oversight

Nuclear Waste: Department of Energy's Project to Clean Up Pit 9 at Idaho Falls Is Experiencing Problems

Published by the Government Accountability Office on 1997-07-28.

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

                  United States General Accounting Office

GAO               Report to the Committee on Commerce,
                  House of Representatives



July 1997
                  NUCLEAR WASTE
                  Department of
                  Energy’s Project to
                  Clean Up Pit 9 at Idaho
                  Falls Is Experiencing
                  Problems




GAO/RCED-97-180
                   United States
GAO                General Accounting Office
                   Washington, D.C. 20548

                   Resources, Community, and
                   Economic Development Division

                   B-277164

                   July 28, 1997

                   The Honorable Tom Bliley
                   Chairman
                   The Honorable John Dingell
                   Ranking Minority Member
                   Committee on Commerce
                   House of Representatives

                   Cleaning up facilities that over the past 50 years have produced the
                   nation’s supply of nuclear materials for weapons is an enormous and
                   complex challenge facing the federal government. In fiscal year 1997, the
                   Department of Energy’s (DOE) Environmental Management program is
                   expected to spend about $5.6 billion to clean up radioactive and hazardous
                   wastes. This effort is being performed primarily under cost-reimbursement
                   contracts by contractors that manage and operate (M&O contractors) many
                   of DOE’s facilities. DOE, however, has found that using the M&O approach is
                   expensive and slow. To reduce cleanup costs and spur greater progress,
                   DOE is pursuing a new contracting strategy, which it calls “privatization.”
                   This approach relies on the use of a competitively awarded fixed-price
                   performance contract, through which DOE purchases waste cleanup
                   services from a private contractor. While we have been supportive of DOE’s
                   efforts to reform its contracting practices, we have also been concerned
                   that the Department effectively manage this transition.

                   One of DOE’s first privatization projects intended to clean up radioactive
                   wastes is the Pit 9 project at the Idaho National Engineering and
                   Environmental Laboratory. In your letter of January 31, 1997, you
                   expressed concerns about the status of the Pit 9 project and the potential
                   for cost overruns. As agreed with your offices, we focused our review on
                   (1) DOE’s basis for selecting a fixed-price contracting approach and a
                   subcontract for the project, (2) the basis for awarding the subcontract to
                   Lockheed Martin Advanced Environmental Systems, and (3) the current
                   status of the project.


                   DOE  chose a fixed-price approach for the project because Department
Results in Brief   officials believed a fixed price would help limit the project’s total cost and
                   provide an incentive for contractors to use efficient practices in carrying
                   out the cleanup by shifting the risk of nonperformance to the contractors.
                   DOE officials believed they had a better chance of achieving these goals
                   with a fixed-price approach than with a cost-reimbursement approach,




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even though uncertainties existed about the actual wastes in the pit. DOE
also directed its M&O contractor at the Idaho Falls site to conduct the
procurement process for the selection of a subcontractor and to oversee
the project.

The M&O contractor awarded the subcontract to Lockheed Martin
Advanced Environmental Systems on the basis of several key factors,
including the adequacy of its technical proposal, its apparent technical and
managerial expertise, its successful completion of the test phase, the
price—about $200 million, and a guarantee of performance under which
the company would return all payments received if its treatment system
failed to work properly. Because of reservations about the maturity of the
technologies, the M&O contractor expanded the test phase of the
procurement from a review of references and results of prior work to
include pilot scale testing of key aspects of the proposed systems.

Estimated completion of the project is at least 26 months behind the
original subcontract schedule. The waste retrieval and processing facilities
are not ready, and no retrieval or treatment of wastes has begun. Instead,
DOE has been assessed $940,000 in fines by its regulators—the state of
Idaho and the Environmental Protection Agency—for failure to meet
deadlines for submitting acceptable design documents. Lockheed Martin
Advanced Environmental Systems estimates that its costs have already
exceeded the subcontract price and has requested $257 million for its
work through June 30, 1997, as well as a new cost-based subcontract to
reimburse the company for all future costs. These changes, if
implemented, would bring the total subcontract price for the Pit 9 cleanup
to well over twice its original $200 million value. The company’s basis for
requesting more money is its view that problems with the project are
largely attributable to DOE and its M&O contractor for improper
administration of the subcontract, excessive interference, and
substantially changing the estimate of types and amounts of materials
contained in Pit 9. DOE officials said that it may be several months before
they have an official position on the company’s claims, but DOE and the
M&O contractor disagree with the assessment of what caused the problems
and instead point mainly to the subcontractor’s insufficient application of
technical and management skills on the project.

Discussions are continuing, and the outcome of the disagreement is
uncertain. Meanwhile, because of these contract difficulties and the
related legal implications, the M&O contractor has hired outside legal
counsel for the Pit 9 project and, under the terms of the M&O contract, DOE



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             is responsible for paying those legal fees. Whatever the outcome, the Pit 9
             project, as originally conceived, is clearly a failure. It simply cannot be
             completed in the time frame or within the price agreed to by the
             subcontractor. This has important future implications because DOE’s
             planned investment in privatization cleanup projects is growing—the
             Department included over $1 billion in its fiscal year 1998 budget request
             for 11 such projects.


             Pit 9 is an inactive waste disposal pit, slightly larger than 1 acre in surface
Background   area. From November 1967 through June 1969, various wastes ranging
             from contaminated rags to storage drums with hazardous chemicals and
             plutonium-contaminated sludge were dumped into the pit and covered
             with a layer of soil. DOE estimated that the pit contains about 250,000 cubic
             feet of transuranic and hazardous wastes1 and contaminated soil needing
             treatment. Because the wastes and soil are radioactive, retrieving and
             treating them involves special handling so that workers are not exposed to
             contamination and radioactive materials are not released to the
             environment.

             Starting in 1991, DOE and its regulators—the Environmental Protection
             Agency (EPA) and the state of Idaho—began exploring ways to remediate
             Pit 9. They hoped that in doing so, they would also obtain information that
             would help in cleaning up other locations at the Idaho Falls site. DOE and
             its regulators agreed to clean up Pit 9 as an interim action under
             Superfund2 by retrieving soil and wastes from the pit, separating those
             materials that could be returned to the pit without treatment, treating the
             remaining soil and wastes to achieve at least a 90-percent reduction in
             volume, and packaging the remaining concentrated materials for on-site
             storage until final disposal.

             Pit 9 is one of the first of several privatization projects at DOE sites. DOE’s
             Office of Environmental Management, which is responsible for cleanup
             efforts, intends privatization projects to involve fixed-price, competitively

             1
              Transuranic wastes, man-made radioactive elements produced from uranium during a nuclear
             reactor’s operations, emit alpha particles. Alpha-emitters are dangerous because of concerns about
             inhaling them. Hazardous wastes are wastes regulated by the Environmental Protection Agency and
             authorized states under the Resource Conservation and Recovery Act of 1976. Hazardous wastes at Pit
             9 include carbon tetrachloride and mercury.
             2
              The Comprehensive Environmental Response, Compensation, and Liability Act of 1980
             (CERCLA)—commonly referred to as Superfund—allows an interim action, which is not necessarily a
             final cleanup action. The regulators agreed to address the Pit 9 cleanup as an interim action to
             expedite the overall cleanup effort at the Idaho Falls site and to reduce the risks associated with the
             contamination at the pit.



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                  awarded contracts. A private contractor would finance, design, build, own
                  and operate any required waste cleanup facilities, and DOE would pay the
                  contractor only for a successful cleanup. Under a fixed-price contract, the
                  contractor is paid a specified amount that is not subject to adjustment on
                  the basis of the contractor’s actual costs. However, under certain
                  conditions, the contractor can request an adjustment to the contract price
                  for work that is done outside of the scope of the original contract. Such an
                  adjustment is subject to review and approval by DOE and would result in a
                  contract modification if approved.

                  This fixed-price approach is in contrast to the Department’s past practices,
                  under which DOE used a cost-reimbursement contract, told the M&O
                  contractor how to perform waste-related cleanup activities, and paid the
                  M&O contractor regardless of what was accomplished. Cost-reimbursement
                  contracts provide for payment of all costs incurred by the contractor to
                  the extent that these costs are allowable under the specific contract
                  provisions—reimbursable costs can include such things as labor,
                  materials, overhead, subcontract costs, and legal fees.
                  Cost-reimbursement contracts establish an estimate of total costs for the
                  purpose of obtaining and obligating the funds.


                  DOE  chose a fixed-price approach for the Pit 9 project because Department
DOE Preferred a   officials believed a fixed price would help limit the project’s total cost and
Fixed-Price       provide an incentive for contractors to use efficient practices in carrying
Subcontract       out the cleanup by shifting the risk of nonperformance to the contractors.
                  During the early stages of the procurement process, concerns arose about
                  the appropriateness of a fixed-price approach and the risks involved, such
                  as the uncertainty about the contents of the pit. Nevertheless, senior DOE
                  officials decided that this approach was warranted, given the high costs
                  and the inefficient performance the Department had experienced with
                  cost-reimbursement contracts, private industry’s expressed interest in
                  performing the cleanup using a fixed-price arrangement, and the potential
                  benefits of the approach. DOE directed its M&O contractor to conduct the
                  procurement and selection process and to oversee the subcontractor
                  selected because the Department believed that the M&O contractor had the
                  necessary expertise and that a subcontract would allow greater
                  application of the private sector’s best practices.




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DOE Chose a Fixed-Price     DOE was looking for a new approach for the Pit 9 project—one that would
Approach to Limit Costs     reduce the overall cost, shift the risk of nonperformance to the private
and Shift Performance       sector, and thus provide an incentive for contractors to use efficient
                            practices in carrying out the cleanup. To accomplish these objectives, DOE
Risk to the Subcontractor   decided upon a fixed-price approach to the cleanup. Under this approach,
                            DOE planned to pay only for actual remediation of the Pit 9 wastes—at a
                            fixed price intended to cover all applicable costs associated with the
                            project (e.g., those for equipment, mobilization, processing, etc.).

                            The fixed-price approach was selected despite some indications that it was
                            not well suited for an application such as Pit 9. Limited guidance exists on
                            selecting a contract type; however, the Federal Acquisition Regulation
                            (FAR) suggests that a firm fixed-price contract, which best utilizes the basic
                            profit motive of the private sector, should be used when the risk involved
                            is minimal or can be predicted with an acceptable degree of certainty.
                            Given that there was little certainty about the contents of the pit, this
                            guidance seems to suggest that a fixed-price contract may not have been
                            the best approach. In addition, questions that later arose during the
                            procurement process regarding whether the proposed technologies were
                            sufficiently developed added to the risk and uncertainty of the project.3 On
                            the other hand, the FAR also suggests that a firm-fixed-price contract may
                            be suitable where performance uncertainties can be identified, reasonable
                            estimates of their cost impact can be made, and the contractor is willing to
                            accept a firm fixed price representing assumption of the risks involved.

                            Questions about whether a fixed-price approach was appropriate for the
                            Pit 9 cleanup surfaced during the early stages of the procurement process.
                            For example, some DOE officials at the site had expressed concerns about
                            using a fixed-price approach given the uncertainties associated with the
                            contents of the pit. In addition, responses to the draft request for proposal
                            (RFP) included concerns from interested firms that a fixed-price approach
                            would have to reflect large contingencies and could therefore result in
                            higher bids from the competitors. In addition, these responses stated that
                            a fixed-price subcontract could generate claims for additional
                            reimbursement if work outside the scope of the contract occurred.

                            Even with these concerns, DOE decided to use a fixed-price approach.
                            According to DOE officials at the Idaho Falls site, they realized that a
                            fixed-price approach to this cleanup entailed some risks due to the
                            uncertainties of the pit’s contents. However, DOE also believed there was

                            3
                             A study released after the subcontract was finalized, A Systematic Look at TWRS Privatization, Pacific
                            Northwest National Laboratory (Jan. 1995), reported that privatization—which includes using a
                            firm-fixed-price contract—works best when the technology is mature and the work is well defined.



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                        much to be gained, including information on how to effectively clean up
                        other DOE disposal sites, if this new approach were successful. In addition,
                        DOE had come under criticism from private industry for continuing to fund
                        what was perceived as research and development efforts of its M&O
                        contractors without any actual cleanup. According to senior DOE officials,
                        private industry was confident that it had the technology to clean up the
                        wastes and preferred a fixed-price arrangement. Therefore, senior DOE
                        officials at Idaho Falls and headquarters decided that the potential benefits
                        associated with fixed-price contracting outweighed the possible risks.

                        As we noted in our recent report on DOE’s estimates of potential savings
                        from privatizing cleanup projects, DOE’s use of fixed-price contracts has
                        not always been an effective method to minimize cost growth on projects.4
                         For example, a 1993 study of DOE’s Environmental Restoration projects
                        found that, for a representative sample of projects, cost growth on
                        projects with fixed-price contracts was almost 75 percent, more than
                        double that of projects with cost-reimbursement contracts. This cost
                        growth occurred primarily because projects were poorly defined, leading
                        to contract change orders after the contracts were signed.5 A 1996 update
                        to the study showed that cost overruns ranged from about 30 to 50 percent
                        but did not distinguish between projects with fixed-price and
                        cost-reimbursement contracts.6


DOE Decided to Manage   In conjunction with its decision to use a fixed-price approach to the Pit 9
Using a Subcontract     cleanup, DOE also decided to have its M&O contractor—EG&G Idaho, Inc.7
                        (EG&G)—conduct the procurement process, select the subcontractor, and
                        oversee the subcontractor’s efforts at Pit 9. According to DOE officials,
                        there were several reasons for choosing a subcontract for this effort:




                        4
                         See Nuclear Waste: DOE’s Estimates of Potential Savings From Privatizing Cleanup Projects
                        (GAO/RCED-97-49R, Jan. 31, 1997).
                        5
                         The Department of Energy, Office of Environmental Restoration & Waste Management, Project
                        Performance Study, Independent Project Analysis, Inc. (Reston, Va., Nov. 30, 1993). Because the study
                        included both completed and ongoing projects, some of the costs were estimated.
                        6
                         The Department of Energy, Office of Environmental Restoration & Waste Management, Project
                        Performance Study Update, Independent Project Analysis, Inc. (Reston, Va., Apr. 1996).
                        7
                         When the procurement process began, the M&O contractor at Idaho Falls was EG&G-Idaho, Inc. The
                        M&O contract came up for renewal in 1994, Lockheed won the competitive bidding for the M&O
                        contract, and Lockheed Idaho Technologies Company (LITCO) became the new M&O contractor in
                        October of 1994. Lockheed later merged with Martin Marietta, and LITCO became LMITCO (Lockheed
                        Martin Idaho Technologies Company).



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                           •   DOE  believed that EG&G already had the necessary expertise to evaluate
                               the technical proposals submitted by interested firms and to oversee the
                               cleanup, whereas DOE did not have the expertise in-house and would have
                               had to acquire it.
                           •   DOE considered the Pit 9 project to be within EG&G’s area of responsibility
                               and wanted EG&G to oversee the cleanup.
                           •   DOE believed the project could be executed more efficiently as a
                               subcontract through EG&G because using the M&O’s procurement and
                               contracting standards would simplify and streamline the procurement
                               process and make it easier to implement private sector best practices.

                               On the basis of these reasons, DOE authorized EG&G to initiate the
                               procurement process for the Pit 9 cleanup and to select a subcontractor to
                               remediate the wastes on a fixed-price basis. The cleanup was to be
                               conducted in three phases: (1) proof of process, which would include a
                               technical review of the results of prior projects to verify that the proposed
                               retrieval and processing systems were effective (phase I); (2) limited
                               production test, which would operate the completed system on small
                               quantities of actual waste from Pit 9 to determine if it worked as designed
                               (phase II); and (3) full scale operations to remediate the contents of the pit
                               (phase III).


                               Lockheed Martin Advanced Environmental Systems (LMAES) was selected
Subcontractor                  for the subcontract on the basis of its technical proposal, cleanup
Selected on the Basis          experience, successful completion of the test phase, proposed price, and
of Proposal,                   willingness to provide a corporate guarantee of performance if the system
                               did not work as envisioned. However, much of LMAES’ prior experience had
Experience, Price,             been on smaller and simpler cleanup efforts, and its proposed system had
and Performance                never been tested in a full-scale operation. Despite technical concerns
                               raised during the review of the proposals and the proof-of-process test
Guarantee                      phase, EG&G determined that the corporate guarantee included in the
                               subcontract would protect the government’s interests if the treatment
                               process failed.


Procurement Process Used       EG&G began the procurement process in 1991, using a phased approach,
Phased Approach                under which interested firms would submit their technical proposals first,
                               and price would be negotiated later with the successful firm. EG&G’s first
                               step was to put a notice in the Commerce Business Daily, which described
                               the requirements for the Pit 9 comprehensive demonstration and the
                               relevant experience needed. According to the Pit 9 mission statement, the



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                          objective of the project was to excavate, characterize, treat as necessary,
                          and dispose of all wastes from the pit at minimum cost to DOE. Fifty private
                          sector firms expressed interest in the project by responding to the notice.
                          After this initial show of interest, EG&G issued a draft RFP to qualified
                          firms, held a preproposal conference with interested firms to discuss the
                          project in more detail and answer questions, conducted a tour of the site
                          to provide additional information, and subsequently revised the draft RFP
                          to incorporate comments from the potential competitors.

                          The final RFP was issued in November 1991 to 18 prospective competitors
                          who still expressed interest after the preproposal conference and site tour.
                          This RFP contained the technical requirements for the Pit 9 comprehensive
                          demonstration and provided the proposed plan for cleaning up the area, as
                          agreed to by DOE and its regulators. In response to the RFP, EG&G received
                          proposals from three competitors—a team led by Lockheed8 and two other
                          teams, one led by Rust Federal Services (formerly Waste Management
                          Environmental Services) and the other by Nuclear Radiation Technologies
                          Corporation.


Source Evaluation Board   EG&G used a Source Evaluation Board (Board)—consisting of eight
Used to Evaluate          EG&G employees with technical and administrative expertise—to review
Proposals                 and evaluate the three proposals. The Board used a combination of
                          mandatory requirements and technical criteria to evaluate the proposals.
                          The mandatory requirements were these: (1) Offerors must provide
                          demonstrated evidence that they are qualified by experience to treat
                          materials contaminated with the radioactive elements plutonium and
                          americium; (2) offerors must possess or have access to approved
                          analytical laboratory facilities capable of analyzing radioactive, hazardous,
                          and mixed wastes; and (3) offerors must have an established
                          environmental, safety, and health program.

                          The Board determined that all three competitors met these mandatory
                          requirements. For example, regarding the mandatory requirement for
                          demonstrated evidence of experience, the Lockheed team was deemed
                          qualified on the basis of its cleanup experience with
                          plutonium-contaminated soil on the Johnston Atoll. Although members of
                          the Board checked with some of the references given and found that
                          projects were completed on time and within budgets, none of the
                          experience cited by the Lockheed team matched the size and complexity

                          8
                          The Lockheed team was led by Lockheed-AWC. This entity later became known as Lockheed
                          Environmental Systems and Technologies (LESAT) and finally, with the Lockheed/Martin Marietta
                          merger, as LMAES.



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                         of the Pit 9 cleanup effort. According to a member of the Board, they
                         evaluated the Lockheed team more on the parent corporation’s overall
                         reputation and resources.

                         In addition to the mandatory requirements, the Board used three technical
                         criteria to evaluate the proposals: (1) the technical feasibility of the
                         approach, including the best combination of technologies to achieve
                         remediation; (2) offerors’ demonstrated experience and qualifications,
                         including the expertise of key personnel; and (3) offerors’ demonstrated
                         ability to perform full-scale operations within an agreed-upon schedule
                         and budget. On the basis of its application of the technical criteria, the
                         Board determined that the teams led by Lockheed and Rust were
                         essentially equivalent in their overall scores. The third team was dropped
                         from consideration after receiving lower scores on the technical criteria.


Proof-Of-Process Phase   Although the Lockheed and Rust teams were deemed to be essentially
Expanded                 equivalent, the Board had significant reservations about whether the
                         proposed technologies were sufficiently developed. According to DOE
                         officials, the private sector—including representatives from the two
                         competing teams—had been telling DOE and EG&G that proven
                         “off-the-shelf” technology was capable of remediating the wastes in the pit.
                         However, the Board believed that while the components of the proposed
                         systems may have been tested individually, they had never been combined
                         into a total system to treat radiologically contaminated materials. The
                         Board reported that none of the proposed technologies or processes fully
                         complied with the intent of the RFP selection criteria, but the Board
                         believed that technology existed in the commercial sector, which, “with
                         additional development, adaptation, schedule and resource considerations
                         provided,” could successfully remediate Pit 9 to the desired objectives.

                         Although the Board had reservations, it also believed that the remaining
                         two technical proposals reflected the best available processes at the time.
                         To mitigate concerns about the proposed technologies, the Board
                         recommended that, in going forward with the procurement, the
                         proof-of-process phase be expanded from a review of references and
                         results of prior work to include pilot scale testing of critical aspects of
                         both treatment systems.

                         Both Lockheed and Rust were awarded 1-year fixed-price subcontracts for
                         $8 million each to conduct the proof-of-process testing, with payment to
                         be made upon successful completion. The specific tests to be included



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                      were proposed by the competing teams, with concurrence from EG&G.
                      Because the proposed treatment systems were different and the Board’s
                      concerns about the technology differed for each team, the tests conducted
                      in the proof-of-process phase were also different for each team and did not
                      include a comprehensive test of the entire process. For example, the tests
                      for the Lockheed team included key aspects of such components as the
                      chemical leach system and the plasma melter, both key pieces of its
                      proposed process. The proof-of-process phase concluded in
                      December 1993, with both teams passing their designated tests and
                      receiving payment under their subcontracts.

                      Prior to the conclusion of the proof-of-process phase, EG&G sent a request
                      for pricing proposal to both teams. Although DOE’s original intent had been
                      to make no payments until actual remediation began, the request for
                      pricing proposal provided for some payments for design milestones and
                      construction progress to keep the overall subcontract price lower by
                      offsetting the cost of financing to the subcontractor. Because of this
                      change in payment strategy, the request for pricing proposal also required
                      a corporate guarantee of performance to protect the government’s
                      interests. Under this corporate guarantee, if the subcontractor’s proposed
                      system did not pass the limited production test at the completion of
                      construction and installation, the subcontractor would be required to
                      return all payments made to date. When the Rust team declined to provide
                      the corporate guarantee, EG&G deemed Rust to be nonresponsive to the
                      request for pricing proposal and disqualified it from further consideration.


Price Negotiations    The Lockheed team submitted a best and final offer of $206 million for the
Focused on Reducing   subcontract and included the corporate guarantee. However, because of
Subcontract Price     overall budget constraints, the maximum that DOE was willing to allocate
                      to the Pit 9 project was $180 million. Therefore, the final negotiations for
                      the subcontract focused on ways to bring Lockheed’s best and final offer
                      down to DOE’s funding level.

                      In August 1994, DOE assumed responsibility for the subcontract
                      negotiations with LMAES because the Lockheed Corporation had won the
                      competitively bid M&O contract for the Idaho Falls site, to be effective in
                      October, and concerns were raised about a potential conflict of interest
                      between the two Lockheed companies. To bring the subcontract price
                      down to the $180 million level, DOE officials made two changes.




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                      •   First, more of the construction costs were incorporated into progress
                          payments to offset the subcontractor’s cost of financing, which reduced
                          the subcontractor’s $206 million offer by $6 million to $200 million and
                          shifted some of the costs of financing the project to the government.
                      •   Second, a provision was added to the subcontract for possible follow-on
                          work. This provision allowed the subcontractor to allocate $21 million in
                          equipment to future work rather than the Pit 9 subcontract, further
                          reducing the price to $179 million. However, if the subcontractor is not
                          allowed to proceed with the future work, the subcontractor would receive
                          a $21 million deferred payment for the equipment.9

                          The subcontract for the Pit 9 cleanup was signed in October 1994 and
                          included both design milestone and construction progress payments, unit
                          price payments for remediation of the contents of the pit, and lump sum
                          payments for decontamination and decommissioning and profits. (For
                          additional information on the types and amounts of payments made, see
                          app. I.) To address the potential conflict of interest associated with one
                          Lockheed company overseeing a subcontract with another Lockheed
                          company, the Lockheed M&O contractor prepared an organizational
                          conflict-of-interest mitigation plan, which was reviewed and approved by
                          DOE. This resulted in the sequestration of the M&O contractor’s Pit 9
                          contract administration and oversight group from the rest of the
                          organization and the establishment of a program oversight board to
                          monitor the dealings between the M&O contractor and the subcontractor.


                          After nearly 3 years of work on the subcontract, LMAES estimates that the
Subcontractor Wants       project is substantially behind the original subcontract schedule and that
to Renegotiate            its costs already exceed the total subcontract price of $200 million. Yet the
Contract Because of       waste retrieval and processing facilities are not ready, and no wastes have
                          been retrieved or processed. LMAES claims DOE, through its M&O contractor,
Schedule and Cost         interfered in the performance of the subcontract and made substantial
Difficulties              changes to the estimates of the materials in the pit. As a result, LMAES
                          contends that its corporate guarantee of performance is no longer
                          applicable to the project. LMAES requested a total of $257 million for costs
                          through June 1997 and wants any future work on the project to be done
                          under a cost-reimbursement subcontract. DOE and the M&O contractor are
                          studying LMAES’ request but believe LMAES is responsible for many of the
                          current problems because it assigned personnel with inadequate technical
                          and managerial skills to the project. DOE, its M&O contractor, and LMAES are

                          9
                           Because the $21 million payment will be made whether or not the subcontractor processes the
                          additional waste through its treatment facility, we refer to the Pit 9 subcontract price as $200 million in
                          this report—the $179 million stated subcontract price plus the $21 million deferred payment.



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                             involved in discussions on how to move the project forward. Meanwhile,
                             LMAES has substantially slowed its work on the project to limit its costs and
                             said that it will not resume normal construction activities unless the
                             subcontract is satisfactorily renegotiated.


Project Is Behind Schedule   On March 28, 1997, LMAES notified the M&O contractor that although initial
and Over Subcontract         plans called for having facilities operational in time to start a limited
Price                        production test in August 1996, such testing cannot begin until March
                             1998. Likewise, LMAES estimated that it would not be able to complete the
                             project until April 2001, a delay of 26 months, compared with the
                             subcontract’s deadline of February 1999. By that date, LMAES was to have
                             retrieved and processed all wastes from the pit, returned untreated soil to
                             the pit, decontaminated and decommissioned the retrieval and treatment
                             facilities, and removed its retrieval facility from the site.

                             Even though building construction is not complete and no wastes have
                             been processed, LMAES reports that its costs have already exceeded the
                             $200 million subcontract price. On the basis of its reported actual costs of
                             $197.2 million through December 1996, LMAES estimated its total
                             reimbursable costs to be $257.4 million by June 30, 1997.10 For any work
                             conducted after April 1, 1997, LMAES asked to convert the existing
                             subcontract to a cost-reimbursement basis. These changes, if
                             implemented, would bring the total subcontract price to well over twice its
                             original $200 million value. At DOE’s request, the Defense Contract Audit
                             Agency is auditing LMAES’ cost records.

                             The current situation is in sharp contrast to the information DOE submitted
                             in its fiscal year 1997 budget request. At that time, DOE reported that the Pit
                             9 effort was a highly successful project with savings estimated at
                             $134 million compared to what it would have cost under a
                             cost-reimbursement project managed by the M&O contractor. In our
                             previously cited January 1997 report on DOE’s privatization savings
                             estimates, we reported that this cost savings estimate was at best
                             premature because the project was still under construction and had
                             experienced technical and other problems.11




                             10
                              LMAES asked for $158.1 million in payments in addition to the $52.9 million already received through
                             March 1997. LMAES expected an additional $46.4 million to be recovered through future milestone
                             payments or some other method.
                             11
                               Nuclear Waste: DOE’s Estimates of Potential Savings From Privatizing Cleanup Projects.



                             Page 12                                                   GAO/RCED-97-180 DOE’s Pit 9 Cleanup
                           B-277164




                           In addition to possible increases in the subcontract price, DOE has incurred
                           or will incur other costs related to Pit 9. For example, DOE has paid
                           $23.1 million for phase I testing and preliminary design activities,
                           $12.9 million for project oversight by the M&O contractor, and about
                           $3 million for DOE oversight costs. DOE was also assessed $940,000 in fines
                           by its regulators—the state of Idaho and EPA—for failure to meet
                           enforceable deadlines for submitting acceptable design documents for the
                           project, as specified in the Federal Facility Agreement and Consent Order
                           for the Idaho Falls site. DOE will pay the fines and is studying its options
                           for recovering the cost from either the M&O contractor or LMAES. Under the
                           Agreement to Resolve Disputes signed with DOE’s regulators in
                           March 1997, the next enforceable deadline is September 30, 1997—failure
                           to meet this deadline could result in additional fines. In addition, because
                           of the contract difficulties with LMAES and the related legal implications,
                           the M&O contractor has hired outside legal counsel for the Pit 9 project,
                           and, under the terms of the M&O contract, DOE is responsible for paying
                           those legal fees.12


Subcontractor Faults DOE   LMAES blames DOE and its M&O contractor for a large portion of the schedule
for Schedule and Cost      and cost problems. The company stated its case in its Request for
Problems                   Equitable Adjustment13 to the M&O contractor and DOE. In summary, this
                           document focuses on three main factors that LMAES says were under DOE’s
                           control and led to the schedule and cost problems: (1) improper
                           administration of the fixed-price subcontract; (2) too much interference
                           with a fast-track approach that was necessary to meet subcontract
                           deadlines; and (3) changing estimates of Pit 9’s contents. LMAES argues that
                           these factors, particularly DOE’s involvement in design activities and
                           changing pit inventories, have materially changed the Pit 9 project from
                           what the subcontract originally required. Therefore, LMAES believes that its
                           corporate guarantee of performance is no longer applicable to the project.



                           12
                             We have previously reported on DOE’s efforts to control the legal expenses its M&O contractors
                           incur in defending themselves against class action lawsuits. See Managing DOE: The Department’s
                           Efforts to Control Litigation Costs (GAO/T-RCED-96-170, May 14, 1996); Managing DOE: The
                           Department of Energy Is Making Efforts to Control Litigation Costs (GAO/RCED-95-36, Nov. 22, 1994);
                           and Managing DOE: Tighter Controls Needed Over the Department of Energy’s Outside Litigation
                           Costs (GAO/T-RCED-94-264, July 13, 1994).
                           13
                             This document contains LMAES’ rationale for claiming that the government caused the project to be
                           behind schedule and over budget. The process of requesting an equitable adjustment is provided for in
                           the “changes” clause of the subcontract. The changes clause is a standard clause in government
                           contracts and subcontracts that authorizes the contracting officer to make changes within the general
                           scope of the contract and, where warranted, make equitable adjustments in the contract price, delivery
                           schedule, or both.



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Subcontract Administration   LMAES  says that it undertook the project with the expectation that it would
                             have comparatively more freedom on the privatized fixed-price Pit 9
                             project than on a project procured under a cost-reimbursement approach,
                             while accepting more risk if it failed. The company assumed there would
                             be minimal government oversight and administration of the
                             subcontractor’s effort because of DOE’s representation in subcontract
                             specifications that the Pit 9 project was an “integrated ’turnkey’ pilot”
                             effort, with the “subcontractor assuming maximum responsibility,
                             authority, and liability.” LMAES said that as a result, it expected to be able to
                             follow a results-oriented approach in which it could use best commercial
                             practices in exercising its own judgment as to how the task should be
                             done.

                             In contrast to what it expected, LMAES says that DOE and its M&O contractor
                             actually administered the subcontract using substantial and intrusive
                             oversight that was inconsistent with DOE’s privatization concept. Under the
                             privatization agreement for the Pit 9 project, LMAES was to construct, own,
                             and operate the facilities and accept the financial risk by providing a
                             guarantee that payment for its services would depend on successfully
                             remediating the wastes. However, LMAES officials believe that DOE
                             administered the project as if DOE itself were incurring the risks. As
                             evidence, they cite the fact that between January 1995 and July 1996, DOE
                             and its M&O contractor made more than 7,000 detailed review comments on
                             the firm’s designs for the project and expected LMAES to take them into
                             account while completing the design. These comments ranged from ones
                             on significant safety issues such as whether a criticality alarm system was
                             required, to other less significant questions, such as whether workers
                             would be allowed in a personnel transfer trailer during movement of the
                             trailer.

                             According to LMAES, the amount of oversight was a problem because the
                             number of review comments slowed its efforts and left the company
                             unable to exercise the degree of flexibility it expected when it negotiated
                             the subcontract. For example, employees had to spend time responding to
                             DOE’s and the M&O contractor’s comments rather than anticipating and
                             working on the next steps needed to respond to the subcontract schedule.
                             In having to respond to this degree of oversight, LMAES said that it was
                             performing unanticipated work, well beyond the subcontract’s scope, in
                             order to keep the project moving forward.

Fast-Track Schedule          DOE’sapproach also limited the company’s ability to respond to the
                             extraordinary pressures of a fast-track project, according to LMAES



                             Page 14                                       GAO/RCED-97-180 DOE’s Pit 9 Cleanup
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                      officials. Design/build, fast-track, phased construction is a process
                      whereby design and construction work are performed simultaneously.
                      Design and construction stages are broken into several discrete packages
                      and completed in phases. As soon as the design is completed for part of
                      the project, construction work on that portion of the project begins. For
                      example, LMAES began construction of the treatment building before the
                      design for the chemical treatment system was finalized. LMAES, DOE, and
                      the other parties to the effort agreed on this approach in order to comply
                      with the construction schedule specified in the December 6, 1993, request
                      for price proposal for phases II and III of the project, which included a
                      required January 1, 1995, date to “start staging and installation.” The
                      request for price proposal also specified that the subcontract to remediate
                      Pit 9 would be awarded on June 1, 1994. The subcontract was not effective
                      until August 1994,14 and LMAES claims the delay jeopardized achieving the
                      mandatory January 1, 1995, date for the start of construction.

                      LMAES says that a fast-track approach required that the subcontractor be
                      allowed a great deal of discretion in determining the manner, means, and
                      methods of meeting the project’s requirements within the agreed-upon
                      price and schedule. The company believes, however, that DOE’s oversight
                      and involvement were so excessive as to remove all discretion for
                      reducing the time required for the project’s completion. For example, it
                      contends that about one-quarter of the 2,500 safety-related review
                      comments were inappropriate for a fast-track project because they were
                      based solely on omissions or discrepancies that existed because design of
                      the facilities was progressing on a parallel track with construction.

                      LMAES also says that DOE did not provide all necessary information in a
                      timely manner. The agreement between LMAES and DOE called for the
                      Department to provide any review comments on LMAES’ plans and designs
                      within 30 days. LMAES analyzed DOE’s review response times and found that
                      the average was about 53 days. LMAES officials said that the delays in
                      receiving comments were another factor in the company’s inability to keep
                      the project moving as scheduled.

Contents of the Pit   Since 1994, when the subcontract was signed, DOE and the M&O contractor
                      have refined the information they had concerning the possible contents of
                      Pit 9. That information was also provided to LMAES. While DOE and the M&O
                      contractor said that the information did not represent a modified
                      inventory for the pit, LMAES claims that the changes in estimated quantities


                      14
                       Although the subcontract was not approved until October 1994, LMAES was given an interim letter
                      subcontract effective in August 1994 so work could begin.



                      Page 15                                                 GAO/RCED-97-180 DOE’s Pit 9 Cleanup
    B-277164




    and types of materials were so extensive as to materially affect the
    treatment system’s design.

    DOE  has limited information as to the actual contents of the pit because, at
    the time the wastes were placed in the pit, DOE did not intend to later
    retrieve them. Therefore, few records were kept, and DOE has no precise
    knowledge of what quantities and types of materials are in the pit.
    However, in 1991, the M&O contractor initially estimated the types and
    quantities of radioactive and other materials in the pit, on the basis of the
    available shipping records, process knowledge, written correspondence,
    and other information from DOE.

    Beginning in 1993, the M&O contractor initiated an effort to develop
    information for its baseline risk assessment for all of the disposal pits and
    trenches at the Idaho Falls site’s subsurface disposal area, including Pit 9.
    Individual disposal pits were not inventoried, but rather the overall
    inventory for the area was apportioned to the pits and trenches on the
    basis of the shipping records, the dates the pits were open, etc. The
    estimates for the contents of Pit 9 were refined several times, and LMAES
    cites multiple instances in which the subsequent revisions created the
    potential for substantial changes in the proposed approach to remediating
    the wastes. For example:

•   In February 1995, DOE and its M&O contractor notified LMAES of updated
    information indicating that considerably more salts, organics, and
    radioactive activation and fission products15 were present than initially
    believed. These additional materials, LMAES said, would slow the speed at
    which materials could be processed through the plasma melter. Since the
    melter was a key feature of the treatment process, anything that affected
    the melter was of significance. In addition, the updated estimates of
    radioactive materials increased the potential for workers’ exposure to
    radiation.
•   In February 1996, DOE and its M&O contractor provided LMAES with
    additional information that indicated significantly higher potential
    radioactivity in the form of cobalt60 and cesium137, both of which emit
    radiation in the form of gamma rays.16 LMAES says that its original designs
    for processing of the Pit 9 wastes did not contemplate such high levels of



    15
      Activation products are metals that have been exposed to nuclear reactions, e.g., cobalt60, while
    fission products are the result of nuclear fission reactions, e.g., cesium137.
    16
     Gamma rays are the most penetrating of the three forms of radioactivity and require the most
    shielding to protect personnel from exposure.



    Page 16                                                     GAO/RCED-97-180 DOE’s Pit 9 Cleanup
                             B-277164




                             gamma-emitters, indicating a need for additional personnel shielding in the
                             treatment building.


DOE Attributes Most          DOE and its M&O contractor are studying LMAES’ claims and are involved in
Problems to                  discussions on how to move the project forward. In the interim, the M&O
Subcontractor’s              contractor has notified LMAES that both the M&O contractor and DOE see no
                             justification for converting the subcontract to a cost-reimbursement basis;
Performance                  instead, they expect LMAES to continue performing the subcontract as
                             awarded. DOE officials said it may be several months before they have an
                             official position on LMAES’ other financial claims. However, DOE and the
                             M&O contractor disagree with LMAES’ interpretation of why the cleanup is
                             behind schedule and its costs are above the subcontract price. DOE and the
                             M&O contractor acknowledge that their oversight of the project has been
                             more extensive than they had expected but contend that the degree of
                             involvement was necessary because of LMAES’ inadequate approach to
                             safety. DOE and the M&O contractor attribute the delays and cost overruns
                             primarily to the insufficient technical and managerial skills the company
                             initially placed on the project.

Subcontract Administration   DOE and its M&O contractor contend that their oversight of the project has
and Fast-Track Schedule      been related to their responsibilities for ensuring adequate consideration
                             of environmental safety and health. Although a fixed-price approach shifts
                             the risk of nonperformance to the subcontractor, DOE still retains some of
                             the risks. For example, the subcontract indemnifies LMAES in the case of a
                             catastrophic nuclear accident, and therefore that risk is not shifted from
                             DOE to the subcontractor. However, DOE, its M&O contractor, and its
                             regulators noted that initially LMAES personnel seemed particularly limited
                             in their knowledge about necessary regulatory requirements, including
                             those dealing with nuclear materials, and, as a result, submitted
                             inadequate designs. Therefore, DOE and the M&O contractor said they had to
                             provide much more oversight, including more design review comments,
                             than they expected for a fixed-price subcontract.

                             As an example of why their extensive involvement was needed, DOE and its
                             M&O contractor cited their visit to the test site for the project’s chemical
                             treatment system. When DOE and M&O contractor officials examined the
                             assembled system, they noted what appeared to be many safety-related
                             problems. In effect, DOE and the M&O contractor said, LMAES had assembled
                             a standard piping system without consideration of the nuclear
                             environment at Pit 9. The piping was subject to many leaks at the joints
                             and was so complex that the area would have been a safety hazard and



                             Page 17                                    GAO/RCED-97-180 DOE’s Pit 9 Cleanup
                      B-277164




                      prohibitive to decontaminate if leaks occurred. More significantly, the
                      system as designed was potentially susceptible to “criticality”—that is, to
                      the potential that radioactive materials could be brought together in
                      sufficient concentrations to sustain a nuclear chain reaction. In addition,
                      the system lacked an adequate mechanism for tracking the radioactive
                      materials that were moving through the chemical treatment process.

                      DOE  and M&O contractor officials acknowledged that the combination of
                      design problems and the many review comments made it more difficult for
                      LMAES to accomplish a fast-track schedule. The officials believe, however,
                      that the extent of the problems they were observing required them to raise
                      questions for LMAES to consider as project development continued. DOE
                      officials stated that part of the reason for the large number of review
                      comments was that LMAES tended to ignore some comments the first time.
                      As an example, EPA pointed out in its February 1996 design review
                      comments that having an adequate capacity for the ventilation system was
                      important to ensure safe operations. EPA stated it had raised this concern
                      previously but LMAES had not responded to it. In addition, DOE officials do
                      not agree with LMAES’ analysis of the timeliness of review comments and
                      state that such comments were generally submitted on time. The M&O
                      contractor also disagreed with LMAES’ analysis and pointed out that LMAES’
                      submittals were often incomplete and the review period should not have
                      started until a complete document was received.

Contents of the Pit   DOE and its M&O contractor also disagree with LMAES’ contentions regarding
                      the significance of the updated information about the pit’s contents that
                      they shared with LMAES. They noted that the updated information was not a
                      formal revision to the contractual estimate of the contents, and therefore
                      the subcontractor had the discretion whether to use it. DOE and its M&O
                      contractor further noted that LMAES’ subcontract proposal stated that all
                      technologies used in its proposed approach were proven in current
                      industrial-scale applications and that the treatment scheme was “very
                      robust, in that any chemical, radiological, or physical characteristic of
                      waste in Pit 9 can successfully be processed.” LMAES pointed out that its
                      treatment scheme ensured that the Pit 9 process could successfully handle
                      other buried or stored transuranic and transuranic mixed wastes as well as
                      low-level mixed wastes and hazardous wastes in the DOE complex. In
                      addition, DOE and M&O contractor officials noted that the subcontract
                      included a clause allowing for future adjustments if differing site
                      conditions are encountered—for example, if the pit’s actual contents differ
                      from the estimates when excavation occurs.




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                             B-277164




Insufficient Technical and   DOE and M&O contractor officials said they believed LMAES’ parent
Managerial Skills            corporation would use its vast worldwide resources to provide the
                             necessary expertise to accomplish the work. However, the officials
                             contend this did not happen, at least in the early phases of the work. For
                             example, the officials point out that Lockheed reported in a 1995 peer
                             review of LMAES’ Pit 9 activities that there was a lack of adequate personnel
                             with experience with nuclear materials to successfully execute the design
                             review function, provide environmental safety and health oversight during
                             construction, and administer the environmental safety and health
                             functions during operations. Similar findings were noted in an assessment
                             DOE performed at the same time.


                             Another problem contributing to the lack of progress on the subcontract,
                             according to DOE and M&O contractor officials, was the high number of
                             times the LMAES project staff has changed—as of May 1997, there had been
                             four project managers. LMAES acknowledges the turnover, but maintains
                             that the administrative approach used by DOE and the M&O contractor
                             materially increased the complexity of the requirements associated with
                             the project, necessitating the assignment of managers with more
                             experience to get the job done. For example, LMAES officials said the
                             current program manager is one of the most respected within Lockheed
                             Martin, LMAES’ parent company. DOE officials said that with these frequent
                             changes in leadership, some important actions were left unaddressed for a
                             considerable length of time. For example, it was not until February 1997,
                             after the current manager was appointed, that LMAES developed a complete
                             system requirements document, which compiles the system performance
                             and design requirements of the subcontract into one place so that
                             managers can more clearly identify what the processes should be designed
                             to do.

                             DOE  has also faulted the M&O contractor for its performance in overseeing
                             the Pit 9 project, which has affected the overall award fee received under
                             its performance based contract.17 Since October 1994, DOE has been
                             critical of the M&O contractor’s performance on Pit 9. For example, in
                             rating the M&O contractor’s overall performance for the period ending
                             March 30, 1996, DOE identified Pit 9 as the primary reason for the M&O
                             contractor’s declining performance in managing the Environmental
                             Restoration program at the site. DOE attributed the M&O’s declining
                             performance on Pit 9 to a continued lack of management control systems,
                             an apparent lack of accountability in ensuring the timely submittal of two

                             17
                               Under DOE’s contract with the M&O contractor, a portion of the payments to the contractor is based
                             on how effectively it performs the work. DOE assesses that performance on a semiannual basis and
                             allocates award fees from a pool of funds.



                             Page 19                                                   GAO/RCED-97-180 DOE’s Pit 9 Cleanup
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                  key documents to regulators, and weak project management planning and
                  prioritization of issues. However, DOE also gave the M&O contractor credit
                  for aggressively trying to keep activities on schedule and resolve
                  design-related issues at the earliest opportunity. We could not determine
                  the impact of the M&O contractor’s performance at Pit 9 on the amount of
                  its overall award fee. However, since 1994, DOE has considered the M&O’s
                  overall performance under the contract to be “good,” with performance
                  evaluation scores in the 86 to 90 percent range and performance award
                  fees totaling $33.3 million for the 2-year period.


                  It remains to be seen whether DOE and its M&O contractor will be able to
Conclusions       hold Lockheed Martin Advanced Environmental Systems accountable for
                  the extra costs for the Pit 9 project, negotiate changes and pay
                  substantially more to complete the project, or attempt to recover the
                  government’s investments to date. Whatever the outcome, the Pit 9
                  project, as originally conceived, is clearly a failure. It simply cannot be
                  completed in the time frame or within the price the subcontractor agreed
                  to. This has important future implications because DOE’s planned
                  investment in privatization cleanup projects is growing—the Department
                  included over $1 billion in its fiscal year 1998 budget request for 11 such
                  projects. In light of this growing emphasis on privatization, the outcome of
                  the Pit 9 subcontract negotiations may provide some insight into DOE’s
                  overall ability to achieve privatization goals, including lowering project
                  costs and shifting the risk of nonperformance from the Department to the
                  contractors.


                  We provided DOE, the M&O contractor, and LMAES with a draft of this report
Agency Comments   for their review and comment. DOE disagreed with our conclusion that the
                  project, as originally conceived, was a failure and also expressed concern
                  about the tone of the report. The M&O contractor also disagreed with our
                  conclusion but said the report presented a reasonably accurate portrayal
                  of circumstances and events pertaining to the Pit 9 project. LMAES, as well
                  as DOE and the M&O contractor, also provided comments on technical
                  aspects of the draft, which we have incorporated where appropriate (see
                  app. II for DOE’s comments, app. III for comments from the M&O contractor,
                  and app. IV for LMAES’ comments).

                  DOE and the M&O contractor disagreed with our conclusion that the project,
                  as originally conceived, is a failure. DOE noted that although the original
                  project schedule cannot be achieved, it is premature to conclude that the



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              B-277164




              government’s costs on the project will increase. The M&O contractor
              identified lessons learned, such as the need for a more careful analysis of
              what the subcontractor claims it can accomplish, that it said kept the
              project from being a failure. We continue to believe, however, that it is
              clear that the project has failed to achieve its schedule and cost targets.
              Specifically, (1) the project is more than 2 years behind schedule, costs
              greatly exceed the subcontract price, and LMAES has said it will not resume
              normal construction activities unless the subcontract is satisfactorily
              renegotiated; (2) DOE has already incurred fines and penalties; and (3) DOE
              is responsible for the M&O contractor’s legal fees in connection with the
              project. As a result, it is impossible for the project to be completed in the
              time frame or within the price LMAES agreed to. In addition, we do not
              agree that lessons learned mitigate the fact that the Pit 9 project has failed
              to achieve its schedule and cost targets.

              DOE  also said the tone of our report, especially concerning the inventory of
              the pit and LMAES’ opinions about the project, unfairly represented DOE’s
              knowledge about the contents of the pit while giving too much credit to
              LMAES’ views of why the project is experiencing problems. In our view, the
              report is fair and balanced on these issues. Regarding the pit inventory,
              our report says that DOE is not certain of the pit contents, in part because
              DOE has poor records of the materials shipped there. The various estimates
              of pit contents demonstrate that DOE is uncertain of the actual inventory.
              Concerning the causes of problems on the project, we summarize and
              attribute the viewpoints of DOE, the M&O contractor, and LMAES in a similar
              way, and we have not taken a position on the merits of any of the
              arguments.

              LMAES  said we should have emphasized problems with proof-of-process
              testing (phase I) to reflect its view that the testing was deficient because it
              did not demonstrate the subcontractor’s ability to perform within a
              schedule or budget. We believe that the testing phase was intended to
              provide some increased assurance to DOE and the M&O contractor that the
              proposed technologies would work in the Pit 9 environment, and that
              realistically it could not be expected to ensure the subcontractor’s
              performance within a schedule or budget.


              To determine DOE’s basis for selecting a fixed-price subcontracting
Scope and     approach, we reviewed the Federal Acquisition Regulation for available
Methodology   guidance and the procurement plan developed by the M&O contractor at
              the Idaho Falls site. We also reviewed DOE’s Private Sector Working Group



              Page 21                                      GAO/RCED-97-180 DOE’s Pit 9 Cleanup
B-277164




Privatization Resource Document and other documentation provided by
DOE. In addition, we interviewed the DOE Contracting Officer, Pit 9 Project
Manager, and Assistant Site Manager at the Idaho Falls site. We also
interviewed DOE’s Environmental Management Director of Northwest Area
Programs.

To determine the basis for awarding the subcontract to LMAES, we
reviewed the RFP, LMAES’ response, and the reports of the Source
Evaluation Board. We also reviewed the Proof of Process Test
Comprehensive Evaluation Report and the contract files that detailed the
selection and evaluation process. We also interviewed a member of the
Source Evaluation Board and the M&O contracting officer.

To determine the current status of the Pit 9 project, we toured the Pit 9
project site and interviewed project management personnel from LMAES,
the M&O contractor, and DOE. We reviewed the Request for Equitable
Adjustment and supporting documentation submitted by LMAES. In
addition, we reviewed correspondence between the M&O contractor and
LMAES and other documentation relating to the inventories of the pit and
review of design activities. We also interviewed officials with the
Environmental Protection Agency-Region 10 and the Idaho Department of
Health and Welfare-Division of Environmental Quality that are responsible
for oversight of the cleanup activities at Pit 9. In addition, we reviewed the
Pit 9 Record of Decision; Federal Facility Agreement and Consent Order;
and Agreement to Resolve Disputes, which assessed the fines against DOE.

We have not attempted to compare the validity of the charges and
countercharges about causes of the problems at Pit 9 because of the
ongoing negotiations between the parties and the legal process in place to
resolve any disagreements.

Our review was performed from March through July 1997 in accordance
with generally accepted government auditing standards.


We are sending copies of this report to the Secretary of Energy. We will
also make copies available to others on request.




Page 22                                      GAO/RCED-97-180 DOE’s Pit 9 Cleanup
B-277164




Please call me at (202) 512-3841 if you or your staff have any further
questions. Major contributors to this report were William R. Swick, Robert
M. Antonio, Carole J. Blackwell, Doreen S. Feldman, Susan W. Irwin, Stan
G. Stenersen, and Charles A. Sylvis.




Victor S. Rezendes
Director, Energy, Resources,
  and Science Issues




Page 23                                    GAO/RCED-97-180 DOE’s Pit 9 Cleanup
Contents



Letter                                                                                        1


Appendix I                                                                                   26

Types of Subcontract
Payments and
Amounts Paid as of
May 31, 1997
Appendix II                                                                                  27

Comments From the
Department of Energy
Appendix III                                                                                 29

Comments From
Lockheed Martin
Idaho Technologies
Company
Appendix IV                                                                                  33

Comments From
Lockheed Martin
Advanced
Environmental
Systems


                       Abbreviations

                       DOE       Department of Energy
                       EPA       Environmental Protection Agency
                       FAR       Federal Acquisition Regulation
                       M&O       Management and Operating
                       RFP       request for proposal
                       LMAES     Lockheed Martin Advanced Environmental Systems
                       LESAT     Lockheed Environmental Systems and Technologies


                       Page 24                               GAO/RCED-97-180 DOE’s Pit 9 Cleanup
Page 25   GAO/RCED-97-180 DOE’s Pit 9 Cleanup
Appendix I

Types of Subcontract Payments and
Amounts Paid as of May 31, 1997


              Type of payment                       Subcontract amount          Payments as of 5/31/97
              Milestone payments
                Final design                                 $43,311,064                   $26,151,914
                Safety Analysis Report                          2,817,370                            0
                Operational Readiness                           8,239,237                            0
                Review
              Total milestone payments                         54,367,671
              Progress payments                                34,787,746                   28,234,251
              (construction of equipment
              & facilities)
              Unit price payments
                Analysis/handling of                            4,845,000                            0
                overburden @$9.69/cubic
                foot
                Remediation of the first                       34,131,000                            0
                100,000 cubic feet of
                waste material
                @$341.31/cubic foot
                Remediation of an                              22,233,000                            0
                additional 150,000 cubic
                feet of waste material
                @$148.22/cubic foot
                Standby costs                                       785,520                          0
              Lump-sum payment                                  4,203,664                            0
              (decontamination &
              decommissioning)
              Profit
                Limited production test                        13,373,313                            0
                Remediation                                     9,208,500                            0
                Decontamination &                                   672,586                          0
                decommissioning
              Total                                         $178,608,000                   $54,386,165
              Contract modification #12 for                     2,135,000
              water/power
              Revised subcontract price                     $180,743,000

              Source: Lockheed Martin Idaho Technologies Company.




              Page 26                                               GAO/RCED-97-180 DOE’s Pit 9 Cleanup
Appendix II

Comments From the Department of Energy




              Page 27        GAO/RCED-97-180 DOE’s Pit 9 Cleanup
Appendix II
Comments From the Department of Energy




Page 28                                  GAO/RCED-97-180 DOE’s Pit 9 Cleanup
Appendix III

Comments From Lockheed Martin Idaho
Technologies Company




               Page 29      GAO/RCED-97-180 DOE’s Pit 9 Cleanup
Appendix III
Comments From Lockheed Martin Idaho
Technologies Company




Page 30                               GAO/RCED-97-180 DOE’s Pit 9 Cleanup
Appendix III
Comments From Lockheed Martin Idaho
Technologies Company




Page 31                               GAO/RCED-97-180 DOE’s Pit 9 Cleanup
Appendix III
Comments From Lockheed Martin Idaho
Technologies Company




Page 32                               GAO/RCED-97-180 DOE’s Pit 9 Cleanup
Appendix IV

Comments From Lockheed Martin
Advanced Environmental Systems




              Page 33        GAO/RCED-97-180 DOE’s Pit 9 Cleanup
Appendix IV
Comments From Lockheed Martin
Advanced Environmental Systems




Page 34                          GAO/RCED-97-180 DOE’s Pit 9 Cleanup
           Appendix IV
           Comments From Lockheed Martin
           Advanced Environmental Systems




(141033)   Page 35                          GAO/RCED-97-180 DOE’s Pit 9 Cleanup
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