oversight

TOPAZ II Space Nuclear Power Program: Management, Funding, and Contracting Problems

Published by the Government Accountability Office on 1997-12-01.

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

       United States
GiMO   General Accounting Office
       Washington, D.C. 20548

       Office of Special Investigations


       B-277078

       December 1, 1997

       The Honorable Pete V. Dome&i
       United States Senate

       Subject:     TOPAZ II &ace Nuclear Power Progmm - Management,
                    Funding. and Contracting: Problems

       Dear Senator Dome&i:

       As you requested, we have investigated qu+tionable management practices and
       possible wrongdoing in the TOPAZ II space nuclear power program. This
       program, which was managed by the Strategic Defense Initiative Organization
       (SDIO) and its successor, the Ballistic Missile Defense Organization (BMDO),
       was primarily intended to acquire technology that would eventually allow U.S.
       industry to develop nuclear power as an energy source for long-term, space-
       based missions. As agreed with your office, we focused our review on the
       program’s management, funding, and acquisition practices from 1990 through
       1995.

       BACKGROUND

       In 1989, with the Cold War ending, the United States learned that the Soviet
       Union was willing to sell its thermionic space nuclear reactor technology, which
       came to be known as TOPAZ’ II. SDIO, which was charged with developing a --
       U.S. space-based missile defense program, believed that this acquisition would
       greatly decrease the time needed to design U.S. thermion& systems. By 1990,
       SD10 and the Air Force had created a program to acquire and further develop
       the Russian technology for eventual transfer to U.S. industry. Specifically, the
       program was to focus on (I) testing and evaluating the Russian technology,
       (2) fright-testing a TOPAZ II reactor, and (3) developing the next-generation
       space power system based on the TOPAZ II technology.



       ‘TOPAZ is a tran&eration of a Russian acronym for “thermionic experiment
       with conversion in the active zone.”
       2Thermionics is the generation of energy ikom charged particles emitted by an
       incandescent material
                                          GAO/OS&9%3R Improprieties in TOPAZ II Space Program
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To acquire this technology, SD10 bought six Russian production-model TOPAZ II
nuclear power systems between 1992 and 1994 from a Russian consortium
(called INERTEK) through a U.S. contractor for $34.5 million. However, in 1993,
due to cost-cutting pressures and a change in defense spending priorities, the
U.S. government reduced. funding for the program. To justify continuing the
reduced TOPAZ II program, SD10 officials added a new program goal. Instead of
focusing solely on the existing program goal of technology transfer, the program
was also intended to aid in defense conversion-aiding the Russians in converting
portions of their defense industry to civilian operations. At the same time, SD10
renamed the program the TOPAZ International Program (TIP).

On October 1, 1995, the program was transferred to the Defense Nuclear Agency
(DNA). By this time, the initial testing and evaluation project had concluded.
The two TOPAZ II reactors acquired under a 1992 SD10 procurement contract
for $13 million had been resold for $10,000to the U.S. contractor that had
brokered the sale and were returned to Russia. The four remaining reactors,
purchased under a 1993 procurement contract for $21.5 million, were reacquired
by the same U.S. contractor for $17,000in 1997 and were also shipped back to
Russia. However, in the end, only $7.7 million of the $21.5 million was actually
paid on this contract. During the course of our investigation and a review by the
DNA Inspector General, the remainder of the contract was cancelled. A
termination settlement agreement was then negotiated, resulting in an increase
of $1.7 million-for a total of about $9.4 million-in full settlement of the contract.

The Congress further reduced funding for the TOPAZ II program for fiscal years
1997-1999. The program was terminated on March 19, 1997; total program costs
exceed $100 million.

INVESTIGATlVE FINDINGS

The TOPAZ II program was unable to achieve either its original goal of
technology transfer or the later goal of defense conversion. Achievement of the
technology transfer goal was inhibited in large part by concerns over the
Russians’unwillingness to allow full access to the TOPAZ II technology, while
the defense conversion goal was impeded by the lack of a process for
monitoring whether the funds expended were actually being used in the defense
conversion effort. In addition to these problems, we identified an Antideficiency
Act violation and a procedural violation of the Competition in Contracting Act
 (CICA).

Technologv Transfer

In 1993, officials at the Department of Energy (DOE) and the U.S. Air Force
Phillips Laboratory, who were working with SD10 on the TOPAZ II program,
raised concerns to SD10 program officials that the Russians would not provide


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B-277078


them full access to the TOPAZ II technology. Spectically, the Russians had
asserted that much of the important TOPAZ II data was either proprietary
(requiring licensing) or trade secrets (unavailable). DOE and Phillips Laboratory
officials were concerned that these assertions would seriously hinder U.S.
industry’s ability to take advantage of this technology. Although technology
transfer was the initial goal of the program, SD10 program officials were unable
to resolve these concerns.

Defense Conversion

In the meantime, by 1993 SD10 had restructured the program and added the
program goal of defense conversion, claiming in August 1994 that funds from the
TOPAZ II program were being used to successfully employ approximately 800
nuclear scientists and engineers at Russian institutes in nondefense work.
However, neither SD10 nor its successor, BMDO, was able to support these
claims. Further, neither organization developed a process by which to monitor
whether the goal of defense conversion was being achieved.

After the program was transferred to DNA in October 1995, DNA asked the
Russian institutes for a list of projects and expenditures for 1993 through 1995
that could be used to demonstrate that the moneys were being spent on defense
conversion. The Russians estimated their total expenditures for defense
conversion to be about $586,000of the $7 million that had been paid for TOPAZ
II technology during the time that defense conversion had been a goal of the
program. In short, the Russians were able to provide no evidence that much of
the money spent on the program was actually being used to achieve the goal of
defense conversion.

Antideficiencv Act Violation

SD10 violated the Antideficiency Act, 31 U.S.C. section 1341(a), in fiscal year
1993 when it did not obligate the total contract price for the purchase of the four
TOPAZ It reactors. Spec&ally, SD10 obligated only about $3.5 million and
bound the U.S. government to a $21.GniUion contract-to be paid over 5 years
from then current and future fiscal year funds-to purchase the four reactors and
supporting documentation. Structuring the payments to include funds from
future year appropriations violated the Antideficiency Act. This letter contains a
recommendation aimed at determinin g the availability of about $5.9 million in
unobligated fiscal year 1993 funds that would allow BMDO to make appropriate
adjustments to its accounts. If the funds are not available, BMDO must notify
the Office of Management and Budget and the Congress that it violated the
Antideficiency Act (31 U.S.C. section 1351).




                               GAO/OSI-9%3R Improprieties   in TOPAZ II Space Program
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Contracting Imnronrietv

Phillips Laboratory officials were not in compliance with the statutory
requirements of CICA in 10 U.S.C. section 2304(f)(l) in awarding a facilities
contract in support of the TOPAZ II program. This contracting impropriety
occurred when Phillips Laboratory awarded a sole-source contract to the New
Mexico Engineering Research Institute (NMERl) for test facilities and technical
support services, without justifying the need for the award (10 USC. section
2304(f)(l)(A)) and without obtaining the appropriate approval for such an award
(10 U.S.C. section 2304(f)(l)(B)). We have provided this information to the
Defense Criminal Investigative Service and the Air Force Inspector General.

RECOMMENDATION TO THE SECRETARY OF DEFENSE

We recommend that the Secretary of Defense ensure that BMDO audits its fiscal
year 1993 funds to determine if unobligated funds are available to cover the
$5.9 million difference between $9.4 million (the contract’s total price) and
$3.5 million (the amount obligated and expended Tom fiscal year 1993 funds). If
funds in that amount are not available, the Secretary should ensure that BMDO
notifies the Office of Management and Budget and the Congress that it violated
the Antideficiency Act.

AGENCY COMMENTS AND OUR EVALUATION

The Department of Defense (DOD) provided comments on a draft of this report
expressing its disagreement with our report’s tidings concerning the
achievement of TOPAZ II’s goals, the Antideficiency Act violation, and the
contracting impropriety.

Concerning our discussion of the program’s goals, DOD contended that
proprietary data/trade secret limitations did not impede technology transfer.
This conflicts dramatically with documented statements fkom DOE and Air Force
officials in the TOPAZ II program and test and evaluation project officials. One
DOE manager called the proprietary data issue “a show-stopper” with regard to
full competition for U.S. industry. The test and evaluation project manager
stated that, by 1995, INERTEK’s proprietary data/trade secret assertions were
‘Wing the program.”

In addition, DOD contended that (1) defense conversion was not a main purpose
of the second technology acquisition (for four reactors) and (2) an August 1994
citation of 800 Russians working in defense conversion did not relate to this
acquisition. However, this also conflicts with documentary evidence. Such
documents include the 1993 Secretary of Defense approval of the second
acquisition and a 1995 memorandum from the Assistant to the Secretary of
Defense to the Director, DNA Both documents idenmed defense conversion


 4                          GAO/OS&98-3R Improprieties in TOPAZ II Space Program
B-277078

and technology transfer as primary program objectives. Further, the August 1994
document entitled “TOPAZ International Program Overview” noted that “[w]ithin
Russia, [TIP] funds are being used to employ approximately 800 nuclear
scientists and engineers”and that a “signikant portion of the TIP funds in
Russia are financinrg the conversion of these institutes to commercial production
enterprises.” (Emphasis provided.) Furthermore, payments under the second
procurement contract had been made to the contractor/INERTEK by August
1994. BMDO’s &irns in the document thus appear to include moneys paid
under both contracts.

DOD also presented an exhaustive analysis to support its contention that the
contract requirements establish that the agency did not violate the Antideficiency
Act. None of the reasons presented altered our interpretation of the contract.
The contract essentiahy constituted a nonseverable, or complete, undertaking:
the delivery of the reactors, peripheral equipment, and documentation represents
the primary performance requirement; and delivery of minimal engineering
services to ensure successful testing represents ancillary performance
requirements. Thus, BMDO could not fund the contract incrementahy. As a
result, we have retained our recommendation that the Secretary of Defense take
action to resolve this issue.

F’inalIy, DOD did not agree that the sole-source award of the facilities and
support services contract by PhiRips Laboratory was improper but was unable to
comment further because of an ongoing criminal investigation by the Defense
Criminal Investigative Service. As indicated above, we have provided the
information we developed on this issue to the Defense Criminal Investigative
Service and the Air Force Oflice of Special Investigations for their consideration.

OBJECTIVES. SCOPE. AND METHODOLOGY

Allegations of mismanagement and contracting improprieties in the TOPAZ II
program arose in the summer of 1995, following a counterintelhgence
investigation by the Air Force Oflice of Special Investigations and the Federal
Bureau of Investigation. We conducted a preliminary investigation of these
issues in August 1995, focusing on the facilities and support contract. We
subsequently briefed your office-and those of the Senate Committees on
Appropriations and Budget and the House Committee on National Security-on
the results. You requested that we continue our investigation. We then focused
our efforts on SDIO’s and BiVIDO’s acquisition, contracting, and funding practices
on the TOPAZ II program from 1990 through 1995.

During the course of this review, we interviewed current and former program
and contract officials, as well as contractor and subcontractor personnel. We
also reviewed program, contract, and funding documents at BMDO, DNA, Phillips
Laboratory, NMERI, and International Science Products, Inc.


5                           GAO/OS&98-3R Improprieties in TOPAZ II Space Program
B-277078

As agreed with your office, we coordinated and shared information concerning
our investigation with the Air Force Office of Special Jnvestigations and the
Defense Criminal Investigative Service. Several issues regarding the TOPAZ II
program are currently under review or investigation by these entities. We have
also coordinated with DOD, Defense Special Weapons Agency (formerly DNA),
and Air Force Inspectors General.



As arranged with your office, unless you announce its contents earlier, we plan
no further distribution of this letter until 30 days after the date of this letter. At
that time, we will send copies of this letter to interested congressional
committees, the Secretaries of the Departments of Defense and Energy, the
Secretary of the Air Force, the Director of BMDO, and the Director of the
Defense Special Weapons Agency. If you have questions concerning these
issues, please contact me, or Deputy Director Donald J. Wheeler of my staff, at
(202) 512-6722.

Sincerely yours,




Eljay B. Bowron
A&i&ant Comptroller General
   for Special Investigations




 (600403)
 6                            GAO/OSI-98-3R Improprieties in TOPAZ II Space Program
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