National Nuclear Security Administration: Key Management	 
Structure and Workforce Planning Issues Remain As NNSA Conducts  
Downsizing (25-JUN-04, GAO-04-545).				 
                                                                 
The National Nuclear Security Administration (NNSA), a separately
organized agency within the Department of Energy (DOE), is	 
responsible for the management and security of the nation's	 
nuclear weapons, nonproliferation, and naval reactor programs.	 
NNSA oversees contractors that operate its facilities to ensure  
that activities are effective and in line with departmental	 
policy. In December 2002, NNSA began implementing a major	 
reorganization aimed at solving important long-standing 	 
organizational issues. GAO reviewed NNSA's overall reorganization
efforts to assess (1) the extent to which it is addressing in	 
practice the past problems concerning the unclear delineation of 
authority and responsibility, (2) workforce planning, and (3) its
impact on federal oversight of contractor activities.		 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-545 					        
    ACCNO:   A10616						        
  TITLE:     National Nuclear Security Administration: Key Management 
Structure and Workforce Planning Issues Remain As NNSA Conducts  
Downsizing							 
     DATE:   06/25/2004 
  SUBJECT:   Accountability					 
	     Contract oversight 				 
	     Contractors					 
	     Federal agency reorganization			 
	     Federal downsizing 				 
	     Internal controls					 
	     Labor force					 
	     Nuclear facilities 				 
	     Nuclear facility security				 
	     Nuclear weapons					 

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GAO-04-545

United States General Accounting Office

GAO	Report to the Chairman, Subcommittee on Strategic Forces, Committee on Armed
                             Services, U.S. Senate

June 2004

NATIONAL NUCLEAR SECURITY ADMINISTRATION

 Key Management Structure and Workforce Planning Issues Remain As NNSA Conducts
                                   Downsizing

                                       a

GAO-04-545

Highlights of GAO-04-545, a report to the Chairman, Subcommittee on
Strategic Forces, Committee on Armed Services, U.S. Senate

The National Nuclear Security Administration (NNSA), a separately
organized agency within the Department of Energy (DOE), is responsible for
the management and security of the nation's nuclear weapons,
nonproliferation, and naval reactor programs. NNSA oversees contractors
that operate its facilities to ensure that activities are effective and in
line with departmental policy. In December 2002, NNSA began implementing a
major reorganization aimed at solving important long-standing
organizational issues. GAO reviewed NNSA's overall reorganization efforts
to assess (1) the extent to which it is addressing in practice the past
problems concerning the unclear delineation of authority and
responsibility, (2) workforce planning, and (3) its impact on federal
oversight of contractor activities.

GAO is making recommendations to the Secretary of Energy and the
Administrator of NNSA to increase the likelihood that NNSA's
reorganization will achieve NNSA's goals of increased management
discipline and contractor oversight. In its comments, NNSA agreed in
principle with GAO's recommendations, but felt its ongoing efforts were
not sufficiently recognized. We have recognized NNSA's efforts, but
believe more needs to be done to ensure effective program management and
contractor oversight.

www.gao.gov/cgi-bin/getrpt?GAO-04-545.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Robin Nazzaro at (202)
512-3841 or [email protected].

June 2004

NATIONAL NUCLEAR SECURITY ADMINISTRATION

Key Management Structure and Workforce Planning Issues Remain As NNSA Conducts
Downsizing

NNSA's reorganization has addressed some past problems by better
delineating lines of authority and improving communication; however, NNSA
has not formalized a program management structure that identifies program
managers or details their responsibilities and qualifications as they
relate to the direction and oversight of contractor activity under the new
organization. Without first resolving such key management issues, NNSA
cannot, among other things, ensure the improved discipline and
accountability it seeks in managing its programs.

NNSA's reorganization is not likely to ensure that the agency has
sufficient staff with the right skills in the right places because NNSA
downsized its federal workforce without first determining the critical
skills and capabilities needed to meet its mission and program goals.
Consequently, NNSA will not know the composition of its workforce until it
completes the 17 percent workforce reduction on September 30, 2004-the
deadline specified in the reorganization plan-and then determines the
knowledge, skills, and capabilities of its remaining employees. Without a
functional long-term workforce plan, NNSA runs the risk of facing further,
more serious staff shortages or skill imbalances, thereby diminishing its
ability to adequately oversee its contractors.

NNSA's implementation of a proposed risk-based approach to rely more on
contractors' assurances and self-assessments and less on NNSA's direct
oversight may be premature because it has not yet established a program
management structure or long-term workforce plan for ensuring sufficient
staff with the right skills in the right places. Under this proposal,
contractors will develop comprehensive assurance systems, or systems of
management controls, and NNSA will primarily rely upon these contractor
systems and controls to ensure that contractors properly execute their
work. Although the overall concept of a risk-based approach to federal
oversight has merit, NNSA's proposed transition to conduct less direct
federal oversight could be compromised by outstanding reorganization
issues.

NNSA Workforce Downsizing Progress

Note: This graph reflects NNSA's adjustments, as of March 6, 2004. It
excludes certain offices not significantly affected by downsizing.

Contents EUR

  Letter 1EUR

Results in Brief 4EURBackground 7EURNNSA's Reorganization Has Delineated
Lines of Authority, butEUR

More Clarification Is Needed for Specific Program ManagementEUR

and Oversight Functions 12EURNNSA's Reorganization Will Not Ensure
Sufficient Staff with the EURRight Skills in the Right Places to Meet the
Agency's Mission and EURProgram Goals 16EUR

NNSA's Proposed Transition to Less Direct Federal Oversight

Could Be Compromised by Outstanding Reorganization Issues 20EURConclusions
24EURRecommendations for Executive Action 25EURAgency Comments and Our
Evaluation 25EUR

Appendix I	Comments from the National Nuclear Security Administration

  Appendix II GAO Contact and Staff Acknowledgments 31 EUR

GAO Contact 31EURAcknowledgments 31EUR

  Figures

Figure 1: NNSA's Organization Prior to December 2002 9EURFigure 2: NNSA's
New Organization 10EUR

This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
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separately.

United States General Accounting Office Washington, DC 20548

June 25, 2004

The Honorable Wayne Allard Chairman, Subcommittee on Strategic Forces,
Committee on Armed Services United States Senate

Dear Mr. Chairman:

For years, the Department of Energy (DOE) has experienced long-standing
management problems with its nuclear weapons programs, including unclear
delineation of management authorities and responsibilities that have
contributed to significant cost overruns on major projects and security
problems at the national laboratories.1 In 1999, the Congress created the
National Nuclear Security Administration (NNSA) under Title 32 of the
National Defense Authorization Act for Fiscal Year 2000 to correct the
problems that plagued DOE. NNSA, a separately organized agency within DOE,
is responsible for the management and security of the nation's nuclear
weapons, nonproliferation, and naval reactor programs. Since its
inception, however, NNSA has experienced its own management and security
problems.2

NNSA conducts nuclear weapon and nonproliferation-related national
security activities in research and development laboratories, production
plants, and other facilities.3 Specifically, NNSA operates three national
nuclear weapon design laboratories-Lawrence Livermore National Laboratory,
California; Los Alamos National Laboratory, New Mexico; and the Sandia
National Laboratories, New Mexico and California-and four nuclear weapons
production sites-the Pantex Plant, Texas; theY-12 Plant, Tennessee; the
Kansas City Plant, Missouri; and the Savannah River Site,

1U.S. General Accounting Office, Nuclear Weapons: Improved Management
Needed to Implement Stockpile Stewardship Program Effectively, GAO-01-48
(Washington, D.C.: Dec. 14, 2000).

2See for example, U.S. General Accounting Office, National Ignition
Facility: Management and Oversight Failures Caused Major Cost Overruns and
Schedule Delays,

GAO/RCED-00-271 (Washington, D.C.: Aug. 8, 2000) and U.S. General
Accounting Office,

Nuclear Security: NNSA Needs to Better Manage Its Safeguards and Security
Program,

GAO-03-471 (Washington, D.C.: May 3, 2003).

3The Office of Naval Reactors is managed as a separate entity within NNSA.

South Carolina, as well as the Nevada Test Site. To implement its
programs, NNSA relies on site contractors to manage the day-to-day site
operations and to adhere to DOE policies when operating the laboratory,
production, or other facilities within the complex. Because many NNSA
sites handle special nuclear material, including nuclear weapons,
plutonium, and highly enriched uranium, effective federal oversight is
critical to ensuring that national security, human health and safety, and
the environment are not adversely affected.

For the last several years, we have monitored NNSA's efforts to implement
Title 32. In April 2001, we testified that NNSA's efforts to establish a
new organization looked promising.4 However, among other things, we
highlighted the need for NNSA to clearly define the roles and
responsibilities of headquarters and field staff, and to establish clear
lines of authority between NNSA and its contractors. In May 2001, in
response to a series of external and internal studies detailing persistent
management problems, NNSA announced plans to reorganize its headquarters
operations. In December 2001, we noted that NNSA had set several important
goals for its overall reorganization efforts, including establishing clear
and direct lines of communication, clarifying the roles and
responsibilities of NNSA's headquarters and field offices, and integrating
and balancing priorities across NNSA's missions and infrastructure.5
However, we found that NNSA's headquarters reorganization did not contain
a clear definition of the roles and responsibilities of the headquarters
organizational units.

In addition to reorganizing its headquarters, in February 2002, NNSA
proposed a reorganization of its entire operation aimed at solving
important long-standing organizational issues. Specifically, NNSA proposed
a new organizational structure that would (1) remove a layer of management
by making existing operations offices into support offices, (2) locate
NNSA operational oversight close to laboratories and plants by
strengthening its site offices, and (3) streamline federal staff and hold
federal staff and contractors more accountable. In February 2002, we
testified that with the proposed new organizational structure, resolution
of

4U.S. General Accounting Office, Department of Energy: Views on the
Progress of the National Nuclear Security Administration in Implementing
Title 32, GAO-01-602T (Washington, D.C.: Apr. 4, 2001).

5U.S. General Accounting Office, NNSA Management: Progress in the
Implementation of Title 32, GAO-02-93R (Washington, D.C.: Dec. 12, 2001).

NNSA's long-standing organizational issues appeared to be within NNSA's
grasp.6 However, we noted that NNSA's lack of a long-term strategic
approach to ensure a well-managed workforce precluded it from identifying
its current and future human capital needs, including the size of the
workforce, its deployment across the organization, and the knowledge,
skills, and capabilities needed to fulfill its mission. Finally, in
December 2002, the Administrator of NNSA directed the implementation of
the overall reorganization proposed in February 2002. Specifically, NNSA
began implementing a new organizational structure that would (1) remove a
layer of management by abolishing its three Operations Offices; (2) locate
NNSA operational oversight close to laboratories and plants by
strengthening its site offices; (3) consolidate business and technical
support functions, such as procurement and contracting, in a single
service center organization located in Albuquerque, New Mexico; and (4)
adopt a challenging staff reduction target of about 17 percent to be
achieved by the end of fiscal year 2004.

You asked us to review NNSA's overall reorganization efforts to assess (1)
the extent to which NNSA's reorganization is addressing in practice the
past problems concerning the unclear delineation of authority and
responsibility, (2) the likelihood that NNSA's reorganization will result
in sufficient staff with the right skills in the right places to meet its
mission and program goals, and (3) how NNSA's reorganization will impact
its proposed plan for federal oversight of contractor activities.

To assess the extent to which NNSA's reorganization addressed past
problems concerning the unclear delineation of authority and
responsibility, we visited NNSA headquarters, the new Albuquerque Service
Center, and four of the eight NNSA site offices and interviewed officials
and reviewed pertinent documents on the effect of the reorganization on
NNSA's delineation of authority and responsibility. We developed a general
list of interview questions-i.e., a semi-structured interview guide-to
assist with our interviews of each NNSA site office

6U.S. General Accounting Office, Department of Energy: NNSA Restructuring
and Progress in Implementing Title 32, GAO-02-451T (Washington, D.C.: Feb.
26, 2002).

manager.7 To assess NNSA's efforts to ensure that NNSA had sufficient
staff with the right skills in the right places to meet its mission and
program goals, we reviewed NNSA workforce planning documents and
interviewed NNSA officials, including using the interview guide for site
office manager interviews, to determine if its plans had sufficient
information to address NNSA's future staffing needs and to identify
emerging skill gaps. In addition, we reviewed our reports on human capital
management and workforce planning.8 To assess NNSA's proposed plan for
federal oversight of contractor activities under the new reorganization,
we interviewed NNSA headquarters officials, site office managers (using
the interview guide), and contractor officials, and reviewed documents
pertaining to the ongoing implementation of this proposed oversight
approach at Sandia National Laboratories. We focused our review on NNSA's
Office of Defense Programs because, according to NNSA officials, it was
most affected by the December 2002 reorganization, and because the Office
of Defense Programs, which manages weapons activity programs, accounts for
about 73 percent of NNSA's Fiscal Year 2005 budget request.

We conducted our review from June 2003 through April 2004 in accordance
with generally accepted government auditing standards.

NNSA's reorganization has resulted in some progress in delineating lines
of authority and improving communication between NNSA headquarters and its
field offices, thus addressing some past problems; however, at the working
level, NNSA has yet to determine who will give specific program direction
to its contractors and how the actions of these program

7For the site offices we did not visit, we used the interview guide to
conduct telephone interviews. Also, the practical difficulties of
administering a semi-structured interview guide may introduce errors,
commonly referred to as nonsampling errors. For example, measurement
errors are introduced if difficulties exist in how a particular question
is interpreted or in the sources of information available to respondents
in answering a question. To reduce measurement error, we conducted two
pretests with site office managers to make sure questions and response
categories in our interview guide were interpreted in a consistent manner.
We made relevant changes to the questions based upon these pretests.

8See U.S. General Accounting Office, Human Capital: A Self-Assessment
Checklist for Agency Leaders, GAO/OCG-00-14G (Washington, D.C.: Sept.
2000); U.S. General Accounting Office, A Model Of Strategic Human Capital
Management, GAO-02-373SP (Washington, D.C.: March 15, 2002); and U.S.
General Accounting Office, Human Capital: Key Principles for Effective
Strategic Workforce Planning, GAO-04-39 (Washington, D.C.: Dec. 11, 2003).

  Results in Brief

managers will be coordinated. Specifically, NNSA officials report that the
new structure has improved communication between headquarters and the
field by eliminating a layer of management-the three operations
offices-and consolidating administrative support functions into a new
service center located in Albuquerque, New Mexico. In addition, the
reorganization has strengthened the hand of local NNSA site office
managers by granting them additional authority to manage contractors,
specifically holding the site office managers accountable for the
day-to-day security and safety of site operations. Important issues remain
to be resolved. Specifically, NNSA has yet to formalize a program
management structure that identifies its program managers, what their
responsibilities and qualifications should be, and what their specific
role will be in directing and overseeing contractor activity under the new
organization. Moreover, NNSA has not determined how program managers, who
are responsible for ensuring that program goals and requirements are met,
will interact with contracting officers and their designated
representatives, who are responsible for carrying out specific technical
functions, such as monitoring and inspection.

NNSA's reorganization is not likely to ensure that it has sufficient staff
with the right skills in the right places because NNSA chose to downsize
its federal workforce without determining what critical skills and
capabilities it needed to meet its mission and program goals. In December
2001, we reported that NNSA did not have the coherent human capital and
workforce planning strategies it needed to develop and maintain a
well~managed workforce over the long run. Consequently, we recommended
that NNSA develop a thorough human capital and workforce planning
strategy. Instead of developing a workforce plan, according to a senior
NNSA official, NNSA managers relied on their judgment about how much to
reduce the federal staff and where those reductions should occur in
carrying out its December 2002 reorganization. Consequently, NNSA will not
know the composition of its workforce until it completes the 17 percent
workforce reduction on September 30, 2004-the deadline specified in the
reorganization plan-and then determines the knowledge, skills, and
capabilities of its remaining employees. While NNSA did develop a
workforce plan in December 2003, which attempted to establish a framework
for long-term workforce planning, this plan is of limited use without
current statistics on workforce, positions, and organizational structures.
We have found that when downsizings take place in such an unstructured
environment agencies experienced significant challenges to deploying
people with the right skills, in the right places, at the right time and
performing its missions economically, efficiently, and effectively. In
NNSA's case, early indications are that the lack of planning is already

contributing to skill imbalances. For example, NNSA site offices are 39
staff short of their targets and some site offices, namely Pantex, Y-12,
and Los Alamos, are having some difficulty filling critical skills in
safety and security. At the Albuquerque Service Center, significant skill
gaps exist for contract specialists-it has only 26 of 54 contract
specialist positions filled. Without a functional long-term workforce
plan, NNSA runs the risk of facing further, more serious staff shortages
or skill imbalances, thereby affecting its ability to adequately oversee
its contractors and ensure the safety and security of its various
facilities in the future.

NNSA's implementation of its proposed approach to rely more on
contractors' assurances and self-assessments and less on NNSA's direct
oversight may be premature because NNSA's reorganization has not yet
generated or established a program management structure for directing and
overseeing contractor activity or a long-term workforce plan for ensuring
that it has sufficient staff with the right skills in the right places.
According to the draft proposal, contractors will develop a comprehensive
contractor assurance system, or system of management controls, and NNSA
will primarily rely upon these systems and controls to ensure that the
contractors' missions and activities are properly executed in an
effective, efficient, and safe manner. Under this proposal, NNSA will use
a risk-based, graded approach to its oversight and tailor the extent of
federal oversight to the quality and completeness of the contractors'
assurance systems and to evidence of acceptable contractor analysis of
contractor performance. If implemented, NNSA's oversight functions will
include review and analysis of contractor performance data, direct
observations of contractor work activities in nuclear and other
facilities, annual assessments of overall performance under the contract,
and certifications by the contract or independent reviewers that the major
elements of risk associated with the work performed are being adequately
controlled. NNSA has already begun taking steps to accommodate
implementation of the new contractor oversight approach in parallel with
its reorganization. Although the overall concept of a risk-based approach
to federal oversight has merit, the unresolved issues stemming from NNSA's
major ongoing reorganization may affect its ability to effectively carry
out this approach while successfully meeting its responsibility for safe
and secure operations.

In order to increase the likelihood that NNSA's reorganization will
achieve NNSA's goal of increased management discipline and accountability
in program management and contractor oversight, we are recommending that
NNSA establish a structure for its program management, complete and
implement a data-driven workforce plan for the longer term, and

postpone any decrease in the level of NNSA's direct federal oversight of
contractors until it has a program management structure in place and has
completed its workforce plan.

In commenting on our draft report, NNSA agreed in principle with our
recommendations; however, it felt that it already had efforts underway to
address them. Specifically, with respect to our recommendation about
program management, NNSA stated that it has established a formal process
for using appropriately designated officials to direct contractor activity
and that its formal program management policy was nearly established. We
recognize in our report NNSA's effort to develop processes and formalize
its program management policy; however, we believe that NNSA needs not
only a policy, but also a structure and implementation guidance so that
the managers providing direction to NNSA's contractors are clearly
identified and can be held accountable. With respect to our recommendation
on workforce planning, NNSA agreed with our recommendation, but it
disagreed that its current plan was based on short-term or arbitrary
management judgments. In this respect, our conclusions were based on
discussions with knowledgeable senior agency officials at NNSA
headquarters and site offices as well as a review of NNSA management
council minutes. More importantly, we continue to believe in, and NNSA
does not dispute, the need for a long-term data driven workforce plan that
will ensure that NNSA meets its long-term goals. Finally, regarding our
last recommendation on federal oversight of contractors, NNSA stated that
it had no intention of further decreasing direct oversight of contractors,
was hiring staff to fill vacant positions at site offices, and that its
proposed contractor assurance systems would only be implemented after a
site manager/contracting officer was convinced that the contractor's
system would be at least as effective as the current system. While we are
pleased that NNSA has stated that it will not decrease its direct
oversight, our recommendation is intended to ensure that NNSA has the
critical systems it needs in place to perform its function-effective,
direct federal oversight.

Background DEGNNSA, a separately organized agency within DOE, is
responsible for the management and security of the nation's nuclear
weapons, nonproliferation, and naval reactor programs. To conduct these
activities, NNSA's fiscal year 2005 request is about $9 billion, with
about $6.6 billion targeted for nuclear weapons programs managed by NNSA's
Office of Defense Programs. For many years, various external studies have
found problems with the organization of NNSA's principal activity-the
Office of Defense Programs. For example, one such study found a
dysfunctional

management structure with convoluted, confusing, and often contradictory
reporting channels, 9 while another study cited ambiguities and overlaps
in the roles of headquarters and the Albuquerque Operations Office as a
primary source of inefficiencies and conflict within the program. 10 In
December 2000, we reported organizational problems at three levels-within
the Office of Defense Program's headquarters functions, between
headquarters and the field offices, and between contractor-operated sites
and their federal overseers.11 These problems resulted in overlapping
roles and responsibilities for the federal workforce overseeing the
nuclear weapons program and confusion and duplication of effort for the
contractors implementing the program at sites within the nuclear weapons
complex.

In December 2002, NNSA formally announced the beginning of an overall
reorganization and workforce reduction intended to enhance its operational
efficiency and programmatic effectiveness. Prior to its December 2002
reorganization, NNSA's organization consisted of multiple layers. In
particular, under the Office of Defense Programs-NNSA's largest
program-seven area offices reported to three operations offices that in
turn reported to the Deputy Administrator for Defense Programs. The Deputy
Administrator then reported to the Administrator. Figure 1 shows NNSA's
prior organization.

9President's Foreign Intelligence Advisory Board, Science At Its Best,
Security At Its Worst, (Washington, D.C.: June 1999).

10Institute for Defense Analyses, The Organization and Management of the
Nuclear Weapons Program, (Washington, D.C.: March 1997).

11GAO-01-48.

Figure 1: NNSA's Organization Prior to December 2002

To remove a layer of management, NNSA closed the Albuquerque, Oakland, and
Nevada operations offices. The new organization consists of eight site
offices located at each of NNSA's major contractors, one service center
located in Albuquerque, New Mexico, and headquarters program offices that
all report directly to the Administrator. NNSA headquarters sets
requirements, defines policies, and provides high-level guidance. Site
office managers are the designated contracting officers responsible for
delivering federal direction to the contractor at each site and for
ensuring the site's safe and secure operation. The site office managers
also manage each NNSA site office. Under the realignment, a single service
center has been established in Albuquerque, New Mexico, to provide
business and technical support services to the eight site offices and
headquarters programs. Prior to the reorganization, about 200 staff
provided these services in the Oakland and Nevada operations offices and
in offices in Germantown, Maryland, and Washington, D.C. These services
are now being consolidated in the new service center, resulting in the
reassignment of the 200 staff to the Albuquerque service center. Figure 2
shows NNSA's new organization structure. NNSA plans to staff the service
center with 475 employees, down from 678 in December 2002.

Figure 2: NNSA's New Organization

As part of its reorganization, NNSA decided to reduce the size of its
federal staff. Originally, NNSA set an overall staff reduction target of
20 percent. However, in August 2003, NNSA reduced the target to 17
percent. The current target includes a 26 percent reduction at
headquarters and a 30 percent reduction at the service center. Three site
offices-Kansas City, Nevada, and Savannah River-are experiencing
reductions, although overall staff size at all eight site offices will
increase by 16 employees. NNSA is relying on a combination of buyouts,
directed reassignments, and attrition to achieve these targets by its
September 30, 2004, deadline.

Standards that we have developed require federal agencies to establish and
maintain an effective system of internal controls over their operations.12
Such a system is a first line of defense in safeguarding assets and
preventing and detecting errors. Under our standards, managers should,
among other things, ensure that their staffs have the required skills to
meet organizational objectives, that the organizational structure clearly

12U.S. General Accounting Office, Standards for Internal Control in the
Federal Government, GAO/AIMD-00-21.3.1 (Washington, D.C.: November 1999).

defines key areas of authority and responsibility, that progress be
effectively measured, and that operations be effectively monitored.

In addition to these internal control standards, in January 2001, and
again in January 2003, we identified strategic human capital management as
a governmentwide, high-risk area after finding that the lack of attention
to strategic human capital planning had created a risk to the federal
government's ability to perform its missions economically, efficiently,
and effectively.13 In that context, we have stated that strategic
workforce planning is needed to address two critical needs: (1) aligning
an organization's human capital program with its current and emerging
mission and programmatic goals and (2) developing long-term strategies for
acquiring, developing, and retaining staff to achieve programmatic
goals.14 There are five key principles that strategic workforce planning
should address irrespective of the context in which the planning is done.
It should

o  DEGinvolve top management, employees, and other stakeholders in
developing, communicating, and implementing the strategic workforce plan;

o  DEGdetermine the critical skills and competencies that will be needed
to achieve current and future programmatic results;

o  DEGdevelop strategies that are tailored to address gaps in number,
deployment, and alignment of human capital approaches for enabling and
sustaining the contributions of all critical skills and competencies;

o  DEGbuild the capability needed to address administrative, educational,
and other requirements important to support workforce planning strategies;
and

13See U.S. General Accounting Office, High-Risk Series: An Update,
GAO-01-263 (Washington, D.C.: January 2001), and U. S. General Accounting
Office, High Risk Series: An Update, GAO-03-119 (Washington, D.C.: January
2003). Also, see U.S. General Accounting Office, Performance and
Accountability Series-Major Management Challenges and Program Risks: A
Governmentwide Perspective, GAO-01-241 (Washington, D.C.: January 2001).
In addition, see the accompanying 21 reports (numbered GAO-01-242 through
GAO-01-262) on specific agencies.

14GAO-04-39.

o

  NNSA's Reorganization Has Delineated Lines of Authority, but More
  Clarification Is Needed for Specific Program Management and Oversight
  Functions

monitor and evaluate the agency's progress toward its human capital goals
and the contribution that human capital results have made toward achieving
programmatic results.

In light of shortcomings in strategic human capital management reported by
us, the President's Management Agenda identified strategic management of
human capital as a governmentwide initiative. Established in August 2001,
the President's Management Agenda identified a strategy for improving the
management and performance of the federal government. The agenda included
five governmentwide initiatives: the strategic management of human
capital, competitive sourcing, improved financial performance, expanded
electronic government, and budget and performance integration.

Regarding strategic management of human capital, two principals are
considered central to its success. One, people are assets whose value can
be enhanced through investment. As with any investment, the goal is to
maximize value while managing risk. Two, an organization's human capital
approach should be designed, implemented, and assessed by the standards of
how well they help the organization achieve results and pursue its
mission. Effective strategic workforce planning is considered an essential
element of strategic human capital management. Also called human capital
planning, it focuses on developing long-term strategies for acquiring,
developing, and retaining an organization's total workforce (including
full~and part-time federal staff and contractors) to meet the needs of the
future.

NNSA's reorganization has resulted in some progress in delineating lines
of authority between NNSA headquarters and its field offices, thus
addressing some past problems; however, at the working level, NNSA has not
formalized a program management structure that identifies its program
managers or what their responsibilities and qualifications should be,
particularly regarding their role in directing and overseeing contractor
activity under its new organization. Furthermore, the reorganization has
created gaps in the responsibility for important safety oversight that
need to be addressed. Without first clarifying such key management issues,
NNSA cannot, among other things, ensure the improved discipline and
accountability it seeks in managing its programs.

By delineating lines of authority between NNSA headquarters and its field
offices, NNSA's reorganization has addressed past problems, such as
communications problems resulting from overlapping roles and

responsibilities of the federal workforce overseeing the nuclear weapons
program. For example, according to NNSA site office managers, the
streamlined structure has improved vertical communication because
communication channels between headquarters and the field are more direct
and do not involve an extra layer of management in the operations offices.
Site office managers also state that by now reporting directly to the NNSA
Administrator's office, the time required to make decisions has been
reduced. In addition, the realignment provides NNSA site office managers
with additional authority to manage contractors and assigns them
responsibility for the day-to-day security and safety of contractor
operations. As a result, it has strengthened the hand of local NNSA site
office managers who now have the authority to shut down operations at the
sites, if necessary, due to security or safety concerns.

Despite this progress NNSA's reorganization still suffers from two
shortcomings. First, the reorganization plan does not yet fully delineate
the authority and responsibility of program managers, who are responsible
for ensuring that program goals and requirements are met, or reconcile
these responsibilities with the mutual responsibilities of contracting
officers and their designated representatives who manage the contract.
Specifically, under the new reorganization, the contracting officer is
responsible for appointing contracting officer representatives to carry
out specific functions, such as monitoring, inspection, and other
functions of a technical nature not involving a change in the scope, cost,
or terms and conditions of the contract. These contracting officer
representatives then assist in directing and overseeing the contractor for
the programs that they represent. NNSA is attempting to improve program
management accountability and discipline by requiring program managers to
direct all work to the contractors through a contracting officer or a
designated contracting officer representative instead of through the now
defunct operations offices or by bypassing the formal contract
administrators and informally directing the contractor, as was done in the
past.

NNSA's policy on program management, however, is still being developed.
NNSA's Assistant Deputy Administrator for the Office of Program
Integration told us that the exact number of program managers within the
Office of Defense Programs has yet to be determined because disagreement
exists within the program about who currently is or is not a program
manager. Furthermore, NNSA has not yet articulated its qualification
standards for program managers. These standards are important to program
success. As we noted in our report on NNSA's Stockpile Life Extension
Program, problems with the W-87 refurbishment were caused, in part,
because the assigned program manager was not

qualified to perform all required tasks and was not enrolled in DOE's
project management qualification program.15 Senior NNSA officials in
headquarters expect NNSA's policy to be issued by May 2004, and
implementation plans for this policy to be developed by summer 2004. NNSA
officials told us that even after the policy is issued, its implementation
is expected to take some time because it will likely require a change in
the behavior and culture of program managers and the manner in which they
operate.

NNSA's delay in issuing program management policy and appointing program
managers is currently creating confusion. According to NNSA's existing
policy concerning the appointment of contracting officer representatives,
headquarters-based program officials must first be designated as program
managers before they can be designated as contracting officer
representatives for a site.16 As a result, any uncertainty surrounding the
number of program managers and their responsibilities has the potential to
disrupt the appointment of contracting officer representatives. However,
despite the present uncertainty surrounding the designation of program
managers, site offices are appointing contracting officer representatives.
For example, the Sandia Site Office appointed 25 of its 36 contracting
officer representatives using available NNSA headquarters staff, as of
June 2003. However, NNSA provided us with a list of its designated program
managers as of December 2003 (the latest date for which data were
available) that did not officially recognize 21 of the 25
headquarters-based contracting officer representatives that had been
formally appointed by the Sandia Site Office. Until NNSA fully implements
its policies to delineate program management authority and responsibility,
it remains unclear under the new reorganization and management structure
how program management authorities and responsibilities will be exercised
in the day-to-day management of contractors and site operations and NNSA
cannot ensure that the full discipline and accountability it seeks through
its reorganization is fully achieved or that its long-standing
organizational structure problems are corrected.

15U.S. General Accounting Office Nuclear Weapons: Opportunities Exist to
Improve the Budgeting, Cost Accounting, and Management Associated with the
Stockpile Life Extension Program, GAO-03-583 (Washington, D.C. July 28,
2003).

16In commenting on our report, NNSA stated that for its weapons programs,
it does have contracting officer representatives that are supervisors of
program managers.

The second outstanding problem with NNSA's reorganization is that it has
created gaps in the responsibility for safety oversight that need to be
addressed. For example, managers at NNSA's Pantex Site Office, which
oversees the contractor operating the Pantex Plant-an assembly/disassembly
plant for nuclear weapons in Amarillo, Texas- stated that authority and
responsibility for certain safety-related oversight is unclear.
Specifically, according to the Pantex Site Office manager, when the
realignment abolished the Albuquerque Operations Office, it left a void
regarding who would take over certain nuclear explosive safety oversight
activities previously performed by that office. Among other things,
nuclear explosives safety oversight includes activities such as evaluating
the adequacy of controls associated with tooling, testers, and operational
processes to prevent and/or minimize the consequences of an accident
involving nuclear explosives. While NNSA's Assistant Deputy Administrator
for Military Application and Stockpile Operations-an NNSA program-assumed
overall responsibility for nuclear explosive safety, NNSA has not resolved
exactly who is to provide the day-to-day oversight previously conducted by
the Albuquerque Operations Office. In this regard, the Pantex Site Office
manager stated that there is no clear procedure for conducting oversight
to ensure the prevention of deliberate, unauthorized use of a nuclear
weapon-an important goal of NNSA. The Pantex Site Office manager-the risk
acceptance official for the site- stated that he would therefore not
authorize the continuation of certain work related to one current weapon
system requiring use of a particular safety process. Furthermore, in
October 2003, NNSA issued its safety~oriented "Functions,
Responsibilities, and Authorities Manual" intended to clarify issues
concerning delineation of authority. However, according to the Assistant
Manager for Nuclear Engineering at the Pantex Site Office, the manual
still does not clarify the authority and responsibility of nuclear
explosives safety oversight. Senior NNSA headquarters officials stated
that they are aware of problems concerning nuclear explosive safety
oversight and that corrective action plans have been recently developed
and are scheduled to be implemented through 2006.

The Defense Nuclear Facilities Safety Board recently expressed broader
concerns in a December 8, 2003, letter to NNSA's Administrator that many
orders, directives, standards, supplemental directives, and site office
procedures, which had been issued to help ensure the safe operation of
NNSA's defense nuclear facilities, have not been modified to reflect
current roles and responsibilities within NNSA. The board further stated
that in some cases, particularly those involving supplemental directives
that the now-defunct Albuquerque Operations Office had issued, the
documents may no longer have a clear owner within the NNSA

  NNSA's Reorganization Will Not Ensure Sufficient Staff with the Right Skills
  in the Right Places to Meet the Agency's Mission and Program Goals

organization, and deviations from the processes that these directives
prescribed are now becoming more frequent within NNSA.

NNSA's reorganization is not likely to ensure that it has sufficient staff
with the right skills in the right places because NNSA chose to downsize
its federal workforce without first determining what critical skills and
capabilities it needed to meet its mission and program goals.
Consequently, NNSA will not know the composition of its workforce until it
completes the 17 percent workforce reduction on September 30, 2004- the
deadline specified in the reorganization plan-and then determines the
knowledge, skills, and capabilities of its remaining employees. Without a
functional long-term workforce plan, NNSA runs the risk of facing further,
more serious staff shortages or skill imbalances, thereby affecting its
ability to adequately oversee its contractors.

In December 2001, in addressing NNSA's use of its excepted service
authority, we reported that NNSA did not have the coherent human capital
and workforce planning strategies it needed to develop and maintain a
well-managed workforce over the long run.17 As a result, we recommended
that NNSA not allocate any additional excepted service positions until it
developed comprehensive human capital and workforce planning strategies.
Subsequently, in February 2002, we testified that NNSA's lack of a
long-term strategic approach to ensure a well-managed workforce precluded
it from identifying its current and future human capital needs, including
the size of the workforce, its deployment across the organization, and the
knowledge, skills, and abilities needed to fulfill its mission.18

Despite these earlier recommendations to develop thorough human capital
and workforce planning strategies, NNSA embarked on a major initiative,
expected to span nearly 2 years, not only to reorganize, but also to
reduce the size of its workforce. NNSA's December 2002 reorganization plan
called for a reduction in its federal workforce from 1,695 to 1,356 staff,
or a reduction of about 20 percent, by September 30, 2004. The planned 20
percent reduction involved a 29 percent reduction in headquarters staff, a
26 percent reduction in administrative support staff through the closure
of the three operations offices and the consolidation of administrative

17GAO-02-93R. 18GAO-02-451T.

support staff in a new Service Center, and a 6 percent reduction in Site
Office staff. A senior NNSA official stated that "getting things done" was
a primary factor in deciding to quickly implement the reorganization and
workforce reduction. As such, NNSA officials stated that the staff
reduction targets were based more on judgment than a rigorous workload
analysis. A senior NNSA official explained that NNSA managers knew that
there was work overlap and redundancy in the organization, but were
concerned that a more formal, rigorous analysis of requirements or
workload could hamper what they believed was an urgent need to achieve
organizational realignment and workforce reduction results. The official
also said that NNSA management had decided that if and when staffing
changes became necessary, such adjustments would then be made.

The NNSA Administrator implemented what it termed a managed staffing
process soon after the workforce reduction target was announced in an
effort to focus on its short-term staff reduction targets and deadline. He
asked NNSA headquarters, service center, and site office managers to
report their organization's existing functions and staff in 2003, their
anticipated changes to functions and associated staff requirements by the
end of fiscal year 2004, and any staff surplus or deficit. Based on
regular updates of this information, the NNSA Administrator has adjusted
the total staff reduction target twice since December 2002, once in April
2003 and a second time in August 2003, to its current 17 percent
target-primarily to accommodate an increase of 38 positions. This new
target is to be accomplished by an increase of 23 positions in
headquarters and 40 positions in the site offices, respectively, and a
decrease of 25 positions at the Albuquerque Service Center. A February
2004 status report stated that NNSA created and staffed the 38 new
positions to perform functions not previously identified, or for which
original staffing targets were not adequate for mission accomplishment.

NNSA is progressing towards its staff reduction targets and deadline
primarily through buyouts, directed reassignments, and attrition combined
with a freeze on hiring and promotions, although exceptions can be allowed
to fill critical positions. A total of 174 staff have thus far taken the
buyout, which could be as high as $25,000 per person depending on such
factors as length of federal service and grade level. NNSA human capital
managers report that 99 of the 200 administrative support staff in
Oakland, Las Vegas, Germantown, and Washington, D.C., offices have
formally stated that they would relocate to the Albuquerque Service
Center. However, officials are not sure how many staff will actually
relocate because, for example, they believe that some staff do not really
want to

relocate and are seeking alternative employment. As of March 6, 2004, NNSA
is 13 staff short of achieving its 17 percent staffing reduction target.

NNSA has also begun a number of specific workload reduction initiatives
intended to accomplish its mission with fewer federal personnel. However,
the outcome of these initiatives may not be known for some time so their
affect on NNSA's workforce capabilities both in the short-term and
long~term cannot be predicted. For example, in the area of safety, NNSA
reduced the number of Site Office Facility Representatives from 68 in
December 2002 to 53 in December 2003. Site Office Facility Representatives
are typically responsible for day-to-day oversight of contractor
operations to ensure that the contractor's work practices and performance
are being completed in a safe and environmentally responsible manner. NNSA
is pursuing changes to the Facilities Representative Program, among other
things, to allow for greater coverage in areas of higher risk to the
public, such as nuclear safety, and reduced coverage of standard
industrial hazard facilities. NNSA is also considering shifting federal
responsibility for employee safety to the contractor.

While continuing to pursue its short-term workforce reduction goals, NNSA
began to develop a framework to determine its long-term human capital
needs. In December 2003, NNSA issued a workforce plan designed to
comprehensively meet the requirements of DOE's Human Capital Management
Improvement Program and the strategic workforce planning aspect of the
President's Management Agenda. The framework specifically identified
strategic workforce planning as a means to mitigate the impact of losing a
large percentage of the NNSA workforce and as the process for ensuring
that the right people with the right skills are in the right place at the
right time. The workforce planning model for the longer term- Workforce
Plan 2004-called for the analysis of present workforce competencies, the
identification of competencies needed in the future, a comparison of
future needs with the present workforce in order to identify competency
gaps and surpluses, the preparation of plans for building the workforce
needed in the future, and an evaluation process to ensure that the
workforce planning model remains valid and that mission objectives are
being met.

Despite this effort, NNSA's workforce plan is of limited usefulness
because it depends on workforce data that are either already obsolete or
not yet available. For example, the number, skill, position, and location
of employees are a moving target and subject to continuous change until
the downsizing effort is completed in September 2004. Furthermore, several
NNSA site office managers acknowledged that their workforce focus has

been on their short-term downsizing objective. A senior NNSA official
agreed that the agency's workforce planning needed to be more long-term,
but added that under the circumstances of NNSA's organizational
downsizing, management primarily focused on meeting short-term needs. NNSA
human capital officials also told us that NNSA's decreased reliance on DOE
for practically all human capital management, resulting from NNSA's
creation as a separately organized agency under DOE in 2000, required the
building of a human resource structure, staff, and operation, which has
taken some time to get up and running. NNSA plans to update information in
its workforce plan, including its workforce composition and skills, as
well as determine workforce needs for the long-term. With this
information, NNSA can then conduct a skill gap analysis that is necessary
to target recruitment, hiring, and training programs long-term.

As we have found in other government agencies, by carrying out downsizing
without sufficient consideration of the strategic consequences, NNSA runs
the risk of not having the right skills in the right place at the right
time, thereby affecting its ability to adequately oversee its contractors
and ensure the safety and security of its various facilities in the
future. The situation may be further exacerbated by the fact that,
according to NNSA estimates, 35 percent of NNSA employees will be eligible
to retire in the next 5 years. The lack of adequate strategic and
workforce planning in the course of downsizing efforts can negatively
affect the agency's ability to provide quality service and lead to such
negative effects as the loss of institutional memory and an increase in
work backlogs. The impact of gaps in the numbers and skills of staff used
to carry out its contractor oversight mission is already becoming
apparent. For example, NNSA site offices are 39 staff short of their
targets and some site offices, namely Pantex, Y-12, and Los Alamos, are
having some difficulty filling critical skills in safety and security. At
the Albuquerque Service Center, significant skill gaps exist for
accountants and contract specialists. For example, the service center has
only 26 of 54 contract specialist positions filled. NNSA's preoccupation
with more short-term downsizing objectives and staffing strategy without
the benefit of a strategic human capital plan may have contributed to the
workforce imbalances it now is experiencing.

  NNSA's Proposed Transition to Less Direct Federal Oversight Could Be
  Compromised by Outstanding Reorganization Issues

NNSA's implementation of its proposed risk-based approach to rely more on
contractors' assurances and self-assessments and less on NNSA's direct
oversight may be premature because NNSA's reorganization has not yet
established a program management structure or long-term workforce plan for
ensuring that it has sufficient staff with the right skills in the right
places. Others and we have reported on a number of problems over the years
related to NNSA's performance of effective federal oversight of its
contractors. Against this backdrop, NNSA has begun taking steps to
accommodate implementation of the new contractor oversight approach in
parallel with its reorganization. Under this new approach, contractors
will develop comprehensive contractor assurance systems, or systems of
management controls, and NNSA will primarily rely upon these systems and
controls to ensure that contractors properly execute their missions and
activities. Although the overall concept of a risk-based approach to
federal oversight has merit, the unresolved issues stemming from NNSA's
major ongoing reorganization may compromise its ability to effectively
carry out this approach while successfully meeting its responsibility for
safe and secure operations.

NNSA's reliance on contractors to operate its facilities and carry out its
missions makes effective oversight of contractor activities critical to
its success. Over the years, we have reported on problems related to
NNSA's performance of effective federal oversight of its contractors. For
example:

o  DEGIn May 2003, we reported on problems with NNSA's oversight,
particularly regarding assessing contractors' security activities.19 We
noted that, without a stable and effective management structure and with
ongoing confusion about security roles and responsibilities,
inconsistencies had emerged among NNSA sites on how they assessed
contractors' security activities. Consequently, we stated that NNSA could
not be assured that all facilities are subject to the comprehensive annual
assessments that DOE policy requires.

o  DEGWeaknesses in NNSA oversight also occurred at the Lawrence Livermore
National Laboratory. Specifically, in our May 2003 report on a new waste
treatment facility at the laboratory,20 we concluded that a delay in
initiating

19U.S. General Accounting Office, Nuclear Security: NNSA Needs to Better
Manage Its Safeguards and Security Program, GAO-03-471 (Washington, D.C.:
May 30, 2003).

20U.S. General Accounting Office, Radioactive Waste: DOE Has Acted to
Address Delay in New Facility at Livermore Laboratory, but Challenges
Remain, GAO-03-558 (Washington, D.C.: May 15, 2003).

storage and treatment operations at the new facility occurred because NNSA
managers did not carry out their oversight responsibilities to provide
clear requirements and ensure contractor compliance with these
requirements.

o  DEGIn July 2003, we reported on problems with NNSA's oversight,
particularly with regard to cost and schedule, of the Stockpile Life
Extension Program.21 In particular, we found that Life Extension Program
managers used reports that contained only limited information on cost
growth and schedule changes against established baselines. We also found
that program managers believed that they had not been given adequate
authority to properly carry out the life extensions.

o  DEGIn February 2004, we reported on problems with NNSA's oversight with
regard to business operations at the Los Alamos National Laboratory.22
Beginning in the summer of 2002, a series of problems with business
operations surfaced at the Los Alamos National Laboratory, raising
questions about the effectiveness of controls over government purchase
cards and property. Among the questions raised were allegations of
fraudulent use of government purchase cards and purchase orders, concerns
about the adequacy of property controls over items such as computers, and
disputed rationales for the laboratory's firing of two investigators. DOE
and NNSA identified multiple causes for these business operations
problems, one of which was that NNSA's oversight was too narrowly focused
on specific performance measures in the contract rather than on overall
effectiveness.

In addition to these concerns, DOE `s Office of Inspector General has
raised broader concerns about the adequacy of oversight. For example, in
November 2003, DOE's Office of Inspector General released its annual
report on management challenges, including oversight of contracts and
project management as two of three internal control challenges facing the
department.23

21U.S. General Accounting Office, Nuclear Weapons: Opportunities Exist to
Improve the Budgeting, Cost Accounting, and Management Associated with the
Stockpile Life Extension Program, GAO-03-583 (Washington, D.C.: July 28,
2003).

22U.S. General Accounting Office, Department of Energy: Mission Support
Challenges Remain at Los Alamos and Lawrence Livermore National
Laboratories, GAO-04-370 (Washington, D.C.: Feb. 27, 2004).

23Department of Energy, Management Challenges at the Department of Energy,
DOE/IG~0626 (Washington, D.C.: Nov. 12, 2003).

Against this backdrop and in the midst of a major reorganization and staff
reduction effort, NNSA is proposing to change its contractor oversight
approach. NNSA's August 2003 draft Line Oversight and Contractors'
Assurance System policy would rely more on contractor self-assessment and
reporting, among other methods, and less on NNSA's direct oversight.24 The
proposal would require a comprehensive contractor assurance system, or
system of management controls, to be in place and would primarily rely
upon these systems and controls to ensure that its missions and activities
are properly executed in an effective, efficient, and safe manner. NNSA
would use a risk-based, graded approach to its oversight and tailor the
extent of federal oversight to the quality and completeness of the
contractors' assurance systems and to evidence of acceptable contractor
performance. NNSA's oversight functions would include review and analysis
of contractor performance data, direct observations of contractor work
activities in nuclear and other facilities, annual assessments of overall
performance under the contract, and certifications by the contractor or
independent reviewers that the major elements of risk associated with the
work performed are being adequately controlled. NNSA stated in its draft
policy and in public meetings before the Defense Nuclear Facilities Safety
Board that the department plans to phase in this new oversight approach
over the next few years.

NNSA has already begun taking steps to accommodate implementation of the
new contractor oversight approach in parallel with its reorganization. For
example, the new contract effective October 1, 2003, between Sandia
Corporation and NNSA's Sandia Site Office describes 10 key attributes for
its assurance system, such as having rigorous, risk-based, and credible
self-assessments, feedback, and improvement activities, and using
nationally recognized experts and other independent reviewers to assess
and improve its work process and to carry out independent risk and
vulnerability studies. Sandia's contractor plans to implement "assurance
systems" beginning with its low-risk activities in fiscal year 2004, and
medium- and high-risk activities in fiscal year 2005. Once satisfied that
the contractor's assurance system is effective and results in an
improvement

24Historically, NNSA has depended upon a combination of contractor
controls and direct federal oversight to help manage the risks associated
with the work conducted at its laboratories. However, there are diverse
views on the proper balance between federal oversight and reliance on
contractors' systems of internal controls. Since 1990, others and we have
criticized NNSA for inadequate federal oversight and failure to hold
contractors accountable. In contrast, a 1995 Secretary of Energy Advisory
Board task force report on alternative futures for the national
laboratories criticized DOE for excessive oversight and micromanagement of
contractors' activities.

in the contractor's performance in key functional areas, NNSA will
consider conducting oversight at the assurance systems level rather than
at the level of individual transactions. At the time of our review, NNSA
officials at the Sandia Site Office did not know how they would assess or
validate the contractor assurance system or what level of assurance they
would require before they would shift from "transactional" oversight to
"systems level" oversight.

Although the overall concept of a risk-based approach seems reasonable, we
are concerned about NNSA's ability to effectively carry it out. For
example, considerable effort is needed at the Los Alamos and Lawrence
Livermore National Laboratories to successfully implement a risk-based
approach to laboratory oversight.25 According to the Associate Director
for Operations at the Los Alamos National Laboratory, the laboratory's
ability to manage risk is at a beginning level of maturity. Other
officials at the Los Alamos laboratory, including officials from the
Performance Surety Division and the Quality Improvement Office, said that
the laboratory and NNSA have different perceptions of risks at the
laboratory and how to manage those risks. In our February 2004 report, we
expressed concerns about NNSA's oversight approach and warned that such
autonomy for the laboratories was inadvisable this soon into the process
of recovery from a string of embarrassing revelations. We recommended that
NNSA needs to maintain sufficient oversight of mission support activities
to fulfill its responsibilities independently until the laboratories have
demonstrated the maturity and effectiveness of contractor assurance
systems and the adequacy of the contractor's oversight have been
validated. NNSA disagreed with our view of its proposal to rely more on a
contractor's system of management controls and less on NNSA's own
independent oversight, but acknowledged that there have been problems with
oversight in the past. NNSA officials remained convinced that the proposed
risk~based approach will be successfully implemented, resulting in
improved contractor oversight.

We continue to be concerned about whether NNSA is ready to move to its
proposed system. For example, during this review, officials from NNSA's
Nevada Site Office expressed concerns about the performance of the
management and operating contractor for the Nevada Test Site, citing

25U.S. General Accounting Office, Department of Energy: Mission Support
Challenges Remain at Los Alamos and Lawrence Livermore National
Laboratories, GAO-04-370 (Washington, D.C.: Feb. 27, 2004).

Conclusions

repeated problems with contractor's compliance with basic procedures. For
example, officials from NNSA's Nevada Site Office expressed concern that
there were repeated incidents where the contractor did not follow
lock-out/tag-out procedures, resulting in, for example, the contractor
drilling holes into wires that would cause power systems to shut down.
Furthermore, the Defense Nuclear Facilities Safety Board, in recent public
meetings, has expressed concerns about nuclear safety under the proposed
NNSA contractor assurance policy and said that NNSA should not delegate
responsibility for such an inherently high-risk area of operations.
Finally, because NNSA has not fully determined (1) who will give program
direction to its contractors and (2) through a comprehensive workforce
plan, that it has sufficient staff with the right skills in the right
places, NNSA's proposed approach to rely more on contractors' assurances
and self-assessments and less on NNSA's direct oversight may be premature.

NNSA is concurrently making significant and fundamental changes to its
organization, workforce composition, and contractor oversight approach
that require careful management forethought, strategy, and analysis.
Preliminary indications are that some of these changes have had a positive
effect on certain aspects of NNSA, but the final impact of these changes
will not be apparent for several years. Specifically, NNSA's
reorganization has resulted in some progress in delineating authority and
improving communication between headquarters and the field. However, the
reorganization has not resolved confusion regarding authority over program
management. In addition, by downsizing its federal workforce without first
determining what critical skills and capabilities it needed, NNSA's
workforce reduction targets were more arbitrary than data-driven,
contributing to short-term skill imbalances and making data-driven
workforce planning for the longer term more difficult. Specifically, NNSA
cannot begin to conduct a formal, substantive skill gap analysis to plan
for the long term until it completes the current workforce reduction and
collects critical workforce data on knowledge, skills, and competencies,
among other things. Finally, because important program management and
workforce issues still need to be resolved, NNSA's implementation of its
proposal to rely more on contractors' assurances and self-assessments and
less on NNSA's direct oversight appears to be premature.

Recommendations for In order to increase the likelihood that NNSA's
reorganization will achieve NNSA's goal of increased management discipline
and accountability inExecutive Action program management and contractor
oversight, we are making three recommendations to the NNSA Administrator
and the Secretary of Energy:

o  DEGestablish a formal program management structure, policy, and
implementation guidance for directing the work of its contractors,
especially concerning how program managers will interact with contracting
officers at site offices to help direct and oversee contractor activity;

o  DEGcomplete and implement data-driven workforce planning for the longer
term that (1) determines the critical skills and competencies that will be
needed to achieve current and future programmatic results, including
contractor oversight; (2) develops strategies tailored to address gaps in
number, skills and competencies, and deployment of the workforce; and (3)
monitors and evaluates the agency's progress toward its human capital
goals and the contribution that human capital results have made toward
achieving programmatic results, and

o  postpone any decrease in the level of NNSA's direct federal oversight
of

  Agency Comments EURand Our Evaluation EUR

contractors until NNSA has a program management structure in place and has
completed its long-term workforce plan.

We provided NNSA with a draft of this report for review and comment. NNSA
agreed in principle with our recommendations; however, it felt that it
already had efforts underway to address them. Specifically, with respect
to our recommendation about program management, NNSA stated that it has
established a formal process for using appropriately designated officials
to direct contractor activity and that its formal program management
policy was nearly established. We recognize in our report NNSA's effort to
develop processes and formalize its program management policy; however, we
believe that NNSA needs not only a policy, but also a structure and
implementation guidance so that the managers providing direction to NNSA's
contractors are clearly identified and can be held accountable. With
respect to our recommendation on workforce planning, NNSA agreed with our
recommendation, but it disagreed that its current plan was based on
short-term or arbitrary management judgments. In this respect, our
conclusions were based on discussions with knowledgeable senior agency
officials at NNSA headquarters and site offices as well as a review of
NNSA management council minutes. More importantly, we continue to believe
in, and NNSA

does not dispute, the need for a long-term data driven workforce plan that
will ensure that NNSA meets its long-term goals. Finally, regarding our
last recommendation on federal oversight of contractors, NNSA stated that
it had no intention of further decreasing direct oversight of contractors,
was hiring staff to fill vacant positions at site offices, and that its
proposed contractor assurance systems would only be implemented after a
site manager/contracting officer was convinced that the contractor's
system would be at least as effective as the current system. While we are
pleased that NNSA has stated that it will not decrease its direct
oversight, our recommendation is intended to ensure that NNSA has the
critical systems it needs in place to perform its function-effective,
direct federal oversight.

As arranged with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after the date of this report. At that time, we will send copies to the
Secretary of Energy and the Administrator of NNSA, the Director of the
Office of Management and Budget, and appropriate congressional committees.
We will make copies available to others on request. In addition, the
report will also be available at no charge on the GAO Web site at
http://www.gao.gov.

If you or your staff have any questions about this report, please call me
at (202) 512-3841. Major contributors to this report are listed in
appendix II.

Sincerely yours,

Robin M. Nazzaro Director, Natural Resources and Environment

          Page 27 GAO-04-545 National Nuclear Security Administration

          Page 28 GAO-04-545 National Nuclear Security Administration

          Page 29 GAO-04-545 National Nuclear Security Administration

          Page 30 GAO-04-545 National Nuclear Security Administration

Appendix II: GAO Contact and Staff Acknowledgments

GAO Contact James Noel (202) 512-3591

Acknowledgments DEGIn addition to the individual named above, Arturo
Holguin, Robert Kigerl, Jonathan McMurray, Christopher Pacheco, Anthony
Padilla, Judy Pagano, and Ellen Rubin made key contributions to this
report.

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