Plutonium Disposition Program: DOE Needs to Analyze the Root Causes of Cost Increases and Develop Better Cost Estimates
Highlights
What GAO Found
The Department of Energy's (DOE) National Nuclear Security Administration (NNSA) identified various drivers for the close to $3 billion increase in the estimated cost of the Plutonium Disposition program's two construction projects—the Mixed Oxide (MOX) Fuel Fabrication Facility and the Waste Solidification Building (WSB). These drivers included DOE's approval of the MOX facility's cost and schedule estimates before design was complete and schedule delays in construction of the WSB. According to NNSA, the cost of critical system components for the MOX facility averaged 60 percent higher than estimated as a result of approval of estimates before design was complete.
NNSA has not analyzed the underlying, or root, causes of the Plutonium Disposition program construction cost increases to help identify lessons learned and help address the agency's difficulty in completing projects within cost and schedule, which has led to NNSA's management of major projects remaining on GAO's list of areas at high risk of fraud, waste, abuse, and mismanagement. DOE's project management order requires that lessons learned be captured throughout a project to, among other things, benefit future endeavors. NNSA officials said that, because the order does not require a root cause analysis of cost increases, NNSA decides on a case-by-case basis whether to conduct one. Unlike a root cause analysis, the cost drivers NNSA identified provided few details about why the drivers existed, such as DOE's reasons for approving the MOX facility's cost and schedule estimates before the design was complete. Without a root cause analysis, it is uncertain whether NNSA will be able to accurately identify underlying causes of the increases to identify and implement corrective measures and identify lessons learned to apply to other projects.
After determining that the performance of the contractors for the MOX facility and WSB contributed to cost increases, NNSA took steps to hold the contractors accountable by withholding fees specified under the contracts. In particular, as of November 2013, NNSA withheld $45.1 million or close to one-third of the MOX contractor's fees, including fees tied to meeting the MOX project's cost and schedule estimates. In addition, NNSA withheld $7.7 million or about 40 percent of the WSB contractor's fees tied to various performance measures for the WSB, such as completing construction milestones.
NNSA's most recent estimates for the Plutonium Disposition program did not fully reflect all the characteristics of reliable cost estimates (e.g., credible) and schedule estimates (e.g., well-constructed) as established by best practices for cost- and schedule-estimating, placing the program at risk of further cost increases. For example: (1) NNSA's draft April 2013 life-cycle cost estimate of $24.2 billion for the overall program was not credible because NNSA did not conduct an independent cost estimate to provide an unbiased test of whether the estimate was reasonable. (2) Because the MOX contractor's September 2012 proposal for increasing the cost of the MOX facility did not include a formal analysis to examine the effects of changing assumptions, it was minimally credible. (3) The WSB contractor's February 2013 monthly update to its schedule estimate was minimally well-constructed in that it contained activities that were not properly tied with the start or end date of other activities, which could potentially obscure the critical path determining the project's completion date.
Why GAO Did This Study
NNSA, a separately organized agency within DOE, manages the Plutonium Disposition program to dispose of surplus weapons-grade plutonium by burning it as MOX fuel—a mixture of plutonium and uranium oxides—in specially modified commercial nuclear reactors. In 2012, DOE forecasted cost increases of close to $3 billion over the previous estimates for the program's two construction projects, the MOX facility and the WSB for disposing of waste from the MOX facility.
GAO was asked to review these cost increases and the life-cycle cost estimate. This report examines: (1) drivers NNSA identified for the cost increases; (2) the extent to which NNSA analyzed underlying causes of the cost increases; (3) steps NNSA took to hold construction contractors accountable for their role, if any, in the cost increases; and (4) the extent to which NNSA's most recent estimates met cost- and schedule-estimating best practices. GAO reviewed NNSA's draft life-cycle cost estimate and contractor estimates of the MOX project's cost and WSB schedule, compared the estimates with cost- and schedule-estimating best practices, and interviewed DOE and NNSA officials.
Recommendations
GAO is recommending, among other things, that DOE conduct a root cause analysis of the Plutonium Disposition program's cost increases and ensure that future estimates of the program's life-cycle cost and cost and schedule for the program's construction projects meet all best practices for reliable estimates. DOE generally agreed with GAO's recommendations.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Energy | To identify lessons learned from and provide assurance of preventing recurrence of cost increases for the MOX facility and WSB, and to develop reliable cost estimates for the Plutonium Disposition program, the Secretary of Energy should direct the DOE and NNSA Offices of Acquisition and Project Management and the NNSA office responsible for managing the Plutonium Disposition program, as appropriate, to conduct an analysis of the root causes of the cost increases for the MOX facility and WSB, such as the causes of the design changes that led to cost increases, and identify and prioritize recommended solutions. |
In January 2015, DOE provided a report to Congress on the root causes of the cost increases for the Mixed Oxide (MOX) Fuel Fabrication Facility and Waste Solidification Building (WSB). DOE's National Nuclear Security Administration (NNSA) commissioned the report in response to our recommendation and direction in the fiscal year 2014 Consolidated Appropriations Act. Using data obtained through document reviews and interviews, the report included a discussion and analysis of the cost drivers, causal factors, and associated underlying causes and root causes for both facilities. In addition, the report included recommended actions to be used as lessons learned for future projects.
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| Department of Energy | To identify lessons learned from and provide assurance of preventing recurrence of cost increases for the MOX facility and WSB, and to develop reliable cost estimates for the Plutonium Disposition program, the Secretary of Energy should direct the DOE and NNSA Offices of Acquisition and Project Management and the NNSA office responsible for managing the Plutonium Disposition program, as appropriate, to revise and update the program's life-cycle cost estimate following the 12 key steps described in the GAO Cost Estimating and Assessment Guide for developing high-quality cost estimates, such as conducting an independent cost estimate to provide an objective and unbiased assessment of whether the estimate can be achieved. |
In 2017, NNSA directed its Office of Cost Estimating and Program Evaluation to develop a new lifecycle estimate for the plutonium disposition program based on NNSA's preferred approach of dilute and dispose. That estimate was completed in March 2018. The estimate was directed to be done in accordance with GAO cost estimating and assessment best practices. Further, to ensure that the estimate followed best practices, NNSA officials said that they planned to contract with the U.S. Army Corps of Engineers for an independent review to ensure the cost estimate followed GAO's best practices.
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| Department of Energy | To identify lessons learned from and provide assurance of preventing recurrence of cost increases for the MOX facility and WSB, and to develop reliable cost estimates for the Plutonium Disposition program, the Secretary of Energy should direct the DOE and NNSA Offices of Acquisition and Project Management and the NNSA office responsible for managing the Plutonium Disposition program, as appropriate, to ensure that the MOX contractor revises its proposal for increasing the cost of the MOX facility to meet all best practices for a high-quality, reliable cost estimate--for example, by cross-checking major cost elements to determine whether alternative estimating methods produce similar results. |
In August 2016, DOE revised the cost estimate for completing construction of the Mixed Oxide (MOX) Fuel Fabrication Facility. In September 2017, we found that the estimate substantially met all four characteristics of a high-quality cost estimate (comprehensive, well-documented, accurate, and credible) and can, therefore, be considered reliable. Although our original recommendation was for the contractor to revise its proposal for the costs of the MOX facility, we believe this action meets the intent of our recommendation.
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| Department of Energy | To identify lessons learned from and provide assurance of preventing recurrence of cost increases for the MOX facility and WSB, and to develop reliable cost estimates for the Plutonium Disposition program, the Secretary of Energy should direct the DOE and NNSA Offices of Acquisition and Project Management and the NNSA office responsible for managing the Plutonium Disposition program, as appropriate, to ensure that the approved cost increase for the WSB is based on a schedule that the contractor has revised to meet all best practices for a high-quality, reliable schedule estimate, such as reflecting all activities (both government and contractor) needed to complete construction. |
DOE completed the construction of the WSB in 2015 and as a result this recommendation is closed. The WSB is in cold-standby while DOE makes a decision on whether to continue pursuing the MOX approach.
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| Department of Energy | To ensure that future DOE projects benefit from lessons learned that reflect the underlying causes of cost increases or schedule delays experienced by other projects, and that Congress and DOE have life-cycle cost estimates for DOE programs that include individual construction projects, the Secretary of Energy should revise DOE's project management order or otherwise implement a departmentwide requirement by requiring a root cause analysis of all projects that experience cost increases or schedule delays exceeding a certain threshold established by DOE. |
In June 2015, the Secretary of Energy issued a memo to enhance and clarify departmental policy related to project management. The memo outlined changes that recent GAO reports had noted as areas for improvement, including the absence of a requirement in DOE's project management order to conduct a root cause analysis of projects experiencing significant cost increases or schedule delays. Specifically, the memo required a root cause analysis to determine the underlying causes of cost overruns, schedule delays, and performance shortcomings and to identify corrective actions. The memo further specified that the analysis be provided to the project management executive to inform the decision whether to terminate or proceed with the project.
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| Department of Energy | To ensure that future DOE projects benefit from lessons learned that reflect the underlying causes of cost increases or schedule delays experienced by other projects, and that Congress and DOE have life-cycle cost estimates for DOE programs that include individual construction projects, the Secretary of Energy should revise DOE's project management order or otherwise implement a departmentwide requirement by requiring life-cycle cost estimates covering the full cost of programs that include both construction projects and other efforts and activities not related to construction. |
According to DOE officials, DOE requires a comprehensive life-cycle cost analysis as part of its Analysis of Alternatives and, therefore, no changes to the project management order are needed. We disagree. This recommendation focuses on requiring a life-cycle cost estimate for the program, which includes construction projects and other efforts related to the program that may not be addressed in an Analysis of Alternatives. The cited DOE action is related to the analysis for an individual project. Because DOE does not intend to take additional action on this recommendation, we are closing it as not implemented.
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