Federal Research: Additional Funds for Terminating the Super Collider Are
Not Justified (Letter Report, 04/08/94, GAO/RCED-94-153).
A request from the Energy Department (DOE) for an additional $180
million to cover termination costs for the Superconducting Super
Collider in Texas, on top of $735 million already available, is not
adequately justified and is not needed for currently estimated
termination activities. The $735 million available for terminating the
super collider exceeds DOE's latest cost estimate, made in March 1994,
by $167 million; this estimate pegs termination costs at $568 million.
This amount omits the costs of settling Texas' demand for a $539 million
refund from DOE for its investment in the project. DOE has not yet
determined what is owed to Texas and is now negotiating with the state
on a settlement. DOE's $180 million request for fiscal year 1995 to
cover termination costs and to potentially fund new uses of the
collider's assets is justified at this time. Additional funds are not
needed for currently estimated termination activities, and it is
premature to fund yet-to-be-determined future users of the collider's
assets.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: RCED-94-153
TITLE: Federal Research: Additional Funds for Terminating the
Super Collider Are Not Justified
DATE: 04/08/94
SUBJECT: Cancellation
Contract termination costs
Federal/state relations
Future budget projections
Federal facilities
Claims settlement
Energy research
Laboratories
Nuclear physics
Research and development facilities
IDENTIFIER: DOE Superconducting Super Collider Project
Texas
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Cover
================================================================ COVER
Report to the Chairman, Subcommittee on Oversight and Investigations,
Committee on Energy and Commerce, House of Representatives
April 1994
FEDERAL RESEARCH - ADDITIONAL
FUNDS FOR TERMINATING THE SUPER
COLLIDER ARE NOT JUSTIFIED
GAO/RCED-94-153
Superconducting Super Collider
Abbreviations
=============================================================== ABBREV
DOE - Department of Energy
GAO - General Accounting Office
Letter
=============================================================== LETTER
B-227295
April 8, 1994
The Honorable John D. Dingell
Chairman, Subcommittee on Oversight
and Investigations
Committee on Energy and Commerce
House of Representatives
Dear Mr. Chairman:
Your November 5, 1993, letter requested that we monitor the
Department of Energy's (DOE) termination of the Superconducting Super
Collider. The collider, intended to be the world's largest particle
accelerator, was being constructed about 30 miles south of Dallas,
Texas. After about $2 billion had been spent, in October 1993 the
Congress voted to terminate the collider project because of
escalating costs, continuing reports of management problems, and
concern about the federal budget deficit. DOE was appropriated $640
million and instructed to begin an orderly termination of the
collider project.\1 In terminating the project, the Congress also
directed DOE to submit by July 1, 1994, a plan for maximizing the
value of the investment already made in the project. The plan is to
include recommendations on how to use the collider project's assets.
Adding about $95 million of carryover funds that were appropriated in
fiscal year 1993 for the collider project to the $640 million
appropriated in fiscal year 1994, DOE has about $735 million for
conducting its termination activities. In October 1993, DOE
officials told us that although no firm estimate had been made,
terminating the project could take 5 years and cost about $1.1
billion.
Given the large amount of federal funds that DOE said it would need
to terminate the project, you asked that we monitor termination
activities. This report provides information on (1) DOE's latest
estimate of the termination costs and (2) DOE's request for
additional funds for fiscal year 1995.
--------------------
\1 The Fiscal Year 1994 Energy and Water Development Appropriations
Act, P.L. 103-126, Oct. 28, 1993, appropriated $640 million in
no-year funds, which are available until expended. All costs
presented in this report are expressed in current dollars. Current
dollars express the value of a good or service in terms of the prices
current at the time the good or service is sold.
RESULTS IN BRIEF
------------------------------------------------------------ Letter :1
The $735 million available for terminating the super collider project
exceeds DOE's latest cost estimate by $167 million. DOE's latest
cost estimate, made in mid-March 1994, is that termination will cost
$568 million. The estimate does not include the costs of settling
Texas' claim for its investment in the project. Texas has claimed
that DOE owes the state a refund of $539 million. DOE has not yet
determined what is owed to Texas and is currently negotiating with
the state to reach a settlement.
DOE has requested an additional $180 million for fiscal year 1995 to
cover termination costs and to potentially fund new uses of the
collider's assets. Although DOE has not yet determined which future
uses of assets to support, one idea Texas has recommended is a
superconductivity center that may require $20 million to $40 million
a year to operate. We do not believe the requested $180 million is
adequately justified at this time. Additional funds are not needed
for currently estimated termination activities, and it is premature
to fund yet-to-be-determined future uses of the collider's assets.
BACKGROUND
------------------------------------------------------------ Letter :2
During fiscal years 1988-93, the United States expended about $1.6
billion on constructing the collider; Texas contributed $279 million,
plus land and certain services. Although Texas has claimed that DOE
owes the state a refund of $539 million, DOE has not agreed to that
amount. Project assets include approximately 15 miles of underground
tunnels and access shafts, construction sites, tooling and test
equipment, and buildings. Completed facilities include a magnet
development laboratory; very- low-temperature refrigeration
facilities; and the project's Central Facility, which includes office
and laboratory space.
DOE is currently taking steps to identify potential future uses of
the collider's assets and report its recommendations to the Congress
by July. The report is to include a plan for maximizing the value of
the investment already made in the collider and minimizing the loss
to the United States and to the states and persons involved in the
project. In March 1994, DOE and the Texas National Research
Laboratory Commission, which represents Texas, agreed on a process to
solicit proposals for the future uses of the collider's assets that
would maximize the return on the investment in the project.
DOE HAS ESTIMATED TERMINATION
COSTS
------------------------------------------------------------ Letter :3
In October 1993, the Fiscal Year 1994 Energy and Water Development
Appropriations Act provided DOE with $640 million of no-year funds to
terminate the collider project. In addition to the $640 million
appropriated for termination, DOE had available $95 million in fiscal
year 1993 funds, giving DOE a total of $735 million to conduct the
termination.
On October 28, 1993, the day that the appropriations bill was
enacted, no firm estimate of the cost of terminating the project had
been made. At that time, DOE officials advised us that although the
cost of terminating the project was not yet known, the costs could
amount to about $1.1 billion. They identified four major "cost
drivers"--items that could have a major impact on costs. These cost
drivers included closing subcontracts, severing the employment of the
contractors' staffs, restoring the construction sites, and settling
Texas' claim for its investment in the collider.
In February 1994, DOE issued its first cost estimate for terminating
the collider project. Excluding the costs of settling with Texas,
DOE estimated termination costs at $695 million. In mid-March 1994,
still excluding any settlement with Texas, DOE revised its estimate
to $568 million. According to DOE officials, as they have progressed
with termination activities, uncertainties have been reduced and less
costly approaches have been identified.
ESTIMATE INCLUDES AMOUNTS
FOR THREE COST DRIVERS
---------------------------------------------------------- Letter :3.1
DOE's latest estimate of $568 million includes costs for the three
major cost drivers--subcontract closeouts, severance packages, and
site restoration.\2 Table 1 shows a breakout of the major cost
drivers and other anticipated costs that are included in the
estimate.
Table 1
DOE's Mid-March 1994 Estimate of Major
Cost Drivers and Other Costs for
Terminating the Collider Project
(Current dollars in millions)
Description Amount
---------------------------------------------- ------------
Subcontract closeouts $173
Severance packages 78
Site restoration 25
Other costs\a 292
============================================================
Total\b $568
------------------------------------------------------------
\a Other costs include $41 million for contingencies to cover
unexpected costs. Also, other costs include amounts for
administration and support; the closeout of the collider laboratory's
scientific and technical activities; the disposal of physical and
other property; compliance with environmental, safety, and health
rules and regulations; studies and evaluations of the use and
disposition of assets and facilities; and facility maintenance and
security.
\b Estimate is for all project termination activities, excluding a
settlement with Texas, and includes amounts for activities already in
process or completed. From October 1993 through January 1994, DOE
spent about $129 million on termination activities. The balance,
$439 million, is expected to be spent by the end of fiscal year 1997.
Source: Prepared by GAO from DOE's documents.
--------------------
\2 DOE did not include the costs for the fourth major cost
driver--the settlement with Texas--because of uncertainties about the
settlement.
DOE HAS REDUCED
UNCERTAINTIES FOR THREE COST
DRIVERS
---------------------------------------------------------- Letter :3.2
According to DOE officials, including the Project Director and his
staff, the uncertainties about the amounts estimated for three of the
major cost drivers have been reduced, as follows:
The subcontract closeout costs are now fairly certain. Of the
1,278 subcontracts considered for termination, all but 2 had
been terminated as of February 1994. Once terminated,
subcontractors must stop work and place no orders for materials,
facilities, supplies, and services. Terminated subcontractors
can incur additional costs needed only for orderly termination,
as specified by the prime contractor. Examples of costs
specified include those for work already performed and for
subcontract settlement expenses, such as administrative and
legal costs, and the costs of disposing of the
government-furnished equipment and inventories. DOE officials
advised us that, on the basis of past experience, these costs
were adequately provided for in the estimate. Two fixed-price
contracts for collider components were continued because the
contracts were cheaper to finish than to terminate. One
subcontract for $3.1 million needed an additional $544,000 of
work in process to complete. If terminated, the settlement
would have cost an estimated $632,000, including costs for work
in process plus the administrative and legal costs incurred.
Similarly, the second subcontract for $16,000 needed $5,000 of
work to complete, but settlement costs were estimated at
$10,000.
The severance costs for employees are also firm, now that the size
of the packages and the number of persons eligible to receive
them have been decided. In late November 1993, DOE announced
its severance package, which provided 60 days' severance pay, a
dislocation allowance of $15,000, and a continuation of life and
health insurance benefits. DOE initially decided to provide the
package to its prime contractor, Universities Research
Association, and its major on-site subcontractors--EG&G,
Sverdrup, Lockheed, and Parsons Brinckerhoff/Morrison Knudsen.
In January 1994, DOE extended severance benefits to include
employees working in the magnet manufacturing plants of three
subcontractors--General Dynamics, Westinghouse, and Babcock and
Wilcox. DOE does not anticipate extending benefits to other
subcontractors. (The estimated severance costs are shown by
contractor in app. I.)
DOE has revised its planned approach to site restoration and
reduced the estimated cost for this cost driver. DOE's
mid-March 1994 estimate of $25 million for site restoration
activities is $85 million less than its February estimate of
$110 million. The February estimate was determined by the
architect and engineering/construction subcontractor, which DOE
recently replaced. DOE expects that the new subcontractor will
use less costly methods for site restoration. For example, the
former subcontractor planned to refill the tunnel, although
technical consultants advised DOE that it is preferable and
cheaper to allow the tunnel to fill with water.
With the uncertainties for three of the cost drivers reduced, DOE
reduced to $41 million the amount for covering unexpected costs--down
from the $55 million included in the February estimate. Excluding
the settlement with Texas, DOE officials told us that the $41 million
should be sufficient to cover any unexpected costs.
DOE'S REQUEST FOR ADDITIONAL
FUNDS IS NOT JUSTIFIED
------------------------------------------------------------ Letter :4
DOE has not adequately justified its request for an additional $180
million in its fiscal year 1995 budget for the continuation of
termination activities and for the future uses of the project's
assets. The funds already available exceed DOE's estimate of
termination costs. Furthermore, the request would expand termination
funding to include unrelated activities that use the collider's
assets.
AVAILABLE FUNDS ARE
SUFFICIENT
---------------------------------------------------------- Letter :4.1
DOE has sufficient appropriated funds to carry out its termination
activities, excluding its settlement with Texas. According to DOE
officials, DOE has no documentation supporting the need for $180
million, but that amount was included in the budget request as a
"placeholder." The DOE officials told us that the request was
prepared before the completion of the termination cost estimate,
which they expected to be higher than the available $735 million.
They also expected that funds would be needed for settling with
Texas. However, negotiations are still ongoing with Texas, and the
latest estimate, which excludes potential settlement costs, sets the
total costs at $568 million.
BUDGET REQUEST COULD EXPAND
TERMINATION ACTIVITIES TO
INCLUDE UNDETERMINED FUTURE
USES
---------------------------------------------------------- Letter :4.2
DOE's budget request for fiscal year 1995 could expand the
termination activities to unrelated activities--funding future uses
of the project's assets, for example. The termination funds
currently available can be used to collect and evaluate proposals,
but not to fund future uses of the project's assets. DOE officials
advised us that if the Congress appropriates the additional funds
requested for fiscal year 1995 without restrictions, they would use
those funds to fund new activities that would utilize the collider's
assets.
Although DOE is seeking to fund future uses of the assets, the future
uses have not yet been determined. A state of Texas advisory panel
has already explored about 60 ideas received by the project's
laboratory for using the assets. In February 1994, the panel
recommended three ideas for further study. One idea was to create a
center for superconductivity, which would take advantage of the
superconducting magnet and refrigeration facilities at the site.
Another would take advantage of the project's computing capabilities
to create a regional center for high-performance computing. A third
idea was to develop a facility for cancer treatment and research on
radioactive isotopes. Although the costs of pursuing such ideas are
not yet known, estimates for operating one proposed facility, the
center for superconductivity, range from $20 million to $40 million a
year.\3
On March 1, 1994, the Texas National Research Laboratory Commission
endorsed the panel's recommendations. On that date, the Commission
and DOE reached an agreement in principle under which DOE agreed to
provide funds to further develop the ideas endorsed by the state of
Texas.\4
The two parties agreed to work together to further define potential
uses of the assets and the costs of those uses.
Although DOE had received about 80 unsolicited ideas by early March
1994, it had not yet decided which future uses should be pursued. In
the Commerce Business Daily, dated March 4, 1994, DOE and Texas
formally solicited expressions of interest in utilizing the project's
assets. The two parties will jointly collect and evaluate the
responses. DOE plans to formally recommend any future uses that have
merit, including those that DOE and Texas jointly agree upon, to the
Congress and the President in its July 1994 report. That report will
also include information on the benefits and costs of the recommended
uses, according to DOE officials.
--------------------
\3 Amounts cited by the Chairman, Texas National Research Laboratory
Commission, during March 15, 1994, hearings before the Subcommittee
on Science, House Committee on Science, Space, and Technology.
\4 On March 30, 1994, DOE granted Texas $6 million to further develop
ideas for the use of the collider project's assets.
CONCLUSIONS
------------------------------------------------------------ Letter :5
The $735 million of termination funding available exceeds by about
$167 million the currently estimated $568 million cost of project
termination activities. Therefore, additional funds are not needed
for currently estimated termination activities. Furthermore, it
would be premature to provide additional funds in fiscal year 1995
for yet-to-be-estimated costs of utilizing the project's assets. DOE
is to recommend future uses of the project's assets in its July 1994
report to the Congress. In that report, DOE also expects to identify
the benefits and costs of further pursuing proposed future uses as
well as any additional funding needs. At this time, those future
uses, as well as any associated costs, have not yet been determined.
MATTERS FOR CONGRESSIONAL
CONSIDERATION
------------------------------------------------------------ Letter :6
In considering DOE's fiscal year 1995 budget request for $180 million
to terminate the Superconducting Super Collider, the Congress may
wish to consider that DOE has not yet justified its need for the
funds. If the Congress decides to fund future uses of the collider
project's assets, it may wish to defer funding decisions until it has
an opportunity to consider the benefits and costs of DOE's
recommended uses of the project's assets.
AGENCY COMMENTS
------------------------------------------------------------ Letter :7
As requested, we did not obtain written agency comments on a draft of
this report. However, we discussed the information presented in this
report with DOE officials, including the Special Assistant to the
Secretary of Energy and the DOE Project Director, and with the
Director of the Texas National Research Laboratory Commission. The
DOE officials generally agreed with the accuracy of the facts
presented and provided us with DOE's mid-March cost estimate for
terminating the project. The Director of the Texas Commission also
generally agreed with the information and noted that Texas claims
that DOE owes the state a refund of $539 million. We revised the
report to reflect DOE's latest cost estimate and to disclose Texas'
claim.
SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8
To provide information about DOE's February 1994 cost estimate, we
examined the cost estimate and supporting documents provided by DOE.
We interviewed DOE officials at Department headquarters in
Washington, D.C., and DOE's Superconducting Super Collider Project
Office in Waxahachie, Texas. We also discussed the Texas settlement
and future uses of assets with officials of the Texas National
Research Laboratory Commission. To provide information on DOE's
fiscal year 1995 budget request, we reviewed DOE's Congressional
Budget Request and interviewed DOE officials.
We performed our review from November 1993 to March 1994 in
accordance with generally accepted government auditing standards.
---------------------------------------------------------- Letter :8.1
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 letter. At that time, we will
send copies of the report to the Secretary of Energy and make copies
available to others on request.
This work was conducted under the direction of Victor S. Rezendes,
Director, Energy and Science Issues, who may be reached at (202)
512-3841. Other major contributors to this report are listed in
appendix II.
Sincerely yours,
Keith O. Fultz
Assistant Comptroller General
ESTIMATED COST OF THE
SUPERCONDUCTING SUPER COLLIDER
PROJECT'S SEVERANCE PACKAGES, BY
CONTRACTOR
=========================================================== Appendix I
(Dollars in thousands)
Estimated
no. of Estimated
Contractor/subcontractor employees cost
------------------------------------ ---------- ----------
Universities Research Association 1,241 $37,470
EG&G 609 18,388
Sverdrup 10 302
Lockheed 71 1,546
Parsons Brinckerhoff/Morrison 249 8,000
Knudsen
General Dynamics 176 5,700
Westinghouse 166 4,600
Babcock & Wilcox 73 2,000
============================================================
Total 2,595 $78,006
------------------------------------------------------------
Source: DOE.
MAJOR CONTRIBUTORS TO THIS REPORT
========================================================== Appendix II
RESOURCES, COMMUNITY, AND
ECONOMIC DEVELOPMENT DIVISION,
WASHINGTON, D.C.
-------------------------------------------------------- Appendix II:1
Jim Wells, Associate Director
Robert E. Allen, Jr., Assistant Director
Sumikatsu J. Arima, Assignment Manager
OFFICE OF GENERAL COUNSEL
-------------------------------------------------------- Appendix II:2
Susan W. Irwin, Attorney Advisor
DALLAS REGIONAL OFFICE
-------------------------------------------------------- Appendix II:3
Joe D. Quicksall, Regional Management Representative
Hilary C. Sullivan, Evaluator-in-Charge
Lisa W. Scribner, Staff Evaluator