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 B-277078 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 2 GAO/OSI-9%3R Improprieties in TOPAZ II Space Program 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 B-277078 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 Ordering Information The first copy of each GAO report and testimony is free. Additional copies are $2 each. Orders should be sent to the following address, accompanied by a check or money order made out to the Superintendent of Documents, when necessary. VISA and MasterCard credit cards are accepted, also. Orders for 100 or more copies to be mailed to a single address are discounted 25 percent. Orders by maih U.S. General Accounting Office P-0. 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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)