Plutonium Disposition: Observations on DOE and Army Corps Assessments of the Mixed Oxide Fuel Fabrication Facility Contract

What GAO Found

According to officials GAO interviewed, converting the line item of the contract to construct the Mixed Oxide Fuel Fabrication Facility (MOX facility)--which would make nuclear fuel using plutonium and uranium oxides--from a cost reimbursable-type contract to a fixed-price incentive firm contract, as recommended by a U.S. Army Corps of Engineers (Corps) report, is not certain to reduce total government costs. Further, the process of converting the contract to a fixed-price incentive firm contract could present uncertainty about the costs of the project. For example, according to its representatives, the MOX facility contractor will account for increased risks and other uncertainties when developing its proposal. However, according to the Corps report, such a conversion would limit the government's risk of potential future cost increases by shifting this risk to the contractor.

In addition, National Nuclear Security Administration (NNSA) officials GAO interviewed said they do not expect that converting the MOX facility construction contract line item to a fixed-priced incentive firm contract line item would significantly alter the life-cycle cost for the Plutonium Disposition program. NNSA's 2016 life-cycle cost estimate for the program--which GAO found in September 2017 (GAO-17-390) did not follow best practices--calls for 25 years of annual funding greater than $1 billion. Contractor representatives GAO interviewed said that the costs to operate the MOX facility would be less than NNSA's estimate.

GAO also found the following:

• Estimates of time to convert to a fixed-price incentive firm line item. In its report, the Corps estimated that converting the contract would take 31 to 43 months. According to Corps officials GAO interviewed, this estimate reflects the disagreement between NNSA and the contractor on the amount of work completed and the time needed to agree on a design and schedule for the MOX facility.

• Estimates of percentage of work completed. According to GAO's cost-estimating guide, the percentage completed for a project is calculated as the budgeted cost for work performed--also known as earned value--divided by the budget at completion (GAO-09-3SP). Construction of the MOX facility is about 30 percent complete, based on contractor data and the Department of Energy's (DOE) 2016 construction cost estimate, which GAO found in September 2017 could be considered reliable (GAO-17-390). However, the facility contractor estimated that about 74 percent of work had been completed, based on its 2012 estimate of construction costs that GAO found to be unreliable in February 2014, in part because it was a proposal that was not reviewed and accepted by DOE (GAO-14-231). GAO found that the key difference between DOE's estimate and the contractor's is the total estimated budget for the project used in the calculations.

Why GAO Did This Study

Plutonium--a man-made, radioactive element produced by irradiating uranium in nuclear reactors--poses a risk of proliferation and risks to human health and the environment if not managed safely. As part of DOE's Plutonium Disposition program, NNSA began constructing the MOX facility in 2007 at DOE's Savannah River Site in South Carolina. Starting with its fiscal year 2014 budget request, DOE proposed slowing down work on the MOX facility while it assessed alternative approaches for plutonium disposition. In April 2014, DOE identified an alternative "dilute and dispose" approach that DOE believes could significantly reduce the life-cycle cost of the program.

The National Defense Authorization Act for Fiscal Year 2017 required DOE to arrange with the Corps to prepare a report on the contract for the construction, management, and operations of the MOX facility, including recommendations on changes to the contract to reduce risk and cost to DOE while preserving a fair and reasonable contract. The National Defense Authorization Act for Fiscal Year 2017 also included a provision that GAO review the actions taken by DOE related to the Corps' report. GAO's report discusses (1) the potential effects of converting the MOX facility contract to a fixed-price incentive firm contract, as discussed in the DOE and Corps reports, on the cost for construction of the MOX facility, (2) the potential effects of converting the MOX facility contract to a fixed-price incentive firm contract, as discussed in the DOE and Corps reports, on the life-cycle cost of the Plutonium Disposition program, and (3) other observations on the Corps report and MOX facility.

To address these objectives, GAO reviewed the DOE and Corps reports; reviewed prior cost estimates for construction of the MOX facility and the Plutonium Disposition program; and interviewed officials from DOE, NNSA, the Corps, and the contractor constructing the MOX facility.