Hanford Waste Treatment Plant: Contractor and DOE Management	 
Problems Have Led to Higher Costs, Construction Delays, and	 
Safety Concerns (06-APR-06, GAO-06-602T).			 
                                                                 
The Waste Treatment Plant Project at the Department of Energy's  
(DOE) Hanford site in southeastern Washington state is a massive 
effort to stabilize and prepare for disposal 55 million gallons  
of radioactive and hazardous wastes currently held in underground
tanks. In 2000, DOE awarded an 11-year, $4.3 billion contract	 
project to Bechtel National, Inc. (Bechtel) to design and	 
construct the plant. Since then, numerous problems and changes	 
have occurred that will significantly increase the project's	 
final cost and completion date. This testimony discusses (1) how 
and why the project's cost and schedule have changed since 2000; 
(2) the status of DOE and Bechtel efforts to address these	 
problems and improve project management; and (3) our observations
on issues that need to be addressed in going forward. It is based
on previous GAO reports and ongoing work.			 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-06-602T					        
    ACCNO:   A51038						        
  TITLE:     Hanford Waste Treatment Plant: Contractor and DOE	      
Management Problems Have Led to Higher Costs, Construction	 
Delays, and Safety Concerns					 
     DATE:   04/06/2006 
  SUBJECT:   Contract performance				 
	     Cost analysis					 
	     Facility construction				 
	     Hazardous waste disposal				 
	     Performance measures				 
	     Program evaluation 				 
	     Program management 				 
	     Radioactive waste disposal 			 
	     Schedule slippages 				 
	     Toxic substances					 
	     Waste management					 
	     Waste treatment					 
	     Cost estimates					 
	     DOE Hanford Waste Vitrification Plant		 
	     Project						 
                                                                 

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GAO-06-602T

     

     * Background
     * Contractor Performance Problems, DOE Management Shortcomings
          * Project Cost and Schedule Have Increased Significantly
          * Bechtel and DOE Share Responsibility for the Main Causes of
     * DOE and Bechtel Have Taken Several Steps to Strengthen Manag
          * Slowing construction to address technical problems and advan
          * Developing a more reliable project baseline
          * Taking other steps to improve management and oversight
     * Observations About Selected Issues DOE Will Need to Address
          * The use of a fast-track, design-build approach to the projec
          * The reliability of the revised project estimates
          * The adequacy of project management and oversight
     * Conclusions
     * Recommendations
     * Contacts and Acknowledgments
     * GAO's Mission
     * Obtaining Copies of GAO Reports and Testimony
          * Order by Mail or Phone
     * To Report Fraud, Waste, and Abuse in Federal Programs
     * Congressional Relations
     * Public Affairs

Testimony

Before the Subcommittee on Energy and Water Development and Related
Agencies, Committee on Appropriations, House of Representatives

United States Government Accountability Office

GAO

For Release on Delivery Expected at 10:00 a.m. EDT

Thursday, April 6, 2006

HANFORD WASTE TREATMENT PLANT

Contractor and DOE Management Problems Have Led to Higher Costs,
Construction Delays, and Safety Concerns

Statement of Gene Aloise, Director Natural Resources and Environment

GAO-06-602T

Mr. Chairman and Members of the Subcommittee:

I am pleased to appear before the Subcommittee today to discuss our work
on the Department of Energy's (DOE) Waste Treatment Plant Project (WTP)
under construction at DOE's Hanford site in southeastern Washington state.
The purpose of this massive project is to stabilize and prepare for
disposal large quantities of radioactive and hazardous wastes stored in
underground tanks. From the 1940s through most of the 1980s, 9 nuclear
reactors operated at the Hanford site, producing plutonium and other
special nuclear materials primarily for DOE's weapons program. Producing
these special nuclear materials generated large volumes of hazardous and
radioactive waste. Some of this waste was deposited directly into the
ground in trenches, injection wells, or other facilities designed to allow
the waste to disperse into the soil; and some was packaged into drums and
other containers and buried. The most dangerous waste was stored in 177
large underground storage tanks. DOE has managed this tank waste over the
years as high-level waste. The underground tanks currently hold more than
55 million gallons of this waste-enough to fill an area the size of a
football field to a depth of over 150 feet. DOE, the Environmental
Protection Agency (EPA), and the Washington state Department of
Ecology-have determined that stabilizing this waste is one of the most
urgent cleanup activities at the Hanford site.

The Hanford site occupies 586 square miles near the cities of Richland,
Pasco, and Kennewick, with a combined regional population of over 200,000.
The Columbia River-the second largest river in the United States and a
source for hydropower production, agricultural irrigation, drinking water,
and salmon reproduction-flows through the site for almost 50 miles.
Although the underground storage tanks are several miles from the river,
tank monitoring data and detection techniques have shown that some of the
tanks have leaked in the past. Because the contamination has reached the
groundwater under the tanks, officials are concerned that it is now making
its way to the Columbia River.

To stabilize the approximately 55 million gallons of waste remaining in
the tanks, Hanford's waste treatment project involves (1) designing,
constructing, and testing a waste treatment plant1 (the construction
project) and (2) operating this plant and others in subsequent years to
process and prepare the tank waste for permanent disposal (the operations
project). Schedule milestones for stabilizing the tank waste and preparing
it for disposal, as well as agreements on the technologies to be used, are
set forth in the Hanford Federal Facility Agreement and Consent Order
between DOE, Washington state's Department of Ecology, and EPA. This
agreement, commonly called the "Tri-Party Agreement," was signed in May
1989.

1The waste treatment plant consists of a pretreatment facility that
separates waste into high-level and low- activity waste, two facilities to
treat separated portions of the waste, one analytical laboratory, and a
variety of supporting facilities.

2U.S. General Accounting Office, Nuclear Waste: Challenges to Achieving
Potential Savings in DOE's High-Level Waste Cleanup Program, GAO-03-593
(Washington, D.C.: June 17, 2003); U.S. General Accounting Office, Nuclear
Waste: Absence of Key Management Reforms on Hanford's Cleanup Project Adds
to Challenges of Achieving Cost and Schedule Goals, GAO-04-611
(Washington, D.C.: June 9, 2004); and U.S. Government Accountability
Office, Nuclear Waste: Better Performance Reporting Needed to Assess DOE's
Ability to Achieve the Goals of the Accelerated Cleanup Program,
GAO-05-764 (Washington, D.C.: July 29, 2005).

In 2000, DOE awarded an 11-year, $4.3 billion contract for the
construction project to Bechtel National, Inc. (Bechtel). DOE plans to
solicit bids through a competitive process and award a separate contract
to operate the WTP once the construction project is completed.

Since the contract with Bechtel began in 2000, numerous problems with and
changes to the construction project have occurred, which has significantly
affected the project's final cost and completion date. My testimony will
discuss: (1) how the project's cost and schedule have changed since the
contract was awarded to Bechtel in December 2000, and the primary causes
for those changes; (2) the status of DOE and Bechtel efforts to address
these causes and establish effective management controls over the project;
and (3) our observations on issues that need to be addressed in going
forward on the project.

My testimony is based on our past reviews of DOE's Environmental
Management program and the Hanford project, especially our 2004 report on
the project,2 and our currently ongoing work for this Subcommittee.
Regarding our ongoing work, in order to understand how the project's cost
and schedule estimates have changed, the reasons for those changes, and
efforts to address any problems, we obtained and analyzed project
documents and records developed by DOE and Bechtel as well as evaluations
of various aspects of the project conducted by the U.S. Army Corps of
Engineers and other independent reviews. We also interviewed DOE and
Bechtel project and technical managers about the main causes of the cost
increases and schedule delays and steps they are taking to address the
problems. We also toured the construction site to observe the actual
condition of the facilities. A more complete discussion of our scope and
methodology is presented in appendix II. We conducted our review from June
through September 2005 and from January through April 2006 in accordance
with generally accepted government auditing standards. We are continuing
our work on this project and plan to issue a final report in October 2006.

In summary, we found the following:

The Hanford waste treatment plant construction project's estimated cost
has increased over 150 percent to about $11 billion since 2000, and the
completion schedule has been extended by 6 years to at least 2017. There
are three main causes for these results-contractor performance problems,
DOE management shortcomings, and difficulties addressing various technical
challenges encountered during design and construction.

Regarding the contractor's performance:

           o  Bechtel has performed poorly on several aspects of the project.
           For example, Bechtel significantly underestimated the price of
           steel and how much engineering effort would be needed to complete
           facility designs. These mistakes, and others like them, have added
           about $2 billion to project costs. Bechtel also continues to need
           increased contingency funding for unexpected problems. Adjusting
           for additional contingency funding added over $2 billion to the
           cost estimate. Importantly, Bechtel failed on several occasions to
           ensure that nuclear safety requirements were being met, including
           allowing design changes to be made without following nuclear
           safety procedures and failing to detect serious construction flaws
           in tanks that will hold radioactive material in the facilities.

           Regarding DOE management:

           o  DOE has followed an approach to constructing the project known
           as "fast-track," design-build -- where design, construction, and
           technology development occur simultaneously. However, this
           approach is not recommended for designing and constructing
           one-of-a-kind, complex nuclear facilities because, among other
           things, it increases the risk of encountering problems that can
           adversely affect a project's cost and schedule. DOE also did not
           establish project management requirements and DOE headquarters
           staff was not involved in evaluating the project or the
           contractor's performance.

           Regarding technical challenges:

           o  Bechtel and DOE have encountered many technical problems with
           facility design and equipment that are taking considerable more
           time and money than expected to address and correct. These
           problems include reengineering plant facilities to withstand
           earthquakes; correcting design and operation problems with waste
           mixing pumps; and preventing flammable hydrogen gas from building
           up to unsafe levels in tanks and pipes. Although final cost
           estimates are not yet available, as of April 2005, these technical
           challenges have added about $1.4 billion to project cost
           estimates.

           To address project cost and schedule problems, DOE and Bechtel
           have focused on three main areas- slowing down construction while
           addressing technical and safety problems; establishing new project
           cost and schedule estimates; and strengthening project management
           and oversight. For example, DOE directed Bechtel to slow down or
           stop construction activities on the two facilities affected by
           changing earthquake protection requirements-the pretreatment
           facility and the high-level waste treatment facility. Slowing the
           pace of construction will allow more time to address technical and
           safety problems and make any needed design changes before
           construction is restarted. DOE also directed Bechtel to develop a
           new project cost and schedule baseline starting with an analysis
           of material and labor quantities and costs, and incorporating more
           contingency funding to address future uncertainties. DOE's project
           management improvements have included developing a headquarters
           oversight board that includes several senior DOE executives and
           funding independent reviews of (1) the new project baseline by the
           Corps of Engineers and (2) the technical feasibility of the
           treatment project by a panel of outside experts. These initiatives
           are ongoing. Bechtel has focused on improving its project
           performance information, implementing several management and
           organizational changes, and strengthening safety and quality
           assurance practices.

           Despite the steps DOE and Bechtel have taken to address technical,
           safety, and other management problems on the construction project,
           we have continuing concerns about the current strategy for going
           forward. Our main concerns include: (1) the continued use of a
           fast-track, design-build approach for the remaining work on the
           construction project; (2) the reliability of the revised project
           cost and schedule estimates, and whether there is enough
           flexibility in the revised schedule to address remaining project
           uncertainties during the construction and commissioning phases;
           and (3) the adequacy of management actions taken to ensure
           effective project management and oversight. DOE is continuing with
           the fast-track approach to try and stay as close as possible to
           milestone dates agreed to in the Tri-Party Agreement and to keep
           costs down. However, the technical, safety, and management
           problems on the project make it clear that a fast-track approach
           is not appropriate. In our view, proceeding with a project
           construction plan more closely aligned with nuclear industry
           guidelines, which suggest completing at least 90 percent of the
           design before restarting construction provides a better chance of
           successfully completing the project and controlling the cost and
           completion date. Furthermore, the cost and schedule baseline is
           being revised before all of the technical issues are understood
           and the cost and time needed to address them is known. For
           example, it is not clear whether DOE has allowed sufficient time
           for testing of all the facilities during the commissioning phase
           of the project. Also, in our view, the revised cost estimate
           should contain cost and schedule contingencies that are sufficient
           to ensure that no further re-baselining of the project will be
           needed in the future. Finally, regarding overall project
           management, it is unclear whether the actions taken by DOE and
           Bechtel are adequate to bring the project under control and create
           greater overall accountability for results. Specifically, it is
           unclear how DOE will modify contractor incentives once the cost
           and schedule baselines are finalized. The current contract
           incentives are no longer meaningful because the current cost and
           schedule goals are no longer achievable and are being revised.
           However, modifying the contract to provide new incentives could be
           viewed as rewarding Bechtel's past performance. It remains to be
           seen whether DOE can establish a combination of project incentives
           and management controls that will lead to the successful
           completion of the construction project.

           We are recommending that the Secretary of Energy take steps to
           prevent further use of a fast-track, design-build approach to the
           project; ensure that facility design or facility component design
           have reached at least 90 percent completion and that technical and
           safety problems have been satisfactorily addressed before
           restarting construction; and take other management actions to help
           ensure that the new project baseline will be reliable and that
           controls and accountability are such that Bechtel will safely and
           effectively complete the project.

           On April 4, we met with DOE officials, including the Assistant
           Secretary for Environmental Management, to obtain oral comments on
           this testimony. DOE generally agreed with the testimony findings
           and conclusions and two of the three recommendations. DOE agreed
           with our recommendations to ensure that the new project baseline
           fully reflects all remaining uncertainties on the project and to
           strengthen management controls over the project. However,
           regarding our recommendation that DOE not restart construction
           until facility design has reached 90 percent and the project's
           major technical and safety problems have been satisfactorily
           addressed, DOE only partially agreed. DOE said that it would
           discontinue using a fast-track, design-build approach to
           completing the project and acknowledged that use of this approach
           has led to increased costs and schedule delays on the project.
           DOE's Assistant Secretary for Environmental Management said that
           DOE has already taken some initial steps to discontinue the
           fast-track approach by widening the gap between facility design
           and construction to at least one year or longer. However, the
           Assistant Secretary expressed concern about delaying construction
           of WTP facilities until the facility design has reached at least
           90 percent completion and the project's major technical and safety
           problems have been satisfactorily addressed. He said that DOE has
           not studied the extent to which such a delay in restarting
           construction could potentially increase the overall cost of the
           project. Accordingly, we modified our recommendation to ensure
           that DOE evaluates the feasibility of completing at least 90
           percent of the facility design or facility component design, and
           that major technical and safety issues have been satisfactorily
           addressed before restarting construction.

           DOE carries out its high-level waste cleanup program at Hanford
           under the auspices of the Assistant Secretary for Environmental
           Management and in consultation with a variety of stakeholders. The
           EPA and the Washington State Department of Ecology provide
           regulatory oversight of cleanup activities at the site. The
           Defense Nuclear Facilities Safety Board (Safety Board) also
           oversees DOE's operations. The Safety Board was created by the
           Congress in 1988 to provide an independent assessment of safety
           conditions and operations at defense nuclear facilities, including
           DOE's Hanford site. Other stakeholders involved in the Hanford
           cleanup project include county and local governmental agencies,
           citizen groups, advisory groups, and Native American tribes. These
           stakeholders advocate their views through various processes,
           including site-specific advisory boards. DOE manages the tank
           waste at Hanford through its Office of River Protection, which
           Congress directed DOE to establish in 1998. The office has a staff
           of about 110 DOE employees and a fiscal year 2006 budget of about
           $1 billion. It manages Hanford's tank waste through two main
           contracts: a tank farm operations contract with CH2M Hill Hanford
           Group3 to maintain safe storage of the waste and to prepare it for
           retrieval, and a construction contract with Bechtel to design,
           construct, and commission the operation of a waste treatment
           plant. For additional information on Hanford's tank wastes, see
           appendix I.

           The Hanford waste treatment construction project includes the
           construction of three primary processing facilities, a large
           analytical laboratory, and 23 supporting buildings on a 65 acre
           site. The three primary processing facilities are:

           o  the pretreatment facility, which receives the waste from the
           tank farms and separates it into its low-activity and high-level
           waste components;
           o  the high-level waste facility that immobilizes high-level waste
           for offsite disposal through a process known as vitrification,
           which mixes nuclear waste with molten glass;4 and
           o  the low-activity waste facility, which vitrifies the
           low-activity waste for onsite disposal.

           The waste treatment plant facilities are large and complex. For
           example, Bechtel estimates that the completed project will contain
           almost 270,000 cubic yards of concrete and nearly a million linear
           feet of piping. The largest building, the pretreatment facility,
           has a foundation the size of four football fields and is expected
           to be 12-stories tall.

           In just over 5 years, the estimated cost of the project has
           increased more than 150 percent to about $11 billion and the
           schedule has been extended from an 11-year project to a 17-year
           project. Three main factors were responsible for the cost and
           schedule increases: (1) poor contractor performance in developing
           project estimates and implementing nuclear safety and other
           requirements, (2) management weaknesses in DOE's approach to and
           oversight of the project, and (3) technical challenges that have
           been more difficult than expected to address.

           Since DOE awarded the contract to Bechtel in 2000, both the
           contract price and the completion date have increased
           significantly. In 2000, the contract price was $4.3 billion,
           including contractor fee and project contingencies. In 2003,
           Bechtel revised the estimate to $5.7 billion, based on changes DOE
           wanted to make in plant capacity and to correct for estimating
           errors and other problems that were already occurring on the
           project. Since then, the cost estimate has continued to climb. For
           example, Bechtel's December 2005 estimate of the cost to complete
           the project, an estimate that DOE has not yet approved, totals
           about $10.5 billion plus contractor fee, a significant increase
           from the initial estimate in 2000. Bechtel is still revising its
           estimate of the project costs, and the final estimate will very
           likely be higher. For example, in a February 2006 hearing before
           the Senate Armed Services Committee, the Secretary of Energy said
           that the final cost for the project could be nearly $11 billion.
           Figure 1 shows this progression of cost estimates for the
           construction project.

           Figure 1: Progression of Cost Estimates for WTP Construction
           Project.

           aThese cost estimates do not include contractor performance fees.
           Note: This comparison is based on dollar values that were not
           adjusted for inflation which was about 15 percent over this time
           period.

           The estimated completion date has also been extended. In 2000, the
           estimated date to complete the construction of the waste treatment
           project was 2011. This date corresponded to the work schedule
           agreed to by DOE in the Tri-Party Agreement under which DOE was to
           begin operating the waste treatment facilities by 2011. However,
           Bechtel's latest estimate, not yet approved by DOE, is that the
           construction project will be completed by 2017 or later, at least
           a 6-year extension and a 50 percent increase in the project's
           schedule.

           Furthermore, the revised cost and schedule estimates Bechtel
           developed in December 2005 are not final and will likely increase
           further. At least through the rest of 2006, DOE and Bechtel will
           continue to address identified technical and safety issues and
           incorporate additional design changes into its estimates. For
           example, Bechtel is currently reviewing several technical issues
           recently raised by a panel of experts DOE invited to study the
           project.5 Bechtel plans to incorporate changes resulting from the
           review into a new cost estimate. This revised estimate is expected
           to be complete in late May 2006. Once that estimate is available
           and DOE has completed its review of the estimate, DOE and Bechtel
           will need to agree on a revised contract price that incorporates
           any changes made to the project, including any changes to the fee
           that Bechtel can potentially earn. DOE officials do not expect to
           have these activities completed until late 2006.

           In our view, Bechtel and DOE both share in the responsibility for
           the problems with the Hanford waste treatment plant.6

           Contractor performance. Poor contractor performance in the areas
           of developing and revising cost estimates and adhering to nuclear
           safety and other requirements contributed to cost and schedule
           increases.

           Bechtel made a number of miscalculations on a broad range of
           activities when developing and revising its cost estimates for the
           project. Specifically, we found that Bechtel:

           o  underestimated by more than 50 percent the engineering hours
           needed to design the facilities (a small portion of this increase
           was due to changes in seismic design criteria). The current
           estimate for design hours is now over 14 million hours.
           o  underestimated the cost of key commodities like steel. Steel
           prices climbed sharply once project construction started.
           o  incorrectly assumed that it could obtain an exception to the
           fire code and avoid applying a protective coating on some of the
           structural steel used in the facilities and instead use a less
           expensive sprinkler system.

           In April 2005, Bechtel estimated that the estimating errors
           collectively added about $845 million to the estimated contract
           price.

           Additionally, Bechtel also incorrectly estimated the amount of
           contingency funds that would be needed to account for project
           uncertainties. In 2000, Bechtel estimated that $500 million in
           contingency was needed. However, in its December 2005 estimate,
           Bechtel proposed that a total of $2.8 billion in contingency be
           allocated to the project. The $2.8 billion in contingency funds
           included $1.76 billion to address technical and programmatic risks
           outside the current scope of the project and an additional reserve
           of about $1 billion for potential future problems not yet
           identified.

           Finally, Bechtel was ineffective at ensuring that the completed
           facilities would meet nuclear safety requirements. In March 2006,
           DOE's Office of Enforcement issued a report documenting a number
           of different safety problems with the construction project,
           including a failure to (1) include safety requirements in design
           documents, (2) identify and use the correct design codes and
           safety standards, and (3) track design changes to ensure purchased
           materials and supplies were consistent with those changes.7 These
           failures led to significant problems. For example, Bechtel ordered
           approximately 70 tanks with incorrect structural specifications to
           ensure the quality of their welds. These tanks, that will be
           located in inaccessible areas of the waste treatment plant, were
           in various stages of fabrication. Had this problem not been
           identified, the quality of welds for all of these tanks could have
           been flawed. One tank had already been installed using these
           incorrect specifications before the problem was discovered. The
           tank was installed because neither the supplier nor Bechtel had
           performed the required weld inspection. Furthermore, when the
           welds were first repaired the subcontractor used incorrect welding
           rods, requiring more rework to repair the repairs.

           In addition, in September 2005, Bechtel discovered errors that had
           been made in structural steel calculations for the laboratory
           facility. These potentially serious errors included design
           specifications that were incorrect and discrepancies between
           engineering calculations and design drawing specifications, which
           led to replacing steel already purchased and correcting hundreds
           of engineering drawings. Of significant concern, a 2005
           DOE-sponsored survey found that some construction and engineering
           employees were reluctant to raise safety concerns to Bechtel
           management, fearing reprisal. Bechtel is now developing a strategy
           for cultivating a more rigorous culture of safety among its
           workforce that it expects to complete by June 2006.

           DOE management. In our view, DOE's management of the project has
           been flawed, as evidenced by (1) adopting a fast-track approach to
           design and construction activities that both created and
           exacerbated problems and (2) failing to exercise adequate and
           effective oversight of contractor activities, both of which
           contributed to cost and schedule increases.

           DOE's decision to pursue a fast-track, design-build approach under
           which technology development, facility design, and construction
           activities were carried out concurrently has proven to be
           regrettable. DOE adopted the fast-track approach because of
           commitments made under the Tri-Party Agreement to have facilities
           operating by 2011, and to treat all of the tank waste by 2028.
           However, using a fast-track approach for nuclear facilities is
           considered "high risk," and is not recommended for designing and
           constructing one-of-a-kind, or first-of-a-kind complex nuclear
           facilities. DOE's own project management guidance cautions against
           using this approach for complex facilities. For example, DOE Order
           413.3 cautions that a design-build approach should only be used in
           limited situations, such as when work scope requirements are well
           defined, projects are not complex, and technical risks are
           limited.

           Furthermore, the project approach included optimistic assumptions
           that virtually every major safety, technology, regulatory, and
           nuclear material acquisition uncertainty could be resolved while
           facilities were being constructed at an unusually fast pace for
           the largest, most complex, first-of-a-kind, nuclear waste
           treatment plant in the United States.8 Less than one year after
           construction began, DOE was already experiencing problems with
           construction activities outpacing design, technology problems that
           were affecting the critical path of the construction project,
           contractor safety control inadequacies, and outdated facility
           seismic criteria. Despite these problems, DOE insisted on
           continuing its fast-track design-build approach under its
           accelerated cleanup plan until early 2005. At that point, the
           effect of these and other unresolved issues, contractor
           performance problems, and signs of significant cost growth and
           schedule delays caused DOE to direct Bechtel to significantly slow
           construction, rework the design, and reevaluate safety, seismic,
           and regulatory requirements.

           The impact of many of these problems could have been lessened if
           facility design had been more complete before construction began.
           Under nuclear industry guidance, which recommends that facility
           design be essentially complete before construction begins, major
           environmental, technological, and regulatory issues can be
           resolved in advance of construction.9 The benefit of this process
           is that most uncertainties are resolved before major capital is at
           risk, and the potential for project delay is significantly
           reduced. On this project, under the fast track approach, actual
           schedule delays of more than two years have occurred, contributing
           to more than 1,000 workers being laid off, and work on the two
           largest waste treatment facilities coming to a halt.

           GAO, the Safety Board, and others have criticized DOE in the past
           for using the fast-track approach for large, complex
           first-of-a-kind nuclear cleanup facilities. We issued reports in
           1993, and again in 1998, that were critical of DOE for using an
           approach that differs so significantly from nuclear industry
           guidelines for constructing complex nuclear facilities. The Safety
           Board cautioned in June 2002, and again in March 2004, that a
           fast-track, design-build approach could lead to expensive plant
           modifications or to the acceptance of increased public health and
           safety risks. In June 2004, we recommended that DOE avoid using a
           fast-track approach to designing and constructing its complex
           nuclear facilities. The department accepted this recommendation,
           but apparently believes that it does not apply to this project. At
           the time of our 2004 report, the department could not identify a
           single instance where it had successfully used the approach to
           construct a large, complex nuclear cleanup facility. Despite the
           fact that DOE has never been successful with this approach on any
           complex nuclear cleanup project, Bechtel reported in its most
           recent cost and schedule estimate that a "fast-track engineering,
           procurement, and construction" approach is a standard commercial
           approach for large projects and the best approach for a
           schedule-driven project.

           DOE's lack of oversight of Bechtel's activities has also been
           unfortunate. DOE did not ensure adherence to normal project
           reporting requirements and, as a result, status reports provided
           an overly optimistic assessment of progress on the project. For
           example, in January 2005, DOE's project status report indicated
           that costs and scheduled work to date were proceeding as planned.
           However, Bechtel was not providing accurate information. The
           project almost always appeared to be on schedule because Bechtel
           adjusted the project baseline schedule to match actual project
           results. In addition, DOE headquarters oversight officials were
           generally unaware of the full extent of the problems with the
           project.

           Finally, DOE has not prevented significant safety problems from
           occurring on the project. DOE is responsible for ensuring that its
           activities follow nuclear safety requirements and generally
           receives no outside regulatory oversight of nuclear safety.
           However, the department was not fully effective in ensuring that
           nuclear safety requirements were being met. Contributing to the
           problem, DOE's internal safety oversight had been significantly
           reduced since 2000. Furthermore, key responsibilities to ensure
           quality control of contractors were placed under the
           responsibility of the DOE project manager who also had primary
           responsibility for meeting project cost and schedule targets. In
           late 2003, DOE began recognizing some of the nuclear safety
           problems on the project but many of these problems dated back to
           2002, or earlier. Finally, in 2005 and 2006, according to the WTP
           project manager, DOE withheld a total of $800,000 in performance
           fee from Bechtel for industrial and nuclear safety problems, but
           problems continued. In 2006, DOE assessed a civil penalty of
           $198,000 for a number of nuclear safety violations. DOE also
           recently increased the number of staff assigned to oversee safety
           activities.

           Technical challenges. Constructing the waste treatment plant at
           the Hanford site is a massive, highly complex and technically
           challenging project. Problems in addressing these technical
           challenges have contributed to cost and schedule increases.

           A number of technical problems have continued to plague the
           project, including:

           o  changing seismic standards that resulted in substantial
           re-engineering of the facility design;
           o  problems with "pulse jet mixers" needed to keep waste
           constituents uniformly mixed while in various tanks in the
           facilities;
           o  the potential buildup of flammable hydrogen gas in the waste
           treatment plant tanks and pipes; and
           o  problems with radioactive and hazardous wastes plugging
           treatment plant piping systems during operations.

           Bechtel estimated, in December 2005, that collectively these
           technical problems could add nearly $1.4 billion to the project's
           estimated cost.

           In 2002, the Safety Board began expressing concerns that the
           seismic standards used to design the facilities were not based on
           the most current ground motion studies and computer models, and
           were not based on geologic conditions present directly under the
           construction site. After more than 2 years of analysis and
           discussion, DOE contracted for a new seismic analysis that
           confirmed the Safety Board's concerns that the seismic criteria
           were not "sufficiently conservative" for the two largest treatment
           facilities-the high-level waste facility and the pretreatment
           facility. Revising the seismic criteria caused Bechtel to
           recalculate thousands of engineering estimates and to rework
           thousands of design drawings to ensure that tanks, piping, cables,
           and other equipment in these facilities were adequately anchored.
           Bechtel determined that the portions of the building structures
           already constructed were sufficiently robust to meet the new
           seismic requirements. By December 2005, however, Bechtel estimated
           that engineering rework and other changes to tanks and other
           equipment resulting from the more conservative seismic requirement
           would increase project costs by about $750 million to $900 million
           and result in a 26 month schedule delay.

           In 2003, potential problems with the pulse jet mixers caused
           project construction delays. Bechtel initially planned to rely on
           computer modeling to confirm that the mixer would successfully
           keep the tank waste uniformly mixed. However, because these mixers
           were designed to be placed in "black cells" in the pretreatment
           facility where they could not be repaired or modified after
           operations began because of the high levels of radiation in the
           cells, mixer failure was considered high risk. Given this risk, in
           April 2003, just 9 months before the design configuration for the
           mixers was to be completed, Bechtel decided to conduct laboratory
           tests of the mixers to ensure that they would successfully mix the
           tank waste. Based on laboratory performance testing, Bechtel found
           that the mixers did not adequately work. Consequently, the mixers
           had to be re-designed. The tanks that were to house the mixers
           also had to be redesigned with greater structural support to
           accommodate more forceful mixing pumps and other modifications.
           DOE spent about two years addressing problems with the pulse jet
           mixers. According to DOE's project manager, Bechtel has completed
           the testing and design modifications for the mixers. As of May
           2005, this problem had contributed more than $300 million to the
           project's cost growth.

           In June 2004, we reported on the possibility of hydrogen gas
           building up in the plant's tanks, vessels, and piping systems, and
           noted that the buildup of flammable gas in excess of safety limits
           could cause significant safety and operational problems. Although
           DOE and Bechtel have been aware of this problem since 2002, the
           problem has not been fully resolved. As of March 2006, Bechtel
           continued to assess how to resolve this technical problem but has
           not identified final solutions. In April 2005, Bechtel estimated
           that this problem contributed about $90 million to the project's
           cost growth.

           In March 2006, an external technology review identified another
           technological problem called "line plugging," involving the
           potential that solid and liquid radioactive and hazardous wastes
           could plug waste treatment facility piping systems during
           treatment operations.10 Described as the most serious problem the
           external group identified, the report emphasized that unless
           corrected, this flaw could prevent the plant from operating
           successfully. The review concluded that the treatment plant's
           piping systems could begin plugging within days to a few weeks of
           operational start up. The external review did not estimate the
           potential cost and schedule impact of correcting this problem, but
           concluded that DOE identify and consider the corrective actions
           needed to resolve the problem. Bechtel plans to address these
           actions in its final cost and schedule estimate due in late May
           2006.

           To address underlying causes contributing to cost and schedule
           growth on the construction project, DOE and Bechtel have
           undertaken three main initiatives: (1) slowing construction to
           allow time to address technical and safety problems and to advance
           design activities further ahead of construction activities, (2)
           developing a more credible cost and schedule baseline, and (3)
           improving project management and oversight.

           Because of the scope of the technical problems on the project,
           especially the need to apply more conservative seismic standards
           to the pretreatment and high-level waste facilities, in December
           2004, DOE directed Bechtel to slow construction on these
           facilities. This allowed Bechtel to focus on addressing the
           technical problems and to advance plant design further ahead of
           construction activities. According to the DOE project manager, as
           of March 2006, the design for the waste treatment plant was about
           60 percent complete. DOE's project manager told us that once
           construction starts again, he expects to have a gap of about one
           year between completing the design of specific building components
           and beginning construction of those components. Slowing the
           construction of project facilities has also allowed DOE and
           Bechtel to resolve some of the technical issues that contributed
           to cost and schedule growth. For example, according to DOE's WTP
           project manager, seismic criteria have been revised and are being
           incorporated into facility design. The Corps is reviewing
           Bechtel's design rework to ensure that it meets the revised
           criteria. These criteria are scheduled to be confirmed by the
           Corps in early 2007. Similarly, DOE's WTP project manager said
           that problems with tank waste mixing pumps have apparently been
           resolved and changes are being incorporated into the revised
           design. However, issues involving the potential for hydrogen gas
           to build up in the waste treatment plant tanks and piping systems
           have not yet been resolved, according to DOE's project manager.

           Bechtel and DOE have taken steps to develop estimates they believe
           will better reflect the project's true cost. Bechtel has been
           conducting a more detailed review of cost and schedule elements
           than occurred in developing previous baselines. In the past,
           Bechtel relied more on estimating techniques to develop the
           baseline because the design was not sufficiently mature to more
           accurately estimate material and labor costs. Bechtel's December
           2005 baseline estimate of $10.5 billion was based on using
           detailed design drawings and a better understanding of the actual
           material and labor costs. According to Bechtel's deputy project
           manager, the new estimate better defines risk on the project and
           assigns a more realistic contingency value to that risk. Bechtel
           also brought in outside experts and conducted two major corporate
           reviews of the estimates in April and December 2005. Bechtel is
           expected to submit a final revised cost and schedule estimate by
           the end of May 2006.

           In addition to Bechtel's efforts, DOE has hired two external teams
           to review the revised estimates. First, DOE contracted with the
           Corps of Engineers to review the reasonableness of various aspects
           of Bechtel's estimate. DOE expects the Corps of Engineers to
           validate such things as the revised ground motion criteria and
           other geophysical data, whether the ground motion criteria has
           been adequately incorporated into the plant design, and the
           reasonableness of material and labor cost estimates, including the
           amount of contingency funds needed for the project. DOE expects
           the Corps of Engineers to complete its review by July 2006.
           Second, DOE directed Bechtel to hire an independent review team of
           experts from industry and academia to review the technical, cost,
           and schedule aspects of the project. The team's preliminary report
           concluded that the project's cost estimate should be increased to
           $11.3 billion, plus contractor fee.11

           In our view, while these reviews are a step in the right
           direction, given the Department's past history in developing a
           credible project baseline, it is too soon to tell whether these
           reviews will assist DOE and Bechtel in providing reliable cost and
           schedule estimates.

           Both Bechtel and DOE have undertaken several other actions to
           improve management and oversight of the project. Bechtel's actions
           include (1) improving its cost and schedule performance tracking
           system, (2) making management and organizational changes, and (3)
           taking steps to improve quality and safety on the project.
           Regarding the cost and schedule performance tracking
           system-referred to as an earned value system-DOE requires that a
           contractor's system be certified to comply with industry
           standards. However, DOE had not certified Bechtel's earned value
           system. Bechtel is now working to have its earned value management
           system certified by September 2006. In addition, to improve its
           management of the project, Bechtel has reorganized to provide
           greater control and oversight of facilities engineering work and
           greater standardization in purchasing material and supplies.
           According to Bechtel's deputy project manager, the new
           organizational structure, along with selected personnel changes
           will strengthen oversight of this work. Finally, following a March
           2006 nuclear safety enforcement action by DOE, Bechtel is in the
           process of developing a nuclear safety and quality culture change
           initiative. This includes holding meetings to emphasize quality
           and safety, implementing new training requirements, and conducting
           employee focus groups to promote greater awareness of safety
           requirements.

           DOE has also taken steps to strengthen its management and
           oversight. To address organizational and staffing oversight
           issues, DOE formed a special headquarters task force, in late
           2005, to study various aspects of the Hanford project and to
           advise the Secretary and the DOE project manager as the project
           goes forward. In addition, the Assistant Secretary for
           Environmental Management directed the DOE site manager to hire at
           least eight additional contracting staff to help administer the
           project, including a director of procurement, a procurement
           attorney, two senior contracting officers, two senior contract
           specialists, and two contract specialists. DOE expects to fill
           these positions by spring 2006. DOE also established a new
           headquarters office-the Office of Project Recovery-to focus
           greater attention on projects, such as the waste treatment plant
           project, that have performance problems. This office, which
           reports directly to the Assistant Secretary for Environmental
           Management, is intended to work with field officials to help get
           projects in trouble back on track.

           To address project management and reporting concerns, DOE is
           improving the use of its earned value information-data DOE uses to
           monitor cost and schedule performance on its projects. DOE is also
           requiring Bechtel to comply with DOE's project management
           requirements, as defined in DOE Order 413.3. In our June 2004
           report on the Hanford waste treatment project,12 we found that DOE
           awarded the original contract in December 2000, without putting in
           place these key project management requirements. We noted that
           this approach added significantly to project risk. Additionally,
           the Assistant Secretary for Environmental Management directed
           DOE's Office of Engineering and Construction Management to provide
           more frequent assessments of the waste treatment project and, if
           necessary, initiate more external reviews of the project.

           To address continuing problems in nuclear safety and quality, DOE
           recently initiated an enforcement action, including a civil
           penalty of $198,000, against Bechtel for the continuing recurrence
           of quality and safety violations. In its March 16, 2006
           Preliminary Notice of Violation letter, DOE listed several areas
           where Bechtel had violated nuclear safety requirements, including
           non-adherence to procedures, inadequate training for staff, and
           emphasizing meeting cost and schedule requirements over quality
           and safety. In its March 16 letter, DOE noted that past actions by
           Bechtel to correct these long-standing problems had not been
           effective. DOE plans to meet with Bechtel in June 2006 to discuss
           the contractor's progress in improving nuclear safety on the
           project and determine what additional steps will be necessary to
           ensure safety and quality on the project.

           Despite the actions taken by DOE and Bechtel to address technical,
           safety, and other management problems on the project, we have
           continuing concerns about the current strategy for going forward.
           Our main concerns include:

           o  the continued use of a fast-track, design-build approach to the
           remaining work on the construction project,
           o  the reliability of the project baseline and whether it will
           fully account for remaining uncertainties, and
           o  the adequacy of project incentives and management controls for
           ensuring effective project management and oversight.

           It is unclear whether DOE plans to go forward with the fast-track
           approach and allow Bechtel to work concurrently on technology,
           design, and construction activities. Although design and
           construction activities will be less "close-coupled" than before,
           the work schedule will still not fully comply with nuclear
           industry guidelines to complete at least 90 percent of the design
           before constructing the facilities. DOE is continuing with this
           fast-track, design-build approach to try and stay as close as
           possible to milestone dates agreed to in the Tri-Party Agreement,
           and because DOE believes that doing so will help to control costs
           on the project. However, the myriad of technical, safety, and
           management problems that have already occurred on the project make
           it clear that a more systematic approach to the project is needed.
           Indeed, many of those problems have not yet been fully resolved.
           Continuing with a fast-track, design-build approach under these
           conditions increases the risk that the completed facilities may
           require major rework to operate safely and effectively, which
           could further increase costs. In our view, proceeding with a
           project construction plan more closely aligned with nuclear
           industry guidelines for complex nuclear facilities will provide
           the best chance of successfully completing the project and
           controlling the final cost and completion date.

           None of the estimates Bechtel has developed so far have been
           reliable. Estimates of material and labor costs have been
           inadequate and Bechtel has not included sufficient contingencies
           in the project baseline to account for the high risk, technical
           complexities, and managerial challenges it has faced. As DOE's
           project management guidance states, the key is to develop a
           project baseline estimate that is fully achievable. Re-baselining
           the project is a time-consuming and costly effort. Bechtel's
           December 2005 baseline proposal is contained in a roughly 44,000
           page document that according to Bechtel's deputy project manager
           required the efforts of about 200 staff over a 6-month period and
           cost about $10 million to develop. Furthermore, outside reviews
           and baseline validations have cost DOE an additional $20 million
           since 2003.

           Bechtel has indicated that the project's revised cost and schedule
           estimates will be comprehensive enough to account for known
           uncertainties, such as what it might take to address the problem
           of hydrogen gas building up in facility pipes as well as any less
           predictable unknowns that might occur, such as a shortage of a key
           commodity. While we are encouraged that Bechtel is taking a more
           systematic approach to developing the project estimates, we have
           some remaining concerns. In particular, the project estimate must
           not only account for constructing the facilities but also
           commissioning--when DOE and Bechtel will demonstrate that the
           facilities are safe and ready to operate. In the past, to try and
           achieve milestone dates agreed to for beginning facility
           operations, DOE and Bechtel reduced the amount of time in the
           baseline schedule allocated to facility commissioning and testing
           activities from about 58 months to 42 months. In our June 2004
           report, we expressed a concern that shortening the commissioning
           schedule may affect the reliability of the completed facilities.
           We also contacted former DOE and contractor officials and industry
           technology development managers who told us that the commissioning
           approach in the 2003 baseline could result in significant problems
           being overlooked.

           Under Bechtel's most recent proposal, the timeframe for
           commissioning and testing activities has been increased to about
           46 months, including about 21 months of component testing before
           commissioning with simulated and actual waste begins. However,
           Bechtel does not yet have a detailed plan for the commissioning
           activities that demonstrates a 46 month period is adequate.
           Furthermore, one independent review has concluded that the
           commissioning phase will be the most difficult aspect of the
           entire construction project.13 Given the nuclear safety problems
           Bechtel has encountered so far on the project, and the complexity
           and size of the waste treatment plant, the commissioning phase
           portion of the schedule will need to be long enough to allow full
           testing of the facilities and sufficient time to identify and
           address any remaining problems before operations begin.

           One of the remaining management uncertainties is how DOE will
           modify contract incentives once the new baseline is finalized. Due
           to cost increases and schedule delays that have occurred, the
           incentive fees in the current contract are no longer meaningful.
           Those incentives included more than $300 million for meeting cost
           and schedule goals or construction milestones, and about $111
           million for building a plant that operates effectively. This
           greater focus on cost and schedule milestones may help explain why
           DOE has found a less than adequate concern for nuclear safety on
           the project. Another issue, however, is that modifying the
           contract to provide new incentives could be viewed as rewarding
           Bechtel's past performance. Overall, it remains to be seen whether
           DOE can finally put in place a combination of performance
           incentives and management controls that will support the
           successful treatment of the Hanford tank wastes over the next few
           decades.

           By just about any measure, the Hanford waste treatment project is
           in disarray, as evidenced by ever-increasing cost estimates,
           construction delays, and more recently, safety concerns. In our
           view, what is happening is uncharacteristic of a well-planned and
           well-managed construction project. Project costs are increasing
           rapidly and we do not know what the facilities will ultimately
           cost or when they will be operational. Of great concern to us is
           the fact that many nuclear safety and other technical problems
           have occurred on the project. We believe that it is imperative
           that Bechtel and DOE discover any and all safety problems and
           immediately address them. In going forward, it is unclear whether
           DOE plans to continue using a fast-track approach that we have
           found is inappropriate for this unique, complex nuclear facility.
           We believe that DOE needs to follow nuclear industry construction
           guidelines and take a more conservative approach to design and
           construction activities that avoids carrying out these activities
           concurrently. Furthermore, the revised baseline must be robust
           enough to adequately address remaining uncertainties and allow
           sufficient time for testing the facilities during the
           commissioning phase. Unless the revised baseline fully reflects
           all remaining uncertainties, especially problems that may occur
           during facility commissioning, DOE will be unable to ensure that
           no further re-baselining of the project will be necessary.
           Furthermore, it is unclear how DOE will modify contract incentives
           or carry out its revised plan for overseeing the project. We
           believe that DOE needs to develop contract incentives that better
           balance cost and schedule incentives and incentives to ensure that
           the facilities operate safely and effectively as well as improve
           the department's management and oversight of contractor
           activities. In our view, if DOE takes these actions the project
           will have a better chance of being successfully completed.

           We recommend that the Secretary of Energy take the following three
           actions:

                        1. Discontinue using a fast-track, design-build
                        approach to completing the project and consider the
                        feasibility of completing at least 90 percent of the
                        facility design or facility component design before
                        restarting construction, and ensure that the
                        project's major technical and safety problems have
                        been addressed before restarting construction.
                        2. Develop a revised project baseline that fully
                        reflects the remaining uncertainties, including
                        potential problems that may be encountered during the
                        commissioning phase, before presenting it as a
                        reliable estimate of the project's cost and schedule.
                        3. Establish improved management controls, including
                        revising contract incentives and strengthening
                        accountability for performing oversight activities.

           Thank you, Mr. Chairman and Members of the Subcommittee. That
           concludes my testimony. I would be pleased to respond to any
           questions that you may have.

           For further information on this testimony, please contact Mr. Gene
           Aloise at (202) 512-3841. Individuals making key contributions to
           this testimony included Chris Abraham, John Delicath, Nancy
           Kintner-Meyer, Jeff Larson, Tom Perry, and Bill Swick.

           DOE has a vast complex of sites across the nation dedicated to the
           nuclear weapons program, but the high-level waste stemming from
           reprocessing spent nuclear fuel to produce weapons material such
           as plutonium and uranium has been limited mainly to three
           sites-the Savannah River site, South Carolina; the Idaho National
           Laboratory near Idaho Falls, Idaho; and the Hanford site near
           Richland, Washington.1 The underground storage tanks that store
           the high-level waste at the Hanford site consist of 149 single
           shell steel tanks and 28 double shell tanks encased in concrete.
           Most of these tanks have already exceeded their design life. DOE
           has concluded, based on tank monitoring data and other techniques
           used to detect contamination in soil under the tanks, that 67 of
           the single shell tanks have leaked about 1 million gallons of
           high-level waste into the soil. DOE does not believe that the
           double shell tanks have leaked any waste.

           The waste in these tanks contains radioactive components that emit
           dangerously intense radiation. Because of the intense radiation
           emitted from high-level waste, the waste must be isolated and
           handled remotely behind heavy shielding such as a layer of
           concrete in order to protect humans and the environment. In
           addition to intense radioactivity, some radioactive components are
           highly mobile in the environment and can quickly migrate to
           contaminate the soil and groundwater if not immobilized. In
           addition to radioactive components, DOE's high-level waste also
           generally contains hazardous components added during the process
           of dissolving used nuclear fuel to remove plutonium and other
           nuclear materials or to stabilize the waste for storage. These
           hazardous components include solvents, acids, caustic sodas, and
           toxic heavy metals such as chromium and lead. Radioactive waste
           components, when combined with hazardous components, are referred
           to as "mixed wastes."

           High-level waste generally exists in a variety of physical forms
           and layers inside the underground tanks, depending on the physical
           and chemical properties of the waste components. The waste in the
           tanks takes three main forms:

           o  Sludge: The denser, water insoluble components generally settle
           to the bottom of the tank to form a thick layer known as sludge,
           which has the consistency of peanut butter.
           o  Saltcake: Above the sludge may be water-soluble components such
           as sodium salts that crystallize or solidify out of the waste
           solution to form a moist sand-like material called saltcake.
           o  Liquid: Above or between the denser layers may be liquids
           comprised of water and dissolved salts called supernate.

           The treatment and disposal of high-level waste produced at DOE
           facilities is governed by a number of federal laws, including laws
           that define the roles of DOE and the Nuclear Regulatory Commission
           (NRC) in waste management. The Atomic Energy Act of 1954 (AEA) and
           the Energy Reorganization Act of 1974 established responsibility
           for the regulatory control of radioactive materials including
           DOE's high-level wastes. Under amendments the Federal Facility
           Compliance Act of 1992 made to the Resource Conservation and
           Recovery Act of 1976 (RCRA), DOE generally must develop waste
           treatment plans for its sites that contain mixed wastes.2 These
           plans are approved by states, including the state of Washington,
           that EPA has authorized to administer RCRA or by EPA in those
           states that have not been so authorized.

           To determine how costs and schedule for DOE's waste treatment
           plant located at the Hanford site near Richland, Washington have
           changed, and the primary causes for those changes since the
           contract was awarded in 2000, we reviewed previous GAO reports on
           the project from 1993 to 2005. In addition we reviewed several
           internal and external reports addressing cost, schedule,
           technology, and other issues on the project, including two studies
           by the Army Corps of Engineers, and a study conducted for DOE by
           LMI Government Consulting-a private engineering consulting firm.
           We also reviewed both the April and December 2005 Estimates at
           Completion prepared by Bechtel and two March 2006 reports prepared
           by external review teams to assess the impact of a variety of
           technical issues on the project and Bechtel's estimated cost
           estimate for completing the project. Both of these reports were
           prepared under the direction of the department's Office of
           Environmental Management. While we did not independently verify
           the accuracy of the data presented in these reports, based on our
           review of much of the supporting documentation cited in the
           reports, we determined the data to be of sufficient reliability
           use in our report. To assist in evaluating these reports and other
           technical issues on the project, we obtained assistance from our
           technical consultant, Dr. George Hinman, who has a Ph. D. in
           physics and serves as Professor Emeritus at Washington State
           University. Dr. Hinman has extensive nuclear energy experience in
           industry, government, and academia.

           We also discussed the problems and underlying causes of cost and
           schedule growth with DOE and contractor officials at the site as
           well as DOE officials in its Office of Environmental Management,
           Office of Engineering and Construction Management, and Office of
           Budget. We discussed the project's cost and schedule changes with
           outside experts, including officials from the Defense Nuclear
           Facilities Safety Board. To document the primary causes for
           changes in the cost and schedule estimates, we relied on these
           documents as well as interviews with key project and program
           officials. We quantified the cost impact of each of the main
           causes for cost growth and schedule increases from information
           provided in Bechtel's April 2005 estimate and the Corps of
           Engineers' May 2005 report. These estimates were based on an
           estimated contract price of $9.3 billion. However, even though
           Bechtel updated its cost and schedule estimates to reflect a
           potential contract price of nearly $11 billion as of December
           2005, it does not plan to finalize its estimate until late May
           2006. As a result, we were not able to quantify the impact of each
           of the main causes we cited for cost and schedule changes to
           reflect the most recent cost estimate.

           To determine the steps DOE and Bechtel are taking to improve
           management and oversight of the project, we reviewed several
           documents, including a letter by the Assistant Secretary for
           Environmental Management directing that a number of management
           improvements be made. We reviewed DOE policy and procedure
           documents, and discussed DOE's strategy to manage the project with
           DOE headquarters officials in its Office of Environmental
           Management. We also discussed management improvement initiatives
           with senior Bechtel officials. In reviewing the role of fast track
           on the project, we obtained information from the nuclear industry
           to update current guidance on designing, licensing, and building
           nuclear facilities that may be equivalent in size, scope, and
           complexity to the Hanford waste treatment plant.

           To develop information on nuclear safety issues at the waste
           treatment plant and DOE's enforcement action, we obtained numerous
           documents from DOE and Bechtel describing safety problems that had
           been identified over the years, analyses of the causes, and
           proposed actions to correct the problems. We discussed nuclear
           safety issues with DOE's Director of Environmental Safety and
           Quality at Hanford as well as Bechtel's Quality Assurance Manager
           and Price-Anderson Amendments Act Coordinator. To understand the
           significance of safety violations raised in DOE's March 17, 2006
           enforcement action, we discussed the Proposed Notice of Violation
           with the Director of the Office of Enforcement in DOE's Office of
           Environmental Safety and Health. We also discussed safety concerns
           with officials from the Defense Nuclear Facilities Safety Board
           and with state regulators.

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                                   Background

3CH2M Hill Group is a limited liability corporation of the CH2MHill
Company.

4DOE currently is evaluating the suitability of Yucca Mountain in Nevada
as the site of the repository for the high-level waste canisters.

  Contractor Performance Problems, DOE Management Shortcomings, and Technical
Challenges Have Resulted in Significantly Higher Cost Estimates and Longer
                 Completion Dates for the Construction Project

Project Cost and Schedule Have Increased Significantly

Bechtel and DOE Share Responsibility for the Main Causes of the Cost Increases
and Schedule Delays

5"Comprehensive Review of the Hanford Waste Treatment Plant Estimate at
Completion-Preliminary Draft," Assessment Conducted by an Independent Team
of External Experts, at the direction of the U.S. Department of Energy,
Office of Environmental Management (Washington, D.C.: Mar. 20, 2006).

6Between 2000 and 2003, cost increases estimated at $1.2 billion occurred
because of engineering problems, estimating errors, and contingency
funding increases. Cost increases occurring between 2003 and May 2005,
based on Bechtel's April 2005 estimate and the Corps of Engineers' May
2005 review of Bechtel's estimate, show that Bechtel underestimated costs
by an additional $845 million, ongoing technical problems added an
additional $1.15 billion to costs, and an additional $1.45 billion was
added to the project's estimated contingency. These estimates were based
on a revised contract price of $9.3 billion. These analyses have not yet
been updated to document the current cost increases based on the latest
estimated contract price estimate of nearly $11 billion. DOE expects
Bechtel to complete its current cost and schedule estimate in late May
2006.

7No estimate is available for how problems in meeting nuclear safety
requirements specifically affected project cost estimates.

8The Corps of Engineers reported in May 2004 that DOE did not properly
account for cost increases that should have been expected from the overall
complexity of nearly every aspect of the project-including the variety of
tank wastes; the required technology integration; the design,
construction, and commissioning of the plant; and the regulatory climate.
See U.S. Army Corps of Engineers, Independent Cost and Schedule Baseline
Review Summary Report, (Walla Walla, Washington, May 28, 2004).

910 CFR 52.47(b)(1) for certification of a nuclear power plant design,
calls for facility design to be "essentially complete" to resolve safety
issues before starting construction. According to the director of new
plant deployment at the Nuclear Energy Institute, for a first-of-a-kind
plant, the commercial nuclear power industry's goal is to achieve 90
percent completion of final detailed design before construction begins. In
addition, DOE's own Order 413.3 states that facility design should be
"essentially complete" and all environmental and safety criteria met when
the project is ready to begin construction.

10Comprehensive Review of the Hanford Waste Treatment Plant Flowsheet and
Throughput-Prepublication," Assessment conducted by an Independent Team of
External Experts, at the direction of the U.S. Department of Energy,
Office of Environmental Management (Washington, D.C.: Mar. 17, 2006).

DOE and Bechtel Have Taken Several Steps to Strengthen Management and Oversight
                                 of the Project

Slowing construction to address technical problems and advance the design work

Developing a more reliable project baseline

11"Comprehensive Review of the Hanford Waste Treatment Plant Estimate at
Completion-Preliminary Draft," Assessment Conducted by an Independent Team
of External Experts, at the direction of the U.S. Department of Energy,
Office of Environmental Management (Washington, D.C.: Mar. 20, 2006).

Taking other steps to improve management and oversight

Observations About Selected Issues DOE Will Need to Address in Going Forward on
                                  the Project

12U.S. General Accounting Office, Nuclear Waste: Absence of Key Management
Reforms on Hanford's Cleanup Project Adds to Challenges of Achieving Cost
and Schedule Goals, GAO-04-611 (Washington, D.C.: June 9, 2004).

The use of a fast-track, design-build approach to the project

The reliability of the revised project estimates

The adequacy of project management and oversight

13LMI Government Consulting, Hanford Waste Treatment and Immobilization
Plant Project: After-Action Fact Finding Review, January 2006.

                                  Conclusions

                                Recommendations

                          Contacts and Acknowledgments

Appendix I: Additional Information on Hanford's Tank Wastes

1DOE also agreed to clean up high-level waste at another site-the West
Valley Demonstration Project at West Valley, New York-where the state
sponsored reprocessing of both commercial and DOE spent nuclear fuel. DOE
completed treatment and preparation of this waste for disposal in
September 2002.

242 U.S.C. 6939c(b).

Appendix II: Scope and Methodology

(360665)

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Highlights of GAO-06-602T , a testimony to the Subcommittee on Energy and
Water Development and Related Agencies, Committee on Appropriations, House
of Representatives

April 2006

HANFORD WASTE TREATMENT PLANT

Contractor and DOE Management Problems Have Lead to Higher Costs,
Construction Delays, and Safety Concerns

The Waste Treatment Plant Project at the Department of Energy's (DOE)
Hanford site in southeastern Washington state is a massive effort to
stabilize and prepare for disposal 55 million gallons of radioactive and
hazardous wastes currently held in underground tanks. In 2000, DOE awarded
an 11-year, $4.3 billion contract project to Bechtel National, Inc.
(Bechtel) to design and construct the plant. Since then, numerous problems
and changes have occurred that will significantly increase the project's
final cost and completion date.

This testimony discusses (1) how and why the project's cost and schedule
have changed since 2000; (2) the status of DOE and Bechtel efforts to
address these problems and improve project management ; and (3) our
observations on issues that need to be addressed in going forward. It is
based on previous GAO reports and ongoing work.

What GAO Recommends

GAO recommends that DOE (1) consider the feasibility of completing 90
percent of facility design or facility component design before restarting
construction; (2) ensure that the revised project baseline fully reflects
remaining uncertainties; and (3) improve management controls.

DOE generally agreed, but was concerned about the costs of delaying
construction to complete design activities.

Since the waste treatment plant construction contract was awarded in 2000,
the project's estimated cost has increased more than 150 percent to about
$11 billion, and the completion date has been extended from 2011 to 2017
or later. There are three main causes for the increases in the project's
cost and completion date: (1) the contractor's performance shortcomings in
developing project estimates and implementing nuclear safety requirements,
(2) DOE management problems, including inadequate oversight of the
contractor's performance, and (3) technical challenges that have been more
difficult than expected to address.

To address the causes of the cost and schedule increases and regain
management control of the project, DOE and Bechtel have taken steps to
develop a more reliable cost and schedule baseline; slow down or stop
construction activities on some of the facilities to allow time to address
technical and safety problems and to advance design activities farther
ahead of construction activities; and strengthen both project management
and project oversight activities.

Despite these actions, we have continuing concerns about the current
strategy for going forward on the project. Our main concerns include: (1)
the continued use of a fast-track, design-build approach for the remaining
work on the construction project, (2) the historical unreliability of cost
and schedule estimates, and (3) inadequate incentives and management
controls for ensuring effective project management and oversight.

Progression of Cost Estimates on the WTP Project
*** End of document. ***