Major Management Challenges and Program Risks: Department of Energy
(Letter Report, 01/01/2001, GAO/GAO-01-246).

This report, part of GAO's high risk series, discusses the major
management challenges and program risks facing the Department of Energy
(DOE) as it seeks to maintain the nation's nuclear weapons capabilities,
clean up the contamination resulting from nuclear weapons activities,
and foster a reliable and sustainable energy system. Many of the
challenges facing DOE are long-standing, and sustained management
attention will be needed to correct these weaknesses. DOE must address
shortcomings in its management of nuclear weapons and must improve its
financial and contract management activities.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  GAO-01-246
     TITLE:  Major Management Challenges and Program Risks: Department
	     of Energy
      DATE:  01/01/2001
   SUBJECT:  Internal controls
	     Public administration
	     Environmental monitoring
	     Contract administration
	     Accountability
	     Performance measures
	     Nuclear weapons
	     International relations
	     Financial management
	     Risk management
IDENTIFIER:  DOE Stockpile Stewardship Program
	     DOE Initiatives for Proliferation Prevention Program
	     High Risk Series 2001
	     GAO High Risk Program
	     Russia

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GAO-01-246

Performance and Accountability Series

January 2001 Major Management Challenges and Program Risks

Department of Energy

GAO- 01- 246

Letter 3 Overview 6 Major

13 Management Challenges and Program Risks:

Department of Energy

Related GAO 48

Products Performance

52 and Accountability Series

Lett er

January 2001 The President of the Senate The Speaker of the House of
Representatives

This report addresses the major performance and accountability challenges
facing the Department of Energy (DOE) as it seeks to maintain the nation's
nuclear weapons capabilities, clean up the contamination resulting from
prior nuclear weapons

activities, foster a reliable and sustainable energy system, and support
continued U. S. leadership in science and technology. It includes a summary
of actions that DOE has taken and that under way to address these
challenges. It also outlines further actions

that GAO believes are needed. This analysis should help the new Congress and
administration carry out their responsibilities and improve government for
the benefit of the American people. This report is part of a special series,
first issued in January 1999, entitled the Performance and Accountability
Series: Major Management Challenges

and Program Risks. In that series, GAO advised the Congress that it planned
to reassess the methodologies and criteria used to determine which federal
government operations and functions should be highlighted and which should
be designated as “high risk.” GAO completed the assessment,
considered comments provided on a publicly available exposure draft, and
published its guidance document, Determining Performance and Accountability
Challenges and High Risks (GAO- 01- 159SP), in

November 2000. This 2001 Performance and Accountability Series contains
separate reports on 21 agencies- covering

each cabinet department, most major independent agencies, and the U. S.
Postal Service. The series also includes a governmentwide perspective on
performance and management challenges across the federal government. As a
companion volume to this series, GAO is issuing an update on those
government operations

and programs that its work identified as “high risk” because of
either their greater vulnerabilities to waste, fraud, abuse, and
mismanagement or major challenges associated with their economy, efficiency,
or effectiveness.

David M. Walker Comptroller General of the United States

Overview The Department of Energy's (DOE) missions are to maintain the
nation's nuclear weapons capabilities, clean up the contamination resulting
from prior nuclear weapons activities, foster a reliable and sustainable
energy system, and promote U. S. leadership in science and technology. DOE
also works with the Departments

of Defense and State to help prevent the proliferation of nuclear weapons
and other weapons of mass destruction. In the post- Cold War environment,
securing U. S. nuclear weapons materials and information remains vital to U.
S. national interests.

To carry out its missions, DOE has been appropriated about $17 billion
annually in recent years and has almost 16, 000 federal employees. The
Department has more than 50 major facilities in 35 states. DOE contracts for
the management and operation of its major facilities- including its national
laboratories, nuclear weapons production facilities, and those facilities
undergoing environmental cleanup- and has more than 100,000

prime contractor employees at its facilities. In fiscal year 1999, DOE
obligated about $15. 5 billion to contracts. Over the past several years,
GAO, congressional committees, and others have questioned DOE's management
practices and effectiveness in carrying out its missions and have made many
recommendations for corrective actions. To address long- standing

management and security problems at DOE's nuclear facilities, a
legislatively mandated reorganization of DOE's defense and national security
programs took effect in the spring of 2000. While DOE has made improvements
in its management, the Department continues to face significant performance
and accountability challenges as shown in the following inset. The
underlying causes of these challenges include problems with DOE's
organizational alignment and control, planning, budget formulation and

execution, human capital, and contract and financial management. Many of the
challenges that DOE faces in achieving its goals and objectives are long-
standing, and

sustained management attention will be needed to correct these weaknesses
and implement needed improvements over the long term. DOE's performance in
addressing these challenges will significantly influence its ability to
efficiently and effectively carry out its defense and national security
responsibilities and its environmental cleanup program.

Address project management, planning, and other issues to maintain nuclear
weapons capabilities

? Sustain management attention to correct pervasive weaknesses in security
controls

? Improve priority- setting of nonproliferation programs and coordination
among programs in the former Soviet Union

? Improve management tools and integration of activities to clean up
radioactive and hazardous wastes

? Resolve problems in contract management that place it at high risk for
fraud, waste, abuse, and mismanagement

? Improve financial management

Nuclear Weapons With the end of the Cold War, a moratorium on nuclear
Stockpile testing was declared, and in its place, DOE created the Stockpile
Stewardship Program to develop test facilities

and computer modeling capability to certify that aging weapons are safe and
reliable without exploding them and to ensure the availability of
replacement components for weapons. DOE faces management, planning and
budgeting, organizational alignment, and human capital challenges as it
maintains the nuclear weapons stockpile. DOE's Office of Inspector General
recommended in a September 2000 report that DOE develop an overall weapons
production infrastructure restoration plan because the deterioration of the
infrastructure had, among other things, resulted in delays in the
remanufacturing of weapons parts. In our December 2000 report on the
Stockpile Stewardship Program, we noted that DOE has made improvements in
its planning and budgeting for the program, and we made a number of
recommendations to further improve program integration, contract performance
criteria, and

budget decision- making. DOE had also made changes to improve its
organizational alignment to better define lines of authority but
acknowledges that more needs to be done to clarify the roles and
responsibilities of headquarters and field staff. Finally, the Stockpile
Stewardship Program is faced with a shortage of skilled management and
technical staff, and since skilled staff are leaving and the job market is
extremely competitive, many believe that staffing shortages will reach
crisis proportions by the end of this decade. While DOE is taking actions to
address all these challenges, their successful and timely implementation is
critical to ensuring an effective and efficient program to maintain aging
nuclear weapons. Security Concerns DOE's nuclear weapons facilities and the
people who

work there are potential targets of espionage and other security threats.
Numerous studies have identified pervasive weaknesses in DOE's security
controls. Our reports have highlighted weaknesses in access to

computerized information systems, programs for foreign visitors to DOE's
national laboratories, and counterespionage measures for foreign travel by
DOE's contractor personnel. We have made recommendations for strengthening
controls over foreign travel by contractor employees, who are sometimes
targets of attempted espionage, and improving the management and oversight
of information technology security.

While DOE has responded to many of the recommendations made by others and us
and has acted to strengthen its security controls, the Department has not
always followed through to ensure that improvements are consistently
implemented. For example, while DOE initially expanded the use of background
checks for foreign visitors to its national laboratories in response to our
1988 review, it later granted exemptions for two of its laboratories.
Consequently, these laboratories conducted background checks on a smaller
percentage of their visitors from sensitive countries in 1997 than they had
in 1988. With the establishment in March 2000 of the National Nuclear

Security Administration, which reorganized DOE's defense and security
missions, DOE has a unique opportunity to improve security and effect
lasting change. As noted in our April 1999 testimony, DOE's management needs
to devote sustained attention to changing DOE's culture, which has not given
sufficient priority to security matters. Nonproliferation

DOE conducts several programs to help Russia and Issues

other newly independent states of the former Soviet Union control weapons of
mass destruction (biological, chemical, and nuclear) and prevent their
proliferation. The recent economic and political changes in the newly
independent states have left weapons- usable nuclear materials vulnerable to
theft or diversion. In addition, weapons scientists facing reduced economic
circumstances may be tempted to sell their skills to

terrorists or countries of proliferation concern. Reducing these risks is a
high priority for U. S. national security.

DOE's programs to secure weapons- grade materials and create other jobs for
former weapons scientists have been in existence for less than a decade. The
Department has improved these programs as it has

gained experience and responded to our recommendations for, among other
things, ensuring that funding to enhance civilian job opportunities is
targeted to those who have been involved in weapons of mass destruction.
Nonetheless, the nonproliferation programs could be made more effective by
(1) obtaining better access to facilities and information in the newly
independent states to improve priority- setting, (2) verifying the use of
program funds, and (3) coordinating the several DOE programs to increase
their effectiveness. For instance, if access to facilities and information
were improved, DOE's program to install security systems to protect nuclear
weapons- grade materials could better target the sensitive Russian
facilities that contain over 90 percent of these materials. Environmental

DOE has large volumes of radioactive and hazardous Cleanup

wastes and contaminated facilities from 50 years of nuclear weapons research
and production activities. Many of the projects to clean up these
environmental hazards are inherently complex and may require new
technologies and decades of work. Sound management practices are needed to
bring such complex projects to completion on time and within budget. Over
the past several years, DOE has improved its project planning and management
by establishing baselines, which define the scope of work, estimate costs,
and specify schedules.

However, DOE still faces significant management challenges, such as
integrating waste treatment, storage, transportation, and disposal
activities among its 44 sites with active cleanup work remaining. For
example, we have recommended that DOE develop criteria and guidance to
increase the cost- effectiveness of decisions regarding options for waste
treatment, storage, and disposal. Integrating work among DOE's sites and
within its sites that carry out multiple programs could reduce the estimated
$200 billion cost of the cleanup, speed the cleanup of environmental
hazards, and reduce the need for duplicate facilities and activities.

Contract Contract management also continues to be a significant Management

challenge for DOE. We first designated DOE's contract management as a high-
risk area in 1990 and continue to believe that contract management- contract
administration and project management- is at high risk for fraud, waste,
abuse, and mismanagement. Effective contract management is vital for DOE
because the Department relies heavily on contractors to achieve its national
security, research, and environmental cleanup missions.

Yet DOE continues to have difficulty in keeping some of its major projects
on schedule and within budget. For example, a facility being constructed to
evaluate nuclear weapons has a cost overrun of about $1 billion and a
schedule overrun of 6 years. We recommended that DOE arrange for an outside
technical review of this project's remaining technical challenges related to
its cost and schedule risks. In addition, DOE has utilized contracting
strategies that have not accomplished program goals. For example, we
concluded that, while fixed- price contracting had been successful for some
projects with a known scope, it had generally not accomplished DOE's goals
for complex cleanup projects.

DOE has begun a number of initiatives in contract management and has made
progress in this area, but it is too soon to tell whether the initiatives
will be effective in the long run. DOE has increased the proportion of major
contracts awarded competitively, for instance, from 9 percent of its major
contracts in 1990 to 68 percent as of September 2000. However, some of DOE's
larger contracts for operating its national laboratories continue to be
extended rather than competed. DOE also has initiatives to align performance
incentives for contractors more closely with DOE's strategic goals for a
site but did not know whether performance- based

contracting was improving performance and lowering costs. Financial

DOE's financial management could be improved. In its Management

February 2000 audit report on DOE's consolidated financial statements for
fiscal year 1999, DOE's Office of Inspector General reported a material
weakness concerning operational deficiencies in the financial management
system for DOE's Western Area Power Administration. Although the Western
Area Power Administration developed a corrective action plan for these
deficiencies, DOE's Office of Inspector General reported in November 2000
that the power administration was still experiencing delays in preparing its
fiscal year 1999 financial information for audit. It also identified a
reportable condition concerning estimates

of environmental liabilities for contaminated active and surplus facilities.
The Office of Inspector General recommended that DOE's Chief Financial
Officer develop procedures for verifying data about the facilities, which
DOE management agreed to implement.

Major Management Challenges and Program Risks: Department of Energy DOE's
missions are important to providing for national security, U. S. leadership
in science and technology, and a reliable, sustainable energy supply.
Approximately two- thirds of DOE's budget is devoted to (1) defense and
national security programs and (2) environmental

cleanup and quality. DOE is responsible for maintaining nuclear weapons by
certifying their reliability and replacing their components. In carrying out
this mission, DOE must keep nuclear weapons information and materials secure
from such threats as espionage and terrorism. DOE's role in preventing the
proliferation of nuclear and other weapons of mass destruction is vital in
the post- Cold War era. In addition, DOE's mission to produce the nation's
nuclear arsenal has left a legacy of environmental hazards needing cleanup;
44 facilities

located in 17 states still require active cleanup work. DOE Needs to

With the end of the Cold War, a moratorium on nuclear Address Project
testing was declared. As an alternative to such testing, Management, DOE
created the Stockpile Stewardship Program to Planning, and certify that
nuclear weapons are safe and reliable. The Other Issues to program poses
significant management challenges in Effectively and ensuring the
availability of components vital to the

Efficiently Department's nuclear weapons program; refurbishing or Maintain
Nuclear replacing DOE's aging facilities; and building high- cost, state-
of- the- art experimental facilities. DOE also faces

Weapons challenges to improve the following aspects of its

Capabilities Stockpile Stewardship Program: planning and budgeting
activities, resolving significant organizational problems

and establishing clear lines of authority, and recruiting and training the
next generation of weapons scientists and technicians (human capital
issues). DOE's successful resolution of these challenges would ensure that
the nation continues to have a strong and efficient nuclear weapons program.

Management As part of its Stockpile Stewardship Program, DOE must Challenges
ensure that the nuclear weapons production infrastructure is adequately
maintained, that certain weapon components are available when needed, and
that surveillance testing of nuclear weapons

components is carried out. DOE must also ensure that experimental state- of-
the- art testing facilities are built on time and within budget. However,
inadequate maintenance planning and investment have led to the
infrastructure's deterioration. Furthermore, inadequate management and
ineffective DOE oversight of contractors have increased the costs and
extended the

schedules for a major construction project. As a result, meeting the goals
of the Stockpile Stewardship Program may be difficult for DOE. DOE's Office
of Inspector General reported in September 2000 that the current and future
goals of the Stockpile Stewardship Program are at risk because the nuclear
weapons production infrastructure had not been adequately maintained. 1 The
report noted that although existing data suggested that current military

requirements were being met, the deterioration of the infrastructure had
resulted in, among other things, delays in the remanufacturing of weapons
parts and in the surveillance testing of nuclear weapons components. For
example, DOE had planned to produce up to 50 pits (triggers that detonate
nuclear weapons)

annually to support testing and future stockpile requirements but has not
yet reached this goal. Our work in this area noted that to help manage the
effort to develop pit- remanufacturing capability, DOE needs to establish an
integrated cost and schedule control system that would allow managers to
measure 1 See Management of the Nuclear Weapons Production Infrastructure,

Department of Energy (DOE/ IG- 0484, Sept. 22, 2000).

costs against the stages of completion and to take corrective actions when
variances occur. DOE does not expect to develop such a system until early in
2001, when it will have established a new baseline for the

program. With respect to surveillance testing, the Inspector General's
report noted that the surveillance tests that would determine if the
reservoirs that hold tritium gas in

a weapon have potential problems are 3 to 5 years behind schedule. To ensure
that DOE's aging infrastructure is adequately addressed, the report
recommended that DOE develop an overall infrastructure restoration plan that
would provide (1) a

documented rationale for future maintenance funding requests and (2) the
basis to monitor performance and ensure accountability for funding
decisions. In response, DOE's Office of Defense Programs stated that an
ongoing study of facilities and infrastructure would address this
recommendation and result in a program plan for improving the infrastructure
over the next 10 years.

Contractor management and DOE oversight failures led to major cost overruns
and schedule delays in the construction of a new state- of- the- art testing
facility-

the National Ignition Facility. The facility will be a stadium- sized laser
facility that may, for the first time, simulate in a laboratory the
thermonuclear conditions created in nuclear explosions. Our August 2000
report noted that DOE estimates that this almost $3. 5 billion

facility will not be completed until 2008- more than $1 billion and 6 years
later than originally estimated. Unresolved technical problems, such as the
ability to develop optical components that can withstand highintensity

laser beams, may further drive up the cost. While DOE and the contractor
have made changes to improve the project's overall management, it is too
soon to determine if their implementation will be successful.

To ensure that the project can meet its goals, our report recommended that
DOE arrange for an outside scientific and technical review of the National
Ignition Facility's remaining technical challenges related to the project's
cost and schedule risks. Moreover, the Congress has passed legislation
requiring DOE to certify after March 31, 2001, that the National Ignition
Facility project is proceeding on cost and schedule, among other things. The
legislation also requires DOE to recommend an appropriate path forward for
the project and to conduct a study to analyze alternatives for the project's
laser

configuration. Planning and DOE has developed an extensive planning process
and Budgeting Challenges

recently changed its budgetary process to improve its management of the
Stockpile Stewardship Program. With respect to planning, DOE has developed
over 70 Stockpile Stewardship plans with varying levels of detail. However,
these plans are not complete enough to fully support successful
implementation of the Stockpile Stewardship Program. Specifically, DOE is
still trying to determine some key requirements for the program, such as
validating the quantity of the different weapons

systems to be refurbished. More importantly, DOE has not fully integrated
its plans into its system of management controls for the program. For
example, our December 2000 report found that milestones and other
performance measurement information contained in the plans have not been
systematically incorporated into the contracts used to manage the operations
of the program's laboratories and

production plants. This lack of effective integration essentially prevents
the separate components of the program from functioning as a cohesive
entity. We recommended that the planning process be fully integrated with
management controls, including a recommendation that contractor performance
criteria and evaluations reflect the plans' milestones. In

responding to our draft report, DOE's Office of Defense Programs agreed with
the need to integrate its planning process with its management controls and
stated that it had directed field offices to negotiate contracts that add
specific self- assessments addressing planning and execution processes. DOE
recently improved its budgeting for the Stockpile Stewardship Program.
Program managers and outside technical experts believe that the new
structure holds

significant promise because it can help identify the program's fixed and
variable costs, which can be a useful tool for improving program cost
management. However, DOE has experienced some problems in implementing the
new structure. For example, when DOE used the structure to develop the
program's proposed budget for fiscal year 2001, the laboratories and
production plants did not apply the new budget definitions consistently. DOE
subsequently amended its

budget request, but the amendment makes it difficult to determine the
program's fixed and variable costs, in turn, making it difficult to
ascertain the amount of funding that could be saved if an activity is cut.
Organizational Over the last several years, internal and external studies
Alignment Challenges

of the Stockpile Stewardship Program have noted the confusing; overlapping;
and at times, conflicting lines of authority within DOE. In response to
these findings, DOE has been reorganized to clarify the chain of command
between headquarters, field offices, and contractors. Also, the Congress
created the National Nuclear Security Administration (NNSA) as a

semiautonomous agency within DOE to manage the Department's stockpile
stewardship, naval nuclear reactor, and nuclear nonproliferation programs.
Additional organizational changes are expected as NNSA's new leadership
begins to address past problems while it implements the new administration.

Despite these reorganizations, problems continue. For example, one of the
key problems noted in a major management study 3 years ago that still exists
today is

that DOE has essentially two headquarters offices for the Stockpile
Stewardship Program- one in DOE headquarters and one in the Albuquerque
Operations Office. As noted in our December 2000 report, because clearly
defined roles and responsibilities are lacking, officials in both offices
stated that managers in headquarters and Albuquerque were uncertain about
what they were authorized to do.

The problems DOE experienced with its project to develop the National
Ignition Facility illustrate what can occur without clear lines of
authority. Specifically, our August 2000 report found that DOE did not
establish a clear chain of command between its headquarters and field
office, thereby diffusing accountability for the project. Laboratory
officials said that they considered the project's chain of command confusing
and really did

not know to whom they should report on a day- to- day basis. Because of this
confusion, DOE had difficulty taking active control of the project, missed
opportunities to ensure the laboratory's accountability, and did not
aggressively act on its suspicions that cost and schedule problems existed
with the project. DOE has since begun to establish a clearer chain of
command for the National Ignition Facility project and has aligned the
contractors performing Stockpile

Stewardship Program work under NNSA. In our December 2000 report on the
Stockpile Stewardship Program, we recommended that DOE ensure that its
recent field structure reorganization is implemented in a way that ensures
clear lines of authority between the Office of Defense Programs and its
contractors. In commenting on a draft of this report, the Office of Defense
Programs agreed that a need exists to resolve

organizational ambiguities and improve the understanding of roles,
responsibilities, and

accountabilities between headquarters and field elements. Human Capital
Human capital issues may be the single largest problem Challenges

challenging the nuclear weapons program. This issue, which we raised in our
previous report on DOE's management challenges in January 1999, continues to
be a challenge that the Department, along with many other federal agencies,
is facing. DOE's human capital problems can be seen as part of a broader
pattern of human capital shortcomings that have eroded mission capabilities
across the federal government. See our High- Risk Series: An Update (GAO-
01- 263, January 2001) for a discussion of human capital as a newly
designated governmentwide high risk area.

Several studies have pointed to DOE's need to deal comprehensively with the
challenge of recruiting and training the next generation of technical and
managerial staff before it reaches crisis proportions by the end of this
decade. The experienced designers and engineers who built the weapons in the
stockpile and understand how they work are reaching or past retirement age.
DOE is also faced with shortages of technicians skilled in the techniques
associated with weapons production, such as the plutonium pit- manufacturing
process. The number of qualified personnel who can perform this type of work
and have the appropriate security clearances is limited.

While a crisis is looming, the lack of staff with sufficient management and
technical skills is resulting in problems now. For example, the impact was
evident in DOE's National Ignition Facility project. Neither DOE's
headquarters staff nor field managers had the skills to oversee the
managerial and technical complexities of this large project, and the field
staff did not have technical proficiency in laser operations.

DOE has efforts ongoing in many areas to improve the recruitment of staff,
including exempting certain technical specialists from salary ceilings and
using the

unique research and development aspects of the program to attract potential
candidates. Management will need to focus on these efforts to ensure that
they are implemented so that new employees can be hired to bolster the
expertise needed in existing projects and be trained to capitalize on the
knowledge of existing workers before they leave their current positions.
Finally, DOE has suffered from instability in its leadership and management
team in the Office of Defense Programs, which is responsible for the
Stockpile Stewardship Program. Our December 2000 report noted, for example,
that the proportion of offices vacant or with acting managers has increased
from 17 percent in 1996 to almost 65 percent in 2000. The high turnover may
contribute to the fact that the same problems are enumerated year after
year. In addition, the high turnover rate impairs DOE's ability to (1)
provide consistent and effective leadership, (2) take decisive action on
difficult problems, and (3) identify those who should be held accountable
for results.

In commenting on our draft report, DOE's Office of Defense Programs agreed
that greater stability is desirable but did not consider the level of
turnover abnormally high, given the technical nature of the work and the
opportunities available to highly educated and skilled personnel. However,
we believe that the increasing level of turnover and the widespread
dissatisfaction with the lack of consistent management direction among the
federal and contractor officials we interviewed are indicative of serious
problems. We recommended that DOE identify the reasons for the high level of
management turnover in the program and take actions to provide greater
management consistency and stability.

DOE Needs Over the last few years, reports by independent Sustained

commissions, congressional committees, and the Management

intelligence community have identified serious and Attention to

pervasive weaknesses in DOE's lines of defense against Correct Pervasive the
loss of classified information. For instance, in June Weaknesses in 1999, a
special investigative panel of the President's

Security Controls Foreign Intelligence Advisory Board reported security
weaknesses, including loosely controlled programs for

thousands of foreign visitors to DOE's national laboratories and inadequate
systems for controlling classified documents, which periodically resulted in
thousands of documents' being declared lost. 2 We and DOE's Office of
Inspector General have also reported in the last 2 years on weaknesses in
security controls over contractors' travel to foreign countries, access to
information systems, the sale of surplus computer equipment, and classified
documents. In addition,

widely reported incidents at Los Alamos National Laboratory this past year
brought DOE's security concerns to national attention. While DOE has
responded to recommendations to improve security in the past, it has not
always followed through to effectively implement promised changes over the
long term. With NNSA's establishment in March 2000, DOE has an opportunity
to give greater priority to fixing known weaknesses in security. To
effectively implement improved security measures, DOE needs to devote
sustained management attention to changing its culture to ensure that the
corrective actions taken will be implemented throughout the Department and
will

continue to work in the long term. If these challenges are not resolved, DOE
may continue to face periodic incidents that threaten the nation's control
over its 2 See Science at Its Best, Security at Its Worst: A Report on
Security Problems at the U. S. Department of Energy, Special Investigative
Panel of the President's Foreign Intelligence Advisory Board (June 1999).

nuclear weapons secrets and other sensitive information.

Our work and reviews by DOE's Office of Inspector General have identified
weaknesses in DOE's security controls over foreign travel by its contractors
and computer information systems and equipment. Controls for foreign travel
are significant because, each year,

thousands of contractor employees from national laboratories travel overseas
to attend conferences, conduct research, or exchange ideas. Because of their
work, many of these employees have access to classified information. In June
2000, we reported that, over the course of 5 years, more than 75 incidents
of attempted espionage against travelers from four laboratories were
reported to DOE. These incidents included attempts to elicit information
about nuclear materials, searches of travelers' rooms and luggage, offers of
sexual favors,

and attempts to access information on travelers' laptop computers. We
reported that DOE concentrated its efforts on travel to sensitive countries-
those countries considered a potential risk to national security, such as
China and Russia. For instance, DOE and its laboratories required additional
review of proposed trips to sensitive countries. In addition, the
laboratories typically provided face- to- face pretravel counterintelligence
briefings only for travelers to sensitive countries. However, travelers to
other countries often confront similar incidents as travelers to sensitive
countries. We recommended that DOE establish procedures to ensure that DOE
and its laboratories apply their resources to the oversight of travel to
nonsensitive countries commensurate with the risks associated with such

travel.

Information system security has challenged DOE because some of its computer
systems contain both publicly available and sensitive information. Sensitive
unclassified information is information that is not classified but requires
controls over its use and dissemination. 3 Weak controls in such systems
could allow inappropriate public access to such information. In addition, in
June 2000, we reported that on four recent occasions, DOE's national
laboratories experienced Internet- based attacks that disrupted research
activities.

Weaknesses in DOE's computer security that were identified by us or by DOE's
Office of Inspector General have included ? poor file protection, password
management, and

network protection (such as intrusion detection and firewalls) that have
provided limited protection against malicious attacks by computer hackers; ?
public Internet access to sensitive information about DOE's networks that
could facilitate electronic intrusions; ? ineffective oversight by DOE of
computer security at its science laboratories; and

3 More specifically, examples of sensitive unclassified information held by
DOE are Unclassified Controlled Nuclear Information, exportcontrolled
information, proprietary information of private companies, and information
that is designated for official use only. As defined by DOE, sensitive
information includes information whose disclosure could adversely affect
national security or government interests.

? the slow implementation of the requirements in a presidential directive to
identify critical assets in need of protection, assess vulnerabilities, and
prepare corrective action plans. 4 We made a number of recommendations in
our June 2000 report, including (1) the development and implementation of
guidelines for a risk- based approach to information technology security
management and (2) the development of a clear management oversight process
to monitor and enforce laboratories' compliance with DOE's policy and the
effectiveness of controls. In addition, in two cases identified by the
Office of Inspector General, DOE contractors sold excess computer equipment
without following appropriate controls. 5 The contractor for DOE's Savannah
River Site inappropriately sold computer equipment containing sensitive
information because the contractor did not follow regulatory requirements to
first clear stored information. The buyer of the equipment had intended to
ship it to the People's Republic of China. In the second

case, the contractor for Sandia National Laboratory sold a supercomputer
that had been used for nuclear weapons research. 6 Contractor staff had not
followed

procedures for export- controlled property and treated the supercomputer
sale as any other piece of excess 4 These weaknesses were identified through
our work and reviews by DOE's Office of Inspector General, specifically
Unclassified Computer Network Security at Selected Field Sites, Department
of Energy (DOE/ IG- 0459, Feb. 15, 2000) and Implementation of Presidential
Decision Directive 63, Critical Infrastructure Protection, Department of
Energy (DOE/ IG- 0483, Sept. 22, 2000). 5 See Inspection of Surplus Computer
Equipment Management at the Savannah River Site, Department of Energy (DOE/
IG- 0472, June 1, 2000) and Inspection of the Sale of a Paragon
Supercomputer by Sandia National Laboratories, Department of Energy (DOE/
IG- 0455, Dec. 1999).

property. In both cases, the DOE contractor subsequently repurchased the
equipment.

DOE has generally agreed with the recommendations made in these areas over
the last several years and has taken actions to improve its security
program. For instance, DOE is developing a comprehensive assessment of the
foreign intelligence threat to its

laboratories and other facilities and has hired additional
counterintelligence personnel. DOE has also expanded its analytical
capabilities for counterintelligence to identify foreign intelligence
threats to information,

technology, and personnel to help ensure that the Department's resources are
mitigating the threats. In the area of computer security, DOE has issued new
requirements for unclassified systems and has required each national
laboratory to develop and implement protection plans. DOE plans to review
its processes for

selling excess property. DOE has also improved its security oversight
processes by such actions as requiring its Office of Independent Oversight
and Performance Assurance to verify the corrective actions reported by field
locations.

While DOE has often agreed to take corrective actions to fix security
problems, implementation has not always been successful, and problems have
recurred. For example, in 1988, we reported that DOE's nuclear weapons
laboratories performed required background checks on only 10 percent of
their visitors from sensitive

countries. DOE acknowledged these problems and expanded background check
requirements. However, a few years later, in 1994, DOE granted partial
exemptions from the background check requirement to Los Alamos

6 Supercomputers are capable of computing at very high speed. The
supercomputer sold by Sandia was considered to be one of the 100 fastest
computers in the world.

and Sandia National Laboratories. In 1997, we found that Los Alamos and
Sandia conducted background checks on only 5 percent of their visitors from
sensitive countries.

DOE's difficulty in making lasting security improvements has been due in
part to its culture. According to the panel of the President's Foreign
Intelligence Advisory Board, “DOE and its weapons laboratories have a
deeply rooted culture of low regard for security issues” that has
frustrated efforts to improve security. For instance, the panel found
“bureaucratic insolence” in disputing, delaying, and resisting a
presidential directive on security. NNSA's

creation allows DOE a unique opportunity to increase the effectiveness of
security for nuclear weapons information and nuclear materials. We believe,
however, that changing DOE's culture may be difficult. NNSA will, at least
initially, be made up of existing DOE and contractor employees. For NNSA to
be effective in improving security, it must break out of the culture and

mindset that permeates DOE. Sustained management attention will be needed to
see that security improvements are effectively and consistently implemented.
Achieving

DOE plays a major role in U. S. arms control and Nonproliferation
nonproliferation policies, goals, and programs. DOE, as Goals Requires

well as the Departments of Defense and State, help Improved Priority Russia
and other newly independent states to control Setting and

and eliminate weapons of mass destruction and reduce the risks of their
proliferation. 7 The recent economic Program and political changes in the
newly independent states of Coordination

the former Soviet Union have left weapons- useable nuclear materials
vulnerable to theft or diversion. Budget cuts have reduced guard forces and
the maintenance of security systems. In addition, workers, including
scientists at nuclear and biological weapons

facilities, now face difficult economic circumstances, such as unpaid wages
and declines in available housing. These factors increase the potential
threats from both outside and inside facilities in the newly independent
states. Reducing these risks is a high priority for U. S. national security.
In the former Soviet Union, DOE's nonproliferation programs include securing
weapons- grade nuclear materials from theft or diversion and creating other
jobs

for weapons scientists. DOE's programs take place in the context of
agreements concluded between the United States and Russia or other newly
independent states. However, while Russia has agreed to work with DOE to
improve the security of nuclear materials, it has been reluctant to grant U.
S. project teams access to many buildings in its nuclear weapons complex
where over 90 percent of the nuclear materials are located. Resolving access
challenges is critical to ensuring that the large amounts of nuclear
materials in these facilities are protected in a manner consistent with U.
S. nonproliferation goals. For some buildings, DOE does not have complete
estimates of how much nuclear material will require improved security. DOE's
programs to reduce the risks from weapons of mass destruction have been in
existence for less than a decade. As it has gained experience, DOE has taken

steps to improve program management, such as strengthening internal controls
over the use of funding. Nonetheless, DOE's nonproliferation programs still
face the following management challenges in the areas of planning, budget
execution, and coordination:

7 Weapons of mass destruction include biological, chemical, and nuclear
weapons. Other related threats include weapons- usable nuclear materials and
the scientific- industrial infrastructure for developing and producing such
weapons.

? Obtaining better access to information and Russian nuclear weapons
laboratories to better target program resources to the greatest risks. ?
Verifying the use of program funds. ? Coordinating the several DOE programs
involving the newly independent states to increase their effectiveness. In
the area of planning, setting priorities and using

resources effectively are particularly critical for DOE's Material
Protection, Control, and Accounting Program (nuclear materials protection
program) because it is

experiencing dramatically escalating costs and increases in scope. These
increases are due to (1) better information on the number of buildings
involved in weapons of mass destruction and better access to

facilities 8 and (2) Russia's apparent inability to pay its share of program
costs due to its poor economic situation.

However, DOE has experienced problems in setting and following priorities.
Our March 2000 report noted that, as of February 2000, DOE had completed the
installation

of security systems at 113 buildings in the newly independent states but
that these buildings had only about 7 percent of the nuclear materials
needing security upgrades. Without access to the sites and information on
the materials they contain, DOE's project teams have had difficulty in
planning, prioritizing, implementing, and monitoring work on security system
installations. Additional information about the status of installations for
nuclear materials security systems is

shown in figure1. Similarly, in its 1999 audit, DOE's Office of Inspector
General reviewed nine projects and 8 DOE's initial program estimates were
based on partial information available at the close of the Cold War. DOE
currently estimates that 650 metric tons of weapons- grade nuclear materials
are located at civilian, naval fuel, and nuclear laboratory sites in the
former Soviet Union, compared with an initial estimate of 450 metric tons.

in three of the projects, identified nearly $1 million spent on low-
priority upgrades to nuclear materials protection, for which little actual
reduction of risk was achieved. 9 Figure 1: Status of Nuclear Security
System Installations as of February 2000

200 Number of buildings

180

11

160 140

45

120 100

80

59

60

115

40

18

20

27 15 28

5 9

0 Civilian

Nuclear Naval

Other newly sites

weapons sites

independent complex

states Russia

Installed systems a Work started No work started

a In Russia, buildings have either a complete physical protection system, a
complete material control and accounting system, or both. Buildings at sites
in the other newly independent states include both

physical protection and material control and accounting systems.

9 See Nuclear Material Protection, Control, and Accounting Program,
Department of Energy (DOE/ IG- 0452, Sept. 16, 1999).

Source: DOE.

In response to a recommendation by DOE's Office of Inspector General, the
nuclear materials protection program agreed to develop a policy on the
appropriate level of access to buildings and information to determine what
upgrades are needed. DOE also plans to improve review procedures for
projects to help ensure that planned upgrades are consistent with program
guidance. Nonetheless, identifying priorities and directing program
resources to high- priority work will continue to challenge DOE's nuclear
materials protection program as it addresses additional facilities and
buildings, some of which are very sensitive for the Russians. Ensuring an
appropriate level of access to sensitive facilities and information in
Russia before committing to undertake particular projects would put DOE in a
better position to target its work to the greatest risks.

To strengthen its budget execution, DOE needs to do a better job of
obtaining information to verify that program funds are used as planned. For
instance, DOE's Initiatives for Proliferation Prevention program provides
seed money to create civilian jobs for scientists from the newly independent
states who have worked on weapons of mass destruction. Yet for about 20 of
the 79 cases that we reviewed for our February 1999 report, we found that
the scientific institute receiving the funding did not appear to have worked
on defense activities. For several other projects, DOE did not have enough

information to determine the institute's background. Some program personnel
from DOE's national laboratory were reluctant to request such information
because it seemed intrusive or contrary to Russia's national security laws.
However, we were able to obtain background information on scientists from
some of the institutes, and Russian officials told us that providing

general information about scientists' nuclear weaponsrelated activities did
not violate Russian laws.

DOE has since improved its internal controls over the use of program
funding. In response to a recommendation in our February 1999 report, DOE
now requires that its officials obtain background data on scientists prior
to placing contracts, to help ensure that

DOE's funding is directed to those who have been involved in weapons of mass
destruction. In addition, in response to our recommendations concerning the
Initiatives for Proliferation Prevention Program, in September 1999, DOE
issued guidance to its national laboratories requiring regular reporting on
how program

funds are being spent by recipients in the newly independent states.
Furthermore, in the Initiatives for Proliferation Prevention Program, the
Congress has capped the percentage of funding that may be used by DOE's
national laboratories so that more of the program funding will be available
for scientists and institutes in the newly independent states. If properly
implemented, these changes will strengthen DOE's budget execution

and controls for this program. DOE's programs in the newly independent
states also operate separately and have not been effectively coordinated.
DOE needs to do a better job of overcoming organizational
“stovepipes” among its various programs. Through recent
discussions with DOE officials, we observed that DOE could better coordinate
its program to increase safety at nuclear power plants (such as Chornobyl)
with the nonproliferation programs

to achieve the objectives of both efforts. For example, the safety program
has an identified need for fire doors for nuclear power plants. Weapons
technicians and engineers could be used to help design and install these
fire doors. Yet the director of a DOE program to increase civilian
employment for weapons scientists told us that DOE has not coordinated the
efforts of these programs with the fire safety efforts for nuclear power
plants. The

safety efforts are significant because, of the 59 Sovietdesigned nuclear
reactors currently in operation, the standards of 25 fall below Western
standards for fire and/ or other safety measures.

Furthermore, a 1999 report by the National Research Council recommended that
DOE manage its related programs in the newly independent states as
complementary efforts so that each reinforces the other. 10 According to the
report, a Russian institute's

commitment to improving nuclear materials safeguards should be an important
consideration in that institute's participation in other programs. The
report noted that it seems difficult to justify lucrative contracts from U.
S. government sources for institutes that have poor records on safeguarding
and protecting nuclear materials. We recognize that DOE's nonproliferation
programs face inherent challenges in working in Russia and the other newly
independent states, including: Russia's difficult economic conditions, the
need to further build on existing working relationships, and limitations on
access

to facilities and information. In March 2000, we concluded that the impacts
of nonproliferation projects are more easily demonstrated when there are
clear, mutually agreed upon national objectives; tangible threat elements;
and good working relationships between U. S. and Russian officials. We noted
that the impact of projects without these characteristics is generally
harder to demonstrate. DOE could enhance its

ability to achieve nonproliferation goals by further addressing challenges
in (1) gaining access to facilities and information to improve planning, (2)
obtaining information to verify the use of program funding, and 10 See
Protecting Nuclear Weapons Material in Russia, Office of

International Affairs of the National Research Council, National Academy of
Sciences (1999).

(3) coordinating DOE's various programs in the former Soviet Union so that
they reinforce each other's objectives. Improved

DOE faces challenges in completing the environmental Management Tools
cleanup of its 44 remaining sites, which includes and Integration cleaning
up contaminated soil, groundwater, and surface water, as well as treating
and disposing of waste. 11 Large Needed in DOE's volumes of radioactive and
hazardous wastes have Efforts to resulted from 50 years of nuclear weapons
research and Clean Up production activities. Many DOE cleanup projects are
Radioactive and inherently complex. For example, the removal and

Hazardous Wastes treatment of highly radioactive wastes from tanks at
several DOE sites requires developing and using new technologies and
treating such large volumes of waste

that work will take several decades. To bring such complex projects to a
successful completion, DOE needs to consistently use sound management
practices. However, DOE has had difficulty in completing large projects
within budget and on time. Some projects have taken a decade longer than
anticipated or have experienced technical failures related in part to poor

management practices and DOE's inadequate oversight of contractors, costing
taxpayers millions with little useful result.

In recent years, DOE has made progress in establishing project baselines,
which define the scope of work, estimated costs, and schedules. The
establishment of baselines has improved DOE's planning, budget execution,
and management information. Significant management challenges remain,
including further

11 As of the beginning of fiscal year 2000, DOE had completed active
cleanups at 69 of its 113 sites, leaving 44 to be completed. Many of the
sites that have completed active cleanup still require long- term care
because waste remains in place or because long- term remedies, such as
groundwater treatment, are still ongoing.

improving baselines and integrating activities among sites and within
multipurpose sites. DOE's resolving of these issues would result in more
effective use of resources by reducing duplication for waste treatment and
disposal facilities and groundwater monitoring. Beginning in fiscal year
1997, DOE required all of its cleanup sites to define their work as projects
with identified start and completion points and definable scopes of work. At
the same time, DOE required sites to establish baselines for all of their
projects. While some sites had already followed these practices prior to the

new requirements, others had conducted work on a “level- of-
effort” basis, namely, working on pieces of various efforts as allowed
by that year's funding. At sites

that lacked defined projects and baselines, identifying completion goals and
assessing interim progress toward completing cleanup work had been
difficult. The use of baselines as management tools has improved DOE's
planning capabilities, its control over project changes and budget
execution, and the information available to its managers. Improving cleanup
planning and management through realistic and well- supported baselines
warrants continued management attention. According to a July 2000 report by
DOE's Office of Inspector General, while previously identified weaknesses
had been corrected,

problems remained as some baselines omitted or duplicated costs, and some
baselines were not updated to reflect current cost estimates. 12 We have
found that some baseline schedules were overly optimistic. For example, we
reported in April 2000 that at two sites, contractors' schedules did not
include enough time for obtaining regulatory approval and/ or permits. DOE

approved these optimistic schedules, despite past 12 See Best Practices for
Environmental Management Baseline Development, Department of Energy (DOE/
IG- 0476, July 7, 2000).

experience of longer regulatory review periods and, in one case, warnings
from Idaho regulators about the time needed to obtain permits to begin
constructing a waste treatment facility. Integrating waste treatment and
disposal activities among sites presents unique management challenges for
DOE. DOE's Office of Environmental Management has indicated that the goal of
integration is to make the program more efficient, through such actions as
using waste facilities' available capacity, eliminating redundant
facilities, removing organizational

“stovepipes,” and applying site successes and lessons learned
nationwide. Achieving such integration is challenging because of the
geographic dispersion of DOE's cleanup sites, the large volumes of waste
involved, and the differing requirements for the various types of hazardous
and radioactive wastes. But integration is worth pursuing because it can
result in cost savings, speedier cleanups, and improved approaches when
sites share lessons learned. DOE has

made progress in obtaining and analyzing the data needed to support
integration. Project baselines have provided such data as (1) waste types
and volumes and (2) planned schedules for sites' activities. Significant
management challenges to achieving integration among sites still exist and
include (1) arranging for one site to support another's activities,

as necessary; (2) providing specialized vehicles and containers for shipping
waste, when and where they are needed; (3) reaching agreements with states
on such issues as a state's acceptance of certain waste for treatment,
storage, and/ or disposal from DOE sites in other states; and (4) providing
information about the costs of waste disposal options at various DOE and
commercial locations so that site managers can make cost- effective
decisions.

One example of an integration challenge is the need for DOE to reach
agreements with states to implement its plans for consolidating wastes from
several sites. In February 2000, DOE decided to dispose of certain

categories of waste at the Hanford site in Washington State and the Nevada
Test Site. However, as we reported in April 2000, implementing DOE's
decision may be problematic because both states have raised objections to
becoming the primary disposal sites for wastes from DOE sites in other
states. The states could impose conditions, such as volume limits, in
permits for mixedwaste facilities. In another integration challenge noted in
our April 2000 report, DOE has not had complete information on the costs of
disposal options for low- level radioactive and

mixed wastes. 13 For example, the one commercial disposal facility useful
for DOE's wastes charged fees reflecting its total life- cycle costs, and
four of DOE's six disposal facilities charged fees; but these fees did not
capture complete costs and did not have a comparable basis. As a result, it
has been difficult for site managers to consider the costs of different
options in making disposal decisions. Furthermore, DOE lacked a policy

about whether its waste disposal facilities should charge fees reflecting
their costs and has not provided guidance for sites on how to compare costs
if fees are not charged. We recommended that DOE develop criteria and
guidance for DOE's waste managers to use in making decisions about waste
treatment, storage, and disposal options, including developing reasonable
and consistent estimates of the life- cycle costs of DOE's disposal 13 DOE
defines low- level wastes as all radioactive wastes that do not

fall within other classifications, such as highly radioactive wastes and
spent (used) nuclear fuel. Mixed wastes are low- level radioactive wastes
with hazardous components, such as lead and mercury.

facilities. As of September 2000, DOE had not yet initiated actions in
response to our recommendations. Reducing costs is important because, as our
report noted, DOE plans to dispose of about 2. 1 million cubic meters of
these wastes over the next several decades. This volume of waste would fill
an area the size of a football field stacked to nearly one and a half times
the height of the Empire State Building.

DOE has also experienced difficulties in integrating environmental
activities at its multipurpose sites because of organizational
“stovepipes” that have resulted in a lack of comprehensive
planning. For example, we reported in April 2000 that the cleanup plan of
DOE's Office of Environmental Management for the

Paducah, Kentucky, site, left out billions of dollars worth of work that
fell under a different DOE office. Left out of the plan were 16 unused
structures, nearly 500,000 tons of depleted uranium, and nearly 1 million
cubic feet of waste and scrap metal. Figure 2 shows two examples of the 148
storage areas for waste and scrap metal that were not included in the
cleanup plan. In response to our recommendations, DOE officials announced in
July

2000 that they would address integration issues at Paducah by developing a
comprehensive plan for the site's cleanup.

Figure 2: Examples of Storage Areas for Waste and Scrap Metal That Were Left
Out of Paducah's Cleanup Plan

Source: DOE.

A review by DOE's Office of Inspector General found similar problems in
integrating groundwater- monitoring activities at multipurpose sites. 14 At
Oak Ridge in Tennessee, for instance, three DOE programs conducted separate
monitoring of groundwater quality and therefore missed opportunities to
economize. DOE recognizes its integration challenges and has established an
Office of Integration and Disposition to work on issues affecting multiple
cleanup sites. This

office is to provide such multisite services as identifying treatment and
disposal options for the various waste types, operating waste
transportation, and providing for the communication of lessons learned.
Another mission for this office is to seek opportunities to consolidate
functions among sites to reduce the duplication of functions and facilities.
The integration office also develops policies for the transfer of excess
contaminated facilities from other DOE programs to the Office of
Environmental Management- an issue that may affect sites such as Paducah,
which have ongoing missions.

The estimated total cost of DOE's cleanup and waste disposal activities-$
168 billion to $212 billion- make improving efficiency essential. We believe
that DOE needs to devote continued management attention to the

improvement of project baselines and its integration challenges to achieve
the desired efficiencies in its cleanup program. Reliable, up- to- date
project baselines can provide DOE with better control over its cleanup work
and with information that is needed to support integration activities. While
DOE has begun integration

initiatives, integration will continue to be a formidable task because of
DOE's large volume of waste, many geographic locations, need to resolve
issues with the 14 See Groundwater Monitoring Activities at Department of
Energy Facilities, Department of Energy (DOE/ IG- 0461, Feb. 22, 2000).

states, and history of organizational “stovepipes” among its
programs and locations.

Problems in Since 1990, we have designated contract management at Contract

DOE as a high- risk area, and we continue to consider it Management Place
high risk. DOE, the largest civilian contracting agency in It at High Risk
for the federal government, primarily relies on contractors Fraud, Waste, to
operate its facilities and carry out its missions. DOE Abuse, and uses
contractors to manage a wide variety of activities,

Mismanagement including performing research, maintaining the nuclear weapons
stockpile, and cleaning up radioactive and

hazardous wastes. To carry out these missions, DOE's contracts often involve
the design, construction, and operation of multi- million- dollar, one- of-
a- kind facilities. In fiscal year 1999, DOE obligated about $15. 5 billion,
or about 90 percent of its total obligations, to contracts. For years, we
and others have reported on problems with DOE's contract management, which
we have defined broadly to include contract administration and

project management. These problems have included noncompetitive awards, cost
and schedule overruns, inadequate oversight of contractors' activities, an
overreliance on cost- reimbursement contracts, and an inability to hold
contractors accountable. Because it relies on contractors to carry out its
missions, failing to address these problems could limit DOE's effectiveness

and efficiency in its stockpile stewardship, security, cleanup, and other
missions. DOE is aware of its contract management problems and has numerous
initiatives under way to address them. While progress is being made to
correct the problems, many of these initiatives will take a number of years
to fully implement. Furthermore, since DOE uses contractors to manage many
aspects of its missions,

initiatives to improve contract management need to be directed at the
underlying culture of the organization.

Therefore, DOE will need to continue focusing management attention on these
problems for the long term to effect lasting change for both DOE and
contractor staff. For example, DOE created a new office in November 1999 to
implement policies and procedures to improve

project management and oversight. Efforts are also under way to improve up-
front acquisition planning, to help ensure that the appropriate contracting
and

financing approach is used on major projects, and to better integrate
contract and project management. However, these initiatives are in the early
stages, and it is too soon to tell whether they will be effective in
preventing cost and schedule overruns and in holding contractors fully
accountable. Cost and schedule overruns have plagued DOE's projects over the
years, and they continue to persist, as shown in the following examples:

? The National Ignition Facility, being built at the Lawrence Livermore
National Laboratory to evaluate the behavior of nuclear weapons without
explosive testing, was originally expected to cost about $2. 1 billion and
be completed in 2002. DOE now estimates that this facility will eventually
cost about $3. 5 billion and be completed in 2008- over a $1 billion dollar
increase in cost and 6 years later than originally estimated. As we reported
in August 2000, these cost

increases and schedule delays have been attributed to a combination of poor
contractor management and inadequate DOE oversight, including inadequate
technical and managerial skills to oversee the project. We recommended that
DOE arrange for an outside scientific and technical review of the facility's
remaining technical challenges related to its cost and schedule risks. ? At
DOE's Savannah River Site, the in- tank

precipitation process was selected in 1983 as the preferred method for
separating highly radioactive

wastes from 34 million gallons of liquids in storage tanks. In 1985, DOE
estimated that it would take about 3 years and $32 million to construct the
in- tank precipitation facility. In April 1999, we reported that after a
decade of delays and spending almost $500 million, DOE suspended the project
because it would not work safely and efficiently as designed. Among the
factors contributing to this failure were the

ineffectiveness of the contractor's management and of DOE's oversight of the
project. Problems in management may have continued in DOE's efforts to find
an alternative method for waste separation.

According to a 2000 report by a committee of the National Research Council,
the committee did not see a strong and technically informed management in
place at the Savannah River Site. Furthermore, the committee noted that it
became increasingly difficult to determine who was in charge of managing the
program over the course of the committee's study. 15 In another example,
DOE's Office of Environmental Management started its privatization
initiative in 1995 to reduce the cost of, and speed the cleanup of, its
contaminated sites and to improve the contractors' performance. For large
cleanup projects, this was primarily an alternative contracting and
financing strategy that emphasized fixed- price contracts and full private
financing. We reported in June 2000 that while fixed price contracting had
been successful for some projects with a known scope, privatization has
generally not accomplished DOE's goals for complex cleanup projects.

15 See Alternatives for High- Level Waste Salt Processing at the Savannah
River Site, Committee on Cesium Processing Alternatives for High- Level
Waste at the Savannah River Site, National Research Council (2000). The
National Research Council, as the principal operating agency of the National
Academy of Sciences and the National Academy of Engineering, provides the
government, public, and scientific and engineering communities with services
and research.

For example, DOE chose the privatization approach for the Tank Waste Project
at the Hanford site. The project involved treating about 5 million gallons
of highly radioactive wastes stored in underground tanks. The

contract to design, build, and operate the facility to treat the wastes had
an estimated price of $6. 9 billion. In April 2000, the contractor submitted
a revised price estimate of over $15 billion. DOE terminated the privatized
contract because it was concerned about the contractor's performance and the
rapidly escalating cost

estimates, as well as the full private financing approach chosen by DOE. In
October 1998, we concluded that DOE should reassess the cost- effectiveness
of its proposed approach to the project, including contracting and financing
alternatives to the privatized approach. On the basis of DOE's assessment of
the alternatives, the Department has recompeted the project under a more
traditional cost- reimbursement- plus- incentive- fee approach.

In 1993, DOE established a Contract Reform Team and in 1994 began
implementing numerous initiatives to improve contract management. These
initiatives include increasing competition and switching to performancebased

contracts. For example, DOE revised its procurement regulations to make
competition the normal practice and, overall, has increased its use of
competition in awarding contracts. As of September

2000, 68 percent of DOE's major contracts were awarded competitively
compared with only 9 percent of its major contracts in 1990. However, some
of DOE's larger contracts for operating its national laboratories, including
ones that have a history of security and/ or project management problems,
continue to be extended rather than competed. 16 Deciding to extend rather
than compete these contracts may weaken DOE's negotiating position to use
contracts to effect changes that relate to such problem areas as security
and project management.

In another example, DOE revised its procurement regulations to shift to
performance- based contracts and to hold its contractors more accountable.
In April 1999, DOE implemented a new fee policy that would put a
contractor's entire incentive fee at risk for poor performance in
environment, safety, and health areas. DOE also has initiatives to improve
the performance incentives for contractors to align them more closely with
DOE's strategic goals for a site. As of September 2000, DOE officials told
us that all of their major contracts to manage and operate the Department's
facilities are now performance- based contracts.

While performance incentives can better focus contractors' efforts in doing
the work most crucial to achieving DOE's missions, the performance
incentives are not always clearly linked to DOE's objectives nor structured
to focus on outcomes to be achieved and, thus, may not accomplish the
desired results. For example, in April 2000, DOE's Office of Inspector
General reported that the performance- based incentives at the Idaho
National Engineering and Environmental Laboratory had not been fully
successful in improving performance and reducing costs. Because of problems

with structuring incentives to reward outcome rather than process and with
validating the contractor's performance, the Office of Inspector General
questioned $11. 3 million in incentive fees paid to the contractor. 17 Our
May 1999 report on the use of performance- based contracting at DOE's
national laboratories indicated that 16 DOE's national laboratories are
designated as federally funded research and development centers and are not
subject to full and open competitive procedures for their establishment or
maintenance. Nevertheless, DOE has competed the contracts for some of its
current centers. 17 See Performance Incentives at the Idaho National
Engineering and Environmental Laboratory, Department of Energy (WR- B- 00-
05, Apr. 3, 2000).

DOE did not know if this form of contracting was achieving the intended
results of improved performance and lower costs. We recommended that DOE
evaluate

the costs and benefits from using such contracts at its national
laboratories. In April 1999, we reported that one of the factors
contributing to DOE's security problems at

the national laboratories was the lack of emphasis given to security matters
in the contractor's performance incentives. For example, two of the
contracts lacked performance incentives for counterintelligence activities,
and the performance incentive for safeguarding classified documents and
materials accounted for less than 1 percent in the contractor's performance
evaluation.

Over the long term, DOE may resolve all of the problems in its contract
management. Until then, DOE's ongoing problems can increase the government's
costs and expose DOE to billions of dollars of financial risk.

DOE's Financial DOE's Office of Inspector General reported certain
Management Could

concerns related to financial management in its audit of Be Improved DOE's
consolidated financial statements for the fiscal year ending on September
30, 1999. 18 First, in November 1998, DOE's Western Area Power
Administration (which markets and transmits electricity from multiuse water
projects) implemented a new financial management system that has been unable
to generate financial

statements. As a result, DOE's Office of Inspector General reported this as
a material weakness. The Western Area Power Administration had developed a
corrective action plan, and the Office of Inspector General recommended that
DOE's Chief Financial Officer monitor the plan's implementation. However, in

18 See The U. S. Department of Energy's Consolidated Financial Statements
for Fiscal Years 1999 and 1998, Department of Energy (DOE/ IG- FS- 00- 01,
Feb. 17, 2000).

November 2000, DOE's Office of Inspector General reported that the Western
Area Power Administration was still experiencing delays in the preparations
of its fiscal year 1999 financial information for audit. 19 The report noted
that these delays could also affect the Inspector General's audit of DOE's
fiscal year 2000 consolidated financial statements.

Second, DOE's Office of Inspector General cited a reportable condition
related to the estimation process for environmental liabilities. DOE used
modeling to estimate the majority of the $25 billion environmental

liability for contaminated active and surplus facilities- a portion of the
$230 billion total estimated environmental liability. This portion of the
liability estimate reflects facilities managed by ongoing programs that have
not yet been transferred to DOE's Office of Environmental Management but
will ultimately require remediation.

The data used for these models were found to be unreliable. Of the 85
facilities selected for review by the Office of Inspector General, errors
were found in the data for 14 facilities, resulting in a 16- percent error
rate. These errors included incorrect facility model types, the inclusion of
facilities that were not contaminated, the exclusion of facilities that were
contaminated, and

material errors in the square footage of the facilities. These errors
occurred because facility managers responsible for maintaining the
facilities at some of the 14 sites were not directly involved in the data's
verification. The Office of Inspector General

recommended that DOE's Chief Financial Officer develop procedures for
verifying data about the facilities, which DOE management agreed to
implement. 19 See Management Challenges at the Department of Energy,
Department of Energy (DOE/ IG- 0491, Nov. 28, 2000).

Key Contact Robert A. Robinson, Managing Director Natural Resources and
Environment Issues (202) 512- 3841 robinsonr@ gao. gov

Related GAO Products Maintaining

Nuclear Weapons: Management Improvements Needed Nuclear Weapons to
Effectively Implement the Stockpile Stewardship Capabilities

Program (GAO- 01- 48, Dec. 14, 2000). National Ignition Facility: Management
and Oversight Failures Caused Major Cost Overruns and Schedule Delays (GAO/
RCED- 00- 271, Aug. 8, 2000).

Nuclear Weapons: Challenges Remain for Successful Implementation of DOE's
Tritium Supply Decision (GAO/ RCED- 00- 24, Jan. 28, 2000). Nuclear Weapons:
DOE Needs to Improve Oversight of the $5 Billion Strategic Computing
Initiative (GAO/ RCED- 99- 195, June 28, 1999). Nuclear Weapons: Key Nuclear
Weapons Component Issues Are Unresolved (GAO/ RCED- 99- 1, Nov. 9, 1998).
Correcting

Nuclear Security: Information on DOE's Requirements Security for Protecting
and Controlling Classified Documents Weaknesses

(GAO/ T- RCED- 00- 247, July 11, 2000). Department of Energy: National
Security Controls Over Contractors Traveling to Foreign Countries Need
Strengthening (GAO/ RCED- 00- 140, June 26, 2000).

Information Security: Vulnerabilities in DOE's Systems for Unclassified
Civilian Research (GAO/ AIMD- 00- 140, June 9, 2000).

Nuclear Security: Security Issues at DOE and Its Newly Created National
Nuclear Security Administration (GAO/ T- RCED- 00- 123, Mar. 14, 2000).

Department of Energy: Views on DOE's Plan to Establish the National Nuclear
Security Administration (GAO/ T- RCED- 00- 113, Mar. 2, 2000).

Nuclear Security: Improvements Needed in DOE's Safeguards and Security
Oversight (GAO/ RCED- 00- 62, Feb. 24, 2000). Department of Energy: Key
Factors Underlying Security Problems at DOE Facilities (GAO/ T- RCED- 99-
159, Apr. 20, 1999). Department of Energy: DOE Needs to Improve Controls
Over Foreign Visitors to Weapons Laboratories (GAO/ T- RCED- 99- 28, Oct.
14, 1998).

Meeting Nuclear Nonproliferation: Limited Progress in Nonproliferation
Improving Nuclear Material Security in Russia and the Goals

Newly Independent States (GAO/ RCED/ NSIAD- 00- 82, Mar. 6, 2000).

Weapons of Mass Destruction: U. S. Efforts to Reduce Threats From the Former
Soviet Union (GAO/ T- NSIAD/ RCED- 00- 119, Mar. 6, 2000). Nuclear
Nonproliferation: Concerns With DOE's Efforts to Reduce the Risks Posed by
Russia's Unemployed Weapons Scientists (GAO/ RCED- 99- 54, Feb. 19, 1999).

Cleaning Up Department of Energy: Uncertainties and Management Radioactive
Wastes

Problems Have Hindered Cleanup at Two Nuclear Waste Sites (GAO/ T- RCED- 00-
248, July 12, 2000).

Nuclear Waste: DOE's Advanced Mixed Waste Treatment Project- Uncertainties
May Affect Performance, Schedule, and Price (GAO/ RCED- 00- 106, Apr. 28,
2000).

Nuclear Waste Cleanup: DOE's Paducah Plan Faces Uncertainties and Excludes
Costly Cleanup Activities (GAO/ RCED- 00- 96, Apr. 28, 2000).

Low- Level Radioactive Wastes: Department of Energy Has Opportunities to
Reduce Disposal Costs (GAO/ RCED- 00- 64, Apr. 12, 2000). Nuclear Waste
Cleanup: Progress Made but DOE Management Attention Needed to Increase Use
of Innovative Technologies (GAO/ T- RCED- 99- 190, May 26, 1999). Department
of Energy: Accelerated Closure of Rocky Flats: Status and Obstacles (GAO/
RCED- 99- 100, Apr. 30, 1999).

Nuclear Waste: DOE's Accelerated Cleanup Strategy Has Benefits but Faces
Uncertainties (GAO/ RCED- 99- 129, Apr. 30, 1999).

Nuclear Waste: Process to Remove Radioactive Waste From Savannah River Tanks
Fails to Work (GAO/ RCED- 99- 69, Apr. 30, 1999).

Nuclear Waste: Department of Energy's Hanford Tank Waste Project- Schedule,
Cost, and Management Issues (GAO/ RCED- 99- 13, Oct. 8, 1998).

Managing Observations on the Department of Energy's Fiscal Year Performance
and 1999 Accountability Report and Fiscal Year 2000/ 2001 Contracts, and
Performance Plans (GAO/ RCED- 00- 209R, June 30, 2000). Other Issues

Nuclear Waste: Observations on DOE's Privatization Initiative for Complex
Cleanup Projects (GAO/ T- RCED- 00- 215, June 22, 2000).

Observations on the Department of Energy's Fiscal Year 2000 Performance Plan
(GAO/ RCED- 99- 218R, July 20, 1999). Department of Energy: Need to Address
Longstanding Management Weaknesses (GAO/ T- RCED- 99- 255, July 13, 1999).
National Laboratories: DOE Needs to Assess the Impact of Using Performance-
Based Contracts (GAO/ RCED- 99- 141, May 7, 1999). Major Management
Challenges and Program Risks: Department of Energy (GAO/ OCG- 99- 6, Jan.
1999).

Performance and Accountability Series

Major Management Challenges and Program Risks: A Governmentwide Perspective
(GAO- 01- 241)

Major Management Challenges and Program Risks: Department of Agriculture
(GAO- 01- 242)

Major Management Challenges and Program Risks: Department of Commerce (GAO-
01- 243)

Major Management Challenges and Program Risks: Department of Defense (GAO-
01- 244)

Major Management Challenges and Program Risks: Department of Education (GAO-
01- 245)

Major Management Challenges and Program Risks: Department of Energy (GAO-
01- 246)

Major Management Challenges and Program Risks: Department of Health and
Human Services (GAO- 01- 247)

Major Management Challenges and Program Risks: Department of Housing and
Urban Development (GAO- 01- 248)

Major Management Challenges and Program Risks: Department of the Interior
(GAO- 01- 249)

Major Management Challenges and Program Risks: Department of Justice (GAO-
01- 250)

Major Management Challenges and Program Risks: Department of Labor (GAO- 01-
251)

Major Management Challenges and Program Risks: Department of State (GAO- 01-
252)

Major Management Challenges and Program Risks: Department of Transportation
(GAO- 01- 253)

Major Management Challenges and Program Risks: Department of the Treasury
(GAO- 01- 254)

Major Management Challenges and Program Risks: Department of Veterans
Affairs (GAO- 01- 255)

Major Management Challenges and Program Risks: Agency for International
Development (GAO- 01- 256)

Major Management Challenges and Program Risks: Environmental Protection
Agency (GAO- 01- 257)

Major Management Challenges and Program Risks: National Aeronautics and
Space Administration (GAO- 01- 258)

Major Management Challenges and Program Risks: Nuclear Regulatory Commission
(GAO- 01- 259)

Major Management Challenges and Program Risks: Small Business Administration
(GAO- 01- 260)

Major Management Challenges and Program Risks: Social Security
Administration (GAO- 01- 261)

Major Management Challenges and Program Risks: U. S. Postal Service (GAO-
01- 262)

High- Risk Series: An Update (GAO- 01- 263)

GAO United States General Accounting Office

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Comptroller General of the United States

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Washington, D. C. 20548

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Performance and Accountability Series

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