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United States Government Accountability Office:
GAO:
Report to the Chairman, Subcommittee on Federal Financial Management,
Government Information, and International Security, Committee on
Homeland Security and Governmental Affairs, U.S. Senate:
Cooperative Threat Reduction:
DOD Needs More Reliable Data to Better Estimate the Cost and Schedule
of the Shchuch’ye Facility:
GAO-06-692:
GAO Highlights:
Highlights of GAO-06-692, a report to the Chairman, Subcommittee on
Federal Financial Management, Government Information and International
Security, Committee on Homeland Security and Governmental Affairs, U.S.
Senate.
Why GAO Did This Study:
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.
What GAO Found:
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 integrated baseline review 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.
Figure: Site Map of the Planned Chemical Weapons Destruction Facility
at Shchuch’ye:
[See PDF for Image]
[End of Figure]
What GAO Recommends:
GAO recommends that the Secretary of Defense direct the Defense Threat
Reduction Agency and the U.S. Army Corps of Engineers to (1) ensure
that the EVM system contains valid and reliable data, (2) set aside a
portion of the contractor’s award fee until the EVM system produces
reliable data, and (3) require the contractor to perform an integrated
baseline review after awarding the contract for completing Building
101. DOD concurred with our recommendation.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-692].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Joseph Christoff at (202)
512-8979 or christoffj@gao.gov.
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
Construction Has Progressed, but Project Is behind Schedule and Faces
Substantial Challenges:
Russia Has Developed a Destruction Plan and Increased Funding but May
Not Meet Its Destruction Deadlines: Conclusion:
Recommendations for Executive Action: Agency Comments and Our
Evaluation:
Appendix I: Scope and Methodology:
Appendix II: Lack of Reliable EVM Data Limits DOD’s Ability to Estimate
Schedule and Cost for Constructing the CWDF:
Appendix III: Comments from the Department of Defense: Appendix IV: GAO
Contact and Staff Acknowledgments:
Tables:
Table 1: Schedule for Russian CWDFs:
Table 2: International Assistance for Russian Destruction, as of April
2006:
Table 3: Examples of Accounting System Errors Understating the Variance
at Completion from January 2006 Report:
Figures:
Figure 1: Russian Chemical Weapons Stockpile:
Figure 2: Completed Firehouse at Shchuch’ye, November 2005:
Figure 3: Administration/Cafeteria Building under Construction,
November 2005:
Figure 4: Construction Progress on Building 101 in November 2003 and
November 2005:
Figure 5: U.S. Construction Status of Key Structures at Shchuch’ye,
March 2006:
Figure 6: Status of Key CWDF Milestones, as of May 2006:
Abbreviations
CTR: Cooperative Threat Reduction:
CWC: Chemical Weapons Convention:
CWD: Chemical Weapons Destruction:
CWDF: chemical weapons destruction facility:
DCAA: Defense Contract Audit Agency:
DCMA: Defense Contract Management Agency:
DOD: Department of Defense:
DTRA: Defense Threat Reduction Agency:
EVM: Earned Value Management:
FAR: Federal Acquisition Regulations:
IBR: integrated baseline review:
RFP: Requests for Proposal:
Rostekhnadzor: Federal Service for Ecological, Technological, and
Nuclear Oversight:
VAT: Value Added Tax:
May 31, 2006:
The Honorable Tom Coburn:
Chairman:
Subcommittee on Federal Financial Management,
Government Information, and International Security:
Committee on Homeland Security and Governmental Affairs:
United States Senate:
Dear Mr. Chairman:
Russia possesses the world's largest declared chemical weapons
stockpile. Since 1992, Congress has authorized the Department of
Defense (DOD), through its Cooperative Threat Reduction (CTR) program
to provide the Russian Federation more than $1 billion to eliminate
these weapons. The majority of these funds support the construction of
a chemical weapons destruction facility (CWDF) at Shchuch'ye, Russia.
The facility is designed to destroy about 14 percent of Russia's
chemical weapons stockpile. In 1999, DOD estimated that the destruction
facility would cost about $750 million and could begin destroying
chemical weapons in 2006. However, by 2003, DOD determined that the
facility would cost more than $1 billion and would not be operational
until 2009. DOD has attributed the increased cost and schedule to a
variety of risk factors, including changing requirements and
congressional restrictions on construction funding.
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 its
chemical weapons. To assess the progress of the facility, we obtained
information from U.S. government officials and representatives of
Parsons Global Services, Inc., (Parsons) the contractor managing the
construction at Shchuch'ye. We also collected and analyzed DOD and
contractor documents and met with relevant officials. Furthermore, we
analyzed the reliability of Parsons' Earned Value Management (EVM)
system data for the facility. A DOD-required management tool, an EVM
system measures performance by comparing the value of work accomplished
with work scheduled and thereby provides early warning of schedule
delays and cost overruns. To obtain information on Russia's chemical
weapons destruction efforts, we met with Russian government and
international donor officials and reviewed copies of pertinent
documents, including the Russian chemical weapons destruction plan. We
performed our work from June 2005 through May 2006 in accordance with
generally accepted government auditing standards. (See app. 1 for
details on our scope and methodology.)
Results in Brief:
Since our last visit to the site in November 2003, DOD and Parsons have
made progress in constructing the CWDF at Shchuch'ye. For example,
several buildings are at or near completion, including the fire
station, housing complex, and warehouse. However, DOD faces substantial
challenges that could threaten the project's cost and schedule. First,
the construction of key buildings is behind schedule. The construction
of the main destruction building is delayed due to subcontractor bids
that were incomplete or excessively high. The control building is
behind schedule because a major Russian subcontractor went bankrupt. As
of February 2006, DOD estimated that the construction of the entire
CWDF was about 40 percent complete, compared with the more than 52
percent scheduled for completion at that time. Second, uncertain
progress of Russian construction of utilities (electricity, water, and
gas) required to operate the facility could delay the destruction
process. Third, a new Russian regulatory agency has levied additional
and unplanned safety and administrative requirements on the project. In
addition, potential difficulties in implementing the next critical
step--systemization--in which all of the facility's components
(destruction, electrical, water, etc.) are tested to ensure
interoperability and performance--could impact cost and schedule. While
DOD estimates that it will turn over the Shchuch'ye facility to the
Russian government in May 2009, such an estimate appears optimistic
given the construction and other unknown delays DOD may encounter.
Furthermore, the EVM system that Parsons is using to record, predict,
and monitor progress contains flawed and unreliable data. Our analysis
revealed serious discrepancies in the data, such as improper
calculations and accounting errors. For example, we found that from
September 2005 through January 2006 Parsons' EVM reports did not
capture almost $29 million in actual costs for the CWDF project. In
addition, we found that DOD and Parsons have not yet conducted an
integrated baseline review for the Shchuch'ye project.
To improve DOD's efforts to accurately measure progress on the
Shchuch'ye project and estimate its final completion date and cost, we
are recommending that the Secretary of Defense ensure that Parsons' EVM
system contains valid, reliable data and that it reflects actual cost
and schedule conditions. Until Parsons' system produces reliable EVM
data, we are also recommending that the Secretary of Defense withhold a
portion of Parsons' award fee. Finally, we are recommending that the
Secretary of Defense require Parsons to perform an integrated baseline
review of the Shchuch'ye project once the contract for completing
Building 101 has been awarded.
DOD concurred with our recommendation regarding the improvement of
Parsons' EVM system data and provided technical comments that we
incorporated where appropriate. The Department of State did not provide
comments.
In addition to the Shchuch'ye project, the Russian government has
ambitious plans to eliminate its chemical weapons stockpile. Since
2002, Russia has destroyed about 3 percent of its declared 40,000
metric tons of chemical weapons at two completed destruction
facilities. To eliminate the remaining stockpile and meet the Chemical
Weapons Convention (CWC) extended deadline of 2012, the Russian
government will have to destroy about 38,000 metric tons of chemical
weapons. The Russian government's destruction plan to eliminate all
chemical weapons by 2012 may be unrealistic as it depends on the
construction of seven destruction facilities--two have been built, two
are under construction, and three have not been started. Furthermore,
the Russian government's priority is to destroy nerve agents contained
in large munitions, because destroying the larger-sized munitions first
would allow Russia to meet its CWC destruction deadlines faster.
Accordingly, the destruction of smaller munitions at Shchuch'ye may
become less of a priority for the Russian government. In addition, the
Russian government has indicated that it will need continued
international assistance to destroy the remaining stockpile. Its
destruction plan estimates that about $5.6 billion is needed to
eliminate the entire Russian stockpile. Since 2002, international
donors, including the United States, have committed almost $2 billion
for Russian chemical weapons destruction efforts.
Background:
Russia possesses the world's largest declared chemical weapons
stockpile, which is stored at seven sites across the country (see fig.
1). When declared in 1998, the Russian stockpile included 32,500 metric
tons of nerve agents and 7,500 metric tons of blister agents.[Footnote
1] As of March 2006, Russia had destroyed about 1,158 metric tons of
blister agents, about 3 percent of its stockpile. Under the CWC, Russia
must destroy all of its chemical weapons by the extended deadline of
2012.[Footnote 2] The CWC is a multilateral arms control treaty that
bans the development, production, stockpiling, transfer, and use of
chemical weapons and requires the destruction of existing chemical
weapons stocks. Until destroyed, chemical weapons remain a
proliferation threat.
Figure 1: Russian Chemical Weapons Stockpile:
[See PDF for Image]
[End of Figure]
In 1992, the United States agreed to assist the Russian government in
eliminating its chemical weapons stockpile. The United States has
committed to fund the design, construction, equipment acquisition and
installation, systems integration, training, and start-up of the
Shchuch'ye facility. When completed, the facility will house about 100
buildings and structures, including the destruction buildings where
chemical munitions are destroyed; the administration building where the
destruction process is controlled; and support buildings such as the
boiler house, which provides heat to the entire facility. As originally
planned, the facility's construction was expected to begin in March
2001 and to be completed in 2005. However, a 2-year congressional
freeze on funding postponed the start of construction until March 2003.
DOD's Defense Threat Reduction Agency (DTRA) manages the implementation
of the CTR program. To construct the Shchuch'ye facility, DTRA---
through the U.S. Army Corps of Engineers, the contract manager for the
project--has contracted with Parsons, which in turn subcontracts the
design and construction work to Russian contractors. Contracts are
executed, managed, and reviewed in accordance with DOD and Federal
Acquisition Requirements (FAR). Subcontractors submit bids in response
to Requests for Proposal (RFP) issued by Parsons. Parsons then awards
the subcontract on the basis of safety records, past performance,
quality of work, price, and other factors. After awarding these
packages, Parsons works with the subcontractors to conduct technical
evaluations of the schedule and cost of the work. CTR assistance will
finance the construction of all buildings and structures on site,
except for one. The Russian Federation has agreed to fund the
construction of a second destruction building (Building 101A) nearly
identical to Building 101, the U.S. funded destruction structure.
Russia is also funding the construction of utilities (gas, electricity,
water) needed to operate the facility and to support the local
community.
Since 1992, Congress has passed 27 laws addressing the CTR
program.[Footnote 3] The legislation includes various DOD requirements
for CTR funding, conditions on CTR expenditures, and mandates to report
on the implementation of the CTR program. Some legislative provisions
apply to the entire CTR program; others are directed at the Shchuch'ye
project, including a requirement for a presidential certification that
the project is in the U.S. national security interest.[Footnote 4] The
President's certification authority and the waiver of a prior
prohibition on funding chemical weapons destruction in Russia expire on
December 31, 2006.[Footnote 5] In addition, Congress has conditioned
funding for the Shchuch'ye facility on the Secretary of Defense's
certification that, among other conditions, Russia has allocated at
least $25 million to eliminating chemical weapons and has developed a
practical plan for destroying its chemical weapons stockpile.[Footnote
6]
Construction Has Progressed, but Project Is behind Schedule and Faces
Substantial Challenges:
Since our last visit to the Shchuch'ye site in 2003, we found that
Parsons and DOD had made progress in constructing the facility. Several
support buildings such as the fire station, worker housing, and
warehouse had been completed; and many of the other structures,
including the administration/cafeteria building, the processing
building, and storage buildings were well under construction. However,
key buildings had fallen behind schedule, affecting the facility's
overall cost and schedule. Uncertain progress of Russian construction
at the facility and on its infrastructure, an unpredictable Russian
operating environment, and assorted technical issues could continue to
impact the project's cost and schedule. Furthermore, the failure of
Parsons to develop and implement a usable EVMS has limited DOD's
efforts to oversee project schedule and cost.
DOD Has Made Progress but Is Experiencing Delays:
During our visit to the Shchuch'ye site in November 2005, we observed
substantial construction progress compared with our visit in November
2003. In 2003, the site consisted mainly of concrete foundations for
the destruction buildings, with only the specialist camp[Footnote 7]
and warehouse under construction. By 2005, however, the support
structures of many buildings had been built, and several buildings were
at or near completion, including the specialist camp, warehouse, gas
rescue station,[Footnote 8] and fire station. (Fig. 2 shows the
completed fire station.)
Figure 2: Completed Firehouse at Shchuch'ye, November 2005:
[See PDF for Image]
[End of Figure]
Also under construction were the boiler house and the administration/
cafeteria building, seen in figure 3.
Figure 3: Administration/Cafeteria Building under Construction,
November 2005:
[See PDF for Image]
[End of Figure]
The concrete outer shells of Building 101 and the administration/
control building had been completed. While Building 101 was still open
to the elements and contained no inner walls, Russian subcontractors
were installing outlets and control panels inside the drywall of the
administration building. (See fig. 4 for a comparison of the
construction work completed on Building 101 in November 2003 and
November 2005.) We also observed piping and wiring being installed
above ground for site wide electrical, heat, and water utilities.
Figure 4: Construction Progress on Building 101 in November 2003 (left)
and November 2005 (right):
[See PDF for Image]
[End of Figure]
Despite such progress, the CWDF project has not met scheduled
milestones, primarily because of a delay in awarding the contract for
the completion of the CTR-funded destruction building (Building 101),
pictured in figure 4. In January 2005, DOD estimated that the CWDF
would cost $1.039 billion and be transferred to the Russian Federation
by July 2009. However, in March 2006, DOD officials stated that they
were unable to estimate when the entire facility will be completed and
at what cost until they award a contract for the completion of Building
101. As of February 2006, DOD estimated that the construction of the
entire CWDF was about 40 percent complete, compared with the more than
52 percent scheduled for completion at that time. As indicated in
figure 5, the construction of certain key structures is behind
schedule, including the destruction building (Building 101), the
control building (administration building), the boiler house, and the
water circulation building.
Figure 5: U.S. Construction Status of Key Structures at Shchuch'ye,
March 2006:
[See PDF for Image]
[A] Building schedule modified by Parsons to reflect longer timelines.
[End of Image]
Building 101 is on the "critical path" --that is, delays in finishing
the building will prolong construction on other parts of the Shchuch'ye
facility. Although the exterior shell of Building 101 is on schedule,
the award of the construction contract for the remainder of Building
101 is behind schedule. Parsons had planned to award the subcontract
for the balance of the building in June 2005, but it may not be awarded
until summer 2006. Since October 2005, Parsons has incurred costs for
personnel salaries, rent, and transportation of more than $3 million
per month, which will continue until the subcontract is awarded. Where
possible, Parsons has reduced or delayed recruitment of personnel
planned for management of Building 101. Construction activity is still
ongoing at other buildings throughout the site.
The delay in awarding the contract for the remainder of Building 101
has impacted the overall schedule for completing the facility's
construction. As part of its program management, DOD estimates dates
for key project milestones at Shchuch'ye. These include a milestone
schedule with objective (ideal) completion dates, threshold (latest
acceptable) dates, and estimated completion dates for key activities.
As of May 2006, however, DOD does not expect to meet key milestone
dates for the CWDF. According to this schedule (as shown in fig. 6),
construction of the facility will be delayed by about 1 year, testing
using simulated nerve agent will begin some 15 months later than
planned, and live agent demonstration will be delayed by about 8
months. While DOD estimates that it will turn over the Shchuch'ye
facility to the Russian government in December 2009, such an estimate
appears optimistic given the construction and other unknown delays that
DOD may encounter in testing the facility with simulated and live nerve
agent. DOD officials stated that these milestones may slip even
further.
Figure 6: Status of Key CWDF Milestones, as of May 2006:
[See PDF for Image]
[End of Figure]
Shchuch'ye CWDF Delayed Due to Difficulties Working with Russian
Subcontractors:
The delays in constructing key buildings at the CWDF result from
problems Parsons and DOD have had with Russian subcontractors,
including the bankruptcy of one major subcontractor, problems in
soliciting adequate bids, and difficulty maintaining a competitive-
bidding process.
First, the 2005 bankruptcy of the Russian construction subcontractor
Magnitostroy delayed construction of key buildings. This company was
cited during the initial source selection process during 2000 to 2001
for its technical abilities, logistical capability, competitive
pricing, and financial responsibility and was the first construction
subcontractor to work on the Shchuch'ye project. According to DOD and
Parsons officials, Magnitostroy enjoyed the strong support of the
Russian government. However, it was discovered in 2005 that a senior
executive embezzled millions of dollars from the company in 2003. As a
result, the company was unable to afford sufficient labor to complete
its work at the site, according to DOD and Parsons officials. The most
serious delay involved the construction of the administration building-
-the command building that will control the destruction process.
Although scheduled to be complete at the time of our visit in November
2005, construction of the administration building was only about 36
percent complete. By January 2006, Parsons had assumed direct
responsibility for the construction of the building and had divided
most of the remaining work among Magnitostroy's subcontractors.
Similarly at that time, two other Magnitostroy buildings were behind
schedule, requiring Parsons to extend their completion dates. Given
these delays, Parsons has not provided Magnitostroy with RFPs on any
new construction packages.
Second, DOD and Parsons officials stated that Russian subcontractors
had not provided detailed cost and scheduling information in their
bids. Although Parsons cited incomplete bids as the cause of the delay,
DOD criticized Parsons for a "lack of urgency" in resolving the
Building 101 bid issue. Parsons had particular difficulty soliciting
adequate bids on the construction package for the work remaining on
Building 101.[Footnote 9] This construction package will complete the
building's physical structure and install the equipment and processing
systems needed to destroy the chemical munitions. According to DOD and
Parsons officials, it is the largest, most complex construction package
of the CWDF project. After Magnitostroy's bankruptcy, two other
contractors, Spetztroy and Stroytransgaz, bid on the remaining Building
101 construction package. According to DOD officials, their bids
arrived after the June 2005 deadline and did not include adequate cost
and schedule data. Despite a deadline extension, neither subcontractor
submitted a complete bid until the end of December 2005. At that time,
only Spetzstroy submitted a responsive bid. Its bid price, however, was
$239 million over DOD's budget.
Third, the small pool of approved Russian subcontractors has made it
difficult to maintain a competitive-bidding process. According to DOD,
the subcontractors for the CWDF are selected through a series of joint
selection committees. The Russian government develops a list of
approved companies that Parsons and a joint commission comprising DOD
and Russian government officials examine. In the initial round of
subcontractor selections in 2000 to 2001, Magnitostroy was the first
CWDF subcontractor chosen. A second round of selections in 2003 added
four more subcontractors: Promstroy, Spetztroy, Stroyprogress, and
Stroytransgaz. According to DOD officials, before Magnitostroy's 2005
bankruptcy, Magnitostroy, Stroytransgaz, and Spetztroy were the only
subcontractors that were capable of completing larger construction
efforts. The small number of Russian contractors discouraged effective
competition and limited the number of construction packages that could
be awarded.
In March 2005, DOD requested that the Russian Federation expand the
subcontractor pool to ensure completion of the Shchuch'ye facility on
time and within budget. The Russian government added one small
specialty subcontractor, Vneshstrojimport, but did not restart the
selection process to find a replacement for Magnitostroy. In December
2005, Stroytransgaz withdrew from competition, and the sole remaining
contractor, Spetztroy, submitted a bid for $310 million to complete
Building 101. However, DOD had budgeted only $71 million for the
construction package. To reconcile the cost difference, DOD paid for an
independent cost analysis that validated the original Parsons estimate
of $56 million. Parsons and DOD also sought the assistance of the
Russian government to negotiate with Spetzstroy to lower its bid. When
negotiations failed to produce a compromise, Parsons canceled the RFP
for the balance of Building 101 on March 2, 2006.
In March 2006, DOD resubmitted a request for more subcontractors and
provided the Russian government with a list of five potential
companies, three of which were added to the pool. In April 2006,
Parsons issued a new RFP for the remainder of Building 101. According
to DOD officials, Parsons has and will continue to conduct weekly
meetings with the bidders and make personnel available for questions
and clarifications regarding the RFP.
Cost and Schedule Subject to Uncertain Progress of Russian
Construction, an Unpredictable Russian Operating Environment, and
System Testing Issues:
The cost and schedule of the Shchuch'ye facility are subject to
continuous risks. The Russian Federation's uncertain progress in
completing work on Building 101A and required utilities could delay the
final system testing for the CWDF. The Russian government's failure to
complete promised social infrastructure could generate local opposition
to the CWDF. DOD and Parsons must also operate in an unpredictable
Russian environment with changing legal and technical requirements that
could directly affect schedule and cost.
Uncertain Russian Progress in Completing Facility and Infrastructure:
Russian Federation progress in completing Building 101A, as well as the
industrial and social infrastructure surrounding the CWDF, remains
uncertain. According to DOD officials, the Russian government's method
of construction scheduling contains few itemized tasks, making it
difficult to accurately gauge construction progress and uncover issues
that could cause delays. Although DOD and Parsons monitor Russian
Federation construction progress through monthly progress reports and
project site visits, the Russian government has not always followed
jointly agreed upon schedules. DOD and Parsons officials remain
concerned that systemization timelines could be affected if both
destruction buildings are not completed at the same time. Furthermore,
Russian progress in constructing utilities for the CWDF and the local
community has produced mixed results. For instance, we observed that
the Russian government has installed only one of three power lines
needed to operate the CWDF. According to Parsons and DOD officials,
although the Russian government completed the new water line to the
CWDF and the town of Shchuch'ye in 2004, the more water the CWDF uses,
the less the town has available. This may lead to a competition for
water when the facility begins consuming substantially more water when
testing of the facility's systems begins, and during operation.
Furthermore, when the Russian government constructed a new gas line to
the CWDF and through the town of Shchuch'ye, it did not connect the
line to local homes as promised. A local Shchuch'ye official stated
that most local residents cannot afford to pay for connection to the
main gas line and expressed concerns that the Russian government will
not fulfill its obligations to the local population. To allay public
concerns that may impact the CWDF, DOD uses public outreach offices to
conduct opinion polls and educate the local populace on the
CWDF.[Footnote 10]
Russia's Operating Environment Is Unpredictable:
DOD and Parsons must contend with an unpredictable Russian business
environment that can affect cost and schedule through unexpected
changes in Russian legal, technical, and administrative
requirements.[Footnote 11] New regulatory requirements have impacted
the CWDF; in one case, stopping work on a building until it could be
redesigned to comply with new Russian electrical codes. In November
2005, a new Russian regulatory agency---the Federal Service for
Ecological, Technological and Nuclear Oversight (Rostekhnadzor)---
performed a surprise audit at the Shchuch'ye CWDF. The agency cited
Parsons with noncompliance in several areas, including environmental
and industrial safety reviews, permits, licenses, and certifications.
While Parsons and DOD officials were not aware of these requirements,
they agreed to implement corrective actions. As of March 2006, Parsons
had resolved 82 percent of the Rostekhnadzor audit findings and was
working to mitigate the remainder. DOD continues to negotiate with
Rostekhnadzor to meet the requirements of Russian law and is working
with the Russian government to identify feasible solutions.
Additionally, Parsons has contracted with consultants that specialize
in helping companies conform to Russian fire, ecological, and
industrial safety regulations at the local and national levels.
Furthermore, DOD and Parsons must review new technical requirements
raised by Russian government officials. According to DOD officials,
some new requirement requests are justified as they relate to the
operation of the CWDF, while most others are attempts to transfer cost
and risk from Russia to the United States. For example, as a result of
code and space deficiencies, DOD accepted the Russian requirement for
an additional laboratory building on site, construction of which will
increase the project's cost by an additional $12 million. However, DOD
officials have resisted approving Russian requests that they believe
are unnecessary or that fall within Russian responsibilities at the
site. DOD refused to allow the Russian government to incorporate a new
machine into the destruction process, which would have required
significant redesign and testing of the process, and led to schedule
delays and increased project costs.
Russian requirements for long-term visas and value added tax (VAT)
exemptions for equipment have affected cost and schedule. The Russian
government provides most DOD and Parsons personnel with only 6-month
visas, requiring workers to temporarily leave the country while their
visas are reissued. One DOD official estimated that transportation
costs associated with this practice totaled approximately $3 million as
of November 2005. However, DOD officials have noticed improvement in
how quickly the Russian Federation processes visas. In addition, when
the Russian government reorganized in early 2004, the office in charge
of Russian customs was dissolved, leaving no agency able to approve the
VAT exemptions for more than 6 months. During that time, all equipment
shipped from the United States was halted, causing a 3-month slip in
the CWDF construction schedule. In late 2004, the Russian Federation
eventually reestablished a new VAT office, and equipment delivery was
resumed. Since that time, DOD has encountered no VAT-related delays.
Testing Issues Could Delay Destruction Process:
Issues associated with the testing of the CWDF's utilities and
automated destruction system (systemization) could further delay the
schedule and increase costs. DOD officials identified systemization of
the CWDF as the next major challenge after resolving the bid issue for
Building 101. Systemization consists of a series of tests to ensure the
safety, function, and interoperability of the CWDF internal systems--
i.e., water, gas, electric, heat, and the chemical munitions
destruction process. Such testing could be delayed if either
destruction building (101 or 101A) or essential utilities are not
completed on time. The automated destruction process is complex,
involving the drilling, draining, and decontamination of various sizes
and types of munitions, and the neutralization and bituminization of
the nerve agent they contain. Ensuring that this system works and
interfaces properly with the rest of the facility will require the
testing and calibrating of roughly 1,000 different processes, according
to a DOD official. DOD officials noted that U.S. experiences with
destroying chemical weapons found that systemization often encounters
difficulties and delays and has the potential to increase costs.
Furthermore, DOD and Parsons must compete the systemization contract
between two Russian subcontractors, Redkino and Giprosintez, selected
by the Russian government. Given previous difficulties working with
subcontractors, Parsons may experience delays in obtaining adequate and
reasonably priced bids.
DOD is attempting to mitigate systemization risk by exploring options
to test the CWDF's systems using Russian rather than U.S. methods.
Although the Shchuch'ye facility is a Russian design, it is currently
planned to undergo testing procedures similar to those DOD uses in the
United States. According to DOD officials, Russian systemization
methods are less involved than U.S. processes, which must adhere to
stringent environmental and operating regulations and can take 16 to 18
months to complete. The Russian government, however, systemized its
CWDF at Kambarka within 6 to 9 months. While DOD officials caution that
each CWDF is unique, given the types of munitions to be destroyed, they
have begun exploring whether Russian methods may allow for streamlining
and compression of the systemization schedule at Shchuch'ye, while
still maintaining acceptable safety levels. Parsons and its
subcontractors are also testing the automated destruction system
equipment before it is installed in Building 101.
EVM System Has Not Been Effectively Implemented and Contains Flawed
Data:
DOD policy and guidance[Footnote 12] require the use of EVM to measure
program performance. EVM uses contractor reported data to provide
program managers and others with timely information on a contractor's
ability to perform work within estimated cost and schedule. It does so
by examining variances reported in contractor performance reports
between actual cost and time of performing work tasks and the budgeted
or estimated cost and time. In September 2004, DOD modified its
contract with Parsons, allocating about $6.7 million and requiring the
company to apply EVM to the Shchuch'ye project. Parsons was expected to
have a validated EVM system by March 2005.[Footnote 13] As of April
2006, Parsons had not developed an EVM system that provided useful and
accurate data to CWDF program managers. In addition, our analysis found
that the project's EVM data are unreliable and inaccurate. According to
DOD officials, these problems stem in part from Parsons' outdated
accounting system. EVM guidance states that surveillance[Footnote 14]
of an EVM system should occur over the life of the contract. DOD has
not yet conducted an integrated baseline review (IBR)[Footnote 15] for
the Shchuch'ye project and does not plan to do so until after Parsons
awards the subcontract to complete Building 101, possibly in June 2006.
Parsons' EVM System Is Not Yet Useful to DOD Managers:
In December 2005 a Parsons' self-evaluation[Footnote 16] stated that
the EVM system for the CWDF was "fully implemented." In contrast, DOD
characterized Parsons' EVM implementation as a "management failure,"
citing a lack of experienced and qualified Parsons staff. DOD withheld
approximately $162,000 of Parsons' award fee due to concerns over the
EVM system. In March 2006, DOD officials stated that at that point in
implementation, EVM was not yet a useable tool in managing the
Shchuch'ye project. DOD officials stated that Parsons needs to
demonstrate that it incorporates EVM into project management rather
than simply fulfilling a contractual requirement. DOD expects Parsons
to use EVM to estimate cost and schedule impacts and their causes and,
most importantly, to help eliminate or mitigate identified risks.
Parsons' EVM staff stated that they underestimated the effort needed to
incorporate EVM data into the system, train staff, and develop EVM
procedures. Parsons officials were also surprised by the number of man-
hours required to accomplish these tasks, citing a high level of staff
turnover as contributing to the problem. According to the officials,
working in a remote and isolated area caused many of the non-Russian
employees to leave the program rather than extend beyond their initial
tour of duty.
Parsons' EVM Data Are Inaccurate and Unreliable:
Based on our review of Parsons' monthly EVM data for September 2005
through January 2006, we found that the data are inaccurate and
unreliable and that Parsons is exercising poor quality control over its
EVM data. Specifically, we discovered numerous instances where data
were not added properly for scheduled work; Parsons' EVM reports,
therefore, did not accurately capture data needed by project management
to make informed decisions about the Shchuch'ye facility. For example,
we found that from September 2005 through January 2006, Parsons' EVM
reports contained addition errors that did not capture almost $29
million in actual costs for the CWDF project. Such cost omissions and
other errors may cause DOD and Parsons project officials to
overestimate the amount of project funding available.
Moreover, we found several instances where the accounting data were not
allocated to the correct cost accounts, causing large cost over-runs
and under-runs. This problem occurred because the accounting data were
placed in the wrong account or Parsons' accounting system was unable to
track costs at all levels of detail within EVM. A Parsons official
stated that the company was taking measures to identify these
inaccuracies and allocate the accounting data to the proper cost
accounts. These problems, however, have led to numerous accounting
errors in the EVM reports. Such mistakes underestimate the true cost of
the CWDF project by ignoring cost variances that have already occurred.
Cost variances compare the earned value of the completed work with the
actual cost of the work performed. Until Parsons fixes its accounting
system, manual adjustments will have to be made monthly to ensure that
costs are properly aligned with the correct budget. Such continuous
adjustments mean that the system is consistently reflecting an
inaccurate status of the project for Parsons and DOD managers. (For
specific examples of our findings regarding Parsons' EVM data, see app.
II.)
EVM guidance states that surveillance of an EVM system should occur
over the life of the contract to guarantee the validity of the
performance data provided to the U.S. government. Initial surveillance
activities involve performing an IBR of a project within 6 months of
awarding a contract and as needed throughout the life of a project. DOD
and Parsons have not yet conducted an IBR for the Shchuch'ye project.
Program managers are expected to use EVM reports that have been
validated by an IBR. Without verifying the baseline, monthly EVM
reporting, which tracks project work against a set budget and schedule,
is neither meaningful nor valid. Parsons and DOD officials explained
that while an IBR has been discussed, one will not be conducted until
Parsons awards a contract for completing Building 101. DOD officials
estimate that the award process for this contract may not be completed
until summer 2006, approximately a year later than planned. According
to Parsons, as of January 2006, about $66 million of scheduled work has
not been completed as planned, due to the delay in awarding the
subcontract for the balance of Building 101. DOD officials stated that
while they recognize the importance of conducting surveillance over an
EVM system, they currently are focused on the immediate need of
establishing a usable EVM system on which to perform surveillance.
Furthermore, DOD requires all EVM systems to undergo a compliance audit
or "validation" conducted by the Defense Contract Management Agency
(DCMA) with assistance from the Defense Contract Audit Agency (DCAA).
DCAA found that Parsons' accounting process was inadequate. A DCAA
official on the validation team stated that Parsons is relying on an
outdated accounting system that has difficulty capturing actual costs
for the Shchuch'ye project and placing them into appropriate cost
categories. The DCAA official stated that Parsons management should
have discovered such accounting errors before the EVM report was
released to DOD. DCAA therefore questioned whether Parsons can generate
correct accounting data and recommended that Parsons update its
accounting system. As of April 2006, DCMA and DCAA had not yet
validated Parsons' EVM system. (For more information regarding DCMA and
DCAA's assessments of Parsons' EVM system see app. II.)
Russia Has Developed a Destruction Plan and Increased Funding but May
Not Meet Its Destruction Deadlines:
Since our report in March 2004,[Footnote 17] the Russian government has
approved a plan to destroy its chemical weapons stockpile and has begun
financing significantly more of its own destruction activities.
However, as of April 2006, the Russian government's progress in
destroying its chemical weapons stockpile has been limited, and the
Russian government's destruction plan may be overly ambitious and
reliant on international assistance.
Russia Has Developed a Destruction Plan That May Prove Overly
Ambitious:
We reported in early 2004 that Russia's lack of a credible chemical
weapons destruction (CWD) plan had hindered destruction activities.
However, in October 2005, the Russian government approved a plan for
destroying its entire chemical weapons stockpile by the CWC-established
deadline of 2012.[Footnote 18] The October 2005 plan calls for using
seven destruction facilities to eliminate the entire chemical weapons
stockpile. Destruction of the chemical weapons stockpile at Gorniy was
completed in December 2005. As of March 2006, only the facility at
Kambarka is operational. The plan outlines the construction of the
remaining five sites, including Shchuch'ye, where nerve agent is to be
eliminated.
According to the Russian plan, the blister agents stored at Gorniy and
Kambarka were to be destroyed first. In December 2005, the Russian
government completed its destruction efforts at Gorniy and began
destroying chemical weapons at Kambarka. In accordance with the plan,
destruction will next be focused on nerve agents. The storage sites
near Leonidovka, Maradykovskiy, and Pochep house large nerve-agent
munitions, while those near Shchuch'ye and Kizner store smaller
munitions. Table 1 depicts the schedule for Russian chemical weapons
destruction facilities.
Table 1: Schedule for Russian CWDFs:
Russian destruction facility site: Gorniy;
Actual or estimated date of operation: December 2002;
Actual or estimated completion date for destroying weapons: December
2005;
Type of chemical weapons: Bulk blister;
Quantity of agent to be destroyed (metric tons): 0;
Amount of declared stockpile (metric tons): 1,120.
Russian destruction facility site: Kambarka;
Actual or estimated date of operation: December 2005;
Actual or estimated completion date for destroying weapons: 2010;
Type of chemical weapons: Bulk blister;
Quantity of agent to be destroyed (metric tons): 6,347;
Amount of declared stockpile (metric tons): 6,360.
Russian destruction facility site: Maradykovskiy;
Actual or estimated date of operation: 2006;
Actual or estimated completion date for destroying weapons: 2012;
Type of chemical weapons: Large nerve munitions;
Quantity of agent to be destroyed (metric tons): 6,960;
Amount of declared stockpile (metric tons): 6,960.
Russian destruction facility site: Shchuch'ye;
Actual or estimated date of operation: 2008;
Actual or estimated completion date for destroying weapons: 2012;
Type of chemical weapons: Small nerve munitions;
Quantity of agent to be destroyed (metric tons): 5,440;
Amount of declared stockpile (metric tons): 5,440.
Russian destruction facility site: Leonidovka;
Actual or estimated date of operation: 2008;
Actual or estimated completion date for destroying weapons: 2012;
Type of chemical weapons: Large nerve munitions;
Quantity of agent to be destroyed (metric tons): 6,960;
Amount of declared stockpile (metric tons): 6,960.
Russian destruction facility site: Pochep;
Actual or estimated date of operation: 2008;
Actual or estimated completion date for destroying weapons: 2012;
Type of chemical weapons: Large nerve munitions;
Quantity of agent to be destroyed (metric tons): 7,520;
Amount of declared stockpile (metric tons): 7,520.
Russian destruction facility site: Kizner;
Actual or estimated date of operation: 2009;
Actual or estimated completion date for destroying weapons: 2012;
Type of chemical weapons: Small nerve munitions;
Quantity of agent to be destroyed (metric tons): 5,640;
Amount of declared stockpile (metric tons): 5,640.
Source: GAO analysis of Russian government and DOD data.
[End of table]
While the Russian plan indicates that the CWDF at Shchuch'ye will be
operational by 2008, DOD estimates that the facility may not be
operational until 2009. Furthermore, the Russian government's priority
is to destroy nerve agents contained in large munitions, because
destroying the larger-sized munitions first would allow Russia to meet
its CWC destruction deadlines faster. Accordingly, the destruction of
smaller munitions at Shchuch'ye[Footnote 19] may become less of a
priority for the Russian government.
However, the Russian government's destruction plan to eliminate all
chemical weapons by 2012 may be unrealistic. It depends on the
construction of seven facilities, but only two have been built, two are
under construction, and three have not been started. Although the CWDF
at Maradykovskiy may be operational in mid-2006, the Shchuch'ye
facility is still under construction, and only minimal work has begun
at the three remaining sites of Kizner, Leonidovka, and Pochep.
According to its CWC destruction schedule, Russia must eliminate 20
percent of its chemical weapons stockpile by April 2007. As of March
2006, it had eliminated about 3 percent at Gorniy and Kambarka. Between
April 2007 and April 2012, Russia must eliminate the remainder of its
chemical weapons stockpile (about 80 percent) at five destruction
facilities that have yet to be completed. It will be extremely
difficult for the Russian government to complete and operate the last
three facilities by its proposed schedule and meet its CWC commitment
to destroy all stockpiles at these sites by the extended deadline of
April 2012.
Similarly, as of April 2006, DOD announced that the United States will
not be able to meet the CWC extended destruction deadline of 2012. DOD
estimates indicate that about 66 percent of the U.S. declared chemical
weapons stockpile will be destroyed by April 2012. As of March 2006,
the United States had destroyed about 36 percent of its declared
stockpile. In the United States, DOD had five operating chemical
weapons destruction facilities as of March 2006, and two additional
facilities were being designed.[Footnote 20]
Russia Has Significantly Increased Funding, but Destruction Efforts
Need International Assistance:
According to the Russian destruction plan, the estimated cost for
eliminating the entire Russian chemical weapons stockpile is more than
160 billion rubles--about $5.6 billion.
Over the past 6 years, Russia has substantially increased its annual
funding for its chemical weapons destruction efforts. In 2000, the
Russian government spent about $16 million for chemical weapons
destruction. By 2005, it had spent almost $400 million. For 2006, the
Russian government plans to spend more than $640 million. For chemical
weapons elimination at Shchuch'ye, the Russian government has budgeted
about $144 million since fiscal year 2000. Russian funding at the site
supports construction of one of the two destruction buildings (Building
101A), as well as the industrial and social infrastructure (utilities,
roads, schools, etc.) needed to support the facility's operations.
The Russian government will need continued international assistance to
complete destruction of its chemical weapons stockpile. The United
States, Canada, Germany, Italy, United Kingdom, and other donors have
committed almost $2 billion in assistance, with the United States
committing the largest amount, about $1.039 billion. The Russian
government estimates it will need about $5.6 billion to eliminate its
entire stockpile. All U.S. assistance for destroying Russian chemical
weapons is being provided to the CWDF at Shchuch'ye.[Footnote 21] As of
March 2006, other international donors, such as Canada and the United
Kingdom, are also providing significant assistance to Shchuch'ye to
help fund the Russian destruction building (Building 101A) and the
infrastructure needed to support the facility's operation.[Footnote 22]
Although Italy is providing some funding for Shchuch'ye infrastructure,
most of its contributions are committed to the construction of the CWDF
at Pochep. Russia has been relying on German assistance to destroy its
stockpile of blister agents at the Gorniy and Kambarka destruction
facilities. Table 2 describes the commitments and types of assistance
provided by international donors.
Table 2: International Assistance for Russian CWD, as of April 2006:
International donors: Belgium;
Committed funding for Russian CWD (U.S. dollars)[A]: $100,000;
Areas to receive international assistance: Shchuch'ye;
Types of projects being funded: To be determined.
International donors: Canada;
Committed funding for Russian CWD (U.S. dollars)[A]: $89,150,537;
Areas to receive international assistance: Shchuch'ye;
Types of projects being funded: Industrial infrastructure, railway, and
equipment for Building 101A.
International donors: Czech Republic;
Committed funding for Russian CWD (U.S. dollars)[A]: $232,458;
Areas to receive international assistance: Shchuch'ye;
Types of projects being funded: Industrial infrastructure (electrical
substations).
International donors: Denmark;
Committed funding for Russian CWD (U.S. dollars)[A]: $117, 970;
Areas to receive international assistance: Various locations;
Types of projects being funded: Public outreach efforts.
International donors: European Union;
Committed funding for Russian CWD (U.S. dollars)[A]: $14,156,452;
Areas to receive international assistance: Gorniy, Kambarka, and
Shchuch'ye;
Types of projects being funded: Equipment at Gorniy and Kambarka, and
industrial infrastructure at Shchuch'ye (electrical substation).
International donors: Finland;
Committed funding for Russian CWD (U.S. dollars)[A]: $871,771;
Areas to receive international assistance: Gorniy and other locations;
Types of projects being funded: Equipment at Gorniy and public outreach
efforts.
International donors: France;
Committed funding for Russian CWD (U.S. dollars)[A]: $7,077,976;
Areas to receive international assistance: Shchuch'ye;
Types of projects being funded: Environmental surveys and other
projects to be determined.
International donors: Germany;
Committed funding for Russian CWD (U.S. dollars)[A]: $233,573,198;
Areas to receive international assistance: Gorniy and Kambarka;
Types of projects being funded: Equipment for the construction and
operation of both facilities.
International donors: Ireland;
Committed funding for Russian CWD (U.S. dollars)[A]: $94,376;
Areas to receive international assistance: Shchuch'ye;
Types of projects being funded: To be determined.
International donors: Italy;
Committed funding for Russian CWD (U.S. dollars)[A]: $439,660,257;
Areas to receive international assistance: Shchuch'ye and Pochep;
Types of projects being funded: Infrastructure (gas pipeline) at
Schuch'ye and the construction of the Pochep CWDF.
International donors: Netherlands;
Committed funding for Russian CWD (U.S. dollars)[A]: $9,028,325;
Areas to receive international assistance: Shchuch'ye;
Types of projects being funded: Equipment for Building 101A.
International donors: New Zealand;
Committed funding for Russian CWD (U.S. dollars)[A]: $1,158,433;
Areas to receive international assistance: Shchuch'ye;
Types of projects being funded: Industrial infrastructure (electrical
substation).
International donors: Norway;
Committed funding for Russian CWD (U.S. dollars)[A]: $3,250,969;
Areas to receive international assistance: Shchuch'ye;
Types of projects being funded: Industrial Infrastructure (electrical
substation) and other projects to be determined.
International donors: Nuclear Threat Initiative;
Committed funding for Russian CWD (U.S. dollars)[A]: $1,000,000;
Areas to receive international assistance: Shchuch'ye;
Types of projects being funded: Infrastructure (railway bridge).
International donors: Sweden;
Committed funding for Russian CWD (U.S. dollars)[A]: $952,988;
Areas to receive international assistance: Shchuch'ye;
Types of projects being funded: To be determined.
International donors: Switzerland;
Committed funding for Russian CWD (U.S. dollars)[A]: $6,984,707;
Areas to receive international assistance: Kambarka, Shchuch'ye, and
other locations;
Types of projects being funded: Sanitary and hygiene monitoring system
at Shchuch'ye, equipment at Kambarka, and public outreach efforts.
International donors: United Kingdom;
Committed funding for Russian CWD (U.S. dollars)[A]: $141,196,728;
Areas to receive international assistance: Shchuch'ye and other
locations;
Types of projects being funded: Industrial infrastructure, equipment
for Building 101A, and public outreach efforts.
International donors: United States;
Committed funding for Russian CWD (U.S. dollars)[A]: $1,039,200,000;
Types of projects being funded: Shchuch'ye;
Types of projects being funded: Construction of the destruction
facility.
International donors: Total;
Committed funding for Russian CWD (U.S. dollars)[A]: $1,987,807,145;
Types of projects being funded: [Empty];
Types of projects being funded: [Empty].
Source: GAO analysis of data from DOD, State, and international donors.
[A] Donor commitments converted from foreign currencies to U.S. dollars
using the annual 2005 exchange rate.
[End of table]
To facilitate additional international contributions, the Russian
government has provided potential donors a list of CWDF projects
requiring assistance. Primarily, assistance is needed for the
construction of the destruction facilities at Kizner, Leonikovka, and
Pochep, as well as related infrastructure support. The Russian
government is also seeking international funding to support operations
at the Kambarka and Maradykovskiy facilities.
Conclusion:
Until destroyed, Russia's stockpile of chemical weapons--especially
nerve agents contained in small munitions, such as those stored at
Shchuch'ye--remain a proliferation threat, vulnerable to diversion and
theft. Since 1992, the United States has been providing CTR assistance
for the CWDF at Shchuch'ye to help reduce the threats posed by these
weapons. Originally designed as a pilot facility to "jump start"
Russian chemical weapons destruction efforts, Shchuch'ye may no longer
be a priority for the Russian government. Delays in implementing the
Shchuch'ye project over the past 14 years led the Russian government to
begin destruction efforts at other sites. Disagreements between the
United States and Russia over the types of munitions to destroy and how
to destroy them, negotiations to resolve outstanding issues,
restrictions on U.S. funding, and difficulties with Russian
subcontractors, among other factors, have delayed the Shchuch'ye
facility's completion and increased its costs. Although progress has
been made on the physical construction of the facility over the past 3
years, DOD continues to encounter numerous challenges that affect the
completion of the Shchuch'ye CWDF. Furthermore, DOD currently cannot
reliably estimate when the Shchuch'ye facility will be completed and at
what cost. Parsons' EVM system, implemented to help manage the schedule
and cost of the Shchuch'ye project, contains unreliable and inaccurate
data; thus, DOD cannot use it as a management tool. Even with
significant international assistance at Shchuch'ye and other
destruction facility sites, the Russian government will likely fail to
destroy its entire chemical weapons stockpile by the CWC extended
deadline of 2012.
Recommendations for Executive Action:
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, we recommend that the Secretary of Defense direct the
Defense Threat Reduction Agency, in conjunction with the U.S. Army
Corps of Engineers, to take the following three actions:
* ensure that Parsons' EVM system contains valid, reliable data and
that the system reflects actual cost and schedule conditions;
* withhold a portion of Parsons' award fee until the EVM system
produces reliable data; and:
* require Parsons to perform an integrated baseline review after
awarding the contract for completing Building 101.
Agency Comments and Our Evaluation:
DOD provided comments on a draft of this report, which are reproduced
in appendix III. DOD concurred with our recommendation that DTRA in
conjunction with the U.S. Army Corps of Engineers ensure that Parsons'
EVM system contains valid, reliable data and reflects actual cost and
schedule conditions, and require that Parsons perform an integrated
baseline review after awarding the contract for completing Building
101. DOD partially concurred with our recommendation that a portion of
Parsons' award fee be withheld until the EVM system produces reliable
data. DOD stated that it had withheld a portion of Parson's award fee
in a previous period. DOD further noted that an award fee must be based
on the merits of the contractor's performance and until the performance
period is completed, it cannot prejudge Parsons' performance and
predetermine the withholding of award fees based on our recommendation.
DOD also provided technical comments, which we have incorporated where
appropriate. The Department of State was provided a draft of this
report but did not provide comments.
We are providing copies of this report to the Secretaries of Defense
and State and interested congressional committees. We will also make
copies available to others upon request. In addition, this report will
be available on the GAO Web site at [Hyperlink, http://www.gao.gov].
If you or your staff have any questions concerning this report, please
contact me at (202) 512-8979 or christoffj@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.
Sincerely yours,
Signed by:
Joseph A. Christoff:
Director, International Affairs and Trade:
Appendix I:
Scope and Methodology:
To assess the progress of the Shchuch'ye facility, we collected and
analyzed Department of Defense (DOD) and Parsons Global Services, Inc.
(Parsons) contractor documents and met with relevant officials.
Specifically, we met with officials from the Cooperative Threat
Reduction (CTR) Policy Office, the office of the Assistant to the
Secretary of Defense for Nuclear and Chemical and Biological Defense
Programs, the Defense Threat Reduction Agency (DTRA), and the U.S. Army
Corps of Engineers. Within DTRA, we obtained information from the
Director of the Cooperative Threat Reduction Directorate, as well as
the program and project managers, for chemical weapons elimination. We
also met with officials from the Threat Reduction Support Center in
Springfield, Virginia. In addition, we met with officials from the DTRA
office and the Chemical Weapons Destruction Support Office in Moscow.
We traveled to the Russian Federation to observe construction of the
CTR-funded chemical weapons destruction facility at Shchuch'ye. At
Shchuch'ye and Chelyabinsk, we met with personnel from Parsons and the
U.S. Army Corps of Engineers. In Moscow, we met with Russian government
officials at the Federal Agency for Industry, the Ministry of Foreign
Affairs, the Duma, and the Accounts Chamber of the Russian Federation.
We also analyzed the reliability of the earned value management (EVM)
data for the Shchuch'ye project. Specifically, we examined Parsons' EVM
reports for a 5-month period from, September 2005 to January 2006, to
assess the Shchuch'ye destruction facility's cost and schedule. We
checked the EVM data to see if there were any mathematical errors or
inconsistencies that would lead to the data being unreliable. We
interviewed officials from the Defense Contract Management Agency
(DCMA), the Defense Contract Audit Agency (DCAA), and Parsons officials
to better understand the anomalies in Parsons' EVM data and determine
what outside surveillance was being done to ensure the validity of the
EVM data. We also used a data collection instrument to obtain detailed
information from DOD on the Shchuch'ye project, including the contract,
program management activities, independent cost estimates, risk
analysis, and award fees.
To obtain information on Russian elimination efforts and international
donor assistance for Russian chemical weapons destruction, we met with
U.S., Russian, and international donor officials and obtained copies of
pertinent documents, including the Russian chemical weapons destruction
plan. We obtained information from officials in the Bureau of European
and Eurasian Affairs and the Bureau of International Security and
Nonproliferation at the Department of State. At DOD, we met with
officials and acquired documents from the Office of the Secretary of
Defense for Cooperative Threat Reduction Policy. In Moscow, we obtained
information from Russian government officials at the Accounts Chamber,
the Federal Agency for Industry, the Ministry of Foreign Affairs, and
the Duma. At Shchuch'ye, we spoke with a local government official
involved with public outreach efforts. We obtained data from the U.S.,
Russian, British, Canadian, and German governments as well as the G-8
Global Partnership on the assistance committed and provided for Russian
chemical weapons destruction efforts. To assess the reliability of
these data, we corroborated other nations' data wherever possible,
comparing and cross-checking documents and information. We interviewed
officials from the United States, Canada, Germany, the United Kingdom,
and the Russian Federation. We determined that data on funding and
assistance provided for Russian chemical weapons destruction were
sufficiently reliable for the purposes of this report. We also
determined that data on the status of Russian and U.S. chemical weapons
elimination were sufficiently reliable for the purposes of this report.
The information on Russian law in this report does not reflect our
independent legal analysis but is based on interviews and secondary
sources. We performed our work from June 2005 through May 2006 in
accordance with generally accepted government auditing standards.
Appendix II:
Lack of Reliable EVM Data Limits DOD's Ability to Estimate Schedule and
Cost for Constructing the CWDF at Shchuch'ye:
Measuring and reporting progress against cost and schedule commitments
is vital to effective program management. To measure program
performance, DOD requires the use of EVM, a concept that has been used
by DOD since the 1960s for measuring program performance. Through EVM,
program offices can determine a contractor's ability to perform work
within cost and schedule estimates by examining variances between the
actual and estimated costs and time to perform work tasks. EVM offers
many benefits when done properly and serves as a means to measure
performance and identify deviations from planned activities, allowing
program managers to mitigate risks. Based on our analysis of Parsons'
EVM data, and the findings of the Defense Contract Management Agency
(DCMA) and Defense Contract Audit Agency (DCAA), the data are
inaccurate and unreliable. Without reliable schedule and cost
estimates, DTRA has limited means to accurately assess when the
Shchuch'ye facility will be completed and at what cost.
GAO's Analysis Reveals Parsons' EVM Data are Unreliable and Require
Surveillance:
In reviewing Parsons' monthly EVM data for September 2005 through
January 2006, we discovered numerous instances of data not adding
properly for scheduled work. Further, Parsons' EVM reports are not
capturing all of the data needed by project management to make informed
decisions about the Shchuch'ye facility. Such errors may cause DOD and
Parsons project officials to overestimate the amount of funding
available to cover future risks, such as the systemization of the
Shchuch'ye facility. Moreover, we found several instances where the
accounting data were not allocated to the correct cost accounts causing
large cost over-runs and under-runs. In these cases, the accounting
data were placed in the wrong account, or Parsons' accounting system
was unable to track costs at the level of detail EVM as requires.
Parsons officials stated that measures are being taken to identify
these inaccuracies and allocate the accounting data to the proper cost
accounts. These problems, however, have led to numerous accounting
errors in Parsons' EVM reports.
Furthermore, in reviewing Parsons' EVM reporting data, we found several
errors that a Parsons' official attributes to the company's accounting
system. For instance, current EVM period data are not accurate due to
historical data corruption, numerous mistakes in accounting accruals,
and manual budget adjustments. Such mistakes underestimate the true
cost of the CWDF project by ignoring cost variances that have already
occurred. For example, the Moscow project management task was budgeted
at a cost of $100,000. According to the January 2006 EVM report, the
work has been completed but the actual cost was $2.6 million, resulting
in an overrun of approximately $2.5 million. The EVM report, however,
fails to capture the expected $2.5 million overrun. Such data are
misleading and skew the project's overall performance. As indicated in
table 3, this is just one example of accounting system errors. In the
case of the Moscow project management task, Parsons officials explained
that this error occurred because the budget for this account was
misaligned and, therefore, caused a false cost variance. Parsons
officials stated they would be issuing an internal change order to
correct this mistake.
Table 3: Examples of Accounting System Errors Understating the Variance
at Completion from January 2006 Report:
Dollars in Millions:
Estimate at completion:
Design task (27); task management;
Work scheduled: $2.1;
Work performed: $2.1;
Actual costs: $5.5;
Budget at completion: $2.1;
Estimate at completion: $2.1;
GAO analysis of variance at completion understated by: $3.4.
Work scheduled: Design task (27); project management, Moscow;
Work scheduled: $0.1;
Work performed: $0.1;
Actual costs: $2.6;
Budget at completion: $0.1;
Estimate at completion: $0.1;
GAO analysis of variance at completion understated by: $2.5.
Work scheduled: Design task (27); construction packages;
Work scheduled: $9.4;
Work performed: $9.0;
Actual costs: Budget at completion: $20.2;
Budget at completion: $9.9;
Estimate at completion: $9.9;
GAO analysis of variance at completion understated by: $11.0.
Construction task (33); Parsons purchased equipment Building 101;
Work scheduled: $48.6;
Work performed: $36.1;
Actual costs: Budget at completion: $10.4;
Budget at completion: $80.7;
Estimate at completion: $52.3;
GAO analysis of variance at completion understated by: $28.3.
Source: GAO analysis of Parsons data.
[End of table]
Until Parsons' management updates the company's accounting system,
these types of manual adjustments will have to be made through monthly
change orders to ensure that costs are properly aligned with the
correct budget. Such continuous adjustments do not allow the EVM system
to provide timely and accurate information to Parsons and DOD managers.
In addition, DOD guidance and best practices require program managers
to conduct an integrated baseline review (IBR) as needed to ensure that
the baseline for tracking cost, technical information, and schedule
status reflects (1) all tasks in the statement of work, (2) adequate
resources in terms of staff and materials to complete the tasks, and
(3) integration of the tasks into a well-defined schedule. Program
managers are required to use EVM reports that have been validated by an
IBR. Without verifying the baseline, monthly EVM reporting--which
tracks project work against a set budget and schedule--is insufficient
and invalid.
Parsons and DOD officials explained that while an IBR has been
discussed, one will not be conducted until the contract for completing
Building 101 has been awarded. DOD officials estimate that the contract-
award process may not be completed until June 2006, resulting in a 1
year delay. Such a delay not only prevents Parsons from holding an IBR,
but it also jeopardizes DOD's ability to accurately estimate the cost
and schedule to complete the CWDF program. Until the costs have been
negotiated for building the remainder of Building 101, it is unclear
whether the CWDF at Shchuch'ye will be completed on time and within
budget. DTRA officials explained that if the costs for this effort
exceed the original estimate, they will have to cover the shortfall
using management reserve funds. Using management reserve funds for
construction leaves less contingency funding available to complete and
test the Shchuch'ye facility.
DCMA and DCAA Have Concerns with Parsons' EVM Implementation:
Until December 2004, DTRA was using EVM data from a simplified Parsons
EVM process. In September 2004, DTRA directed Parsons to implement a
complete EVM system that was capable of being validated by DCMA.
Although Parsons' EVM validation was originally scheduled for March
2005, Parsons was unable to meet this deadline and requested a series
of extensions. In September 2005, DCMA officials visited the Shchuch'ye
site for a program assistance visit and then returned in mid-November
2005 to conduct the formal validation review, 8 months later than
planned.
DOD requires all EVM systems to go through a compliance audit or
"validation" conducted by DCMA, with assistance from DCAA. The
evaluation team looks for proof that the system meets the 32
criteria[Footnote 23] for a good EVM system, as well as 2 to 3 months
of reliable EVM data. While the DCMA official who led the validation
team saw much improvement in Parsons' EVM system from September to
November 2005, he stipulated that an EVM compliance audit only tests
whether the contractor has a good, capable EVM system and knows how to
use it. A compliance audit does not identify whether the system is used
properly, the data are reliable, or the products of the system are read
and acted upon by management. The DCMA official stated that continual
surveillance of Parsons' EVM system would be necessary to ensure these
actions were occurring. According to the official, DCMA does not expect
to perform surveillance for the Shchuch'ye project.
DCAA also participated in Parsons' EVM validation and produced a
corrective action report stating that its EVM accounting process was
inadequate. Specifically, Parsons did not provide adequate
documentation that direct costs of almost $300,000 were based on
accurate and reliable accounting data. The source of the accounting
data used by Parsons may be unreliable, causing actual costs for
September 2005 to be significantly understated. For September 2005,
Parsons subtracted almost $1 million without providing sufficient data
that the adjustment was reasonable and allowable. A DCAA official
stated that these findings are the result of Parsons' reliance on an
outdated accounting system that has difficulty capturing actual costs
for the Shchuch'ye project into a proper cost ledger. The official
noted that the software Parsons uses to query the accounting system and
pull data into the EVM reports also caused errors. DCAA was also
concerned with Parsons' ability to apply effective EVM data quality
control. According to DCAA officials, Parsons' management should have
discovered such accounting errors before the EVM report was released to
DOD. DCAA therefore questioned whether Parsons can generate correct
accounting data and recommended that Parsons update its accounting
system.
Appendix III:
Comments from the Department of Defense:
Nuclear And Chemical And Biological Defense Programs:
Assistant To The Secretary Of Defense:
3050 Defense Pentagon Washington, DC 20301-3050:
May 19, 2006:
Mr. Joseph A Christoff:
Director, International Affairs and Trade:
U.S. Government Accountability Office (GAO):
441 G Street N.W.
Washington, DC 20548:
Dear Mr. Christoff:
This is the Department Of Defense (DOD) response to the GAO draft
report 06-692, "COOPERATIVE THREAT REDUCTION: DOD Needs More Reliable
Data to Better Estimate the Cost and Schedule Of the Shchuch'ye
Facility," dated May 3, 2006 (GAO Code 320363).
The Department concurs with the report. Suggested technical and
editorial corrections to the report were provided separately. The
detailed comments to each report recommendation are provided in the
enclosure.
The Department appreciates the opportunity to review and comment On the
draft report.
Signed by:
Dale Klein:
Enclosure:
As stated:
cc:
DIR DTRA:
DASD NP:
GAO DRAFT REPORT DATED MAY 3, 2006 GAO-06-692 (GAO CODE 320363):
"COOPERATIVE THREAT REDUCTION: DOD NEEDS MORE RELIABLE DATA TO BETTER
ESTIMATE THE COST AND SCHEDULE OF THE SHCHUCH'YE FACILITY"
DEPARTMENT OF DEFENSE COMMENTS TO THE GAO RECOMMENDATIONS:
RECOMMENDATION (A): The GAO recommended that the Secretary of Defense
direct the Defense Threat Reduction Agency, in conjunction with the
U.S. Army Corps of Engineers to ensure that the Parsons' Earned Value
Management (EVM) system contains valid, reliable data and that it
reflects actual cost and schedule conditions.
DOD RESPONSE: (DOD) concurs. The Defense Threat Reduction Agency
(DTRA), the U.S. Army Corps of Engineers (COE), the Defense Contract
Management Agency (DCMA), and the Defense Contract Audit Agency ("CAA)
continue to work collaboratively with Parsons to ensure that the
Parsons' Earned Value Management (EVM) system contains valid, reliable
data and that it reflects actual cost and schedule conditions. Parsons'
EVM data continues to improve and is now being used by Parsons, COE,
and DTRA managers to manage the program. However, more work will be
done to improve its quality. For example, over the next few months,
software upgrades will be made to make the EVM data more user friendly.
(DOD) surveillance and improvement of the EVM system will Continue
using its own technical experts and assistance from DCMA/DCAA. DCMA
validation of the EVM system is pending the resolution of DCAA
identified faults in Parsons' accounting system.
RECOMMENDATION (B): The GAO recommended that the Secretary of Defense
direct the Defense Threat Reduction Agency, in conjunction with the
U.S. Army Corps of Engineers, to withhold a portion of Parsons' award
fee until the PATNA system produces reliable data.
DOD RESPONSE: (DOD) partially concurs. No direction from the Secretary
of Defense is required. (DOD) already withheld a portion of Parsons'
award fee in a previous period based on the EVM system. This is a
standard management technique practiced by (DOD) However, (DOD) cannot
prejudge Parsons and predetermine an award fee based on a GAO
recommendation. An award fee must be based on the merits of the
performance, according to the contract's award fee criteria.
RECOMMENDATION (C): The GAO recommended that the Secretary of Defense
direct the Defense Threat Reduction Agency, 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.
DOD RESPONSE: (DOD) Concurs. (DOD) and Parsons always intended to
conduct an integrated baseline review of the project after Parsons
awarded the contract for completing building 101.
Appendix IV:
GAO Contact and Staff Acknowledgments:
GAO Contact:
Joseph Christoff (202) 512-8979 or christoffj@gao.gov:
Acknowledgments:
In addition to the individual named above, Muriel Forster (Assistant
Director), Jerome Brown, Lynn Cothern, Jennifer Echard, David Hancock,
Beth Hoffman León, and Karen Richey contributed to this report. Joanna
Chan, Martin DeAlteriis, Mark Dowling, Jennifer Mills, and Jena
Sinkfield also provided assistance.
(320363):
FOOTNOTES
[1] Nerve agents affect the transmission of nerve impulses in the
nervous system. Nerve agents are easily dispersed and highly toxic when
absorbed through the skin or via respiration. Blister agents, which can
be lethal if inhaled, generally cause burns on contact with skin. The
blister agents include mustard gas and lewisite.
[2] The CWC requires the destruction of existing chemical weapons
stocks and production facilities by 2007 with a possible extension to
2012.
[3] For a summary of the legislation, see appendix II of GAO,
Cooperative Threat Reduction: DOD Has Improved Its Management and
Internal Controls, but Challenges Remain, GA0-05-329 (Washington, D.C.:
June 30, 2005). Since publication of that report, Congress has passed
two laws containing measures addressing CTR. Pub. L. 109-103, Div A
(The National Defense Authorization Act for Fiscal Year 2006) and Pub.
L. 139-148, Div A (The Department of Defense Appropriations Act of
2006).
[4] Pub. L. 108-375, sec. 1303 (amending Pub. L. 108-136, sec. 1306).
[5] See Pub. L. 106-65, sec. 1305.
[6] See Pub. L. 107-107, sec. 1308. The Secretary of Defense must
certify that there has been (1) information provided by Russia, that
the United States assesses to be full and accurate, regarding the size
of the chemical weapons stockpile of Russia; (2) a demonstrated annual
commitment by Russia to allocate at least $25 million to chemical
weapons elimination; (3) development by Russia of a practical plan for
destroying its stockpile of nerve agents; (4) enactment of a law by
Russia that provides for the elimination of all nerve agents at a
single site; (5) an agreement by Russia to destroy or convert its
chemical weapons production facilities at Volgograd and Novocheboksark;
and (6) a demonstrated commitment from the international community to
fund and build infrastructure needed to support and operate the
facility.
[7] The specialist camp is the building to house contractors working on
site.
[8] The gas rescue station will serve as a training center and
equipment depot for dealing with hazardous materials on site.
[9] Construction packages are "mini contracts" for completing specific
tasks associated with buildings and infrastructure that are awarded to
subcontractors on a competitive basis.
[10] The Green Cross public outreach offices are located in Shchuch'ye,
Chelyabinsk, and Kurgan.
[11] According to its agreement with DOD, the Russian government must
identify and obtain all legal permits, licenses, and certifications
required to design, construct, equip, commission, and operate the
Shchuch'ye CWDF.
[12] Defense Contract Management Agency, Department of Defense Earned
Value Management Implementation Guide, (Washington, D.C.: Apr. 7,
2005). See also DOD Memorandum: Revision to DOD Earned Value Management
Policy, (Washington, D.C.: Mar. 7, 2005).
[13] According to DOD, a validated EVM system was not required at the
time the Parsons contract was awarded. A modified EVM system,
implemented in September 1998, was maintained and used until December
2004.
[14] Surveillance is the process of reviewing the health of the EVM
system process. The purpose of surveillance is to focus on using EVM
system effectively to manage cost, schedule, and technical performance.
An effective surveillance process ensures that the key elements of the
process are maintained over time.
[15] An IBR verifies the technical content of the baseline. It also
ensures that contractor personnel understand and have been adequately
trained to collect EVM data. The review also verifies the accuracy of
the related budget and schedule to ensure that risks have been properly
identified, and it also assesses whether the contractor meets the
program's objectives.
[16] Award fee contracts allow government agencies to adjust the amount
of fee paid to contractors based on the contractor's performance.
Parsons is required to do a self assessment of its performance at the
end of each award fee evaluation period.
[17] GAO, Nonproliferation: Delays in Implementing the Chemical Weapons
Convention Raise Concerns About Proliferation, GAO-04-361 (Washington,
D.C.: Mar. 31, 2004).
[18] The Government of the Russian Federation Resolution, No. 639 (Oct.
24, 2005). On Amendments to the Federal Target-Oriented Program,
"Chemical Weapons Stockpiles Destruction in the Russian Federation."
[19] The nerve agents to be destroyed at the Shchuch'ye CWDF are stored
at the Planovy arsenal located about 10 miles away.
[20] The U.S. facilities operational as of March 2006 include Umatilla,
Ore; Newport, Ind; Deseret, Utah; Pine Bluff, Ark; and Anniston, Ala.
The facilities at Blue Grass, Ky; and Pueblo, Colo., remain in the
design phase. In February 2006, the facility at Edgewood, Md., began
closing procedures. As of November 2003, all chemical weapons at
Johnston Atoll were destroyed and the destruction facility dismantled.
[21] In addition to funds for destroying Russian chemical weapons,
other CTR assistance is being provided to help eliminate former Russian
chemical weapons production facilities at Volgograd and
Novocheboksarsk.
[22] The United States, the United Kingdom, and Canada, in conjunction
with the Russian Federation, formed a working group in November 2003 to
coordinate all international assistance to the Shchuch'ye site.
[23] The American National Standards Institute/Electronic Industries
Alliance guidance identifies 32 criteria that reliable EVM systems
should meet. The criteria are organized into five categories:
organization, planning and budgeting; accounting; analysis; and
revisions and data maintenance.
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