oversight

Nuclear Weapons: Opportunities Exist to Improve the Budgeting, Cost Accounting, and Management Associated with the Stockpile Life Extension Program

Published by the Government Accountability Office on 2003-07-28.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

             United States General Accounting Office

GAO          Report to Congressional Requesters




July 2003
             NUCLEAR WEAPONS
             Opportunities Exist to
             Improve the
             Budgeting, Cost
             Accounting, and
             Management
             Associated with the
             Stockpile Life
             Extension Program




GAO-03-583
             a
                                                July 2003


                                                NUCLEAR WEAPONS

                                                Opportunities Exist to Improve the
Highlights of GAO-03-583, a report to           Budgeting, Cost Accounting, and
Congressional Requesters
                                                Management Associated with the
                                                Stockpile Life Extension Program


As a separately organized agency                GAO found that NNSA’s budget for the Stockpile Life Extension Program has
within the Department of Energy                 not been comprehensive or reliable. For instance, the fiscal year 2003
(DOE), the National Nuclear                     budget for this program was not comprehensive because it did not include
Security Administration (NNSA)                  all activities necessary to successfully complete each of the refurbishments.
administers the Stockpile Life                  As a result, neither NNSA nor the Congress was in a position to properly
Extension Program, whose purpose
is to extend, through
                                                evaluate the budgetary tradeoffs among the refurbishments in the program.
refurbishment, the operational lives
of the weapons in the nuclear                   NNSA does not have a system for tracking the full costs associated with the
stockpile. NNSA encountered                     individual refurbishments. Instead, NNSA has several mechanisms that
significant management problems                 track a portion of the refurbishment costs, but these mechanisms are used
with its first refurbishment. NNSA              for different purposes, include different types of costs, and cannot be
has begun three additional life                 reconciled with one another. As a result, NNSA lacks information regarding
extensions. This study was                      the full cost of the refurbishment work that can help identify cost problems
undertaken to determine the extent              as they develop or when management intervention in those cost problems
to which budgetary, cost                        may be necessary.
accounting, and other management
issues that contributed to problems
with the first refurbishment have
                                                Finally, NNSA does not have an adequate planning, organization, and cost
been adequately addressed.                      and schedule oversight process. With respect to planning, NNSA has not, for
                                                instance, consistently developed a formalized list of resource and schedule
                                                conflicts between the individual refurbishments in order to systematically
                                                resolve those conflicts. Regarding organization, NNSA has not, for example,
GAO recommends that NNSA                        clearly defined the roles and responsibilities of those officials associated
undertake a number of actions to                with the refurbishments or given the refurbishments’ managers proper
improve the budgeting, cost                     project/program management training required by DOE standards. Finally,
accounting, and management
                                                NNSA has not developed an adequate process for reporting cost and
associated with the Stockpile Life
Extension Program. Those actions                schedule changes or developed performance measures with sufficient
are, among other things (1)                     specificity to determine the progress of the three refurbishments that GAO
including the Stockpile Life                    reviewed. As a result, NNSA lacks the means to help ensure that the
Extension Program as a formal                   refurbishments will not experience cost overruns potentially amounting to
program in NNSA’s annual budget;                hundreds of millions of dollars or encounter significant schedule delays.
(2) establishing a cost accounting
process that accumulates, tracks,               B-61 Bombs to be Refurbished
and reports the full costs of each
refurbishment; and (3)
implementing a series of
management actions related to
improving planning, organization,
and oversight of cost and schedule.
NNSA recognized the need to
change how the program is
managed and agreed with GAO’s
recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-03-583.

To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Robin N.
                                                Source: NNSA.
Nazzaro at (202) 512-3841 or
nazzaror@gao.gov.
Contents



Letter                                                                                                                 1
                            Results in Brief                                                                           3
                            Background                                                                                 5
                            NNSA Has Not Provided Congress with a Clear Picture of the
                              Stockpile Life Extension Program Budget or Reliable Budget
                              Figures                                                                                  9
                            NNSA Does Not Have a System for Tracking Refurbishment Costs by
                              Weapon System                                                                        14
                            Management Problems Remain Despite NNSA Improvements                                   17
                            NNSA Has Various Actions Underway to Fix Its Management
                              Problems                                                                             33
                            Conclusions                                                                            35
                            Recommendations for Executive Action                                                   35
                            Agency Comments                                                                        37
                            Scope and Methodology                                                                  37


Appendixes
             Appendix I:    Comments from the National Nuclear Security
                            Administration                                                                         41
             Appendix II:   GAO Contact and Staff Acknowledgments                                                  43
                            GAO Contact                                                                            43
                            Acknowledgments                                                                        43




                            Abbreviations

                            DOE          Department of Energy
                            GAO          General Accounting Office
                            NNSA         National Nuclear Security Administration
                            SFFAS        Statement of Federal Financial Accounting Standards

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                            Page i                        GAO-03-583 Improving the Stockpile Life Extension Program
A
United States General Accounting Office
Washington, D.C. 20548



                                    July 28, 2003                                                                                 Leter




                                    Congressional Requesters

                                    Nuclear weapons have been and continue to be an essential part of the
                                    nation’s defense strategy. However, the end of the Cold War has caused a
                                    dramatic shift in how the nation maintains its planning and support for
                                    such weapons. Instead of designing, testing, and producing new nuclear
                                    weapons, the strategy has shifted to maintaining the existing nuclear
                                    weapons stockpile indefinitely. To accomplish this goal, in January 1996,
                                    the Department of Energy (DOE) created the Stockpile Life Extension
                                    Program. Now administered by the National Nuclear Security
                                    Administration (NNSA), which was created in October 1999 as a separately
                                    organized agency within DOE, this program intends to use a standardized
                                    approach for planning and conducting nuclear weapons refurbishment
                                    activities to extend the weapons’ operational lives.1 While complete cost
                                    data on the Stockpile Life Extension Program does not exist, NNSA
                                    requested $476 million in fiscal year 2004 for life extension program
                                    activities.

                                    Within NNSA, the Office of Defense Programs is responsible for
                                    administering the Stockpile Life Extension Program. For those nuclear
                                    weapons that are refurbished, this office must (1) determine which
                                    components, such as the high explosives package, will need refurbishment
                                    to extend each weapon’s life; (2) design and produce the necessary
                                    components; (3) install the components in the weapons; and (4) certify that
                                    the changes do not adversely affect the safety and reliability of the
                                    weapons. Because research and development is needed to refurbish the
                                    nuclear weapons, this program requires a coordinated effort among the
                                    design laboratories and production facilities that comprise the nation’s
                                    nuclear weapons complex.

                                    As of May 1, 2003, according to NNSA officials, three nuclear weapons
                                    were undergoing research and development activities prior to the
                                    commencement of refurbishment production—the W-80 warhead, the B-61
                                    bomb, and the W-76 warhead. The W-80 warhead is designed to be carried
                                    on a cruise missile launched from an attack submarine or a B-52 bomber


                                    1
                                     Though NNSA is a separately organized agency within DOE, NNSA Policy Letter NAP-1,
                                    dated May 21, 2002, stipulates that DOE directives are applicable to NNSA unless or until a
                                    NNSA policy letter is provided.




                                    Page 1                         GAO-03-583 Improving the Stockpile Life Extension Program
and its first unit is scheduled for refurbishment production beginning in
February 2006. The B-61 bomb is designed to be carried on the B-52 or B-2
bomber. Its first unit is scheduled for refurbishment production beginning
in June 2006. The B-61 also has a nonstrategic variation for use on the F-15
and F-16 aircraft. The W-76 warhead is designed to be carried on the
Trident II missile. Its first unit is scheduled for refurbishment production
beginning in September 2007.

One nuclear weapon already has begun refurbishment production—the
W-87 strategic warhead, which is designed to be carried on the land-based
Peacekeeper missile. In December 2000, we reported that the W-87 had
experienced significant design and production problems that increased its
refurbishment costs by over $300 million and caused schedule delays of
about 2 years.2 At the heart of many of the problems that contributed to
this outcome were an inadequate Office of Defense Programs management
process and unclear leadership, which prevented the Office from
adequately anticipating and mitigating the problems that arose. We
reported that, for the W-87 refurbishment, there was no overall program
plan, cost and schedule baseline, or system to effectively oversee design
and production changes. Moreover, no one person was expressly
accountable for the W-87, and leadership appeared to move around from
one NNSA office to another. As a result, we made a series of
recommendations to improve NNSA management, including that NNSA
assign a manager who is responsible and accountable for each life
extension. In response to our recommendations, NNSA took some actions
to improve its management of the Stockpile Life Extension Program
including designating a program manager for each life extension.

You asked us to determine the extent to which (1) the program’s budget
requests for fiscal years 2003 and 2004 were comprehensive and reliable;
(2) NNSA has a system for accumulating, tracking, and reporting
program costs; and (3) other program management problems exist at
NNSA.




2
 Nuclear Weapons: Improved Management Needed to Implement Stockpile Stewardship
Program Effectively, GAO-01-48 (Washington, D.C.: Dec. 14, 2000).




Page 2                      GAO-03-583 Improving the Stockpile Life Extension Program
Results in Brief   While NNSA’s fiscal year 2003 congressional budget request did not provide
                   a clear picture of all activity necessary to complete the Stockpile Life
                   Extension Program, NNSA has begun to take action to produce a more
                   comprehensive and reliable picture of the program for fiscal year 2004 and
                   beyond. With respect to fiscal year 2003, NNSA did not, for example,
                   include activities for high explosives work that is needed to support three
                   life extension efforts in an unclassified budget annex that provided data for
                   the program. NNSA developed its budget by broad function—such as
                   research and development—rather than by individual weapon system or
                   program activity such as the Stockpile Life Extension Program. In
                   addition, NNSA officials expressed concern that dissemination of more
                   detailed program budget information would encourage the Congress to cut
                   the most expensive weapon system or systems. Moreover, the numbers in
                   NNSA’s budget request for the program had not been validated—as
                   required by DOE directive. NNSA did not validate its fiscal year 2003
                   budget because, according to a NNSA official, the agency was
                   implementing a new planning, programming, budgeting, and evaluation
                   process. For fiscal year 2004, a larger portion, but not all life extension-
                   related work, within NNSA’s budget request has been attributed to the life
                   extension program, resulting in a more comprehensive request. NNSA
                   officials indicated the agency decided not to implement further budget
                   changes in fiscal year 2004 in order to ensure, for instance, that
                   classification concerns are resolved and contractors have time to modify
                   their accounting systems. NNSA officials also stated that a formal budget
                   validation process would be reintroduced for the fiscal year 2005 budget
                   cycle. Our report recommends that the NNSA Administrator further
                   improve the budgeting associated with the Stockpile Life Extension
                   Program by including this program as a formal and distinct part of NNSA’s
                   budget submission.

                   NNSA does not have a system for accumulating and tracking refurbishment
                   costs that comports with federal accounting standards. Specifically,
                   according to the Statement of Federal Financial Accounting Standards
                   Number 4, “Managerial Cost Accounting,” federal agencies should
                   accumulate and track the cost of their activities on a regular basis for
                   management information purposes. Such information is important to the
                   Congress and federal managers as they make decisions about allocating
                   federal resources, authorizing and modifying programs, and evaluating
                   program performance. To date, NNSA has not developed a managerial
                   cost accounting system that aligns with the program and its activities
                   and provides the full cost of the refurbishments. NNSA has several



                   Page 3                    GAO-03-583 Improving the Stockpile Life Extension Program
mechanisms to track various portions of the refurbishment costs, but these
mechanisms are used for different purposes, include different types of
costs, and cannot be reconciled with one another. This report recommends
that the NNSA Administrator take steps to improve cost accounting
associated with the Stockpile Life Extension Program.

Finally, despite NNSA’s efforts at improvement, other program
management problems remain in the areas of planning, organization, and
oversight of cost and schedule for the Stockpile Life Extension Program.
For instance, NNSA does not yet have an adequate planning process to
guide and fully integrate the individual life extensions for each warhead
into an overall program. In this regard, NNSA has yet to establish the
relative ranking of the Stockpile Life Extension Program among the Office
of Defense Programs’ priorities or to establish a consistent priority among
the individual life extension efforts. Absent a prioritization scheme that
had been disseminated and understood throughout the weapons complex,
we identified cases where NNSA field contractors unilaterally decided to
transfer funds from one refurbishment to another only to be formally
questioned by NNSA regarding those decisions. The contractor decisions
impacted NNSA’s ability to complete refurbishment work on schedule.
With respect to organization, despite a December 2002 overall
reorganization, NNSA still has not adequately fixed accountability and
responsibility for each life extension. In particular, the roles and
responsibilities between the individual life extension program and deputy
program managers and the site contractor project managers have not yet
been clearly defined. Finally, with respect to oversight of cost and
schedule, NNSA does not have an adequate process for reporting cost and
schedule changes against established baselines. Such a process would help
NNSA provide more comprehensive information to the Congress regarding
the program’s performance goals and accomplishments. Each of the three
ongoing refurbishments, we determined, has already experienced some
cost growth and schedule changes. For instance, the W-76 refurbishment is
slightly behind schedule because of various missed commitments such as
deciding whether to reuse or remanufacture certain components. This
reuse or remanufacture decision did not occur on schedule, according to
the W-76 program manager, primarily because NNSA personnel neglected
to perform certain calculations as directed. The W-76 refurbishment will
also need an additional $10.75 million in fiscal year 2004 to purchase
certain parts that were previously not authorized or budgeted for. NNSA
has recently completed or is in the process of completing various
management improvement actions, such as the implementation of an
overall planning, programming, budgeting, and evaluation process. While



Page 4                   GAO-03-583 Improving the Stockpile Life Extension Program
             those actions should help improve management to some degree, they will
             not address all outstanding stockpile life extension program management
             issues, such as clarifying the roles and responsibilities of those officials
             associated with the program. Consequently, this report recommends that
             the NNSA Administrator improve certain specific management-related
             activities associated with the Stockpile Life Extension Program, such as
             clarifying roles and responsibilities and providing the program managers
             with the authority to properly manage the refurbishments.

             We provided NNSA with a draft of this report for review and comment.
             Overall, NNSA stated that it recognized the need to change the way the
             Stockpile Life Extension Program was managed and that it generally
             agreed with the report’s recommendations. For instance, NNSA stated that
             it had independently identified many of the same concerns, and, over the
             past 12 months, it had made significant progress in implementing plans,
             programs, and processes to improve program management. NNSA
             indicated that while full implementation of our management and budgeting
             recommendations will take several years, NNSA is committed to meeting
             these objectives. NNSA also provided some technical comments which it
             believed pointed out factual inaccuracies. We have modified our report,
             where appropriate, to reflect NNSA’s comments.



Background   The nation’s nuclear weapons stockpile remains a cornerstone of U.S.
             national security policy. As a result of changes in arms control, arms
             reduction, and nonproliferation policies, the President and the Congress in
             1993 directed that a science-based Stockpile Stewardship Program be
             developed to maintain the stockpile without nuclear testing. After the
             establishment of that program, DOE, in January 1996, created the Stockpile
             Life Extension Program. The purpose of this program is to develop a
             standardized approach for planning nuclear weapons refurbishment
             activities to enable the nuclear weapons complex to extend the operational
             lives of the weapons in the stockpile well beyond their original design lives.

             Within NNSA, the Office of Defense Programs is responsible for the
             stockpile. This responsibility encompasses many different tasks, including
             the manufacturing, maintenance, refurbishment, surveillance, and
             dismantlement of weapons in the stockpile; activities associated with the
             research, design, development, simulation, modeling, and nonnuclear
             testing of nuclear weapons; and the planning, assessment, and certification
             of the weapons’ safety and reliability. A national complex of nuclear
             weapons design laboratories and production facilities supports the Office



             Page 5                    GAO-03-583 Improving the Stockpile Life Extension Program
of Defense Programs’ mission. This complex consists of three national
laboratories that design nuclear weapons: Lawrence Livermore National
Laboratory in California, Los Alamos National Laboratory in New Mexico,
and Sandia National Laboratories in New Mexico and California. The
complex also includes the Nevada test site and four production sites: the
Pantex plant in Texas, the Y-12 plant in Tennessee, the Kansas City plant in
Missouri, and the Savannah River site in South Carolina.

NNSA refurbishes nuclear weapons according to a process called Phase
6.X, which was jointly developed with the Department of Defense. This
process consists of the following elements:

• Phase 6.1, concept assessment. This phase consists of studies to
  provide planning guidance and to develop information so that a decision
  can be made on whether or not to proceed to a phase 6.2.

• Phase 6.2, feasibility study. This phase consists of developing design
  options and studying their feasibility.

• Phase 6.2A, design definition and cost study. This phase consists of
  completing definition of selected design option(s) from phase 6.2
  through cost analysis.

• Phase 6.3, development engineering. This phase consists of conducting
  experiments, tests, and analyses to validate the design option and assess
  its potential for production.

• Phase 6.4, production engineering. This phase consists of making a
  strong commitment of resources to the production facilities to prepare
  for stockpile production.

• Phase 6.5, first production. This phase consists of producing a limited
  number of refurbished weapons and then disassembling and examining
  some of them for final qualification of the production process.

• Phase 6.6, full-scale production. This phase consists of ramping up to
  full-production rates at required levels.




Page 6                    GAO-03-583 Improving the Stockpile Life Extension Program
As of May 1, 2003, according to NNSA officials, four nuclear weapons were
undergoing phase 6.X refurbishment activities. The W-80 warhead, the B-61
bomb, and the W-76 warhead are all in phase 6.3, development engineering,
while the W-87 warhead is in phase 6.6, full-scale production.3

Prior to its budget submission for fiscal year 2001, the Office of Defense
Programs divided the operating portion of the Weapons Activities account
into two broad program activities—stockpile stewardship and stockpile
management. Stockpile stewardship was defined as the set of activities
needed to provide the physical and intellectual infrastructure required to
meet the scientific and technical requirements of the (overall) Stockpile
Stewardship Program. Stockpile management activities included DOE’s
historical responsibilities for surveillance, maintenance, refurbishment,
and dismantlement of the enduring stockpile. However, each category was
dominated by a single large activity known as core stewardship and core
management, which made it difficult to determine precisely where funds
were being spent. For example, in the Office of Defense Programs’ budget
submission for fiscal year 2000, core stewardship accounted for 48 percent
of the stockpile stewardship activity’s budget request, while core
management accounted for 73 percent of the stockpile management
activity’s budget request. The lack of clarity associated with this broad
structure caused concern both at DOE and in the Congress.

In February 1999, the Deputy Assistant Secretary for Research,
Development, and Simulation, who manages the stockpile stewardship
activity, began to develop a new program activity structure to improve the
planning process for his program and more closely integrate the program
with the needs of the stockpile. The new structure was built around three
new program activities—Campaigns, Directed Stockpile Work, and
Readiness in Technical Base and Facilities.

• Campaigns are technically challenging, multiyear, multifunctional
  efforts conducted across the Office of Defense Programs’ laboratories,
  production plants, and the Nevada test site. They are designed to
  develop and maintain the critical capabilities needed to enable
  continued certification of the stockpile into the foreseeable future,
  without underground testing. Campaigns have milestones and specific


3
 Currently, the U.S. nuclear weapons stockpile consists of nine types of bombs and missile
warheads, numbering several thousand devices, which are either stored at strategic military
locations or deployed on military aircraft, missiles, or submarines.




Page 7                         GAO-03-583 Improving the Stockpile Life Extension Program
    end-dates or goals, effectively focusing research and development
    activities on clearly defined deliverables.

• Directed Stockpile Work includes the activities that directly support
  specific weapons in the stockpile. These activities include the current
  maintenance and day-to-day care of the stockpile, as well as planned life
  extensions.

• Readiness in Technical Base and Facilities includes the physical
  infrastructure and operational readiness required to conduct Campaign
  and Directed Stockpile Work activities at the production plants,
  laboratories, and the Nevada test site. This includes ensuring that the
  infrastructure and facilities are operational, safe, secure, compliant, and
  ready to operate.

Within each of these three activities is a set of more detailed subactivities.
For example, within the Campaigns activity are individual campaigns to
study, among other things, the primary4 in a nuclear weapon or to develop a
new capability to produce nuclear weapons pits.5 Similarly, the Directed
Stockpile Work activity includes subactivities to conduct surveillance or
produce components that need regular replacement within nuclear
weapons. Finally, the Readiness in Technical Base and Facilities activity
includes subactivities to capture the costs for the operation of its facilities.
In submitting its new program activity structure to the Office of the Chief
Financial Officer for review and approval for use in the budget submission
for fiscal year 2001, the Office of Defense Programs believed that the new
structure would, among other things, better reflect its current and future
missions; focus budget justification on major program thrusts; and improve
the linkage between planning, budgeting, and performance evaluation.
Budget requests developed since fiscal year 2001 have been presented
using the Campaigns, Directed Stockpile Work, and Readiness in Technical
Base and Facilities activity structure.




4
 The primary is the fission stage of a nuclear weapon. Detonation of the primary produces
the extremely high temperatures and pressures required to produce fusion in the weapon’s
secondary.
5
 A pit is the initial, subcritical assembly of fissile material in a nuclear weapon. In such an
assembly, a fission chain reaction can be sustained only by the addition of neutrons from an
independent source.




Page 8                          GAO-03-583 Improving the Stockpile Life Extension Program
                          Within the Office of Defense Programs, two organizations share the
                          responsibility for overall weapons refurbishment management. Those
                          organizations are the Office of the Assistant Deputy Administrator for
                          Research, Development, and Simulation and the Office of the Assistant
                          Deputy Administrator for Military Application and Stockpile Operations.
                          The first office directs funding to the laboratories for research and
                          development, while the second office directs funding for engineering
                          development and production to the laboratories and production sites.
                          According to NNSA’s Life Extension Program Management Plan, both
                          organizations also share responsibilities. Both oversee life extension
                          program execution; ensure that the life extension program baseline, if
                          successfully accomplished, will meet customer requirements; and provide
                          life extension program information to higher levels for review. The
                          management plan also stipulates that each life extension shall have one
                          program manager and one deputy program manager, with one being
                          assigned from each of the two aforementioned organizations, and that
                          these two individuals will share program management responsibilities.



NNSA Has Not              While NNSA’s fiscal year 2003 budget request did not provide a clear picture
                          of all activity necessary to complete the Stockpile Life Extension Program,
Provided Congress         NNSA has begun to take action to produce a more comprehensive and
with a Clear Picture of   reliable picture of the program for fiscal year 2004 and beyond. With
                          respect to fiscal year 2003, NNSA did not develop a comprehensive
the Stockpile Life        Stockpile Life Extension Program budget because historically it has
Extension Program         developed its budget by broad function—such as research and
Budget or Reliable        development—rather than by individual weapon system or program
                          activity such as the Stockpile Life Extension Program. NNSA provided the
Budget Figures            Congress with supplementary information in its fiscal year 2003 budget
                          request that attempted to capture the budget for the Stockpile Life
                          Extension Program; however, this information was not comprehensive
                          because it did not include the budget for activities necessary to
                          successfully complete the life extension efforts. For example, the budget
                          for high explosives work needed to support three life extension efforts was
                          shown in a different portion of NNSA’s budget request. Recently NNSA has
                          decided, after forming a task force to study the issue, to budget and manage
                          by weapon system beginning with its fiscal year 2004 budget request, with
                          this transition officially taking place with congressional approval of the
                          fiscal year 2005 budget request. As a result, NNSA’s fiscal year 2004 budget
                          request was more comprehensive because it attributed a larger portion of
                          the Defense Programs’ budget to the life extension program. NNSA’s fiscal
                          year 2003 and 2004 budget requests were also not reliable because the data



                          Page 9                    GAO-03-583 Improving the Stockpile Life Extension Program
                             used to develop them had not been formally reviewed—through a process
                             known as validation—as required by DOE directive. Instead, NNSA relied
                             on more informal and less consistent analyses. NNSA officials have stated
                             that a formal budget validation process would be reintroduced for the fiscal
                             year 2005 budget cycle.



NNSA Developed Its Budget    NNSA’s congressional budget request for fiscal year 2003 did not contain a
Requests by Broad Function   comprehensive, reliable budget for the Stockpile Life Extension Program
                             or the individual weapon systems undergoing refurbishment. NNSA
Rather Than by Individual    developed its budget by broad function—such as Campaigns, Directed
Weapon System                Stockpile Work, and Readiness in Technical Base and Facilities—rather
                             than by individual weapon system or program activity such as the Stockpile
                             Life Extension Program.

                             While the Congress has accepted previous NNSA budget submissions as
                             structured, it also has requested detailed information on NNSA’s stockpile
                             life extension efforts. Specifically, the fiscal year 2002 Energy and Water
                             Development Appropriations Act conference report directed NNSA to
                             include detailed information by weapon system in the budget justification
                             documents for its fiscal year 2003 and subsequent presidential budget
                             requests to Congress. The conference report also indicated that the budget
                             should clearly show the unique and the fully loaded cost of each weapon
                             activity, including the costs associated with refurbishments, conceptual
                             study, and/or the development of new weapons.

                             NNSA responded to the congressional requirement by providing an
                             unclassified table in an annex to its fiscal year 2003 budget that contained
                             data on the budget request for the four individual life extensions. This data,
                             however, did not contain budget funding for work outside the Directed
                             Stockpile Work program activity that is required to carry out the life
                             extensions. For example:

                             • The narrative associated with the High Explosives Manufacturing and
                               Weapons Assembly/Disassembly Readiness Campaign indicates that
                               $5.4 million, or an 80 percent funding increase, was needed in fiscal year
                               2003 to support the B-61, W-76, and W-80 refurbishments. The narrative
                               did not provide a breakdown by individual refurbishment. However,
                               NNSA’s implementation plan for this campaign indicated that nearly $50
                               million would be needed to support the three refurbishments over fiscal
                               years 2002 through 2006.




                             Page 10                   GAO-03-583 Improving the Stockpile Life Extension Program
• The narrative associated with an expansion project at the Kansas City
  plant within the Readiness in Technical Base and Facilities program
  activity indicated that $2.3 million was needed in fiscal year 2003 and
  $27.9 million was needed in the outyears to support the B-61, W-76, and
  W-87 refurbishments. The narrative also indicated that this expansion
  was required in order to meet first production unit schedules associated
  with the refurbishments.

In addition, a significant portion of the funding in the annex table was not
assigned to any specific refurbishment but rather was included under a
budget line item termed “multiple system.” NNSA officials told us they did
not ask field locations to break down the multiple system funding by
individual refurbishment because this funding was for “general capability”
activities that would continue to be required even if a weapon system were
cut. Further, they said that there was currently no good allocation scheme,
so a breakdown by weapon system would be inaccurate and, therefore,
serve no useful purpose. However, NNSA officials provided us no
information indicating that NNSA had ever studied possible allocation
schemes or showing that allocation was not feasible. Moreover, according
to the DOE’s chief financial officer, NNSA can and should break out the
multiple system funding by weapon system. This official indicated that
doing so would put the budget in line with presidential guidance and Office
of Management and Budget objectives that advocate presenting a budget by
product rather than by process. In commenting on our report, NNSA stated
that DOE’s chief financial officer had no basis for making any assertions
about whether NNSA should break out the multiple system funding by
weapon system. However, the chief financial officer has responsibility for
ensuring the effective management and financial integrity of DOE’s
programs.

More broadly, because NNSA provided the Congress with a table by
weapon system in a budget annex and in Nuclear Weapon Acquisition
Reports, the agency questioned the need for further identification of the
Stockpile Life Extension Program in the fiscal year 2003 budget.6 Agency
officials, including the Deputy Administrator for Defense Programs, told us


6
 Nuclear Weapon Acquisition Reports are intended to provide a comprehensive look at
program progress by providing information on past performance, anticipated changes, and
variances from planned cost, schedule, and performance estimates from program inception
to completion, regardless of the program’s stage of development. In our report, NNSA:
Nuclear Weapon Reports Need to Be More Detailed and Comprehensive, GAO-02-889R
(Washington, D.C.: July 3, 2002), we commented on the adequacy of these reports.




Page 11                      GAO-03-583 Improving the Stockpile Life Extension Program
                           that NNSA was reluctant to budget by weapon system because it would like
                           to retain the “flexibility” the current budget structure affords the agency in
                           responding to unanticipated demands and shifting priorities in the
                           Stockpile Stewardship Program. Officials expressed concern that
                           dissemination of more detailed Stockpile Life Extension Program
                           information would encourage the Congress to cut the most expensive
                           weapon system or systems. Furthermore, they asserted that eliminating a
                           weapon system would not save all of the funds associated with that
                           weapon system, because a certain portion would be fixed costs that would
                           have to be transferred to the remaining users.

                           During the course of our work, however, NNSA has begun to take action to
                           produce a more comprehensive budget for the Stockpile Life Extension
                           Program. Specifically, NNSA decided, after forming a task force to study
                           the issue, to begin budgeting and managing by weapon system in the fiscal
                           year 2004 budget. Starting with that budget, the agency supplied to the
                           Congress a classified annex that allocated more of the costs that were in
                           the multiple system line item to individual weapon systems. In addition,
                           NNSA officials said that more than $100 million that had been included in
                           the Readiness in Technical Base and Facilities activity was moved to the
                           Directed Stockpile Work activity. However, for fiscal year 2004, no
                           refurbishment-related work in the Campaigns activity has been moved.
                           NNSA officials said that during the fiscal year 2005 budget cycle the agency
                           will review the Readiness Campaigns activity to determine which portion
                           of that activity could also be attributed to weapon systems. NNSA officials
                           indicated the agency decided not to implement all budget changes in fiscal
                           year 2004 in order to ensure that classification concerns are resolved,
                           contractors have time to modify their accounting systems as needed, and
                           NNSA has time to fully understand the costs and characteristics of
                           managing, budgeting, and reporting by weapon system.



NNSA Plans to Resume       NNSA’s budget requests for fiscal years 2003 and 2004 were not reliable
Activities to Validate     because the data used to develop the budgets have not been formally
                           reviewed—through a process known as validation—as required by DOE
Program Budget Estimates   directive. Instead, NNSA has relied on a review that has become more
                           informal and less consistent.

                           Specifically, DOE Order 130.1, on budget formulation, requires budget
                           requests to be based on estimates that have been thoroughly reviewed and
                           deemed reasonable by the cognizant field office and headquarters program
                           organization. The order further requires field offices to conduct validation



                           Page 12                   GAO-03-583 Improving the Stockpile Life Extension Program
reviews and submit documentation and to report any findings and actions
to headquarters. A proper validation, as described by DOE’s Budget
Formulation Handbook, requires the field office to review budget data
submissions in detail, sampling 20 percent of the submissions every year
such that 100 percent would be evaluated every 5 years.

NNSA officials indicated that no formal validation has been done with
respect to refurbishment research and development funding. With respect
to refurbishment production funding, NNSA officials described their
validation review as a “reasonableness” test regarding the budget’s support
of a program’s needs based on a historical understanding of appropriate
labor, materials, and overhead pricing estimates. NNSA officials
acknowledged that, in recent years, the agency has not fulfilled the budget
validation requirement as specified in DOE Order 130.1, and that the
validation review that has been used has become increasingly less formal
and less consistent. Prior to this reduction in the quality of the review
process, the DOE Albuquerque Operations Office performed formal
validation reviews at production plant locations through fiscal year 1996.
Since then, the Albuquerque office has relied on a pilot project by which
the four contractors directly under its jurisdiction—Sandia National
Laboratories, Los Alamos National Laboratory, Kansas City plant, and the
Pantex plant—submitted self-assessments for Albuquerque’s review. For
the fiscal year 2003 and 2004 budgets, however, NNSA officials said
headquarters no longer requested field validation as the agency
commenced implementation of a new planning, programming, budgeting,
and evaluation process.

One NNSA field office, we found, still chose to perform validation reviews
of the contractors under its jurisdiction. Specifically, the Oakland office
performed a validation review of the Lawrence Livermore National
Laboratory. However, other locations, such as the Kansas City plant, the
Y-12 plant, and the Savannah River site did not have their budgets reviewed
by any NNSA field office. We also were informed by NNSA officials that
NNSA headquarters staff did not review the validation reports that were
done, as required by DOE Order 130.1, before transmitting the fiscal year
2003 and 2004 budgets to DOE’s budget office, which then submitted them
to the Office of Management and Budget.

NNSA’s director of the Office of Planning, Programming, Budgeting, and
Evaluation said that her office plans to introduce a formal validation
process for the fiscal year 2005 budget cycle, adding that such a process
was not used for the fiscal year 2004 budget cycle because of time



Page 13                   GAO-03-583 Improving the Stockpile Life Extension Program
                       constraints. NNSA documentation regarding the validation process to be
                       used specifies that validation teams will be led by field federal staff
                       elements working with headquarters program managers; the Office of
                       Planning, Programming, Budgeting, and Evaluation staff; and others.
                       However, NNSA documentation is silent on how the validation process will
                       be conducted. Therefore, it is unclear if the validation process will be
                       performed thoroughly and consistently across the weapons complex and if
                       the process will be formally documented, as required by DOE Order 130.1.



NNSA Does Not Have a   Once a budget is established, having reliable information on the cost of
                       federal programs is crucial to the effective management of government
System for Tracking    operations. Such information is important to the Congress and to federal
Refurbishment Costs    managers as they make decisions about allocating federal resources,
                       authorizing and modifying programs, and evaluating program performance.
by Weapon System       The Statement of Federal Financial Accounting Standards (SFFAS)
                       Number 4, “Managerial Cost Accounting Standards,” establishes the
                       framework under which such cost information is gathered. In particular,
                       the standard states that federal agencies should accumulate and report the
                       costs of their activities on a regular basis for management information
                       purposes. The standard sees measuring costs as an integral part of
                       measuring the agency’s performance in terms of efficiency and cost-
                       effectiveness. The standard suggests that such management information
                       can be collected through the agency’s cost accounting system or through
                       specialized approaches—known as cost-finding techniques. Regardless of
                       the approach used, SFFAS Number 4 states that agencies should report the
                       full costs of the outputs they produce. However, under Federal Acquisition
                       Regulations and SFFAS Number 4, NNSA’s contractors do have the
                       flexibility to develop the managerial cost accounting methods that are best
                       suited to their operating environments.




                       Page 14                  GAO-03-583 Improving the Stockpile Life Extension Program
NNSA does not have a system for accumulating and tracking stockpile life
extension program costs. Similar to its approach in the budget arena,
NNSA currently does not collect cost information for the stockpile life
extension program through the agency’s accounting system. This is
because NNSA has defined its programs and activities, and thus the cost
information it collects, at a higher level than the stockpile life extension
program. Specifically, DOE collects cost information to support its
Defense mission area.7 The Defense mission area includes the types of
broad activities mentioned earlier, such as Campaigns, Directed Stockpile
Work, and Readiness in Technical Base and Facilities. Moreover, DOE’s
current accounting system does not provide an adequate link between cost
and performance measures. Officials in DOE’s Office of the Chief Financial
Officer recognize these shortcomings and are considering replacing the
agency’s existing system with a system that can provide managers with cost
information that is better aligned with performance measures.

Moreover, NNSA does not accumulate life extension program cost
information in the agency’s accounting system because NNSA does not
require its contractors to collect information on the full cost of each life
extension by weapon system. Full costs include the costs directly
associated with the production of the item in question—known as direct
costs—as well as other costs—known as indirect costs, such as
overhead—that are only indirectly associated with production. SFFAS
Number 4 states that entities should report the full cost of outputs in its
general-purpose financial reports. General-purpose financial reports are
reports intended to meet the common needs of diverse users who typically
do not have the ability to specify the basis, form, and content of the reports
they receive.

Direct costs are captured within NNSA’s Directed Stockpile Work activity
and include such things as research and development or maintenance.
However, NNSA’s Directed Stockpile Work activity also includes indirect
costs that benefit more than one weapon system or life extension.
Examples of indirect costs within Directed Stockpile Work include
evaluation and production support costs. Indirect costs are also found
within Campaigns and Readiness in Technical Base and Facilities activities.
Specifically, as noted earlier, NNSA’s budget justification identifies certain
Campaign activities, which represent an indirect cost, that support


7
 DOE has defined its goals according to four mission areas, which are Energy, Defense,
Science, and Management.




Page 15                        GAO-03-583 Improving the Stockpile Life Extension Program
individual life extensions. A portion of both of these sources of indirect
costs could be allocated to individual weapon systems; however, NNSA
does not currently require such an allocation by its contractors.

It is important to recognize that under SFFAS Number 4, NNSA’s
contractors do have the flexibility to develop the cost accounting
methodologies that are best suited to their operating environments. The
contractors involved in the life extension program are structured
differently and have different functions. For example, Lawrence Livermore
National Laboratory is run by the University of California and conducts
mostly research that may or may not produce a tangible product. In
contrast, the production plants are run by private corporations which
produce parts, as is the case at the Kansas City or Y-12 plants, or assemble
the parts into a completed weapon, as is done at the Pantex plant. As a
result, even if NNSA required contractors to report the full cost of
individual refurbishments, some differences in the data, which reflects the
contractor’s different organizations and operations, would still exist.

While the agency’s accounting system does not accumulate and report
costs for the Stockpile Life Extension Program or its individual
refurbishments, NNSA has developed several mechanisms to assist the
Congress and program managers who oversee the life extension effort.
Specifically:

• In previous years, NNSA has requested that its contractors provide
  supplemental data on actual costs by weapon system. These data have
  been used to respond to congressional information requests. However,
  similar to the way NNSA addresses its budget request, NNSA has not
  required its contractors to allocate the supplemental cost information in
  the multiple system category to individual refurbishments. In addition,
  also similar to the way it approached its budget presentation, NNSA has
  not required its contractors to include the costs for supporting activities,
  such as Campaigns and Readiness in Technical Base and Facilities in the
  reports.

• Some life extension program managers require their contractors to
  provide them with status reports on the individual refurbishments they
  are overseeing. However, these reports are prepared inconsistently or
  are incomplete. For example, while the W-76 program manager requires
  monthly reports, the B-61 program manager requires only quarterly
  reports. In contrast, the W-80 and W-87 program managers do not
  require any routine cost reporting. NNSA is trying to develop a



Page 16                   GAO-03-583 Improving the Stockpile Life Extension Program
                         consistent method for its life extension program managers to request
                         cost information; however, NNSA officials have stated that NNSA has to
                         first define what its needs are. Similar to the supplemental cost data
                         described above, these status reports do not contain all of the costs for
                         supporting activities, such as Campaigns and Readiness in Technical
                         Base and Facilities.

                      • Finally, as part of the production process, NNSA’s contractors prepare a
                        report known as the Bill of Materials. The Bill of Materials accumulates
                        the materials, labor, and manufacturing costs of the production of a
                        weapon, starting with an individual part and culminating in the final
                        assembly of a complete weapon. NNSA uses the resulting Master Bill of
                        Materials to record—capitalize—the production costs of each weapon
                        system in its accounting system. However, the costs accumulated by the
                        Bill of Materials include only production costs and do not include costs
                        such as related research and development costs or costs associated with
                        Campaigns and Readiness in Technical Base and Facilities.

                      Finally, despite the importance of reliable and timely cost information for
                      both the Congress and program managers, similar to the situation we found
                      with the budget, life extension program costs are not independently
                      validated either as a whole or by individual weapon system. Specifically,
                      neither the DOE Inspector General nor DOE’s external auditors specifically
                      audit the costs of the life extension program. While both parties have
                      reviewed parts of the life extension program—for example, the Inspector
                      General recently reviewed the adequacy of the design and implementation
                      of the cost and schedule controls over the W-80 refurbishment—their work
                      has not been specifically intended to provide assurance that all life
                      extension program costs are appropriately identified and attributed to the
                      life extension program as a whole or to the individual refurbishments.



Management Problems   The management of critical programs and projects has been a long-
                      standing problem for DOE and NNSA’s Office of Defense Programs.
Remain Despite NNSA   According to NNSA’s fiscal year 2001 report to the Congress on
Improvements          construction project accomplishments, management costs on DOE
                      projects are nearly double those of other organizations, and DOE projects
                      take approximately 3 years longer to accomplish than similar projects
                      performed elsewhere. As a result, NNSA has repeatedly attempted to
                      improve program and project management. For instance, in September
                      2000, the Office of Defense Programs initiated an improvement campaign
                      to develop solutions to its project management problems and to enact



                      Page 17                   GAO-03-583 Improving the Stockpile Life Extension Program
                               procedural and structural changes to the Defense Programs’ project
                               management system. Later, in August 2002, the Office of Defense Programs
                               established a project/program management reengineering team. As the
                               basis for assembling that team, its charter noted that NNSA does not
                               manage all projects and programs effectively and efficiently. However,
                               despite these NNSA attempts at improvement, management problems
                               associated with the stockpile life extension program persist.



NNSA Does Not Have an          Front-end planning is, in many ways, the most critical phase of an activity
Adequate Planning Process      and the one that often gets least attention. The front-end planning process
                               defines the activity. The decisions made in this phase constrain and
to Guide the Individual Life
                               support all the actions downstream and often determine the ultimate
Extensions and the Overall     success or failure of the activity. NNSA, we found, does not have an
Program                        adequate planning process to guide the individual life extensions and the
                               overall program. Specifically, NNSA has not (1) established the relative
                               priority of the Stockpile Life Extension Program against other defense
                               program priorities, (2) consistently established the relative priority among
                               the individual refurbishments, (3) developed a formalized list of resource
                               and schedule conflicts between the individual refurbishments in order to
                               systematically resolve those conflicts, and (4) finalized the individual
                               refurbishment project plans on a timely basis.

                               Priority ranking is an important decision-making tool at DOE. It is the
                               principal means for establishing total organizational funding and for
                               making tradeoffs between organizations. DOE uses such a ranking at the
                               corporate level to make departmental budget decisions. To perform that
                               ranking, DOE formally requires each of its organizational elements to
                               annually submit to the DOE Office of Budget reports that provide a budget
                               year priority ranking and a ranking rationale narrative. In discussing this
                               matter with an NNSA budget official, we found that NNSA had not
                               submitted these priority-ranking reports for fiscal years 2002, 2003, and
                               2004, and this official was also unable to explain why. NNSA officials, in
                               commenting on our report, indicated that NNSA is not required to follow
                               the DOE requirement regarding priority budget ranking; however, these
                               officials could not provide us with any policy letter supporting their
                               position that NNSA has been officially exempted from this requirement.

                               Prioritization is also an important part of NNSA’s strategic planning
                               process. According to that process, priorities must be identified in an
                               integrated plan developed by each major NNSA office. This integrated plan
                               links sub-office program plans, such as the plan for refurbishing the B-61,



                               Page 18                   GAO-03-583 Improving the Stockpile Life Extension Program
to NNSA’s strategic plan. With respect to the Office of Defense Programs,
however, we found that this office has not finalized an integrated plan.
According to an NNSA official, Defense Programs developed a draft plan in
January 2002 but has not completed that plan and has instead devoted itself
to working on the sub-office program plans. Absent a finalized integrated
plan, it is unclear how sub-office program plans could be developed and
properly linked to NNSA’s strategic plan.

According to the director of Defense Programs’ Office of Planning, Budget,
and Integration, prioritizing Defense Programs activities is essential. This
is because the priorities of Defense Programs, its contractors, and the
Department of Defense, which is Defense Programs’ customer for life
extension refurbishments, may not necessarily be the same. In this
official’s view, the issue of setting priorities needs to be addressed. This
official indicated that the Office of Defense Programs developed a draft list
of activities in August 2001, but did not prioritize those activities. Included
among those activities were efforts to continue stockpile surveillance
activities and to complete planned refurbishments on schedule. For fiscal
years 2003 and 2004, according to this official, Defense Programs published
budget-related guidance regarding priorities, but he did not believe the
guidance was specific enough. This official added that, for fiscal year 2005,
the guidance would have sufficient detail.

While prioritizing work among Office of Defense Programs activities such
as stockpile surveillance and refurbishment is important, it is also
important to prioritize work within those activities. In the competition for
budget funds, the Office of Defense Programs must continually ask which
of the three refurbishments undergoing research and development work is
a higher priority and should be given funding preference. However, NNSA
has not taken a consistent position on prioritizing the life extensions. For
instance, in October 2002, NNSA indicated by memorandum that, because
of the continuing resolution for fiscal year 2003, the priority order for the
three refurbishments would be the W-76, followed by the B-61, followed by
the W-80. In November 2002, however, NNSA indicated by memorandum
that the three refurbishments had the same priority. In neither
memorandum did NNSA identify the criteria or reasons for these two
contradictory decisions. According to NNSA officials, no priority criteria
have been developed, and each of the three refurbishments is equal in
priority.

This lack of a definitive decision on the priority of the three refurbishments
has caused confusion. For example, the Los Alamos National Laboratory



Page 19                    GAO-03-583 Improving the Stockpile Life Extension Program
decided in early calendar year 2002 to unilaterally transfer funds from the
W-76 refurbishment to the B-61 because Los Alamos believed that the B-61
work was more important. As a result of that decision, the W-76 had to slip
a research reactor test from fiscal year 2002 to fiscal year 2003. Although
this test was not on the critical path for completing the W-76 refurbishment,
NNSA had identified the reactor test as a fiscal year 2002 metric for
measuring the refurbishment’s progress. In February 2002, NNSA
questioned Los Alamos regarding its decision. In its March 2002 reply, Los
Alamos indicated that it had found a mechanism to fully fund the W-76
refurbishment. However, because the reactor test had been cancelled, Los
Alamos indicated that it was no longer possible to complete the test in
fiscal year 2002, as planned. Therefore, Los Alamos stated that its goal was
to begin this test in the first part of fiscal year 2003. In another case, the
Y-12 plant decided to suspend or not initiate four projects at the beginning
of fiscal year 2003 in support of the W-76 refurbishment because Y-12
believed that these projects were a lower priority than other work to be
conducted. In a November 2002 memorandum, NNSA questioned this
decision. NNSA indicated that these projects were integrated with another
project, which was needed to ensure a complete special material
manufacturing process capability in time to support the W-76
refurbishment. Accordingly, NNSA stated that it was providing $2.9 million
in unallocated funds so that work on the projects could resume as soon as
possible to support the refurbishment schedule.

While these examples represent only two documented funding conflicts,
according to each of the refurbishment program managers, additional
resource and schedule conflicts exist among the three refurbishments.
Specifically, the refurbishment program managers agreed that conflicts, or
areas of competition, existed on many fronts, including budget resources,
facilities, and testing. For example, the three refurbishments compete for
certain testing facilities at Los Alamos National Laboratory and at the
Sandia National Laboratories, and for the use of certain hardware at the
Y-12 plant. Additional conflicts are also present that may affect only two of
the three refurbishments. Those identified included such activities as
campaign support, research, and development at the Los Alamos National
Laboratory, and use of hardware production at the Y-12 plant. The Deputy
Assistant Administrator for Military Application and Stockpile Operations
confirmed that the areas of competition identified by the individual
refurbishment program managers represented a fair portrayal of the
conflicts that exist between the refurbishments. He indicated that while no
formalized list of resource and schedule conflicts exist, the subject of
refurbishment conflicts is routinely discussed at each refurbishment



Page 20                   GAO-03-583 Improving the Stockpile Life Extension Program
program review meeting. These meetings are held monthly to discuss one
of the refurbishments on a rotating basis.

Finally, fundamental to the success of any project is documented planning
in the form of a project execution plan. With regard to the Stockpile Life
Extension Program, NNSA has had difficulty preparing project plans on a
timely basis. In its report on the lessons learned from the W-87
refurbishment, NNSA noted that one cause of the W-87’s problems was that
the project plan was prepared too late in the development cycle and was
not used as a tool to identify problems and take appropriate actions.8 As to
the W-76, W-80, and B-61 refurbishments, we found that NNSA had not
completed a project plan on time and with sufficient details, as stipulated
in NNSA guidance for properly managing the reburbishments.

According to NNSA’s June 2001 Life Extension Program Management Plan,
a final project plan is to be completed at the end of Phase 6.2A activities
(design definition and cost study). The Life Extension Program
Management Plan offers numerous guidelines detailing the elements that
should be included in the project plan. Those elements include, among
others, team structure and the roles of each team and individual members;
an integrated program schedule identifying all tasks to be accomplished for
the success of the project; life cycle costs; and a documentation of the
facility requirements needed to support all portions of the refurbishment.
This management plan was issued as guidance, rather than as a formally
approved requirements document, pending the resolution of role and
responsibility issues within NNSA.

Of the three refurbishments, only the B-61 has completed its project plan
on schedule. According to NNSA documentation, the B-61 reached the end
of phase 6.2A in October 2002. We confirmed that a project plan had been
completed at that time, but the project plan did not include all life cycle
costs, such as Campaign costs and Readiness in Technical Base and
Facilities costs. In this regard, DOE’s project management manual defines
life cycle costs as being the sum total of the direct, indirect, recurring,
nonrecurring, and other related costs incurred or estimated to be incurred
in the design, development, production, operation, maintenance, support,
and final disposition of a project.




8
Preliminary Lessons Learned Report for the W-87 Life Extension Program, Sept. 23, 2001.




Page 21                      GAO-03-583 Improving the Stockpile Life Extension Program
                              Conversely, an assessment of the W-76 refurbishment indicates that the
                              project plan for that refurbishment is 3 years late and also does not include
                              all life cycle costs. According to NNSA documentation, the W-76 reached
                              the end of phase 6.2A in March 2000. As of July 2003, a final project plan
                              had not yet been completed. The W-76 project manager told us that he has
                              been using a working draft of a project plan dated August 2001. He
                              indicated that he did not finalize the project plan because the Life
                              Extension Program Management Plan published in June 2001 had yet to be
                              issued as a formal requirement. With the reissuance of the management
                              plan as a requirement in January 2003, an NNSA official said that a finalized
                              project plan should be completed by the end of fiscal year 2003.

                              Likewise, an assessment of the W-80 refurbishment indicates that the
                              project plan for that refurbishment is more than 2 years late and also does
                              not include all life cycle costs. According to NNSA documentation, the
                              W-80 reached the end of phase 6.2A in October 2000. As of July 2003, a
                              complete project plan had not been prepared. According to the W-80
                              program manager, the refurbishment does not yet have an integrated
                              project schedule as described in the Life Extension Program Management
                              Plan. The W-80 program manager said that a finalized project plan with this
                              integrated schedule, which shows all tasks associated with the
                              refurbishment as well as all linkages, should be completed by mid-to-late
                              summer 2003. The W-80 program manager added that this integrated
                              schedule was not completed earlier because of personnel changes on this
                              refurbishment.



NNSA Does Not Yet Have an     DOE’s portfolio of projects demands a sophisticated and adaptive
Adequate Management           management structure that can manage project risks systematically;
                              control cost, schedule, and scope baselines; develop personnel and other
Structure that Fixes Roles,
                              resources; and transfer new technologies and practices efficiently from one
Responsibilities, and         project to another, even across program lines. With respect to the
Authority for Each Life       Stockpile Life Extension Program, NNSA does not have an adequate
Extension                     management structure which ensures rigor and discipline, fixes roles,
                              responsibilities, and authority for each life extension, or develops key
                              personnel. Specifically, NNSA has not (1) defined the life extensions as
                              projects and managed them accordingly, (2) clearly defined the roles and
                              responsibilities of those officials associated with the Stockpile Life
                              Extension Program, (3) provided program managers with sufficient
                              authority to carry out the refurbishments, or (4) given program and deputy
                              program managers proper project/program management training.




                              Page 22                   GAO-03-583 Improving the Stockpile Life Extension Program
DOE projects commonly overrun their budgets and schedules, leading to
pressures for cutbacks that have resulted in facilities that do not function
as intended, projects that are abandoned before they are completed, or
facilities that have been delayed so long that, upon completion, they no
longer serve any purpose.9 The fundamental deficiency for these problems
has been a DOE organization and culture that has failed to embrace the
principles of good project management. The same can be said for NNSA’s
view of the individual life extension refurbishments. Specifically, NNSA
has not established that the individual refurbishments are projects and
managed them accordingly.

According to the DOE directive, a project is a unique effort that, among
other things, supports a program mission and has defined start and end
points. Examples of projects given in the DOE directive include planning
and execution of construction, renovation, and modification;
environmental restoration; decontamination and decommissioning efforts;
information technology; and large capital equipment or technology
development activities. To the extent that an effort is a project, the DOE
directive dictates that the project must follow a structured acquisition
process that employs a cascaded set of requirements, direction, guidance,
and practices. This information helps ensure that the project is completed
on schedule, within budget, and is fully capable of meeting mission
performance and environmental, safety, and health standards.

According to the Deputy Assistant Administrator for Military Application
and Stockpile Operations, the individual life extension refurbishments are
projects but have not been officially declared so. This official indicated
that the primary reason for the lack of such a declaration is an
organizational culture, including those working at NNSA laboratories,
which often does not grasp the benefits of good project management. This
official also said that the organization is moving in the direction of
embracing project management but is doing so at an extremely slow pace.

If NNSA declared the individual life extension refurbishments to be
projects, many useful project management tools would become available to
the NNSA program mangers who are overseeing the refurbishments. Those
tools include, for example, conducting an independent cost estimate,
which is a “bottom-up” documented, independent cost estimate that has


9
 Improving Project Management in the Department of Energy, National Research Council,
1999.




Page 23                      GAO-03-583 Improving the Stockpile Life Extension Program
the express purpose of serving as an analytical tool to validate, cross-
check, or analyze cost estimates developed by the sponsors of the project.
Another tool is the use of earned value reporting, which is a method for
measuring project performance. Earned value compares the amount of
work that was planned at a particular cost with what was actually
accomplished within that cost to determine if the project will be completed
within cost and schedule estimates. A further tool is the reporting of
project status on all projects costing over $20 million to senior DOE and
NNSA management using DOE’s Project Analysis Reporting System. NNSA
refurbishment program managers with whom we spoke indicated that
management of the refurbishments would be improved if tools such as
independent cost estimates and earned value reporting were used.

With respect to roles and responsibilities, clearly defining a project’s
organizational structure up front is critical to the project’s success. In a
traditional project management environment, the project manager is the
key player in getting the project completed successfully. But other
members of the organization also play important roles, and those roles
must be clearly understood to avoid redundancy, miscommunication, and
disharmony. With respect to the Stockpile Life Extension Program, NNSA
has yet to clearly define the roles and responsibilities of all parties
associated with the program.

NNSA’s Life Extension Program Management Plan dated June 2001 was the
controlling document for defining refurbishment roles and responsibilities
from its issuance through calendar year 2002. Our review of that plan,
however, found a lack of clarity regarding who should be doing what. For
instance, the plan is unclear on which NNSA office is responsible for each
phase of the 6.X process. Illustrating that point, refurbishment program
managers with whom we spoke generally said there is confusion as to
which NNSA office—either the Office of Research, Development, and
Simulation or the Office of Military Application and Stockpile Operations—
has the primary responsibility when the refurbishment moves to phase 6.3
(development engineering) of the 6.X process. In addition, according to the
plan, the program manager and deputy program manager have identical
responsibilities. The plan states that the program manager and deputy
program manager shall discuss significant aspects of the refurbishment
with each other and should reach consensus concerning important aspects
of the scope, schedule, and cost. The plan further states that absent
consensus on an issue, the program manager may decide; however, any
unresolved conflicts between the two can be addressed to senior
management for resolution. Further, the plan is silent on the roles and



Page 24                   GAO-03-583 Improving the Stockpile Life Extension Program
responsibilities of the NNSA program and deputy program managers versus
the project manager at a laboratory or at a production plant site. What
actions the laboratory or plant project managers can take on their own,
without NNSA review and concurrence, are not specified in the plan.
Instead, the plan simply states that laboratory and plant project managers
provide overall management of life extension refurbishment activities at
their facilities.

In January 2003, NNSA reissued the Life Extension Program Management
plan after making only minor changes to the document. The reissued
management plan indicates that the program manager’s role will transition
from the NNSA Office of Research, Development, and Simulation to the
NNSA Office of Military Application and Stockpile Operations during phase
6.3. However, the reissued plan does not specify when, during phase 6.3,
this transition will occur. In addition, the reissued plan does not further
clarify the roles and responsibilities between the program and deputy
program managers and the project manager at a laboratory or at a
production plant site.

In addition to clear roles and responsibilities, project managers must have
the authority to see the project through. Regarding project management,
authority is defined as the power given to a person in an organization to use
resources to reach an objective and to exercise discipline. NNSA’s lessons
learned report on the W-87 refurbishment noted that there was an air of
confusion in resolving issues at the Kansas City plant because project
leaders were not formally assigned and provided with the tools (authority,
visibility, and ownership) necessary to properly manage the effort.10 Our
report on the W-87 refurbishment prepared in calendar year 2000 found
similar problems regarding the lack of authority.11 With respect to the
Stockpile Life Extension Program, NNSA has still not yet given the program
managers the authority to properly manage the refurbishments.




10
 Preliminary Lessons Learned Report for the W-87 Life Extension Program, Sept. 23,
2001.
11
 Nuclear Weapons: Improved Management Needed to Implement Stockpile Stewardship
Program Effectively, GAO-01-48 (Washington, D.C.: Dec. 14, 2000).




Page 25                      GAO-03-583 Improving the Stockpile Life Extension Program
Five of the six program or deputy program managers associated with the
B-61, W-76, and W-80 refurbishments believed they had not been given the
authority to properly carry out the refurbishments.12 For instance, one
program manager said he has neither the control nor the authority
associated with his refurbishment. He added that the program managers
ought to be given the authority so that the laboratories report directly to
them. As the situation currently stands, the laboratories will go over the
heads of the program manager to senior NNSA management to get things
done the laboratories’ way. According to a deputy program manager on
another refurbishment, the program managers do not have enough
authority and should have control of the refurbishments’ budgets. He
elaborated by explaining how one laboratory unilaterally decided to take
funds away from one refurbishment and give it to another without
consulting with any of the program managers. In this deputy program
manager’s view, if funds need to be transferred from one refurbishment to
another, then the laboratories should be required to get the concurrence of
NNSA management. A program manager on another refurbishment stated
that he does not have sufficient authority because he lacks control of the
budget. He indicated that funds for his refurbishment are allocated to the
various laboratory and plant sites, but he is not included in the review and
concurrence loop if the sites want to transfer funds from one activity to
another.

The Assistant Deputy Administrator for Military Application and Stockpile
Operations said he recognized the program manager’s concerns and has
advocated giving the program managers greater authority. He also
indicated that greater authority might eventually be granted. However, he
explained that at the moment, the Office of Defense Programs is focused
on a recently completed NNSA reorganization. After that matter is
sufficiently addressed, greater authority for the program managers may
result.

Turning to the issue of training, competent project management
professionals are essential to successful projects. Other federal agencies
and the private sector realized long ago that project management is a
professional discipline that must be learned and practiced. To ensure that
projects are well planned and properly executed, DOE created in 1995 a
competency standard for project management personnel. According to


12
 The sixth individual, a deputy program manager on one of the refurbishments, was not
available to us for discussions due to an illness.




Page 26                       GAO-03-583 Improving the Stockpile Life Extension Program
this standard, it is applicable to all DOE project management personnel
who are required to plan and execute projects in accordance with
departmental directives regarding project management. The standard
identifies four categories of competencies that all project management
personnel must attain and states that attainment must be documented. The
categories are (1) general technical, such as a knowledge of mechanical,
electrical, and civil engineering theories, principles, and techniques; (2)
regulatory, such as a knowledge of applicable DOE orders used to
implement the department’s project management system; (3)
administrative, such as a knowledge of the project reporting and
assessment system as outlined in DOE orders; and (4) management,
assessment, and oversight, such as a knowledge of DOE’s project
management system management roles, responsibilities, authorities, and
organizational options.

Of the six program and deputy program managers assigned to the W-76,
B-61, and W-80 refurbishments, NNSA records indicate that only one of the
six (the program manager for the W-76) has achieved 100 percent
attainment of the aforementioned standards. Regarding the other five,
NNSA records indicate that the deputy program manager for the B-61 has
achieved 30 percent attainment of the required competencies contained in
the standard, while the remaining four are not enrolled under the
qualification standards program. According to one of the three program
managers with whom we spoke, the problems with the W-87 refurbishment
were caused, in part, because the assigned program manager was not
qualified to perform all required tasks. NNSA records confirm that that
particular W-87 program manager was also not enrolled in the project
management qualification program.

Whereas NNSA program managers are required to meet qualifications
standards to discharge their assigned responsibilities, contractor project
management personnel we contacted are not required to meet any project
management standards. According to W-76, B-61, and W-80 refurbishment
project managers at the Sandia National Laboratories, Lawrence Livermore
National Laboratory, and Los Alamos National Laboratory, their respective
laboratories have no requirements that must be met before a person
becomes a project manager, and none of the managers had attained project
management certification through their previous work assignments and
experiences. NNSA officials also acknowledge that neither DOE nor NNSA
orders require contractor project management personnel to be properly
trained and certified.




Page 27                  GAO-03-583 Improving the Stockpile Life Extension Program
NNSA Does Not Have an       Effective oversight of project performance is dependent on the systematic
Adequate Process for        and realistic reporting of project performance data. Senior management
                            need such data to be able to detect potentially adverse trends in project
Overseeing Life Extension   progress and to decide when intervention is necessary. With respect to the
Program Costs and           Stockpile Life Extension Program, NNSA does not have an adequate
Schedules                   process for reporting life extension changes and progress, despite the fact
                            that cost growth and schedule slippage are occurring.

                            In July 2002, the Office of Defense Programs issued program review
                            guidance to enable advance planning, provide consistency, set clearer
                            expectations, and establish a baseline process on which to improve life
                            extension, program reviews. Various review meeting formats were
                            articulated including a full program review of each refurbishment to be
                            conducted monthly on a rotating basis. The goals and objectives of the full
                            program review were to inform management of project status, convince
                            management that the refurbishment is well managed, gain management’s
                            assistance in resolving issues that require its involvement, and identify
                            management decision points and obtain authority to execute risk
                            mitigation plans.

                            Our review of the most recent program review reports prepared on the
                            individual refurbishments showed that they contained limited information
                            regarding cost growth and schedule changes against established baselines.
                            These reports, which are prepared for senior NNSA management, show
                            whether the respective refurbishment is on track to spend all fiscal year
                            funding, but not whether the actual work completed has cost more or less
                            than planned. For example:

                            • According to W-76 program review reports presented in November 2002
                              and February 2003, the refurbishment was on track to spend all funding
                              allocated for fiscal year 2003. In addition, the refurbishment was
                              slightly behind schedule but manageable and within budget. On the
                              other hand, the presentations gave no specifics on how much the
                              refurbishment is behind schedule or how well the refurbishment was
                              progressing against a life cycle cost baseline. Specifically, costs
                              associated with certain procurements, Campaign costs, Readiness in
                              Technical Base and Facilities costs, construction costs, and
                              transportation costs which make up the life cycle costs of the
                              refurbishment were not included. The presentations also showed that
                              the refurbishment had not met at least two commitments during fiscal
                              year 2002.




                            Page 28                  GAO-03-583 Improving the Stockpile Life Extension Program
• According to the W-80 program review report presented in December
  2002, the refurbishment was on track to spend all funding allocated for
  fiscal year 2003. In addition, the refurbishment was within cost and
  within scope, but behind schedule. On the other hand, the report gave
  no specifics on how much the refurbishment was behind schedule or
  how well the refurbishment was progressing against a life cycle cost
  baseline. The presentation further mentioned that the refurbishment
  had high risks because, for instance, the Air Force was currently not
  funding certain work that must be performed in order to meet the
  established first production unit date of February 2006.

• As opposed to the above reports, the B-61 program review reports
  presented in January and March 2003 made no summary statements
  regarding the refurbishment’s cost and schedule status against
  established baselines. The presentations also indicated that the
  refurbishment is on schedule to spend all funding allocated for fiscal
  year 2003. On the other hand, the presentations showed that the
  refurbishment has already not met several commitments for fiscal year
  2003, suggesting that the refurbishment may be behind schedule.

Absent the periodic reporting of specific cost growth and schedule
information to senior NNSA management, we interviewed cognizant NNSA
officials to document any cost growth and schedule changes associated
with the individual refurbishments. These officials recognized that certain
cost growth and schedule changes had occurred for each of the
refurbishments. These officials added that cost growth and schedule
changes are routinely discussed during meetings on the refurbishments.

According to the W-76 program manager, this refurbishment is slightly
behind schedule. In particular, the W-76 did not conduct certain activities
on schedule, such as deciding whether to reuse or remanufacture certain
components, conduct a certain reactor test at Los Alamos National
Laboratory, and construct certain facilities at the Y-12 plant. The reasons
why these activities were late varied. For instance, the decision to reuse or
remanufacture certain components did not occur on schedule, according to
the W-76 program manager, primarily because the NNSA person assigned to
do the necessary calculations neglected to perform that task. Conversely,
the reactor test at the Los Alamos National Laboratory did not occur on
schedule because the laboratory unilaterally transferred funds from the
W-76 refurbishment to the B-61. As to cost growth, the W-76 will need
about $10.75 million in additional funding in fiscal year 2004. The funding




Page 29                   GAO-03-583 Improving the Stockpile Life Extension Program
is necessary to purchase certain commercial off-the-shelf parts that were
previously not authorized or budgeted for.

According to NNSA field and Sandia National Laboratory officials, it is
unlikely that the W-80 will meet its scheduled first production unit delivery
date. Echoing those sentiments, according to the NNSA program manager,
the W-80 was scheduled to enter phase 6.4 (production engineering) on
October 1, 2002. Now, however, it is hoped that phase 6.4 will commence in
2003. The NNSA program manager indicated that the W-80 has been
impacted by a lack of funding for the refurbishment from the Air Force.
This lack of funding, the NNSA program manager said, has occurred
because of a disconnect in planning between the 6.X process and the
Department of Defense budget cycle. The Air Force had made no plans to
allocate money for the W-80 in either its fiscal year 2001 or 2002 budgets.
Therefore, several important joint NNSA and Air Force documents have
not been completed. Certain ground and flight tests also lack funding and
have been delayed. In addition, the W-80 will need an additional $8 million
to $9 million in fiscal year 2003 to buy certain commercial off-the-shelf
parts that had been planned but not budgeted for. According to the Air
Force’s Lead Program Officer on the W-80, the Air Force, because of an
oversight, had no money for the W-80 in its fiscal years 2001 and 2002
budgets. As a result, he anticipated that the first production unit delivery
date will need to be slipped. He also indicated that he was working on a
lessons learned report due in early 2003 to document the situation with the
W-80 and help ensure that a similar funding problem does not occur with
future refurbishments. This Air Force official added that in December 2002
the Air Force finally received the funding necessary to support the W-80
refurbishment. According to the NNSA director of the nuclear weapons
stockpile, the W-80 will need to slip its first production unit date from
February 2006 to April 2007. As a result, NNSA was rebaselining the W-80
refurbishment. As of July 2003, cost data submitted to NNSA headquarters
from contractor laboratory and production site locations indicate that the
cost to refurbish the W-80 may increase by about $288 million. NNSA
officials were in the process of determining whether this cost increase was
due to schedule slippage or other factors, such as the sites underestimating
costs in the past.

Finally, certain schedule slippage has already occurred for the B-61.
According to NNSA’s June 2001 Life Extension Program Management Plan,
the original first production unit delivery date was September 2004. Now,
according to the B-61 program manager, the new delivery date is June 2006.
The program manager indicated that this change was made because NNSA



Page 30                   GAO-03-583 Improving the Stockpile Life Extension Program
determined that the September 2004 date was not attainable. As it is, the
B-61 program manager said, the June 2006 date represents an acceleration
of the phase 6.X process where activities within phases 6.3 (design
definition and cost study) and 6.4 (development engineering) will be
conducted concurrently. Because of that, certain risks are involved. For
instance, some design development will not be fully completed before
production must be initiated to keep the refurbishment on schedule. The
B-61 program manager indicated that the commencement date for phase
6.3 has already changed from August 2002 to December 2002 because of the
Air Force’s lack of timely action in reviewing certain documentation. As to
cost changes, a decision needs to be made regarding the production of a
particular material. Two NNSA locations, which differ in cost, are being
considered. If the location with the higher cost is selected, then an
additional $10 million will be needed in fiscal year 2004 and beyond.

To gauge the progress of the refurbishments within the Stockpile Life
Extension Program, NNSA, like all federal agencies, uses performance
measures. Performance measures, which are required by the Government
Performance and Results Act of 1993, are helpful to senior agency
management, the Congress, and the public. Performance measures inform
senior agency management as to whether progress is being made toward
accomplishing agency goals and objectives. They are also used by the
Congress to allocate resources and determine appropriation levels.
Performance measures are further used by American taxpayers as a means
for deciding whether their tax funds are being well spent. Unfortunately,
NNSA has not developed performance measures with sufficient specificity
to determine the progress of the three refurbishments that we reviewed.
As mentioned earlier, the agency’s current accounting system does not
provide an adequate link between cost and performance measures.

NNSA identifies performance measures for the W-80, B-61, and W-76 in
three separate and distinct documents.13 One document is the narrative
associated with NNSA’s fiscal year 2004 budget request for the Directed
Stockpile Work account. Another is the combined program and
implementation plans for the stockpile maintenance program for fiscal
years 2002 through 2008. A third is the Future Years Nuclear Security Plan.
Performance measures used in these documents do not identify variance
from cost baselines as a basis for evaluating performance.


13
 NNSA also prepares a Selected Acquisition Report on an annual basis on each of the
refurbishments, but these reports do not contain performance measures.




Page 31                       GAO-03-583 Improving the Stockpile Life Extension Program
Performance measures identified in NNSA’s fiscal year 2004 budget request
are general in nature and provide no details regarding cost performance.
According to that budget request, for instance, a performance measure
listed for the B-61, W-76, and W-80 is to complete 100 percent of the major
milestones scheduled for fiscal year 2004 to support the refurbishments’
first production unit date. None of the performance measures listed in the
budget request mention adherence to cost baselines.

Performance measures identified in the combined program and
implementation plans for the Directed Stockpile Work maintenance
program dated September 3, 2002, are equally minimal, vague, and
nonspecific regarding refurbishment work. These plans identify
performance measures at three levels—level 1, the Defense Program level,
which is the highest level of actions/milestones/deliverables; level 2, which
is the supporting level of actions/milestones/deliverables on the path
toward achieving level 1 measures; and level 3, which is the site level of
actions/milestones/deliverables on the site path toward achieving level 2
measures. According to these plans, there are no level 1 performance
measures associated with the three refurbishments. For levels 2 and 3, the
plans specify that the three refurbishments should meet all deliverables as
identified in other NNSA documents. These plans, we noted, do not
discuss adherence to cost baselines as a deliverable.

Performance measures identified in the Future Years Nuclear Security Plan
are also vague and nonspecific. This plan describes performance targets
that NNSA hopes to achieve in fiscal years 2003 through 2007, but the plan
does not associate funding levels with those targets. Some of the
performance targets apply to the Stockpile Life Extension Program in
general or to particular refurbishments. Regarding the latter, for example,
in fiscal year 2003, NNSA intends to commence production engineering
work (phase 6.4) for the B-61, W-76, and W-80 refurbishments, and to
eliminate W-76, W-80, and W-87 surveillance backlogs. The plan, however,
does not associate funding estimates with these performance targets.

According to the Assistant Deputy Administrator for Military Application
and Stockpile Operations, the refurbishment performance measures
contained in the three aforementioned documents are admittedly not very
good. He indicated that the Office of Defense Programs is moving toward
linking key performance measures to appropriate NNSA goals, strategies,
and strategic indicators. The Assistant Deputy Administrator stated that he
hoped that the performance measures for fiscal year 2005 would provide a




Page 32                   GAO-03-583 Improving the Stockpile Life Extension Program
                      better basis for evaluating the refurbishments’ progress in adhering to cost
                      baselines.



NNSA Has Various      While NNSA management problems are many and long-standing, so too
                      have been NNSA attempts to effect improvement. NNSA has repeatedly
Actions Underway to   studied and analyzed ways to ensure that mistakes made in the past
Fix Its Management    regarding the safety of nuclear weapons, the security of nuclear facilities,
                      and the protection of nuclear secrets are not repeated in the future.
Problems              Accordingly, NNSA has various actions underway to fix its management
                      problems.

                      Foremost of those actions has been the December 2002 completion of a
                      reorganizational transformation campaign. In announcing this
                      reorganization, the NNSA administrator said the reorganization follows the
                      principles outlined in the President’s Management Agenda, which strives to
                      improve government through performance and results. The new
                      reorganization will reportedly streamline NNSA by eliminating one layer of
                      management at the field office level. It will also improve organizational
                      discipline and efficiency by requiring that each element of the NNSA
                      workforce will become ISO 9001 certified by December 31, 2004. ISO 9001
                      is a quality management standard that has been recognized around the
                      world. The standard applies to all aspects necessary to create a quality
                      work environment, including establishing a quality system, providing
                      quality personnel, and monitoring and measuring quality.

                      In concert with NNSA’s overall reorganization has been the creation of a
                      program integration office in August 2002. This new office will be working
                      to create better coordination and cooperation between NNSA Office of
                      Defense Program elements. The new office is composed of three divisions:
                      one that will be performing strategic planning and studies; one that will be
                      looking at the strategic infrastructure; and one that will be doing planning,
                      budgeting, and integration work. The implementation plan for this new
                      office, as of July 2003, had not yet been approved and disseminated
                      because of a major personnel downsizing that is underway.

                      Nonetheless, this new office has already embarked on various initiatives.
                      One initiative is to decide on a cost baseline for the Stockpile Life
                      Extension Program. According to the Director of Defense Programs’ Office
                      of Planning, Budgeting and Integration, a completion date for this work has
                      not yet been set. A second initiative is to develop an integrated master
                      schedule for the Stockpile Life Extension Program that will help identify



                      Page 33                   GAO-03-583 Improving the Stockpile Life Extension Program
and resolve schedule and resource conflicts. The director indicated that
such a schedule should be available at the end of calendar year 2003. A
third initiative is to develop consistent criteria for reporting schedule
activities and critical milestones. The director indicated that without such
criteria there is no assurance that consistent information is being reported
on the individual refurbishments. The director indicated that these criteria
would be developed during the summer of 2003.

Of no less importance to the organizational changes, NNSA has
implemented an overall planning, programming, budgeting, and evaluation
process. The goal of this process is to obtain and provide the best mix of
resources needed to meet national nuclear security objectives within fiscal
restraints. Through planning, the process will examine alternative
strategies, analyze changing conditions and trends, identify risk scenarios,
assess plausible future states, define strategic requirements, and gain an
understanding of the long-term implications of current choices. Through
programming, the process will evaluate competing priorities and mission
needs, analyze alternatives and trade-offs, and allocate the resources
needed to execute the strategies. Through budgeting, the process will
convert program decisions on dollars into multiyear budgets that further
refine the cost of the approved 5-year program. Through evaluation, the
process will apply resources to achieve program objectives and adjust
requirements, based on feedback. This process was partially rolled out for
the fiscal year 2004 budget cycle, with full implementation scheduled for
fiscal year 2005.

A separate effort has been the establishment of a project/program
management reengineering team in August 2002. According to the team’s
charter, NNSA does not manage all its programs effectively and efficiently.
Therefore, the mission of this team was to develop a program management
system, including policies, guides, procedures, roles, responsibilities, and
definitions that would enable NNSA to achieve excellence in program
management. The observations of the team, as of September 2002, were
that the state of health of the NNSA program management processes is very
poor, and this condition significantly affects the ability of NNSA to achieve
its missions effectively and efficiently. In the words of the team, many
essential elements of an effective program management system do not
exist. Examples given included no documented roles and responsibilities
and no documented overarching process for program management.
According to the team leader, an implementation plan to improve NNSA
program management was submitted to the administrator for approval in
October 2002. As of July 2003, the implementation plan had not been



Page 34                   GAO-03-583 Improving the Stockpile Life Extension Program
                      approved. According to the Director of Defense Programs’ Office of
                      Program Integration, no action has been taken on this implementation plan
                      while NNSA has been addressing its recent reorganization. It is now hoped,
                      according to this official, that project/program improvement actions can be
                      identified and implemented by the start of fiscal year 2004.



Conclusions           Extending the life of the weapons in our nation’s nuclear stockpile
                      represents one of the major challenges facing NNSA. It will demand a
                      budget of hundreds of millions of dollars annually for the next decade.
                      Considerable coordination between the design laboratories and the
                      production facilities will be necessary as the four life extensions compete
                      for scarce resources. Where conflicts occur, trade-offs will be required—
                      trade-offs that must be made by federal managers, contractors, and,
                      ultimately, the Congress. All of these things cannot occur without sound
                      budgeting. Likewise, all parties involved in the oversight of the Stockpile
                      Life Extension Program must be able to determine the true cost to
                      complete the life extensions throughout the refurbishment process,
                      identify cost overruns as they develop, and decide when intervention in
                      those cost overruns is necessary. This cannot occur without sound cost
                      accounting. Finally, the life extensions must be properly managed because
                      the consequences of less than proper management are too great. Those
                      consequences, as seen on the W-87 life extension, include potential cost
                      overruns in the hundreds of millions of dollars and refurbishment
                      completion occurring beyond the dates required for national security
                      purposes. To avoid these consequences, the life extensions must have
                      adequate planning; a clear leadership structure which fixes roles,
                      responsibilities, and authority for each life extension; and an adequate
                      oversight process. While NNSA has begun to put in place some improved
                      budgeting and management processes, additional action is necessary if it is
                      to achieve the goal of a safe and reliable stockpile that is refurbished on
                      cost and on schedule.



Recommendations for   To improve the budgeting associated with the Stockpile Life Extension
                      Program, we recommend that the Secretary of Energy direct the NNSA
Executive Action      Administrator to

                      • include NNSA’s stockpile life extension effort as a formal and distinct
                        program in its budget submission and present, as part of its budget
                        request, a clear picture of the full costs associated with this program and



                      Page 35                   GAO-03-583 Improving the Stockpile Life Extension Program
   its individual refurbishments by including the refurbishment-related
   costs from Campaigns, Readiness in Technical Base and Facilities, and
   multiple system work, and

• validate the budget request in accordance with DOE directives.

To improve cost accounting associated with the Stockpile Life Extension
Program, we recommend that the Secretary of Energy direct the NNSA
Administrator to

• establish a managerial cost accounting process that accumulates,
  tracks, and reports the full costs associated with each individual
  refurbishment, including the refurbishment-related costs from
  Campaigns, Readiness in Technical Base and Facilities, and multiple
  system work.

To improve the management of the Stockpile Life Extension Program, we
recommend that the Secretary of Energy direct the NNSA Administrator to:

    With respect to planning

   • finalize the Office of Defense Programs’ integrated program plan and,
     within that plan, rank the Stockpile Life Extension Program against
     all other defense program priorities, establish the relative priority
     among the individual life extension refurbishments, and disseminate
     the ranking across the nuclear weapons complex so that those within
     that complex know the priority of the refurbishment work;

   • develop a formalized process for identifying resource and schedule
     conflicts between the individual life extension efforts and resolve
     those conflicts in a timely and systematic manner; and

   • finalize individual refurbishment project plans.

    With respect to management structure

   • establish the individual refurbishments as projects and manage them
     according to DOE project management requirements;

   • clearly define the roles and responsibilities of all parties associated
     with the Stockpile Life Extension Program;




Page 36                   GAO-03-583 Improving the Stockpile Life Extension Program
                     • provide the life extension program managers with the authority and
                       visibility within the NNSA organization to properly manage the
                       refurbishments; and

                     • require that life extension program managers and others involved in
                       management activities receive proper project/program management
                       training and qualification.

                      With respect to oversight of cost and schedule

                     • institute a formal process for periodically tracking and reporting
                       individual refurbishment cost, schedule, and scope changes against
                       established baselines, and

                     • develop performance measures with sufficient specificity to
                       determine program progress.



Agency Comments   We provided NNSA with a draft of this report for review and comment.
                  Overall, NNSA stated that it recognized the need to change the way the
                  Stockpile Life Extension Program was managed and that it generally
                  agreed with the report’s recommendations. For instance, NNSA stated that
                  it had independently identified many of the same concerns, and, over the
                  past 12 months, had made significant progress in implementing plans,
                  programs, and processes to improve program management. NNSA
                  indicated that full implementation of our management and budgeting
                  recommendations will take several years; however, NNSA is committed to
                  meeting these objectives. NNSA also provided some technical comments
                  which it believed pointed out factual inaccuracies. We have modified our
                  report, where appropriate, to reflect NNSA’s comments. NNSA’s comments
                  on our draft report are presented in appendix I.



Scope and         We performed our work at DOE’s and NNSA’s headquarters and Sandia
                  National Laboratories, Los Alamos National Laboratory, and the Kansas
Methodology       City plant from July 2002 through July 2003 in accordance with generally
                  accepted government auditing standards. To determine the extent to which
                  the Stockpile Life Extension Program’s budget requests for fiscal years
                  2003 and 2004 were comprehensive and reliable, we reviewed those
                  requests as well as NNSA supporting documentation, such as guidance
                  issued to develop those requests, information related to NNSA’s planning,



                  Page 37                  GAO-03-583 Improving the Stockpile Life Extension Program
programming, budgeting, and evaluation process, and budget validation
reports. We also discussed those budget requests with DOE and NNSA
budget officials and an official with the Office of Management and Budget.
To determine the extent to which NNSA has a system for accumulating,
tracking, and reporting program costs, we identified how cost data is
tracked in DOE’s information systems and in selected contractors’ systems
by interviewing key DOE, NNSA, and contractor officials responsible for
the overall Stockpile Life Extension Program and the individual
refurbishments and by reviewing pertinent documents. We also identified
how DOE and NNSA ensure the quality and comparability of cost and
performance data received from contractors by interviewing DOE and
NNSA officials, DOE Office of Inspector General officials, and selected
contractors’ internal auditors, and by reviewing pertinent documents
including previously issued GAO and DOE Office of Inspector General
reports. To determine the extent to which other management problems
related to the Stockpile Life Extension Program exist at NNSA, we
reviewed pertinent NNSA documentation, such as NNSA’s Strategic Plan,
the Office of Defense Programs’ draft integrated plan, the Life Extension
Program Management Plan, and project plans and variance reports
required by the Life Extension Program Management Plan for the B-61,
W-76, and W-80 refurbishments. We also interviewed key DOE, NNSA, and
contractor officials involved with the Stockpile Life Extension Program,
and, in particular, the program and deputy program managers of the B-61,
W-76, and W-80 refurbishments. Finally, we attended the NNSA quarterly
program review meetings on each of the refurbishments.


As arranged with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 10 days after the
date of this letter. At that time, we will send copies of the report to the
Secretary of Energy, the Administrator of NNSA, the Director of the Office
of Management and Budget, and appropriate congressional committees. We
will make copies available to others on request. In addition, the report will
also be available at no charge on the GAO Web site at http://www.gao.gov.




Page 38                    GAO-03-583 Improving the Stockpile Life Extension Program
If you or your staff have any questions about this report, please call me at
(202) 512-3841. Major contributors to this report are listed in appendix II.




Robin M. Nazzaro
Director, Natural Resources and
 Environment




Page 39                   GAO-03-583 Improving the Stockpile Life Extension Program
List of Congressional Requesters

The Honorable David L. Hobson
Chairman, Energy and Water Development Subcommittee
House Committee on Appropriations

The Honorable Peter J. Visclosky
Ranking Minority Member, Energy and Water Development Subcommittee
House Committee on Appropriations

The Honorable Terry Everett
Chairman, Subcommittee on Strategic Forces
House Committee on Armed Services

The Honorable Silvestre Reyes
Ranking Minority Member, Subcommittee on Strategic Forces
House Committee on Armed Services




Page 40                 GAO-03-583 Improving the Stockpile Life Extension Program
Appendix I

Comments from the National Nuclear Security                                     Appendx
                                                                                      ies




Administration                                                                   Append
                                                                                      x
                                                                                      Ii




              Page 41   GAO-03-583 Improving the Stockpile Life Extension Program
Appendix I
Comments from the National Nuclear
Security Administration




Page 42                      GAO-03-583 Improving the Stockpile Life Extension Program
Appendix II

GAO Contact and Staff Acknowledgments                                                              Appendx
                                                                                                         Ii




GAO Contact       James Noel (202) 512-3591



Acknowledgments   In addition to the individual named above, Sally Thompson, Mark Connelly,
                  Mike LaForge, Tram Le, Barbara House, and Stephanie Chen from our
                  Financial Management and Assurance mission team and Robert Baney,
                  Josephine Ballenger, and Delores Parrett from our Natural Resources and
                  Environment mission team were key contributors to this report.




(360195)          Page 43                  GAO-03-583 Improving the Stockpile Life Extension Program
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