation Plan, which seeks to develop a smaller, more 
responsive production infrastructure--one that will ultimately support 
a smaller nuclear weapons stockpile--while continuing to maintain and 
refurbish the weapons currently in the stockpile. 

As part of its Complex Transformation Plan, in 2006 NNSA directed KCP 
to develop plans for modernizing its production facilities. In its 
plans, KCP identified three key avenues for achieving NNSA's goals: 

Increasing outsourcing. KCP is increasing the percentage of nonnuclear 
components purchased from external suppliers from about 54 to 70 
percent. At the same time, it is consolidating and reducing its 
external suppliers from about 412 in May 2008 to 320 in September 2009 
to reduce the costs of working with and certifying multiple suppliers. 
As more components are acquired from external suppliers, KCP expects 
the equipment and infrastructure necessary for the production of many 
of those components to be eliminated, reducing the need for the large 
size and associated operating costs of the facility. KCP currently uses 
domestic-based suppliers, with the exception of those components that 
are acquired from Malaysia and Mexico. Nearly all of the components and 
processes that KCP outsources are unclassified; KCP officials told us 
that they have only certified one supplier that is approved for 
classified processing, production, and storage. 

Transforming its business processes. Honeywell, the contractor that 
manages KCP, is implementing more commercial-like business practices. 
In particular, KCP officials note that they have recently been granted 
relief from some DOE and NNSA oversight, such as NNSA nuclear security 
orders, because it does not possess weapons-grade nuclear material and 
because commercial standards are being used. KCP officials believe that 
these changes will lead to more streamlined business processes with 
lower administrative costs. According to KCP officials, an independent 
review estimated that these lower costs will amount to $37 million each 
year--more than one-third of the $100 million annual cost savings KCP 
projects will result from its modernization plans. 

Building a modern, more flexible facility. NNSA plans to have a new KCP 
facility built on an undeveloped site in Kansas City, Missouri. KCP's 
new facility is designed to be smaller and more adaptable than the 
current facility, allowing quick and economical changes to the 
capability and capacity of the facility, such as using more open 
manufacturing space and modular utility systems so that it can be 
quickly and inexpensively reconfigured to adapt to changing production 
needs. NNSA committed to Congress that the new KCP facility would be 
operating by 2012 but now expects a delay of about 1 year. 

Financing the New Facility: 

To construct this new facility, NNSA identified three financing 
options. The traditional approach for financing construction projects 
is to request funding from Congress using a budget line item in the 
President's annual request for appropriations. If the requested funds 
are appropriated, a federal manager directly controls the scope, cost, 
and schedule of the design and construction of the facility. These 
projects usually require significant funding up front when the facility 
is being designed and constructed. However, as we have reported, large 
amounts of funding have become more difficult to obtain, and agencies 
are increasingly interested in financing alternatives that distribute 
costs over longer periods of time.[Footnote 9] One alternative is to 
acquire facilities using the General Services Administration's (GSA) 
leasing authority, which allows GSA to lease space from a private 
developer on behalf of many government agencies. For a lease on 
privately owned land, the process culminates with a lease agreement of 
up to 20 years.[Footnote 10] Another alternative, according to KCP 
officials, allows NNSA to secure financing directly through private 
developers for the construction of facilities, but this alternative 
allows only for a maximum 5-year lease term.[Footnote 11] 

We have considered federal leasing, in general, to be a challenge for 
almost 20 years. In January 2003 we designated federal real property as 
a high-risk area, citing the government's overreliance on costly, long- 
term leasing as one of the major reasons.[Footnote 12] Our work has 
also shown that building ownership often costs less than operating 
leases, especially for long-term space needs.[Footnote 13] Based on 
this work, we made recommendations in 2008 that agencies develop 
strategies to reduce reliance on leased space for long-term needs when 
ownership would be less costly.[Footnote 14] 

Avoiding Interruptions in the Supply of Components: 

Another important consideration in KCP's modernization plans is 
avoiding interruptions in the supply of components it produces. Such 
interruptions could negatively affect the nuclear weapons stockpile and 
weaken national security. For example, as nuclear weapons components 
age, they may need to be replaced to avoid undermining the reliability 
and performance of the weapon that they occupy. KCP produces or 
procures these replacement components. Much of KCP's current workload 
supports the life extension program for the W76 warhead--carried on the 
Navy's Trident II submarine-launched ballistic missile--which is a 
significant part of the U.S. nuclear weapons stockpile. Life extensions 
lengthen weapons' operational life for an additional 20 to 30 years and 
allow NNSA to certify that the weapons continue to meet military 
performance requirements without underground nuclear testing. In 
addition, KCP currently produces or procures nonnuclear components 
needed to maintain the W88 submarine-launched ballistic missile 
warheads, the W78 and W87 intercontinental ballistic missile warheads, 
the W80 cruise missile warhead, and the B61 and B83 nuclear bombs. 

Managing Outsourced Technologies: 

Another important consideration in KCP's modernization plans, 
particularly as it begins to increase outsourcing, is that KCP manages 
components and technologies that might be attractive to terrorists or 
other potential adversaries. Passing components and technologies to 
external suppliers may put them at greater risk of being obtained and 
used by potential adversaries to develop or advance their own nuclear 
capabilities. Recently, the Department of Justice (DOJ) reported that 
on a daily basis, foreign states as well as criminal and terrorist 
groups seek arms, technology, and other material to advance their 
technological capacity, and the United States is a primary target 
because it produces advanced technologies. For fiscal year 2008, DOJ 
reported that more than 145 defendants faced criminal charges for 
attempting to illegally transfer these items and technologies, with 
roughly 43 percent of these defendants charged with attempting to 
transfer them to Iran or China. 

Some of the components KCP produces or procures, as well as 
technologies that can be developed from obtaining weapons-related 
design drawings and unique production processes, among other things, 
may be subject to laws and regulations controlling their export. Export 
control is primarily managed by the Departments of Commerce and State. 
The Department of Commerce, through the Export Administration 
Regulations, controls exports of most dual-use items and technologies. 
The Department of Commerce maintains the Commerce Control List, which 
describes the characteristics and capabilities of dual-use items that 
may require export licenses. The list is divided into 10 general 
categories of controlled technologies, such as sensors or electronics, 
which could include components that KCP produces or outsources. The 
Department of State, under the authority of the Arms Export Control Act 
and the International Traffic in Arms Regulations, controls exports of 
munitions items and technologies--those designed, developed, 
configured, adapted, or modified solely for military applications. 
These items are identified on the U.S. Munitions List, requiring most 
to be licensed for export. While these two departments are responsible 
for limiting the possibility of export-controlled items and 
technologies falling into the wrong hands, NNSA asserts that it is also 
generally responsible for the management and security of the nation's 
nuclear weapons, including ensuring that nuclear weapons components or 
related information about these technologies are not used to advance 
the nuclear capabilities of potential adversaries. 

Collaborating with NNSA's National Laboratories: 

Many of the actions needed to successfully relocate the KCP facility 
require the ongoing cooperation of and collaboration with other NNSA 
laboratory sites. Design engineers at Lawrence Livermore, Los Alamos, 
and Sandia National Laboratories design the nonnuclear components 
produced or procured by KCP and determine whether the designs are 
classified, among other things. KCP produces or procures the components 
according to laboratory design specifications, but quality and 
production engineers from KCP continue to periodically collaborate with 
laboratory design engineers to oversee production, mitigate production 
risks, and integrate competing priorities, such as cost, schedule, 
design requirements, and quality. Before KCP begins full procurement or 
production of some components, laboratory design engineers must 
formulate a plan to qualify the component and assist in executing the 
qualification plan, which involves testing a sample of components to 
ensure that they meet quality, safety, and security standards. Such 
tests may include visual, environmental, mechanical, and electric 
tests, among others. In addition, if KCP decides to make major 
production changes or move the production process, components may have 
to be requalified to ensure that they still meet quality, safety, and 
security standards. Requalification can take from 1 month to more than 
1 year, depending on the significance or complexity of the part and the 
extent of the planned production change. Requalification may also be 
required when a product is outsourced or moved from one supplier to 
another. As such, many components will have to be requalified before 
they can be produced at KCP's new facility or by an external supplier. 
KCP is NNSA's primary site within the nuclear weapons complex for 
producing nonnuclear components of nuclear warheads and bombs. Figure 1 
illustrates how sites in the nuclear weapons complex interact with each 
other to design, produce, procure, and assemble nonnuclear components. 

Figure 1: Production of Nonnuclear Components in the U.S. Nuclear 
Weapons Complex: 

[Refer to PDF for image: illustration] 

Design laboratories: 

Lawrence Livermore National Laboratory: 
Designs nuclear and nonnuclear components. 

Sandia National Laboratories: 
Primary designer of nonnuclear components. 

Los Alamos National Laboratory: 
Designs nuclear and nonnuclear components. 

Production plants: 

Private suppliers: 
KCP outsources the production of select nonnuclear parts and
components to private suppliers: 

May 2006: 
Produced at KCP: 46%; 
Outsourced: 54%. 

September 2011: 
Produced at KCP: 30%; 
Outsourced: 70%. 

Kansas City Plant: 
Produces or procures nonnuclear components. 

Pantex Plant: 
Assembles nuclear weapons using nonnuclear components from KCP and 
nuclear components from other NNSA sites. 

Other production sites within the nuclear weapons complex: 
Savannah River Site; 
Y-12 Plant. 

Nuclear weapons stockpile: 
Department of Defense. 

Source: GAO analysis of NNSA and KCP data. 

[End of figure] 

KCP Evaluated Several Alternatives for Modernizing Its Facility but Did 
Not Fully Analyze the Long-Term Impact of Some Financing Options: 

KCP officials told us that they evaluated several locations and 
financing alternatives based on their potential for satisfying NNSA's 
key goals outlined in its strategic plans for modernizing the overall 
infrastructure of the nuclear weapons complex. Based on analyses 
conducted by KCP, NNSA chose to lease a new facility for 20 years. 
However, KCP compared financing alternatives using cost estimates 
limited to 20 years rather than the full expected life of the proposed 
facility; therefore, NNSA cannot be certain whether other financing 
alternatives might have offered lower costs over the longer term. 

KCP Evaluated Several Alternatives for Modernizing the Facility: 

KCP evaluated several alternatives on behalf of NNSA for modernizing 
its facility based on each alternative's potential to satisfy key goals 
outlined in NNSA's strategic plans for modernizing the nuclear weapons 
complex, among other things.[Footnote 15] Specifically, KCP officials 
told us that they sought an option that (1) was consistent with NNSA's 
goals for maintaining a smaller facility for producing nuclear weapons 
and that could quickly adapt to change; (2) met schedule commitments to 
Congress; (3) minimized costs of constructing and annually operating 
and maintaining the facility; and, (4) maximized chances of completing 
the relocation within the established scope, cost, and schedule. 
Although KCP conducted the analyses of alternatives for modernizing its 
facility under the direction of NNSA, NNSA ultimately made its final 
decisions on how best to proceed using these analyses. 

To determine how to proceed with the modernization of its facility, KCP 
officials stated that they considered (1) taking no action--essentially 
continuing operations at the current KCP location; (2) renovating 
adjacent GSA facilities; (3) purchasing or leasing other facilities 
that were already available in the Kansas City area; or (4) building a 
new facility on the existing KCP site, on other vacant land within 
Kansas City, or at another location. KCP officials explained that 
several of these options proved undesirable for a variety of reasons. 

* Taking no action. KCP determined that taking no action did not align 
with NNSA's overall Complex Transformation goals or commitments that 
NNSA's Deputy Administrator made to Congress to modernize the facility. 
According to KCP officials, taking no action would also result in 
annual operating costs that are about $100 million higher than 
necessary beyond fiscal year 2013, over half of which would be related 
to facility maintenance. 

* Renovating adjacent GSA facilities. KCP determined that renovating 
adjacent GSA facilities was feasible and the least costly alternative 
in terms of construction costs, but it posed several problems. For 
example, renovating the 70-year-old facility would require extensive 
modification of electrical, heating, and cooling systems, which would 
require moving, penetrating, or bypassing concrete walls, floors, and 
ceilings. KCP officials stated that this would be difficult and time- 
consuming, and the considerable expense would be of questionable worth 
for such an old facility. Also, the adjacent facility is located in an 
area susceptible to flooding. Further, KCP officials stated that this 
option presented schedule risks. For example, multiple tenants in the 
GSA facility would need to relocate, and any delays in their 
relocations could cascade to the renovation process. 

* Purchasing or leasing other available facilities in the Kansas City 
area. KCP officials stated that they could not identify any other 
facilities in the region that were adequate for the KCP mission. 

In light of these constraints, NNSA officials determined that building 
a new facility was the best option. 

To identify a specific location for the new facility, KCP officials 
also told us that they considered nearby sites as well as sites outside 
of the Kansas City area. In particular, NNSA's Office of Transformation 
asked Science Applications International Corporation--a support 
contactor--to prepare an independent assessment of moving the 
nonnuclear production facilities from KCP to another site in the 
nuclear weapons complex.[Footnote 16] In examining seven other active 
NNSA sites in the nuclear weapons complex, the study determined that 
Albuquerque, New Mexico, presented the highest potential for cost 
savings because Sandia--the primary design laboratory for nonnuclear 
components--has a location there. However, the study concluded that 
constructing the new facility in Albuquerque would not allow NNSA to 
recover the cost of moving the operation--reaching a "break even" 
point--by the end of the period considered in the study--about 20 
years. The study also determined that relocating operations away from 
Kansas City would be expensive because staff would have to relocate, 
new staff would have to be trained, and critical expertise would be 
lost. Ultimately, based on KCP's analysis, NNSA decided to build its 
new facility on an available site in Kansas City about 8 miles from the 
existing facility that is not on a flood plain. 

KCP's Cost Evaluation Did Not Consider the Full Life Cycle Costs of the 
Proposed Facility: 

To determine how to finance the construction of the new facility, KCP 
analyzed options to determine which best met NNSA's goals and presented 
acceptably low risks. According to KCP officials, these options 
included (1) using congressional line item capital project funding, 
which is DOE's traditional approach; (2) using a DOE lease process, 
which secures financing directly through private developers for the 
construction of facilities, but allows for a maximum 5-year lease term; 
and (3) using GSA's leasing process. According to KCP officials, GSA's 
leasing process was the best available financing alternative because it 
was the only financing option that could meet the NNSA Administrator's 
commitment to Congress to operate the facility by 2012. GSA's leasing 
process also led to the lowest overall total cost over a 20-year period 
and eliminated the need for large up-front capital outlays that Office 
of Management and Budget officials said would likely not be available 
for modernizing KCP. According to KCP officials, a 20-year lease 
through GSA would cost less annually than a lease undertaken through 
DOE's lease process, which allows only a maximum 5-year lease. 

The GSA lease process defines, among other things, (1) facility 
requirements; (2) how the facility should be built, such as security 
during construction; and (3) developer responsibilities for providing 
facility maintenance services over the life of the lease. For a lease 
on privately owned land, the process results in an operating lease 
agreement of up to 20 years--a legal and binding contract between GSA 
and a developer, with ownership remaining with the developer. KCP 
estimated that the GSA lease option would cost about $4.762 billion, 
which includes estimated annual operating costs, onetime relocation 
costs, capital equipment, and annual lease payments of about $43 
million beginning in fiscal year 2011 and continuing through fiscal 
year 2030. In contrast, KCP's total estimated cost for constructing the 
facility using congressional line item capital project funding is about 
$4.875 billion, which includes the same types of costs plus 
construction costs, but excludes annual lease payments because NNSA 
would own the facility.[Footnote 17] KCP determined that DOE third- 
party financing was not viable because the process was new and unproven 
and offered only a short-term lease of 5 years, which KCP officials 
believed would likely result in higher annual lease costs because 
potential developers would have difficulty obtaining financing for such 
a short-term lease at a reasonable cost. As a result, KCP did not 
develop a total estimated cost based on a 5-year lease using DOE's 
process of obtaining third-party financing. Table 1 shows KCP's 
comparison of the two KCP options it determined would pose the lowest 
risk to implement--the GSA lease and DOE line-item project--revealing 
that the GSA lease is less costly than line-item funding by over $100 
million. 

Table 1: KCP's Comparison of Financing Options (Dollars in billions): 

Financing option: GSA lease; 
Meets NNSA's complex transformation goals: Yes; 
Meets NNSA's schedule commitments to Congress: Yes; 
Total estimated cost[A]: $4.762. 

Financing option: Congressional line item capital project funding; 
Meets NNSA's complex transformation goals: Yes; 
Meets NNSA's schedule commitments to Congress: No; 
Total estimated cost[A]: $4.875. 

Source: GAO analysis of KCP data. 

[A] KCP's total estimated cost is presented as the net present value in 
fiscal year 2006 dollars, with GSA lease payments beginning in fiscal 
year 2011 and ending in fiscal year 2030--a 20-year period. KCP's 
estimate also includes costs for the 5 years preceding commencement of 
the lease payments. 

[End of table] 

However, KCP did not compare alternatives using the total costs over 
the expected life of the proposed KCP facility--the full life cycle 
costs; therefore, NNSA cannot be certain whether other alternatives 
might result in lower longer-term costs. KCP limited its analysis of 
future costs to 20 years after lease payments begin, consistent with 
the longest lease term allowed under the GSA option and the longest 
period for which NNSA was willing to commit to under its current KCP 
relocation approach. However, 20 years is far shorter than the useful 
life of a production facility that is properly maintained; the current 
KCP facility has operated for more than 60 years. In addition, although 
requirements may change in the future, current nuclear weapons 
production requirements justify the need for KCP manufacturing 
capabilities for at least another 32 years. Although leasing a facility 
for 20 years through GSA is less costly than leasing over shorter-term 
periods, leasing is usually more costly over the long term than 
constructing and owning a facility. NNSA and KCP officials acknowledged 
that while leasing a facility through GSA under a 20-year scenario is 
less costly than a line item project, it can be more costly over a 
longer-term scenario--possibly even beginning at about 22 years into 
the lease. 

In early 2009, DOE's Office of Cost Analysis reviewed KCP's relocation 
project. Although ultimately supporting NNSA's decision to lease a new 
facility, DOE's review found KCP's cost analysis to be biased toward 
the leasing option. DOE's review noted that while leasing is more 
affordable up front, it is more costly over time, particularly since 
the government tends to occupy facilities for long periods of time and 
must pay relocation costs when the lease terms expire or negotiate new 
leases and continue making lease payments. KCP's cost analysis, being 
limited to 20 years, precludes including either of these costs, whereas 
a full life cycle cost analysis would have included both relocation and 
continuing lease costs. 

KCP officials stated that limiting their analyses to 20 years is 
appropriate and is consistent with NNSA's overall approach for KCP's 
transformation. As part of its goals to develop a more adaptable 
nuclear infrastructure, NNSA determined that 20 years is the longest 
period for which it would be willing to commit under the current KCP 
relocation approach. NNSA officials stated that it is conceivable that 
the nation's entire nuclear stockpile, its nuclear strategy, or both 
could be obsolete by 2030 and a new strategy would apply. However, 
NNSA's weapons program manager for the W76 and W88 told us that current 
nuclear weapons production requirements for these two warhead types 
justify the need for KCP manufacturing capabilities until at least 
2042. He added that since some threat to the United States will always 
exist, a new project will likely replace the W76 and W88 if they are 
ever taken out of service, thus justifying the need for KCP's 
manufacturing capabilities even beyond 2042. 

KCP Is Taking Steps to Ensure Uninterrupted Production, Including 
Efforts to Address Scheduling Problems We Identified: 

KCP is initiating several key actions to help ensure that components 
are produced without delay or interruption, such as producing 
components before the move to compensate for periods of time when 
production will be halted and coordinating with design laboratories 
that will help to requalify equipment after the move. However, KCP's 
relocation schedule--which is critical to ensuring that the move does 
not disrupt production--did not initially adhere to all of GAO's best 
practices for schedule development. While KCP officials have taken 
steps to address some of these problems, the schedule still has some 
shortcomings. 

KCP Is Initiating Several Key Actions to Help Ensure That Components 
Are Produced without Delay or Interruption: 

In preparation for KCP's 18-month move to its new facility, KCP 
officials have developed plans to ensure that it can continue to 
provide components for the nuclear weapons stockpile as scheduled. In 
2007, KCP hired a professional moving company to develop a high-level 
strategy to minimize the duration, costs, and disruptions associated 
with the move. This strategy included major milestones and estimated 
time frames for moving each department within KCP. Based on these 
estimates, KCP has begun to produce components that it will store or 
deliver before and during the move to ensure that it can meet delivery 
requirements when production is halted to move, set up, and requalify 
equipment at the new facility. KCP officials conducted long-range 
planning to determine the demand for components through 2016, which 
helped officials estimate the number of components to produce in 
advance. As of June 2009, KCP officials stated that they are largely on 
schedule for producing these additional components. 

Moreover, KCP has established a formal program to capture and preserve 
information about certain production processes and ensure that 
production capabilities are not lost. While KCP does not plan to record 
information about all processes, officials developed more than 60 step- 
by-step videos, overview videos, and notes from subject matter experts. 
This knowledge preservation program focuses on processes that are 
difficult to develop or involve key personnel who are retiring or 
otherwise leaving through other forms of attrition, as well as 
processes that KCP uses infrequently or plans to outsource. These 
efforts are designed to allow KCP to transfer knowledge and resume 
internal production of outsourced components, if necessary. Our March 
2009 report on NNSA's stockpile life extension program illustrates the 
importance of maintaining such information.[Footnote 18] Specifically, 
at another NNSA site, we found that officials no longer knew how to 
manufacture a key material needed to refurbish the W76 warhead because 
the site had kept few records of the process when the material was made 
in the 1980s, and almost all staff with expertise on its production had 
retired or left the agency. NNSA's efforts to address this information 
gap resulted in $69 million in cost overruns and a schedule delay of at 
least 1 year that presented significant logistical challenges for the 
Navy. KCP's knowledge preservation program should help avoid similar 
problems. 

In addition, KCP has developed a strategy to estimate the cost and time 
needed to requalify production and testing equipment after the move, 
which will help to ensure that the equipment continues to produce 
components of the same quality as before the move. In particular, KCP 
officials have identified all equipment that they believe will need to 
be requalified and determined how the move will affect this equipment, 
which in turn will affect how extensive requalification efforts will 
need to be. For example, officials assessed how the production process 
will change as a result of KCP purchasing new equipment or outsourcing 
production. Changes in environment, such as temperature and humidity 
levels, could also affect equipment and production. KCP officials also 
estimated how long requalification will likely take, based on previous 
requalification efforts, and have been meeting with design laboratories 
since July 2006 to plan and budget requalification efforts and to 
communicate overall plans for KCP's transition. 

However, officials at Sandia stated that they are concerned that they 
may not have sufficient funds to assist with requalification activities 
within KCP's scheduled time frames. KCP officials estimate that 
requalification activities will cost KCP about $20 million, while 
Sandia estimates that their support of requalification activities will 
cost Sandia an additional $40 million for fiscal years 2008 through 
2013.[Footnote 19] In fiscal year 2009, the design laboratories' 
budgets did not include funding for requalification at KCP; the 
laboratories have requested funding for fiscal year 2010. KCP officials 
acknowledge that if funding is not available, requalification efforts 
will be delayed, which will significantly delay its production 
schedule. Nevertheless, KCP believes that NNSA is committed to the KCP 
transition and will provide adequate funding to the design laboratories 
to support requalification. Accordingly, KCP is continuing to 
coordinate with the laboratories to estimate requalification needs. 

KCP officials have also made plans to provide additional capability and 
capacity at the new facility to produce components that implement new 
technology or to reestablish the production of outsourced components if 
necessary. Specifically, KCP designed the facility so that it can add 
second and third work shifts, which may allow it to increase production 
of some components if needed. KCP has also dedicated about 10 percent 
of the facility's total square footage--about 100,000 square feet out 
of the facility's 1 million total square feet--to unused space that can 
be quickly and cost effectively converted for new capabilities or 
expansion of existing ones. KCP officials stated that they designed the 
new facility with a more open manufacturing space and modular utility 
systems so that it can be quickly and inexpensively reconfigured to 
adapt to changing production needs. In contrast, reconfiguring KCP's 
current facility would require extensive modification of electrical, 
heating, and cooling systems, including moving, penetrating, or 
bypassing concrete walls, floors, and ceilings. KCP has also retained 
the capability to produce certain components that it currently 
outsources, which will allow it to reverse the decision to outsource 
those components and more quickly resume production internally if 
necessary. For other components, however, KCP officials have determined 
that there are many private suppliers with similar production 
capabilities. As a result, KCP will not retain the ability to produce 
these components or execute such processes. 

KCP plans to reduce the size of its available stored inventory space 
from nearly 300,000 square feet to 60,000 square feet--a total 
reduction of about 240,000 square feet, or about 80 percent. This will 
be accomplished by higher-density storage and disposition of obsolete 
and surplus inventory. KCP officials are currently in the process of 
identifying surplus inventory, which they define as items that have not 
been used in the last 2 years or have no demand anticipated in the next 
10 years. As of February 2009, KCP had identified from 8,000 to 9,000 
parts as surplus inventory. Sandia design engineers are concerned that 
KCP may discard critical equipment that could be expensive and 
difficult to re-create if it were needed again in the future. However, 
according to KCP officials, most equipment stored at KCP is so outdated 
that it would cost more to repair the equipment than the equipment is 
worth. Moreover, KCP officials said that they have consulted 
periodically with design engineers as part of the review process and 
that before disposal of items is authorized, NNSA will distribute a 
list of excess items to all nuclear weapons complex sites to confirm 
that KCP does not need to retain these items. KCP officials said that 
they plan to continue to coordinate with the design laboratories as 
they reduce inventory. 

KCP Has Begun Taking Steps to Address Some Scheduling Problems We 
Identified: 

As part of KCP's plans to ensure a smooth transition to its new 
facility, KCP officials are working to develop a comprehensive project 
schedule that details when relocation activities will occur, how long 
they will take, and how they are interrelated. The schedule provides a 
road map for the move and a means for gauging progress and identifying 
potential problems. KCP officials stated that they have not established 
a formal baseline of the schedule because the construction portion of 
the schedule is not firm.[Footnote 20] We assessed KCP's initial 
schedule in February 2009 and found that KCP did not fully adhere to 
GAO-identified best practices for schedule development. We assessed its 
revised schedule in July 2009 and found that KCP officials have taken 
steps to address some of the problems identified in our initial review, 
but that the schedule still has some shortcomings. 

We assessed KCP's relocation schedule based on the nine best practices 
we have identified for effective schedule estimating: (1) capturing key 
activities, (2) sequencing key activities, (3) assigning resources to 
key activities, (4) establishing the duration of key activities, (5) 
integrating key activities horizontally and vertically, (6) 
establishing the critical path for key activities, (7) identifying 
"float time"--the time that activities can slip before the delay 
affects the completion date, (8) performing a risk analysis of the 
schedule, and (9) updating the schedule using logic and durations to 
determine dates.[Footnote 21] Most of these practices are also 
identified by DOE in recent guidance on establishing performance 
baselines.[Footnote 22] Appendix II contains more details on GAO's best 
practices for scheduling and a description of our assessments. 

Our assessment of KCP's February 2009 schedule revealed that KCP did 
not meet three of these best practices and only partially met five. 
[Footnote 23] For example, we found that KCP's schedule did not reflect 
resources--such as labor, material, or overhead--required to complete 
each activity, which is important to determine the feasibility of the 
schedule based on available resources. Further, KCP officials told us 
that they did not intend to conduct a risk analysis of the schedule, 
which, according to best practices, is important to predict the level 
of confidence in meeting a program's completion date and to identify 
high-priority risks. In addition, our assessment revealed that KCP 
established excessively long time frames for some very broad 
activities--275 activities had time frames of over 200 days in length. 
According to best practices, activity durations should be as short as 
possible. 

In April 2009, we provided KCP and NNSA officials with our assessment 
of the February schedule. Although KCP officials provided additional 
context about their particular schedule situation, they acknowledged 
that the pre-baselined schedule was not yet complete and expressed an 
intention to work toward ensuring that the relocation schedule better 
conforms to GAO-identified best scheduling practices. For example, KCP 
officials acknowledged that they did not assign resources to activities 
in the schedule as suggested by GAO best practices, but explained that 
they planned to assign resources to certain activities in the schedule 
as well as track resources using other management systems as they 
complete a more detailed relocation plan in fiscal year 2011. KCP 
officials also explained that scheduling is time-intensive, and that 
the schedule is updated and improved daily. For example, KCP officials 
told us that they are in the process of reducing the number of 
activities with excessively long durations by, among other things, 
splitting longer duration activities into more detailed and shorter 
tasks as more information becomes available. KCP officials further 
explained that most of the activities with long durations are well into 
the future and cannot be accurately broken into smaller segments until 
some near-term activities are completed. In addition, KCP officials 
explained that although they have not performed a formal risk analysis 
on the schedule, they use alternative methods to identify and reduce 
scheduling risks. For example, KCP officials told us that scheduling 
officials consult subject matter experts to provide estimates for the 
duration of activities, which they believe will be successfully 
executed within those time frames. Further, KCP officials asserted that 
they are monitoring schedule risks at the project and program levels 
through a separate database. 

In our review of KCP's revised schedule in July, we found that KCP had 
taken steps to address some of the problems we identified; however, the 
schedule still does not fully adhere to GAO's best practices. 
Specifically, KCP improved the schedule in several areas. For example, 
KCP's February schedule did not fully resolve some key activities on 
the critical path--the path of work that must be completed as planned 
if the projected completion date is to be met. To correct this, KCP's 
July schedule included additional information on the lease award and 
other activities in the critical path that more realistically depicts 
KCP's overall expected completion date for relocation--October 2013, 
about a 1-year delay from NNSA's original commitment to Congress. 
However, a few practices that KCP's initial schedule either did not 
meet or only partially met did not significantly improve. For example, 
although KCP officials monitor schedule risks in a separate database, 
they do not plan to conduct a risk analysis using statistical analysis 
techniques as suggested by GAO-identified best practices. Table 2 
summarizes the progress KCP made from February through July 2009. 

Table 2: KCP's Progress in Meeting GAO-Identified Best Practices for 
Scheduling: 

Criterion: Capturing all activities; 
February 2009: [A]; 
July 2009: Partially meets. 

Criterion: Sequencing all activities; 
February 2009: Does not meet; 
July 2009: Partially meets. 

Criterion: Assigning resources to all activities; 
February 2009: Does not meet; 
July 2009: Does not meet. 

Criterion: Establishing the duration of all activities; 
February 2009: Partially meets; 
July 2009: Mostly meets. 

Criterion: Integrating schedule activities horizontally and vertically; 
February 2009: Partially meets; 
July 2009: Mostly meets. 

Criterion: Establishing the critical path for all activities; 
February 2009: Partially meets; 
July 2009: Mostly meets. 

Criterion: Identifying float between activities; 
February 2009: Partially meets; 
July 2009: Partially meets. 

Criterion: Conducting a schedule risk analysis; 
February 2009: Does not meet; 
July 2009: Does not meet. 

Criterion: Updating the schedule using logic and durations to determine 
the dates; 
February 2009: Partially meets; 
July 2009: Mostly meets. 

Source: GAO assessment of KCP's relocation schedule plan as of February 
and July 2009. 

[A] We did not assess this best practice in February 2009 because we 
needed KCP to first clarify details on the data we received. We 
obtained additional data and clarification for the July 2009 
assessment. 

[End of table] 

The timely implementation of KCP's relocation schedule is critical to 
ensure that the relocation occurs on time and does not risk disruption 
of component production. In particular, the relocation is scheduled to 
occur during a large production run for the W76 life extension program, 
which began 2 years ago and is scheduled to last at least 10 more 
years. An NNSA W76 program manager stated that the relocation was 
planned without substantial input from him and that KCP may have missed 
opportunities to reduce risks associated with the relocation. For 
example, if officials had delayed the relocation by 2 years as he would 
have recommended, KCP could have reduced potential disruptions to the 
life extension program for the W76 nuclear warhead. Moreover, the 
program manager stated that any schedule delays during the relocation 
will likely cascade to an already tight production and delivery 
schedule. 

KCP Has Begun Taking Steps to Mitigate Some Outsourcing Risks but Could 
Better Safeguard Technologies That Pose Nuclear Proliferation Risks: 

KCP has begun taking steps to address outsourcing risks, such as 
potential interruptions to supply sources; unanticipated price 
increases; and quality assurance problems, including counterfeiting and 
sabotage. However, KCP lacks a formal, risk-based approach to 
identifying and mitigating risks posed by components and technologies, 
including weapons-related design drawings; unique production processes; 
and information that although mostly unclassified, could be used by 
adversaries to develop or advance their nuclear capabilities. 

KCP Has Begun Taking Steps to Mitigate Many Risks of Outsourcing: 

Sandia design engineers that we interviewed identified several general 
risks of outsourcing that could jeopardize the quality or safety of 
nuclear weapons or affect KCP's schedule or costs, and KCP has begun 
taking steps that seek to mitigate many of those risks. Specifically: 

* Loss of a supplier. Sandia officials stated that relying on one 
supplier to produce a particular component can be risky because if a 
supplier can no longer produce components for KCP because of business 
failures, loss of interest in working with KCP, a natural disaster, or 
other reasons, production may be delayed while KCP identifies an 
alternative supplier or reestablishes production capabilities on-site. 
To mitigate this risk, KCP is developing a pool of capable suppliers 
for outsourced components so that it can quickly move production to 
another qualified supplier, if necessary. For example, when KCP 
officials decided to outsource a plating process--the process of 
coating electrical and mechanical products to improve their mechanical 
properties and protect against corrosion--they identified 1 primary 
supplier and 4 backup suppliers out of a potential pool of more than 
2,000 suppliers that could be called upon if the primary supplier could 
no longer meet KCP's needs. KCP officials told us that they also review 
potential suppliers' financial stability and eliminate those companies 
with financial concerns from consideration. 

* Price increases. According to Sandia officials, suppliers could 
increase their prices, which could cause an unanticipated increase in 
KCP's manufacturing costs. To mitigate this risk, KCP officials told us 
that they include cost thresholds in their long-term purchase 
agreements and validate the reasonableness of the component price by 
comparing it with those of direct competition. 

* Quality assurance problems--including counterfeiting and sabotage. 
Sandia officials stated that KCP is likely to have less direct control 
over outsourced production processes, which could lead to quality 
assurance problems, including an increased risk of counterfeiting and 
sabotage. KCP has, on occasion, experienced poor quality results from 
suppliers, which has required rework or changes in suppliers. Sandia 
officials also stated that they are increasingly concerned about the 
potential for KCP to unintentionally purchase counterfeit parts. For 
example, an expansive black market exists for some microelectronics, 
particularly in Southeast Asia. Sandia officials stated that 
counterfeit parts are becoming increasingly more sophisticated, thereby 
requiring more expertise to detect. Sandia officials also stated that 
suppliers may sabotage a component to undermine the reliability of a 
nuclear weapon. To mitigate these risks, KCP officials, sometimes 
accompanied by design engineers, have conducted periodic quality 
reviews, including scheduled and unannounced visits to some suppliers' 
production sites. According to KCP officials, the frequency and type of 
these reviews depends on, among other things, the components' degree of 
customization and the ease of inspection--in some cases, components 
must be destroyed while undergoing inspection, which is known as 
destructive testing. KCP officials have reportedly observed some 
suppliers' production processes and overall quality of operations to 
verify that suppliers adhere to industry standards and follow proper 
production techniques, such as using appropriate levels of electrical 
voltage when manufacturing certain components. KCP officials also have 
tested components for problems with quality, including counterfeiting 
and sabotage. However, Sandia officials stated that testing might not 
always effectively reveal counterfeit parts or attempted sabotage. 
Although KCP officials said they do not outsource components that have 
the potential for sabotage that their tests cannot detect, KCP's 
efforts to restrict outsourcing of these components is not infallible. 
Although KCP's outsourcing process considers the security of a 
component and there is no evidence that sabotage has occurred in any 
components KCP has procured, KCP's outsourcing process lacks criteria 
and steps for determining and mitigating the risk of a component being 
counterfeited or sabotaged--a crucial feature of an effective risk- 
based approach. KCP officials have previously outsourced highly 
customized and preassembled components that cannot be easily inspected, 
potentially increasing the chance of counterfeited or sabotaged 
components going undetected. 

KCP Has Not Conducted a Systematic Review to Identify Outsourced 
Technologies That Pose Nuclear Proliferation Risks: 

KCP has not implemented a systematic review process to identify 
specific components, technologies, and information that although not 
considered to be classified national security information, are subject 
to export controls and could be used to advance the nuclear 
capabilities of adversaries. Although DOE guidance states that KCP 
should conduct a review to identify the components, technology, and 
information that could potentially advance the nuclear capabilities of 
potential adversaries, KCP and NNSA's site office have not conducted 
such a review. KCP and NNSA officials stated that they have not 
conducted such a review because NNSA's current interpretation of export 
control regulations is that all components used in nuclear weapons 
should be considered subject to the regulations. If this were not the 
case, the officials stated that it would be both difficult and time- 
consuming to make individual export control determinations for each of 
the many components produced or outsourced at KCP given the officials' 
perception of the lack of clarity in the regulations and would add 
little value to their current approach. Specifically, DOE issued 
guidance in 1999 to help DOE and its contractors to implement a 
consistent policy regarding transfers of unclassified equipment, 
materials, and technology that could adversely affect U.S. security or 
lead to the proliferation of weapons of mass destruction. This guidance 
specifies the need for an export control review to identify such 
equipment, materials, and technology, among other things, that could 
pose proliferation risks.[Footnote 24] NNSA officials stated that 
although these guidelines are not requirements, they would be 
appropriate for KCP to use in its outsourcing decisions. Furthermore, 
the DOE guidance states that the NNSA site office manager at KCP is 
responsible for ensuring that KCP performs export control reviews. 

As outsourcing increases and additional individuals gain access to 
nuclear weapons design and production information, potential 
adversaries could gain access to information that could be used to 
advance their own nuclear capabilities. KCP officials estimate that 
about 10 percent of the components KCP produces or procures would 
likely be considered high risk if a program of review existed, and 
acknowledged that they have not conducted a review to systematically 
evaluate the level of risk for each component. Instead, KCP officials 
stated that they treat each component and the associated design 
information as if they pose equal proliferation risks and are subject 
to International Traffic in Arms Regulations--the regulations 
controlling the exports of munitions items and technologies.[Footnote 
25] As such, items that pose little apparent risk of contributing to 
potential adversaries' development of nuclear weapons, such as a 
commercially available screw, are considered to be the same level of 
risk as complex components, such as a mechanism designed to arm nuclear 
weapons. 

As a precautionary measure, KCP officials stated that they produce and 
assemble most of the more complex and higher-level components in-house, 
reserving outsourcing for components that are more commercially 
available, less complex, and at lower stages of assembly. Nevertheless, 
we observed that KCP officials currently outsource the production and 
assembly of several components that they determined to be of higher 
complexity and assumed the components were subject to export control 
requirements but did not conduct a systematic assessment of the 
components' actual proliferation risk. Without a systematic review 
process to identify which components and technologies--including 
weapons-related design drawings, unique production processes, and other 
information--pose greater threats, KCP may be missing opportunities to 
restrict certain outsourcing activities and mitigate the risk 
associated with sharing critical information that could be used use to 
develop or enhance an adversary's nuclear weapon capabilities. 

Furthermore, KCP's primary export control measure rests on its 
suppliers' compliance with a contract clause outlining their 
responsibility to abide by export control laws and safeguard nuclear 
weapon component production and design information. The contract clause 
informs external suppliers of the potential applicability of export 
regulations and notifies suppliers that they must report any 
information that may require an export license or other forms of 
approval. For example, KCP outlines expectations for its suppliers, 
including to (1) disclose their intent to export a component or hire 
foreign nationals that might be exposed to the component or its design- 
related information and (2) fully comply with all export control laws 
and regulations. In some instances, self-reporting has allowed KCP to 
identify and mitigate a risk. For example, when one of KCP's domestic 
suppliers moved its operations to Mexico, KCP officials were faced with 
the decision whether to switch suppliers or retain the now foreign- 
based supplier. To mitigate concerns about working with a foreign-based 
company, KCP officials told us that they reevaluated the design of the 
component and decided to continue purchasing less-sensitive parts of 
the component--such as a type of connector--from that supplier, but 
found another domestic-based supplier to produce other more sensitive 
parts of the component--such as a particular type of cable. KCP 
officials told us that they took these actions after the supplier 
reported its relocation plans to KCP, as required in its contract. 
However, according to Sandia officials, supplier self-reporting has not 
always been a reliable approach. In another recent case, Sandia learned 
that a supplier was foreign owned only after it had already procured 
parts from that supplier, which led to additional costs, schedule 
delays, and other problems that eventually forced Sandia to produce the 
component in-house. 

DOE and NNSA lack clear and up-to-date export control guidance. As a 
result, NNSA has not clearly communicated to KCP its expectations of 
what a systematic and consistent export control review process should 
include, or ensured that the specific components, technologies, and 
information that could be used to advance the nuclear capabilities of 
potential adversaries are identified. For example, NNSA officials that 
we spoke with noted that DOE's 1999 export control guidance is 
outdated. In 2005, NNSA officials determined that DOE's guidance needed 
to be updated, but the guidance revision was never completed. In 
addition, because the export control guidance is not tailored for NNSA 
production and laboratory sites, NNSA lacks firm criteria for 
conducting oversight of export control activities. KCP officials 
further explained that DOE's guidance is not helpful in interpreting 
the Commerce Control List, which is made up of broad categories that 
are not always specific to nuclear weapons technologies. For example, 
the Commerce Control List identifies sensors as a controlled 
technology; however, according to KCP officials, several items may fit 
that category, including items that could be used by potential 
adversaries to advance their own nuclear weapon capabilities as well as 
those that would not pose such a threat, such as a simple thermometer 
or rain gauge. Further, KCP officials stated that DOE's guidance does 
not clearly define laboratories' and production sites' responsibilities 
or provide a clear determination of who is responsible for identifying 
the components that are subject to export control. In particular, both 
KCP officials and design engineers told us that it is unclear whether 
KCP or the laboratories should determine the level of risk and how that 
risk should be communicated, such as how each design drawing should be 
labeled. KCP officials suggested that if design engineers identified 
the portions of the design drawing that may require more careful export 
control consideration, it would help them determine effective export 
risk mitigation steps. One KCP official stated that there is also 
considerable risk in asserting that a component is not subject to 
International Traffic in Arms Regulations, especially given the 
sensitivity and risk-averse nature of the nuclear weapons community. As 
a result, KCP has defaulted to treating all components as being of 
equal risk and subject to these regulations and has taken no specific 
actions to identify and mitigate the greatest risks. 

Conclusions: 

KCP has made substantial progress toward achieving NNSA's overall goals 
to modernize its nonnuclear production facility and ensure continued 
production of quality components essential to maintaining the U.S. 
nuclear weapons stockpile. However, shortcomings in NNSA's oversight of 
KCP's relocation may offer lessons for future modernization efforts at 
its nuclear weapons facilities. In particular, NNSA allowed KCP to 
limit its cost analysis to a 20-year life cycle that has no 
relationship with known requirements of the nuclear weapons stockpile 
or the useful life of a production facility that is properly 
maintained, and did not require that KCP consider the full useful life 
of the facility in its analysis. As a result, NNSA's financing 
decisions were not as fully informed and transparent as they could have 
been. If KCP had quantified potential cost savings to be realized over 
the longer useful life of the facility, NNSA may have made a different 
decision. Further, because NNSA has not ensured that KCP's relocation 
schedule fully complies with DOE schedule development guidance and GAO- 
identified scheduling best practices, there is a potential for delays. 
A delay in KCP's relocation could affect the timely delivery of 
replacement components needed to maintain a reliable nuclear weapons 
stockpile, which, in turn, could have a detrimental effect on national 
security. Moreover, DOE and NNSA lack clear and up-to-date export 
control guidance that articulates NNSA's expectations of what a 
systematic and consistent export control review process should include. 
Because of this, KCP is not required to take--and therefore has not 
taken--proactive steps to identify specific components, technologies, 
and information that could be used to advance the nuclear capabilities 
of potential adversaries. Furthermore, without export control 
requirements that are designed specifically to meet NNSA production and 
nuclear weapons design laboratory needs, and an effective mechanism for 
ensuring enforcement of these requirements within NNSA, NNSA site 
offices are less able to (1) mitigate the risks associated with 
outsourcing components and (2) exercise effective oversight. 

Recommendations for Executive Action: 

We recommend that the Secretary of Energy take the following five 
actions to strengthen NNSA's oversight practices and current and future 
facility modernization efforts. 

To improve the transparency and usefulness of cost analyses prepared 
for future NNSA nuclear facilities modernization projects, we recommend 
that the Secretary of Energy direct the Administrator of NNSA to ensure 
that life cycle cost analyses include a thorough and balanced 
evaluation of short-and long-term construction and financing 
alternatives. Such analyses should consider the full useful life of the 
facility rather than the 20-year requirement for GSA leases or any 
predetermined length of time that might produce results that favor one 
option over another. 

To better manage the KCP relocation schedule, we recommend that the 
Secretary of Energy direct the Administrator of NNSA to ensure that 
KCP's operating contractor revise the KCP relocation schedule so that 
it is consistent with DOE schedule development guidance and GAO- 
identified scheduling best practices, as outlined in appendix II. 

Because of the importance of mitigating the risks of outsourcing 
nuclear weapons components and other information that if exported, 
might allow potential adversaries to develop or advance their nuclear 
capabilities, we also recommend that the Secretary of Energy direct the 
Administrator of NNSA to take immediate action to: 

* Assess the effectiveness of NNSA's oversight of KCP's current export 
control and nonproliferation practices and, if appropriate, initiate 
corrective actions to strengthen that oversight. 

* In collaboration with the Departments of State and Commerce, replace 
or supplement DOE's July 1999 Guidelines on Export Control and 
Nonproliferation with guidelines, or another form of directive as 
deemed appropriate by the agencies, that (1) clarify expectations for 
export control reviews to specifically meet NNSA production and nuclear 
weapon design laboratory needs and (2) contain an effective mechanism 
for ensuring enforcement of these export control guidelines within 
NNSA. 

* Direct the KCP operating contractor to develop and implement a formal 
risk-based review process in cooperation with the nuclear weapons 
design laboratories that (1) identifies specific components, 
technologies, production processes, and related information that if 
exported, might allow potential adversaries to develop or advance their 
nuclear capabilities and (2) includes steps for mitigating these risks, 
particularly for considering whether or how to outsource these items. 

Agency Comments and Our Evaluation: 

We provided NNSA with a draft of this report for its review and 
comment. In its written comments, NNSA states that our review was 
thorough and that we appropriately recognized NNSA's progress toward 
achieving the overall goals to modernize its production facility. NNSA 
also provided additional information on its overall approach for 
modernizing the KCP facility. NNSA generally agreed with our five 
recommendations and outlined some initial actions that it expects to 
take to address each of them. 

NNSA provided its most substantive comments on our findings and 
recommendations concerning export control. Specifically, although 
agreeing with our three export control recommendations, NNSA stated 
that it will delay action on them until an export control working group 
that it created in July 2009 completes its analysis of export licensing 
and other related issues. While we believe NNSA's formation of a 
working group to study these export control issues is a positive first 
step toward improving its export control practices, it is important 
that NNSA not unduly delay taking action to mitigate nuclear 
proliferation risks associated with outsourcing nuclear weapons 
components and information. 

Regarding our finding that KCP lacks a formal, risk-based approach to 
safeguard components and technology that could be used by potential 
adversaries, NNSA commented that KCP officials do not feel that 
additional outsourcing increases risk or that a more rigorous review 
would necessarily lead to different outsourcing decisions. However, as 
our draft report noted, without knowing which components pose the 
greatest risks, NNSA cannot be certain that it is focusing its efforts 
to safeguard the highest-risk components and technologies in the most 
effective manner. 

With regard to our recommendation that NNSA assess the effectiveness of 
its oversight of KCP's current export control and nonproliferation 
practices, NNSA responded that the correct export control requirements 
are being applied through its management and operating contract for 
KCP. Specifically, the management and operating contractor (Honeywell) 
uses standard export compliance clauses in supplier purchasing 
agreements to put suppliers on notice as to the requirements applicable 
to them. However, in our view, simply relying on the use of such 
clauses is not oversight. Because NNSA has the primary responsibility 
of preventing the proliferation of nuclear weapons, it is important 
that NNSA consider adopting a risk-based approach that could enhance 
existing export control requirements. 

NNSA's comments are reprinted in appendix III. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies to the 
appropriate congressional committees; the Secretaries of Energy, State, 
and Commerce; the Administrator of NNSA; and the Director, Office of 
Management and Budget. The report also will be available at no charge 
on the GAO Web site at [hyperlink, http://www.gao.gov]. 

If you or your staffs have any questions about this report, please 
contact me at (202) 512-3841 or aloisee@gao.gov. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. GAO staff who made major contributions to 
this report are listed in appendix IV. 

Signed by: 

Gene Aloise: 
Director, Natural Resources and Environment: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

Our objectives were to determine (1) how the Kansas City Plant (KCP) 
developed plans for modernizing its facility, (2) actions KCP has taken 
actions to ensure uninterrupted production of components needed to 
support the nuclear weapons stockpile during and after the transition 
to the new facility, and (3) actions KCP has taken to address the risks 
and potential consequences of increased outsourcing of nonnuclear 
components. 

To determine how KCP developed plans for modernizing the facility, we 
reviewed documents from the National Nuclear Security Administration 
(NNSA) and Honeywell Federal Manufacturing and Technologies 
(Honeywell), which manages and operates the KCP facility for NNSA, that 
describe the project's goals, approach, and rationale for key decisions 
on relocating and outsourcing the production of nonnuclear components. 
We also interviewed officials at NNSA's Kansas City Site Office, 
Honeywell, relevant subcontractors, and component design laboratories 
about KCP's relocation plans, approach, and time frames, including how 
the relocation might affect continued production of high-quality 
components and the risks posed by the current approach. Under our long- 
standing policy of not addressing issues in ongoing litigation, we did 
not evaluate KCP's analysis of relocation alternatives because a 
lawsuit was filed in October 2008 that, among other things, challenged 
the extent and adequacy of the Department of Energy's (DOE) 
consideration of alternatives to its plans for replacing the KCP 
facility.[Footnote 26] 

To determine the actions KCP has taken to ensure uninterrupted 
production of components needed to support the nuclear weapons 
stockpile during and after the transition to the new facility, we 
reviewed agency and contractor documents describing transition plans. 
We talked to officials at Sandia National Laboratories (Sandia) in New 
Mexico--which designs the nonnuclear components that are produced at 
KCP--about the impact of KCP's plans on the quality, reliability, and 
future support of the nuclear weapons stockpile. We evaluated the 
reliability of KCP's relocation schedule to determine the extent to 
which it captures key activities, is correctly sequenced, establishes 
the duration of key activities, is integrated, and has an established 
reliable critical path, among other things. We conducted an initial 
assessment in February 2009, and conducted a second assessment in July 
2009 to evaluate the extent to which the schedule improved over time. 
We based our assessment on GAO-identified best practices associated 
with effective schedule estimating,[Footnote 27] many of which are also 
identified by DOE in its guidance on establishing performance 
baselines.[Footnote 28] To assess KCP's schedule, we consulted with a 
scheduling expert and interviewed key program officials responsible for 
developing this schedule. 

To determine the actions KCP has taken to address the risks and 
potential consequences of increased outsourcing of nonnuclear 
components, we reviewed agency and contractor documents, including 
KCP's outsourcing strategy and export control process. We also reviewed 
DOE's Export Control and Nonproliferation Guidelines, as well as 
relevant export control laws and regulations. In addition, we 
interviewed key KCP and Sandia officials to understand potential risks 
associated with outsourcing and KCP's approach for mitigating these 
risks, including nuclear proliferation risks. We met with NNSA site 
office officials responsible for overseeing KCP nuclear 
nonproliferation activities, and headquarters officials that provide 
guidance and nonproliferation expertise to site offices across NNSA. 

We conducted this performance audit from November 2008 through October 
2009 in accordance with generally accepted government auditing 
standards. Those standards require that we plan and perform the audit 
to obtain sufficient, appropriate evidence to provide a reasonable 
basis for our findings and conclusions based on our audit objectives. 
We believe that the evidence obtained provides a reasonable basis for 
our findings and conclusions based on our audit objectives. 

[End of section] 

Appendix II: GAO Assessment of KCP's Relocation Schedule: 

Criterion: Capturing all activities; 
Explanation: The schedule should reflect all activities as defined in 
the program's work breakdown structure, to include activities to be 
performed by both the government and its contractors; 
GAO analysis - February 2009: Criteria not evaluated: The schedule 
appears to contain most necessary activities; however, we were unable 
to verify whether all activities were included because of incomplete 
data and the need to clarify details on the data we received; 
GAO follow-up analysis - July 2009: Criteria partially met: The 
schedule appears to contain most necessary activities; however, a 
supplemental dictionary that defines activities did not include 
sufficient detail for us to conclude that the schedule includes all the 
activities to be performed. The July schedule has a total of 5,592 
activities. 

Criterion: Sequencing all activities; 
Explanation: The schedule should be planned so that it can meet 
critical program dates. To meet this objective, key activities need to 
be logically sequenced in the order that they are to be carried out. In 
particular, activities that must finish before the start of other 
activities (i.e., predecessor activities) as well as activities that 
cannot begin until other activities are completed (i.e., successor 
activities) should be identified. By doing so, interdependencies among 
activities that collectively lead to the accomplishment of events or 
milestones can be established and used as a basis for guiding work and 
Sequencing all activities measuring progress; 
GAO analysis - February 2009: Criteria not met: The schedule has an 
excessive amount of incomplete logic-- where successor activities start 
before predecessor activities have completed--and an excessive amount 
of constrained tasks--which are tasks that have a specific start to 
finish date. According to best scheduling practices, the schedule 
should use logic and durations to reflect realistic start and 
completion dates for program activities. Specifically, we found; 
* 212 tasks with early start constraints--that is, a "start no earlier 
than" date; 
* 2,121 activities with no successor activities; 
* 352 activities with no predecessor activities; 
* 102 lags--which are the duration between activities that delay 
successor activities; and; 
* 850 negative lags--which allow the start or finish of a successor 
activity to occur earlier than the start or finish of a predecessor 
activity; 
GAO follow-up analysis - July 2009: Criteria partially met: KCP's use 
of constrained tasks has been reduced but not eliminated. Specifically, 
we found that since February 2009 KCP reduced the extent to which the 
following tasks were constrained: 
* the number of tasks with early start constraints was reduced from 212 
in February to 144 in the July schedule; 
* the number of tasks with no successors was reduced from 2,121 in 
February to 200; 
* the number of tasks with no predecessor activities was reduced from 
352 in February to 21; 
* the number of lags was reduced from 102 in February to 21, although 
some lags are still excessively long--from 240 to 422 days; and; 
* the number of tasks with negative lags was reduced from 850 in 
February to 20. 

Criterion: Assigning resources to all activities; 
Explanation: The schedule should reflect what resources (i.e., labor, 
material, and overhead) are needed to do the work, whether all required 
resources will be available when they are needed, and whether any 
funding or time constraints exist; 
GAO analysis - February 2009: Criteria not met: The schedule did not 
include resources; 
therefore, it is not clear that this schedule is feasible; 
GAO follow-up analysis - July 2009: Criteria not met: KCP's July 
schedule still does not include resources. Although the agency asserted 
that it has other systems to track resource use and to determine future 
resource needs, according to scheduling best practices, resources 
should be included in the schedule. 

Criterion: Establishing the duration of all activities; 
Explanation: The schedule should realistically reflect how long each 
activity will take to execute. In determining the duration of each 
activity, the same rationale, data, and assumptions used for cost 
estimating should be used. Further, these durations should be as short 
as possible and they should have specific start and end dates. 
Excessively long periods needed to execute an activity should prompt 
further decomposition of the activity so that shorter execution 
durations will result; 
GAO analysis - February 2009: Criteria partially met: The schedule 
included 138 activities with over 260 days' duration, which is 
approximately 1 year given a 5-day calendar. In addition, we found that 
KCP included 275 activities over 200 days in length. It is difficult to 
manage activities of this length and to know if these are realistic 
durations or how they were determined. According to best scheduling 
practices, durations should be as short as possible; 
GAO follow-up analysis - July 2009: Criteria mostly met: Activity 
durations have been reduced, although some still remain long. For 
example, KCP has since reduced the number of activities with over 260 
days duration from 138 in February to 57 activities in its July 
schedule. In addition, KCP has reduced the number of activities over 
200 days in length from 275 in February to 204 in its July schedule. 
According to KCP officials, most of the long duration activities are 
well into the future and cannot be accurately decomposed until some 
near-term planning activities are completed. . 

Criterion: Integrating schedule activities horizontally and vertically; 
Explanation: The schedule should be horizontally integrated, meaning 
that it should link the products and outcomes associated with already 
sequenced activities. These links are commonly referred to as handoffs 
and serve to verify that activities are arranged in the right order to 
achieve aggregated products or outcomes. The schedule should also be 
vertically integrated, meaning that traceability exists among varying 
levels of activities and supporting tasks and subtasks. Such mapping or 
alignment among levels enables different groups to work to the same 
master schedule; 
GAO analysis - February 2009: Criteria partially met: The schedule is 
not horizontally integrated. There are excessive instances of 
incomplete logic where activities have no successors. In addition, 
there is no evidence that the schedule is vertically traceable to other 
levels of activities, supporting tasks, or subtasks; 
GAO follow-up analysis - July 2009: Criteria mostly met: KCP has made 
significant progress; however, because of the continued use of 
constraints, lags, and incomplete logic, the schedule is still not 
fully horizontally integrated. KCP has demonstrated that the schedule 
is vertically integrated with supporting tasks and subtasks through an 
external document. 

Criterion: Establishing the critical path for all activities; 
Explanation: Using scheduling software, the critical path--the longest 
duration path through the sequenced list of key activities--should be 
identified. The establishment of a program's critical path is necessary 
for examining the effects of any activity slipping along this path. 
Potential problems that may occur on or near the critical path should 
also be identified and reflected in the scheduling of the time for high-
risk activities; 
GAO analysis - February 2009: Criteria partially met: The critical path 
appears to be logical; however, with all of the other incomplete logic, 
as well as a large float value--the time that a predecessor activity 
can slip before the delay affects successor activities--the critical 
path is not reliable. In addition, in the February schedule, the 
critical path extended to September 27, 2010, and the lease award task 
was not on the critical path; 
GAO follow-up analysis - July 2009: Criteria mostly met: KCP has made 
progress on the critical path. In KCP's July schedule, the critical 
path was extended to October 5, 2013, and the lease award task was 
added, as appropriate. However, the continued incomplete logic and 
large float value continue to affect the validity of the critical path. 

Criterion: Identifying float between activities; 
Explanation: The schedule should identify float, so that schedule 
flexibility can be determined. As a general rule, activities along the 
critical path typically have the least amount of float; 
GAO analysis - February 2009: Criteria partially met: The schedule 
calculates total float values--the time that activities can slip before 
the delay affects the end date--automatically. However, there are more 
than 4,800 activities with total float over 200 days. In addition, in 
the February schedule, there were 390 activities with over 1,000 days 
of total float. These values do not seem reasonable for a project 
schedule and probably are due to the excessive use of constraints and 
incomplete logic; 
GAO follow-up analysis - July 2009: Criteria partially met: Progress 
has been made on reducing total float values, although they remain 
higher than expected. For example, KCP reduced the number of activities 
with over 200 days of total float from 4,800 in February to 2,964 in 
the July schedule. In addition, KCP has since reduced the number of 
activities with over 1,000 days of total float from 390 to 147. 

Criterion: Conducting a schedule risk analysis; 
Explanation: A schedule risk analysis should be performed using a good 
critical path method schedule and data about project schedule risks, as 
well as statistical analysis techniques (such as Monte Carlo) to 
predict the level of confidence in meeting a program's completion date. 
This analysis focuses not only on critical path activities but also on 
activities near the critical path, since they can potentially affect 
program status; 
GAO analysis - February 2009: Criteria not met: KCP has not performed a 
schedule risk analysis using statistical techniques. KCP officials 
reported that they have no plans to address this issue; 
GAO follow-up analysis - July 2009: Criteria not met: KCP's schedule 
has not been subjected to a statistical risk analysis. KCP's scheduling 
team also indicated that it does not have plans to conduct statistical 
analyses on the schedule. Although KCP officials stated that they have 
conducted an analysis on a separate spreadsheet, it does not provide 
sufficient confidence in meeting a program's completion date. 

Criterion: Updating the schedule using logic and durations to determine 
the start and completion dates; 
Explanation: The schedule should use logic and durations in order to 
reflect realistic start and completion dates for program activities. 
The schedule should be continually monitored to determine when 
forecasted completion dates differ from the planned dates, which can be 
used to determine whether schedule variances will affect downstream 
work. Maintaining the integrity of the schedule logic is not only 
necessary to reflect true status, but is also required before 
conducting a schedule risk analysis; 
GAO analysis - February 2009: Criteria partially met: The schedule 
appears to have been updated recently; however, because of the 
incomplete logic and reliance on lags, the dates for future activities 
are not reliable. Because the dates are not all calculated 
automatically, the schedule cannot be used to monitor changes in 
forecasted completion. Therefore, we could not determine with 
confidence whether schedule variances will affect downstream work; 
GAO follow-up analysis - July 2009: Criteria mostly met: There are 
still 14 instances of incomplete logic--where successor activities 
start before predecessor activities have been completed. 
Source: GAO assessment of KCP's relocation schedule based on GAO- 
identified best scheduling practices. 

Note: During our July 2009 assessment, we learned that the software 
used to conduct our February assessment had produced inaccurate 
statistics. To correct this, we obtained new statistics for both 
February's and July's assessments using a more reliable method. 
However, the statistics shown in the February analysis have not been 
verified with KCP officials. Nevertheless, KCP officials agree that the 
general conclusions of our February assessment are still considered to 
be valid. 

[End of table] 

[End of section] 

Appendix III: Comments from the National Nuclear Security 
Administration: 

Department of Energy: 
National Nuclear Security Administration: 
Washington, DC 20585: 

October 15, 2009	 

Mr. Gene Aloise: 
Director, National Resources and Environment: 
Governmental Accountability Office: 
Washington, D.C. 20548: 

Dear Mr. Aloise: 

The National Nuclear Security Administration (NNSA) appreciates the 
opportunity to review the Government Accountability Office's (GAO) 
draft report, GAO-10-115, Nuclear Weapons: National Nuclear Security 
Administration Needs to Better Manage Risks Associated with 
Modernization of Its Kansas City Plant. We understand that this work 
was done at the request of the Senate's Subcommittee on Energy and 
Water Development, Committee on Appropriations. GAO was asked to 
determine (1) how the Kansas City Plant (KCP) developed plans for 
modernization; (2) the extent the plans ensure continuity of operations 
in support of the stockpile during and after transition to the new 
facility; (3) the extent the plans consider the consequences of 
increased outsourcing of the nonnuclear components (e.g., security, 
nonproliferation); and (4) the alternatives considered prior to 
deciding to replace the KCP facility. 

NNSA appreciates GAO recognizing that substantial progress has been 
made toward achieving the overall goals to modernize its nonnuclear 
production facility and ensuring that continued production of quality 
components essential to maintaining the U.S. nuclear weapons stockpile.
In addition, we appreciate the thorough investigative approach taken by 
GAO on this project and the professionalism of the GAO staff. 

The transformation of the nonnuclear production infrastructure is a 
significant first step in NNSA's overall plan to transform the Cold War-
era Nuclear Weapons Complex to a more cost effective, integrated and 
interdependent Nuclear Security Enterprise. The goals of the nonnuclear 
transformation are to reduce the operating footprint by more than half 
(from 3.IM to 1.4M ft2) and reduce NNSA's annual operating costs for 
KCP by about 25% ($100M per year). NNSA directed and endorsed a plan 
with three major characteristics: 

1. Strategic Sourcing and Sizing: 

While KCP was already outsourcing over half of the active components, 
additional outsourcing had the potential to enable reductions in 
footprint, capital expenditures, operating costs, and environmental 
hazards It was appropriate to examine what additional technologies 
could be outsourced with acceptable risk. This analysis resulted in 
decisions to increase the total number of outsourced components by 
about 9% and suppliers by about 3%. 

A much more significant impact on future plant size was enabled by the 
planned consolidation of major manufacturing processing areas. Through 
the elimination of excess capacity and redundancy of capabilities that 
are no longer necessary given the full range of future stockpile 
scenarios, the manufacturing footprint will be reduced from about 1.3M 
square feet to just over 0.6M square feet. 

2. Business Process Transformation: 

NNSA recognized the unique nonnuclear production mission of KCP in 2005 
and implemented a new oversight model for the facility in early 2007. 
This new oversight model implemented industrial standards in lieu of 
the Department of Energy (DOE) and NNSA directives, revised government 
oversight, and established a new contractor relationship based on 
commercial practices. These changes enabled the Maintenance & 
Operations (M&O) contractor to begin aligning the indirect and fixed 
costs of site operation to a more commercial model. 

After benchmarking comparable operations, KCP officials set future cost 
targets and implemented business process transformation plans for each 
division that will achieve a $100M annual savings in operations — 
predominantly from indirect and support functions.
The business transformation is already about halfway to this goal and 
will exceed the forecasted savings rate when the transformation to the 
new facility is completed in Fiscal Year (FY) 2014. 

3. Smaller, Modern, Adaptable Facility: 

After analyzing multiple physical alternatives and funding options, and 
in conjunction with the National Environmental Policy Act (NEPA) 
process, NNSA selected a General Services Administration (GSA) lease as 
the most appropriate means to acquire a smaller, modern, adaptable 
facility to be built on an undeveloped site in south Kansas City. The 
facility is being designed to have an administrative to manufacturing 
space ratio equivalent to a commercial facility. It is also being 
designed to enable timely and cost effective reconfigurations as 
required capabilities and capacities change in the future. The facility 
will be environmentally sustainable with Leadership in Energy and 
Environmental Design (LEED) Gold certification and less than half the 
energy consumption of the legacy building. 

The buildings on the new campus have also been designed to yield high 
commercial value if the future NNSA mission strategy no longer requires 
the site. The choice of the GSA lease gives NNSA a wide range of future 
mission options without delays, lost opportunity savings, and long-term 
financial commitment associated with line item capitalization. 

GAO examined all major aspects of the nonnuclear production 
transformation, known as the Kansas City Responsive Infrastructure 
Manufacturing & Sourcing (KCRIMS) project. Included in the scope of the 
project is related work for other government agencies that is performed 
in the National Secure Manufacturing Center (NSMC). The GAO report 
credits KCP officials with developing extensive plans and initiating 
several key actions to help ensure that the delivery of nonnuclear 
components is not interrupted during the transition to the new 
facility. 

NNSA Response to GAO Observations: 

After extensive review, GAO had no significant criticisms of the 
nonnuclear transformation project itself, but did recommend three areas 
for improvement. In summary, they are as follows: 

1. Lease vs. Buy Life Cycle Cost Analysis: The GAO notes that the 
facility cost analysis for the lease/buy decision was limited to 20 
years rather than the full life expectancy of a new manufacturing 
facility. A full life cycle analysis may have resulted in a decision 
for federal ownership. 

We acknowledge that leases can be more expensive than ownership at some 
point in the life-span of a robust facility. The DOE's Office of Cost 
Analysis (DOE/OCA) examined the same concern by performing an 
independent review of the decision earlier this year. As
noted in the GAO report, DOE/OCA ultimately supported the lease 
decision. The lease strategy requires no upfront capital which would 
likely require 3-5 years to obtain through the conventional 
Congressional line item funding process. This delay would result in 
lost savings of $300M to $500M. It should also be noted that the 
project met all criteria under OMB A-11 and A-94 for a government 
operating lease. 

Furthermore, NNSA does not want to commit to maintaining a nonnuclear 
production facility within the Nuclear Security Enterprise for a period 
beyond 20 years because the overall stockpile and enterprise strategy 
could change significantly during that period. 

Finally, if a longer term commitment is deemed appropriate, the 
government retains the flexibility to purchase the facility at fair 
market value at any time in the future. During the first site visit to 
KCP, the GAO auditor even noted that using a professional developer to 
manage the construction schedule and cost risk for a fixed price and 
then buying the facility may be a superior business practice since the 
developer rather than the government assumes the construction risks. In 
summary, NNSA believes that a lease with a good financial return is 
preferable to a federal ownership model that cannot be executed in the 
short term, especially when federal ownership could still be enabled at 
a later date. 

2. Project Schedule Maturity: The GAO sponsored two assessments of the 
KCRIMS integrated project plan (IPP) and concludes that the project 
schedule does not fully comply with GAO and DOE best practices and 
guidance for schedule development. 

We acknowledge that the project schedule does not yet comply with all 
of the GAO/DOE best practices, but we expect full compliance by the 
time the schedule is actually baselined. The baseline will be set 
within 30 days of receipt of a firm construction schedule from the 
developer. For the record, the GAO and DOE guidelines are excellent 
criteria for assessing the integrity of a baselined schedule. However, 
such assessments should not imply an end state during the period when 
the schedule is being developed. 

NNSA would like to highlight the improvement in the schedule maturity 
between the February and July assessments, as evidenced by Appendix II 
in the report, which shows that only a small percentage of tasks do not 
pass the recommended criteria. Many of these tasks are far into the 
future and still lack enough resolution to comprehensively meet the 
guideline criteria. As noted in the report, KCP officials are using 
different management systems to allocate resources and manage risks and 
they will not be included in the schedule files. The best practice 
guidance does not preclude these attributes from being managed in other 
ways. 

The Program Management Institute recognizes that scheduling is both an 
art and a science and the KCP scheduling team is following these 
professional best practices. The Project Management Body of Knowledge 
(PMBOK) states, "Good practice does not mean that the knowledge 
described should always be applied uniformly on all projects; the 
project management team is responsible for determining what is 
appropriate for any given project." The KCP team believes that placing 
too much emphasis on a purely mathematical approach does not yield the 
most cost effective path to a viable schedule. Therefore, the team 
embraces the fundamental PMBOK concept of progressive elaboration to 
develop the schedule in systematic incremental steps leading to the 
baselined schedule. 

3. Export Control: DOE and NNSA lack clear and up-to-date export 
control guidance with expectations for a systematic and consistent 
export control review process. Without such, KCP may be taking 
additional risks in outsourcing additional products. 

NNSA contractors are required to comply with federal, state and local 
regulations as part of their prime contract agreements. The 
International Traffic in Arms Regulations (ITAR) and Export 
Administration Regulations (EAR) are included in the federal regulation 
compliance requirement. The ITAR and the EAR contain the regulatory 
requirements associated with export activities related to nuclear 
weapons production. The DOE Guidelines on Export Control and 
Nonproliferation were developed to serve as complementary compliance 
"guidelines" in support of these regulations. 

In order to comply with ITAR and EAR regulatory requirements, KCP M&O 
contractor utilizes export compliance clauses in supplier purchasing 
agreements, which place the suppliers on notice as to the ITAR and EAR 
regulatory requirements. The ITAR and EAR regulations currently do not 
require that NNSA M&O contractors go beyond the export compliance 
contract clause to transfer technical data to a domestic supplier 
(qualifying as a U.S. person). This clause, included in all product-
related lower-tier KCP subcontracts, requires suppliers to notify KCP 
for concurrence prior to applying for an export license if the supplier 
deems one necessary. The KCP M&O contractor receives two to three such 
requests per year. 

The ITAR regulations require companies to obtain an export license when 
sharing technical data with a foreign supplier or a domestic supplier 
allowing foreign national access. The KCP M&O contractor submits ITAR 
export license applications to the Directorate Defense Trade Controls 
when an export license is required to transfer technical data. The 
NNSA's Office of International Regimes & Agreements organization has 
visibility to these license applications as part of the governments 
interagency review process. 

The export control concerns are consistent with the national theme of 
recent GAO audits. The KCP M&O contractor does review security issues 
prior to outsourcing decisions, of which export control is one subset. 
Based on the current interpretation of State Department regulations, 
all production items outsourced by KCP are considered export controlled 
and treated as high risk. KCP officials do not feel that the additional 
outsourcing under KCRIMS (a 9% increase in components outsourced and a 
3% increase in suppliers) adds significantly to the Nation's risk 
profile and also does not believe that a more rigorous review would 
lead to different sourcing decisions. 

The NNSA Nuclear Security Enterprise Senior Management Team created an 
Export Control Working Group in July 2009 to address export licensing 
and due diligence factors, e.g. marking technical data, registration, 
supplier contract language, supplier control plan and training. 
Recommendations from the Export Control Working Group will be shared 
with the GAO upon completion. 

NNSA Response to GAO Recommendations: NNSA generally agrees with the 
recommendations and will take the following action: 

Recommendation 1: Ensure that life cycle cost analyses include a 
thorough and balanced evaluation of short and long term construction 
and financing alternatives. 

Response: Future NNSA projects will have the opportunity to take 
advantage of the DOE/OCA to perform reviews on major facility 
acquisition projects. 

Recommendation 2: Ensure that KCP's operating contractor revises the 
KCP relocation schedule so that it is consistent with DOE schedule 
development guidance and GAO-identified scheduling best practices. 

Response: NNSA concurs with the recommendation and will execute its 
existing plan for the initial baselined schedule to incorporate 
recognized best practices. 

Recommendation 3: Assess the effectiveness of NNSA's oversight of KCP's 
current export control and nonproliferation practices. 

Response: NNSA asserts that the correct export control requirements are 
being applied through the M&O contract. The recommendation will be 
taken under advisement for potential future action following 
recommendation 4 consideration. 

Recommendation 4: Replace or supplement DOE's July 1999 Guidelines on 
Export Control and Nonproliferation to clarify expectations for export 
control reviews and develop an effective mechanism for ensuring 
enforcement. 

Response: NNSA will take this recommendation under advisement. The NNSA 
ECWG (formed July 2009) is currently examining different aspects of 
export control. Their conclusions and recommendations will impact 
NNSA's actions concerning this GAO recommendation. 

Recommendation 5: Direct the KCP operating contractor to develop and 
implement a formal risk-based review process to assess nuclear 
proliferation risks and mitigate these risks relative to component 
outsourcing decisions. 

Response: NNSA will take this recommendation under advisement awaiting 
the analysis of the ECWG team referenced in our actions to 
recommendation 4. 

Again, NNSA appreciates the opportunity to provide these comments to 
the GAO's draft report. Should you have any questions about this 
response, please contact JoAnne Parker, Acting Director, Policy and 
Internal Controls Management, at 202-586-1913. 

Sincerely, 

Signed by: 

Michael C. Kane: 
Associate Administrator for Management and Administration 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

Gene Aloise, (202) 512-3841 or aloisee@gao.gov: 

Acknowledgments: 

In addition to the contact named above, Ryan T. Coles, Assistant 
Director; Antoinette Capaccio; Tisha Derricotte; Terry Dorn; David T. 
Hulett; Sandra Kerr; Amanda Krause; Alison O'Neill; Christopher 
Pacheco; Tim Persons; Jeff Phillips; and John Smale made key 
contributions to this report. 

[End of section] 

Footnotes: 

[1] Secretary of Energy Advisory Board, Report of the Nuclear Weapons 
Complex Infrastructure Task Force: Recommendations for the Nuclear 
Weapons Complex of the Future (Washington, D.C., July 13, 2005). 
Although not formally part of the nuclear weapons complex 
transformation, KCP aligned its modernization goals with NNSA's overall 
transformation goals for the nuclear weapons complex. 

[2] National Nuclear Security Administration, Complex 2030: An 
Infrastructure Planning Scenario for a Nuclear Weapons Complex Able to 
Meet the Threats of the 21st Century (Washington, D.C., Oct. 23, 2006). 

[3] Triggered spark gaps are versatile high-voltage switches used for 
medical applications that can also be used as nuclear weapons 
detonators. Accelerometers are sensors and instruments used for 
measuring, displaying, and analyzing acceleration and vibration. 

[4] GAO, Export Controls: Fundamental Reexamination of System Is Needed 
to Help Protect Critical Technologies, [hyperlink, 
http://www.gao.gov/products/GAO-09-767T] (Washington, D.C.: June 4, 
2009), and Military and Dual-Use Technology: Covert Testing Shows 
Continuing Vulnerabilities of Domestic Sales for Illegal Export, GAO-09-
725T (Washington, D.C.: June 4, 2009). 

[5] Natural Resources Defense Council v. Samuel W. Bodman, No. 1:08-cv- 
01709 (D. D.C. filed Oct. 8, 2008). 

[6] GAO, GAO Cost Estimating and Assessment Guide: Best Practices for 
Developing and Managing Capital Program Costs, [hyperlink, 
http://www.gao.gov/products/GAO-09-3SP] (Washington, D.C.: March 2009). 

[7] Department of Energy, Performance Baseline Guide, G 413.3-5 
(Washington, D.C., Sept. 12, 2008). 

[8] Department of Defense, Nuclear Posture Review (Washington, D.C., 
Dec. 31, 2001). This review was required by the Floyd D. Spence 
National Defense Authorization Act for Fiscal Year 2001, Pub. L. No. 
106-398, § 1041, 114 Stat. 1654, 1654A-262 (2000), which directed the 
Secretary of Defense, in consultation with the Secretary of Energy, to 
"conduct a comprehensive review of the nuclear posture of the United 
States for the next 5 to 10 years." The result of this review was DOD's 
proposal for the New Triad, which significantly expanded the range of 
strategic capabilities. A new Nuclear Posture Review is currently in 
progress--as required by the National Defense Authorization Act for 
Fiscal Year 2008, Pub. L. No. 110-181 § 1070, 122 Stat. 3, 327 (2008)-
-and a report on the results of this review is required to be submitted 
to Congress in 2009. 

[9] GAO, Federal Real Property: Strategy Needed to Address Agencies' 
Long-standing Reliance on Costly Leasing, [hyperlink, 
http://www.gao.gov/products/GAO-08-197] (Washington, D.C.: Jan. 24, 
2008). 

[10] The lease term may be for up to 30 years if the government owns 
the underlying land. 

[11] Current NNSA policy permits potentially three additional 5-year 
options under this financing alternative--a total of 20 years. 

[12] GAO, High-Risk Series: An Update, [hyperlink, 
http://www.gao.gov/products/GAO-03-119] (Washington, D.C.: January 
2003). 

[13] An operating lease is a lease that meets six criteria listed in 
the scorekeeping guidelines in OMB Circular A-11, app. A. Specifically, 
(1) ownership of the asset remains with the lessor during the term of 
the lease and is not transferred to the government at or shortly after 
the end of the lease term; (2) the lease does not contain a bargain- 
price purchase option; (3) the lease term does not exceed 75 percent of 
the estimated economic life of the asset; (4) the asset is a general 
purpose asset, it is not for a special purpose of the government, and 
it is not built to the unique specifications of the government lessee; 
(5) there is a private sector market for the asset; and (6) the present 
value of the minimum lease payments over the life of the lease does not 
exceed 90 percent of the fair market value of the asset at the 
beginning of the lease term. 

[14] [hyperlink, http://www.gao.gov/products/GAO-08-197]. 

[15] A lawsuit was filed in October 2008 that, among other things, 
challenged the extent and adequacy of DOE's consideration of 
alternatives to its plans for replacing the KCP facility. Natural 
Resources Defense Council v. Samuel W. Bodman, No. 1:08-cv-01709 (D. D. 
C. filed Oct. 8, 2008). Pursuant to its long-standing policy of not 
addressing issues in ongoing litigation, GAO has not evaluated DOE's 
consideration of these alternatives. 

[16] Science Applications International Corporation, Relocation of Non- 
Nuclear Production to an Alternate Location Business Case, prepared for 
the National Nuclear Security Administration (Washington, D.C., Apr. 
25, 2008). 

[17] The congressional line item capital project costs were adjusted to 
account for the estimated residual value of the facility after 20 
years--about $130 million. 

[18] GAO, Nuclear Weapons: NNSA and DOD Need to More Effectively Manage 
the Stockpile Life Extension Program, [hyperlink, 
http://www.gao.gov/products/GAO-09-385] (Washington, D.C.: Mar. 2, 
2009). 

[19] Lawrence Livermore and Los Alamos National Laboratories will also 
conduct requalification activities; however, Sandia maintains a primary 
role in conducting these activities. 

[20] KCP officials initially expected to establish a formal baseline 
for the schedule in April 2009, in conjunction with the lease award, 
which did not occur at that time. Subsequently, KCP officials have 
delayed establishing the schedule baseline and currently expect to have 
one established by fall 2009. 

[21] [hyperlink, http://www.gao.gov/products/GAO-09-3SP]. 

[22] Department of Energy, Performance Baseline Guide. Although there 
is not a one-to-one correlation, many of the GAO-identified best 
practices, are also suggested schedule development practices in DOE's 
Performance Baseline Guide. 

[23] In our February 2009 review, we had not completed our assessment 
of whether KCP's schedule had captured all key activities because we 
were missing key information and needed additional clarification. KCP 
supplied additional information and clarification for our July 2009 
review. 

[24] Department of Energy, Office of Nonproliferation and National 
Security, Office of Arms Control and Nonproliferation, Nuclear Transfer 
and Supplier Policy Division, Guidelines on Export Control and 
Nonproliferation, July 1999. 

[25] The International Traffic in Arms Regulations appear at 22 C.F.R. 
§§ 120-130 (2009). 

[26] Natural Resources Defense Council v. Samuel W. Bodman, No. 1:08- 
cv-01709 (D. D.C. filed Oct. 8, 2008). 

[27] [hyperlink, http://www.gao.gov/products/GAO-09-3SP]. 

[28] Department of Energy, Performance Baseline Guide. 

[End of section] 

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