Cooperative Threat Reduction:

DOD Needs More Reliable Data to Better Estimate the Cost and Schedule of the Shchuch'ye Facility

GAO-06-692: Published: May 31, 2006. Publicly Released: May 31, 2006.

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Until destroyed, Russia's stockpile of chemical weapons remains a proliferation threat, vulnerable to theft and diversion. Since 1992, Congress has authorized the Department of Defense (DOD) to provide more than $1 billion for the Cooperative Threat Reduction (CTR) program to help the Russian Federation construct a chemical weapons destruction facility (CWDF) at Shchuch'ye to eliminate about 14 percent of its stockpile. Over the past several years, DOD has faced numerous challenges that have increased the estimated cost of the facility from about $750 million to more than $1 billion and delayed the facility's operation from 2006 until 2009. DOD has attributed the increase cost and schedule to a variety of factors. In this report, we (1) assess the facility's progress, schedule, and cost and (2) review the status of Russia's efforts to destroy all of its chemical weapons.

Although DOD has made visible progress over the past 2 years in constructing the chemical weapons destruction facility at Shchuch'ye, it continues to face numerous challenges that threaten the project's schedule and cost. Primarily, key buildings on the site have fallen behind schedule due to difficulties working with Russian subcontractors. Such delays have been costing DOD more than $3 million per month since October 2005 and will continue until the award of a crucial subcontract, possibly in June 2006. Uncertain progress of Russian construction on the site, unpredictable Russian regulatory requirements, and various technical issues, such as testing the facility, could cause further schedule delays and increase costs. Also, DOD lacks a reliable earned value management (EVM) system to record, predict, and monitor the project's progress. DOD allocated $6.7 million to the project's contractor in September 2004 to establish an EVM system and expected to have a validated EVM system in place by March 2005. DOD cannot use the current EVM system to assess the final schedule and cost for completing the Shchuch'ye facility because it contains flawed and unreliable data. In addition, the contractor has not yet conducted an IBR of the Shchuch'ye project. Furthermore, it remains uncertain whether the Russian government can destroy its entire chemical weapons stockpile by the Chemical Weapons Convention (CWC) extended deadline of 2012. As of March 2006, Russia had destroyed about 3 percent of its 40,000 metric tons of chemical weapons at two completed destruction facilities. To eliminate the remainder of its chemical weapons over the next six years, the Russian government must construct and operate five additional destruction facilities, including Shchuch'ye. The Russian government has indicated that it will need continued international assistance to destroy the remaining stockpile.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In May 2006 (Cooperative Threat Reduction: DOD Needs More Reliable Data to Better Estimate the Cost and Schedule of the Shchuch'ye Facility), we recommended to DOD, and DOD concurred, that the Defense Threat Reduction Agency (DTRA) should ensure the Earned Value Management System (EVMS) being used by its contractor to track cost and schedule of construction of the Chemical Weapons Destruction Facility (CWDF) contains valid, reliable data and reflects actual cost and schedule conditions. On March 17, 2008 contractor officials stated that in response to the GAO report and its recommendations, senior contractor management had focused special attention and resources to the EVM system at Shchuch'ye. This resulted in their EVM system being officially validated by Defense Contracts Management Agency (DCMA) on September 1, 2006. Although the new Trilateral Arrangement signed in November 15, 2007 between DOD, the contractor, and the Russian Federation removed the requirement for the contractor to operate the EVM at the Shchuch'ye CWDF, DOD and contractor management continue to use the EVM system to track progress on site construction and validate work performed by the Russian subcontractors.

    Recommendation: Unreliable EVM data limit DOD's efforts to accurately measure progress on the Shchuch'ye project and estimate its final completion date and cost. As such, the Secretary of Defense should direct the Defense Threat Reduction Agency (DTRA), in conjunction with the U.S. Army Corps of Engineers, to ensure that Parsons' EVM system contains valid, reliable data and that the system reflects actual cost and schedule conditions.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: In May 2006 (Cooperative Threat Reduction: DOD Needs More Reliable Data to Better Estimate the Cost and Schedule of the Shchuch'ye Facility), we recommended, and Defense Threat Reduction Agency (DTRA) partially concurred, that DOD withhold a portion of the contractor's award fee until the Earned Value Management System (EVMS) being used by the contractor to track cost and schedule of construction of the Shchuch'ye Chemical Weapons Destruction Facility (CWDF) produced reliable data. In March 2008, according to a cognizant DOD official, DTRA had withheld some award-fee from the CWDF contractor just before the GAO report was published, and they would have withheld more had the contractor not finally delivered a validated Earned Value Management System (EVMS). Possible withholding of the award-fee thus served as an incentive for the contractor to take action and improve its EVM system. This was confirmed by contractor officials.

    Recommendation: Unreliable EVM data limit DOD's efforts to accurately measure progress on the Shchuch'ye project and estimate its final completion date and cost. As such, the Secretary of Defense should direct DTRA, in conjunction with the U.S. Army Corps of Engineers, to withhold a portion of Parsons' award fee until the EVM system produces reliable data.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: In May 2006 (Cooperative Threat Reduction: DOD Needs More Reliable Data to Better Estimate the Cost and Schedule of the Shchuch'ye Facility), we recommended, and Defense Threat Reduction Agency (DTRA) concurred, that DOD require Parsons to perform an Integrated Baseline Review (IBR) to provide a meaningful and valid baseline for its Earned Value Management System (EVMS). According to DOD and contractor officials in March 2008, DOD instructed the CWDF contractor to use the newly validated EVM system to complete an IBR sooner than would normally be the case, in order to determine the CWDF's cost and schedule if DOD were to stick with the traditional contracting approach on-site. The IBR revealed that trying to complete the CWDF under this approach could lead to a $300 million cost overrun. The Russians continued to maintain that they could finish the project faster and cheaper, so the project manager thought that having the Russians complete the facility would be the best approach. The IBR therefore led to new negotiations between DOD, the contractor, and the Russian government, leading to a Joint Arrangement between DOD and the Russian Federal Agency for Industry (FAI)-(signed November 2007), whereby DOD is the banker/paying agent, the FAI is responsible for letting further subcontracts to local subcontractors, and the original contractor's role has been scaled back to quality verification of work performed. Under this agreement, the Russian government has agreed to pay for any cost overruns beyond the original $1.0392 billion originally provided by DOD to complete the CWDF. The IBR therefore prevented further cost overruns at the Shchuch'ye CWDF, avoiding about $300 million in potential costs. The net present value is about $286 million.

    Recommendation: Unreliable EVM data limit DOD's efforts to accurately measure progress on the Shchuch'ye project and estimate its final completion date and cost. As such, the Secretary of Defense should direct DTRA, in conjunction with the U.S. Army Corps of Engineers, to require Parsons to perform an integrated baseline review after awarding the contract for completing Building 101.

    Agency Affected: Department of Defense

 

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