Nuclear Weapons:

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

GAO-10-115: Published: Oct 23, 2009. Publicly Released: Nov 23, 2009.

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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.

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.

Recommendations for Executive Action

  1. Status: Open

    Comments: NNSA provided evidence that it requires life cycle cost analyses for projects greater than $20 million. However, this is not fully responsive to GAO's recommendation. For example, the recommendation stated that each life cycle cost analysis performed includes short- and long-term construction and financing alternatives and that these analyses should consider the full life of the facility rather than the 20-year requirements for GSA leases or any predetermined length of time. NNSA's actions do not address this aspect of the life cycle cost analysis. Our work found that facility's life cycle cost analysis only covered 20 years and it failed to reflect cost savings over a longer useful life (possibly over 50 years) that could have been realized if the facility were purchased instead of leased. Nothing in the draft Order addresses how the life cycle cost period to be analyzed should be established (e.g., 20 years or 50 plus years). Our review of NNSA's additional response provided in March of 2014 did not provide sufficient evidence to close the recommendation.

    Recommendation: To strengthen NNSA's oversight practices and current and future facility modernization efforts, and to improve the transparency and usefulness of cost analyses prepared for future NNSA nuclear facilities modernization projects, the Secretary of Energy should 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.

    Agency Affected: Department of Energy

  2. Status: Closed - Implemented

    Comments: On March 9, 2010, NNSA's Administrator provided written comments regarding our recommendations in GAO-10-115. NNSA concurred with all recommendations and responded to each recommendation, stating that they now consider all recommendations "closed." On 12/18/09, the NNSA Kansas City Site Office directed the M&O contractor (Honeywell FM&T) to perform the recommended improvements to the integrated project plan and report on the status within 60 days of the lease signing. NNSA provided a copy of the letter as support. Based on this specific NNSA Contracting Officer direction to the contractor, this recommendation can be closed as implemented.

    Recommendation: To strengthen NNSA's oversight practices and current and future facility modernization efforts, and to better manage the KCP relocation schedule, the Secretary of Energy should 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.

    Agency Affected: Department of Energy

  3. Status: Open

    Comments: While NNSA/contractor actions are commendable and appear to be beneficial, such as adding performance-based incentives, training 950 employees, and including new contract clauses in its supplier purchase orders, these actions do not fully satisfy the recommendation. GAO's recommendation was specifically directed at the effectiveness of NNSA's oversight of the KCP contractor's export control and nonproliferation practices and to initiate corrective actions to strengthen that NNSA oversight. While the Kansas City Site Office's addition of a performance based incentive seems to be a good improvement, NNSA has not demonstrated its own oversight effectiveness. Our review of NNSA's response provided in March 2014 was not persuasive.

    Recommendation: To strengthen NNSA's oversight practices and current and future facility modernization efforts, and 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, the Secretary of Energy should 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.

    Agency Affected: Department of Energy

  4. Status: Closed - Implemented

    Comments: Since our review, NNSA has a supplemental policy, "Atomic Energy Act Control of Import and Export Control Activities" (NAP-23). This supplemental guidance is responsive to our recommendation.

    Recommendation: To strengthen NNSA's oversight practices and current and future facility modernization efforts, and 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, the Secretary of Energy should direct the Administrator of NNSA to take immediate action to, 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.

    Agency Affected: Department of Energy

  5. Status: Closed - Implemented

    Comments: On March 9, 2010, NNSA's Administrator provided written comments regarding our recommendations in GAO-10-115. NNSA concurred with all recommendations and responded to each recommendation, stating that they now consider all recommendations "closed." On April 29, 2010, GAO sent an email to NNSA's Kansas City Site Office requesting additional evidence to support closing the recommendations. GAO received NNSA's response in the form of a draft entitled "Assessment of Hardware Items and Information for Proposed Export Control Reform." The draft showed progress in the right direction in implementing a risk-based approach at that time. Since that time NNSA has provided additional information that includes a performance-based incentive to the contract that essentially serves as direction to the KCP operating contractor to implement a risk-based review process in executing export control activities. This is responsive to our recommendation.

    Recommendation: To strengthen NNSA's oversight practices and current and future facility modernization efforts, and 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, the Secretary of Energy should direct the Administrator of NNSA to take immediate action to 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 Affected: Department of Energy

 

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