Department of Energy:

Actions Needed to Develop High-Quality Cost Estimates for Construction and Environmental Cleanup Projects

GAO-10-199: Published: Jan 14, 2010. Publicly Released: Jan 14, 2010.

Additional Materials:

Contact:

Eugene E. Aloise
(202) 512-6870
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

The Department of Energy (DOE) spends billions of dollars on construction projects--those that maintain nuclear weapons, conduct research, and process nuclear waste--and projects that clean up nuclear and hazardous wastes at DOE's sites; these projects are largely executed by contractors. DOE has struggled to keep these projects within cost and schedule estimates. GAO was asked to assess (1) DOE's cost-estimating policies and guidance, (2) the extent to which selected projects' cost estimates reflect best practices compiled in GAO's cost-estimating guide, and (3) DOE's recent actions to improve cost estimating. GAO reviewed relevant documents, including support for cost estimates at three major construction projects--those costing $750 million or more--and one environmental cleanup project, and interviewed DOE officials.

DOE has not had a policy that establishes standards for cost estimating in place for over a decade, and its guidance is outdated and incomplete, making it difficult for the department to oversee the development of high-quality cost estimates by its contractors. DOE's only cost-estimating direction resides in its project management policy that does not indicate how cost estimates should be developed. In addition, DOE's outdated cost-estimating guide assigns responsibilities to offices that no longer exist and does not fully include most of the best practices from government and industry in GAO's cost-estimating guide. Lacking a documented policy and associated guidance that contain best practices, DOE does not have appropriate internal controls in place that would allow its project managers to provide contractors a standard method for building high-quality cost estimates. DOE has drafted a new cost-estimating policy and guide but the department expects to miss its deadline for issuing them by more than a year. The cost estimates for the four projects we reviewed did not exemplify the four characteristics of high-quality cost estimates as established by best practices--credible, well-documented, accurate, and comprehensive. The four estimates lacked credibility because DOE did not sufficiently identify the level of confidence associated with the estimates, adequately examine the effects of changing key assumptions on the estimates, or cross-check the estimates with an ICE--an estimate created by an entity with no vested interest in the project. In addition, the four estimates were only partially documented, in part because the projects did not ensure that the contractors thoroughly documented the details of how they developed the estimates. Moreover, all four estimates lacked accuracy because they were not based on a reliable assessment of costs most likely to be incurred. Finally, none of the four estimates were comprehensive; for example, three of the estimates did not include costs associated with the full life cycle of the projects, and the estimating teams' expertise and compositions did not reflect best practices. Although DOE has undertaken some actions to improve cost estimating, the department may undercut their impact by limiting the role and effectiveness of its new Office of Cost Analysis (OCA). In contrast to best practices and DOE's stated mission for OCA, DOE's draft cost-estimating policy does not require OCA to conduct ICEs at project milestones unless requested by senior management. As a result, major projects are likely to continue to be approved without this independent check, limiting their credibility. Further, locating OCA apart from the existing DOE office that performs a similar but broader review function may lead to duplication of efforts and does not reflect best practices. That is, centralizing a cost-estimating team, rather than maintaining separate teams, facilitates sharing resources and using standard processes. Finally, placing OCA under the office that manages DOE's finances may limit OCA's independence and its access to relevantly skilled staff. It is also inconsistent with Congress' recent action to establish an independent cost-estimating office at the Department of Defense, whose project management responsibilities are similar to those of DOE.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: Although DOE issued an updated project management order in November 2010, this policy does not include a requirement that DOE and its contractors generate cost estimates in accordance with best practices. However, DOE's November 2010 order requires independent cost estimates to be conducted at one key milestone for projects with a total cost equal to or greater than $100 million, which meets one of the best practices.

    Recommendation: To better ensure that DOE is able to develop high-quality project cost estimates, the Secretary of Energy should issue the department's forthcoming cost-estimating policy and updated guidance as soon as possible, ensuring that the policy requires DOE and its contractors to generate cost estimates in accordance with best practices.

    Agency Affected: Department of Energy

  2. Status: Closed - Implemented

    Comments: In November 2010, DOE revised its project management order, which provides policy direction related to cost estimating, among other things. DOE's new order requires independent cost estimates to be conducted at one key milestone for projects with a total cost equal to or greater than $100 million.

    Recommendation: To better ensure that DOE is able to develop high-quality project cost estimates, the Secretary of Energy should issue the department's forthcoming cost-estimating policy and updated guidance as soon as possible, ensuring that the policy requires that independent cost estimates (ICEs) be conducted for major projects at milestones 1, 2, and 3.

    Agency Affected: Department of Energy

  3. Status: Closed - Implemented

    Comments: DOE issued a new cost estimating guide in May 2011. The purpose of the guide is to provide uniform guidance and best practices that describe methods and procedures recommended for use at DOE in preparing cost estimates that is specific to all work, including, but not limited to, construction projects and/or programs. The guide may be used to provide information based on accepted standard industry estimating best practices and process, including practices promulgated by the GAO Cost Estimating and Assessment Guide.

    Recommendation: To better ensure that DOE is able to develop high-quality project cost estimates, the Secretary of Energy should issue the department's forthcoming cost-estimating policy and updated guidance as soon as possible, ensuring that the guidance fully reflects best practices.

    Agency Affected: Department of Energy

  4. Status: Closed - Implemented

    Comments: DOE eliminated the Office of Cost Analysis and combined its cost estimating functions with those of the Office of Engineering and Construction Management, now known as the Office of Acquisition and Project Management (OAPM). DOE's November 2010 project management order provided OAPM with the authority and responsibility to conduct independent cost reviews and independent cost estimates for certain projects and programs.

    Recommendation: To better ensure that DOE is able to develop high-quality project cost estimates, and in addition, to minimize duplication of effort and promote the independence of the cost-estimating review process, the Secretary of Energy should create a centralized cost-estimating capability by combining the functions that OCA and Office of Engineering and Construction Management (OECM) have in common.

    Agency Affected: Department of Energy

  5. Status: Closed - Implemented

    Comments: DOE notified us in September 2011 that it had consolidated its cost estimating functions within the Office of Engineering and Construction Management (now the Office of Acquisition and Project Management), which resides under the Office of Management. The Office of Management reports directly to the Deputy Secretary of Energy. This management structure allows direct access to Department senior representatives, to include the Deputy Secretary, and facilitates collaboration with the program offices and field offices on cost estimating improvement initiatives and areas requiring attention.

    Recommendation: To better ensure that DOE is able to develop high-quality project cost estimates, and in addition, to minimize duplication of effort and promote the independence of the cost-estimating review process, the Secretary of Energy should consider the structure recently adopted by the Department of Defense, under which its independent cost-estimating office reports directly to the Secretary and Deputy Secretary.

    Agency Affected: Department of Energy

  6. Status: Closed - Implemented

    Comments: Under DOE's new project management order, adopted in November 2010, the Office of Acquisition and Project Management will conduct an independent cost estimate (ICE) for all capital asset projects with a cost of $100 million or more at Critical Decision 2. This includes all major projects with a cost of $750 million or more. In 2011, the Army Corps of Engineers conducted an ICE of the Uranium Processing Facility, one of the major projects we reviewed.

    Recommendation: Given the limitations of the cost estimates of the four projects we reviewed, the Secretary of Energy should direct OCA to conduct an ICE for each major project that has not received one, including three of the four projects we reviewed, all major projects that have not yet started construction or operations, and all future major projects.

    Agency Affected: Department of Energy

 

Explore the full database of GAO's Open Recommendations »

Oct 20, 2014

Oct 1, 2014

Sep 22, 2014

Sep 10, 2014

Aug 11, 2014

Jul 17, 2014

Jul 11, 2014

Jun 23, 2014

Jun 9, 2014

Jun 5, 2014

Looking for more? Browse all our products here