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National Nuclear Security Administration: Analyzing Cost Savings Program Could Result in Wider Use and Additional Contractor Efficiencies

GAO-20-451 Published: Jun 24, 2020. Publicly Released: Jun 24, 2020.
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Fast Facts

The National Nuclear Security Administration (NNSA) spends billions on contracts to manage and operate its 8 laboratory and production sites.

We reviewed an effort to reduce costs under one contract. Consolidated Nuclear Security, LLC, created a cost savings program it estimated would save about $2.9 billion over 10 years. NNSA verified about $515 million in savings through fiscal year 2018—about 80% of what was proposed through that year. We found this to be a reasonable estimate.

However, NNSA is not planning to implement this savings approach at its other sites. We recommended that it analyze data to determine whether to do so.

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Highlights

What GAO Found

The National Nuclear Security Administration (NNSA) verified about $515 million in cumulative cost savings claimed by Consolidated Nuclear Security, LLC, (CNS) from fiscal year 2014 through fiscal year 2018 (see figure). CNS was awarded the management and operating (M&O) contract for both the Y-12 National Security Complex (Y-12) in Tennessee and the Pantex Plant (Pantex) in Texas. Those savings represented about 80 percent of the approximately $640 million CNS proposed it would save through the end of fiscal year 2018. CNS achieved most of the savings through labor savings—for example, by reducing positions. While CNS's and NNSA's methods for calculating and verifying savings evolved in the early years of the contract, GAO concluded the $515 million in reported cumulative savings represents a reasonable estimate. However, due to differences between proposed and achieved savings through fiscal year 2018, and annual savings projections that are lower for the remaining years of the contract, it may be difficult for the contractor to achieve its total proposed $2.9 billion in savings over the potential 10-year contract that would end in 2024.

NNSA-Verified Cumulative Contract Savings Achieved by Consolidated Nuclear Security, LLC, from Fiscal Year 2014 through Fiscal Year 2018

NNSA-Verified Cumulative Contract Savings Achieved by Consolidated Nuclear Security, LLC, from Fiscal Year 2014 through Fiscal Year 2018

NNSA officials identified three key benefits of the Cost Savings Program—achieving savings, reinvesting in site infrastructure, and increasing financial transparency—but has not determined whether the program could be implemented at other sites to improve its M&O contracts. For example, NNSA officials said achieving cost savings at other sites could be useful, and most M&O contracts include a clause under which sites could implement a Cost Savings Program with some attributes of the program at Y-12 and Pantex. However, NNSA is not planning to implement the Cost Savings Program—or a variation of it—at other sites. NNSA officials and contractor representatives were uncertain about whether the Cost Savings Program could be exported to other existing or future contracts because NNSA has not gathered information on nor documented its analysis of the Cost Savings Program. GAO has previously found that leading organizations gather and analyze data to identify opportunities to reduce costs, among other reasons. By performing such an analysis, NNSA officials and contractors' representatives could make better-informed decisions about whether to implement aspects of the Cost Savings Program under existing contracts or as part of future M&O contracts to achieve additional savings in the future.

Why GAO Did This Study

NNSA relies on M&O contracts to manage and operate its eight laboratory and production sites. In 2013, NNSA awarded a consolidated M&O contract to CNS for the Y-12 and Pantex sites to reduce costs. In the contract, NNSA required that CNS create a Cost Savings Program. CNS proposed it would save about $2.9 billion over the contract's potential 10-year term.

The Senate committee report accompanying a bill for the National Defense Authorization Act for Fiscal Year 2019 includes a provision for GAO to review the cost savings achieved from the competition and award of the CNS contract. GAO's report examines the extent to which (1) CNS achieved proposed cost savings from fiscal year 2014 through fiscal year 2018 and (2) NNSA identified benefits associated with the Cost Savings Program and used that information to improve its M&O contracts.

GAO reviewed documentation and data on the Cost Savings Program from NNSA and CNS, interviewed NNSA headquarters and field office officials as well as representatives from M&O contractors, and toured the Y-12 site to understand examples of cost savings initiatives.

Recommendations

GAO is making four recommendations, including that NNSA document its analysis of the Cost Savings Program to determine whether it is exportable to other contracts. NNSA generally agreed with the four recommendations.

Recommendations for Executive Action

Agency Affected Recommendation Status
National Nuclear Security Administration The NPO Cost Savings Program Manager should work with CNS to evaluate the remaining site reinvestment funds and develop and implement a plan for how best to aggregate and use them. (Recommendation 1)
Closed – Implemented
NNSA concurred with the recommendation. In December 2020, CNS submitted a plan for using the remaining site reinvestment funds to NNSA, noting that CNS had previously discussed the plan with NNSA.
National Nuclear Security Administration The Associate Administrator for Acquisition and Project Management should gather data on and document an analysis of the Cost Savings Program, including its cost effectiveness, to determine whether it is exportable to existing or future contracts. (Recommendation 2)
Open – Partially Addressed
NNSA concurred, in principle, with the recommendation and took some initial actions to address the recommendation. Specifically, NNSA officials reviewed data on the cost savings program and included a tailored version of the cost savings program in the request for proposals for the Y-12 and Pantex contract. However, as of December 2023, NNSA stated the agency has determined that exporting the cost savings program to other management and operating contracts is not appropriate or beneficial. NNSA is waiting on additional information from their Partnership and Acquisition Services office as to the basis for that determination. We continue to believe that performing an analysis of whether the cost savings program is exportable to other contracts would allow NNSA officials and contractors' representatives to make better-informed decisions about whether to implement aspects of the Cost Savings Program under existing contracts or as part of future M&O contracts to achieve additional savings in the future.
National Nuclear Security Administration The NPO Cost Savings Program Manager should share relevant lessons learned with other NNSA sites so that those sites can determine if efficiencies CNS has achieved can be implemented at other sites. (Recommendation 3)
Closed – Implemented
NNSA concurred with the recommendation. In January 2021, NNSA uploaded lessons learned into DOE's Corporate Lessons Learned Database so they could be considered by other sites.
National Nuclear Security Administration The Associate Administrator for Acquisition and Project Management should evaluate whether to require all other sites to institute an Annual Controlled Baseline. (Recommendation 4)
Closed – Implemented
NNSA agreed with the recommendation. NNSA officials provided information that the agency has decided to implement an Annual Controlled Baseline at all of its sites. As of April 2022, NNSA had completed contract modifications and implemented the requirement at two additional sites: the Kansas City National Security Complex and the Nevada National Security Site.

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Topics

Contract costsContract managementContract oversightCost controlsCost reimbursement contractsCost savingsFederal facilitiesLaboratoriesManagement and operating contractsNational laboratoriesNational securityNuclear facilitiesNuclear securityOperating and support costs