Nuclear Waste: DOE's Hanford Spent Nuclear Fuel Storage Project--Cost,
Schedule, and Management Issues (Letter Report, 09/20/1999,
GAO/RCED-99-267).

Pursuant to a congressional request, GAO provided information on the
Department of Energy's (DOE) efforts to improve the storage of spent
nuclear fuel from its nuclear reactors at DOE's Hanford Site in
Washington State, focusing on: (1) its status; (2) what problems might
affect achieving cost and schedule estimates; and (3) whether changes
have been sufficient to address management weaknesses.

GAO noted that: (1) although DOE has increased confidence that the
project eventually will begin to remove fuel from the water storage
basins, uncertainty remains over when the project will be finished and
how much it will cost; (2) completion is scheduled for July 2007 at a
cost of $1.7 billion--about 6 years and $1 billion beyond the original
estimates made in 1995; (3) however, the new completion date includes
$133.5 million and about 2 years for work activities not included in the
original estimate; (4) compared with conditions that GAO reported on in
May of last year, the amount of progress is substantial, with
considerable construction completed and equipment installation under
way; (5) since the schedule was established in December 1998, the
estimated date for completing safety documentation has slipped,
operational readiness issues have become major challenges, and most of
the extra time built into the schedule for addressing contingencies has
already been used up; (6) DOE's contractors have addressed the three
main problems that existed earlier in the project--an unrealistic
schedule, poor control over the project's baseline, and unresolved
technical issues--but still have several matters to resolve before being
able to provide assurance that cost and schedule estimates can be met;
(7) the time required to reassess the procedures for removing loaded
fuel-shipping casks from the basins and the compressed schedule to
complete safety documentation and pass readiness reviews place in
jeopardy a project milestone to begin removing fuel from the first
storage basin by November 2000; (8) to process the fuel within the
project's completion dates and cost targets, DOE and its contractors
must ensure the reliability of complex one-of-a-kind equipment that has
not yet been operated as a system; (9) DOE's contractor must also
overcome challenges in hiring operations staff and in processing the
spent fuel at a rate that can meet the project's milestones; (10)
corrective actions have addressed some but not all of the management
weaknesses on the project; and (11) although DOE's contractor
responsible for overall management of the Hanford Site has consolidated
its control over the project and made other changes to strengthen the
project's performance, it has been slow to address problems with safety
documentation and quality assurance.

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

 REPORTNUM:  RCED-99-267
     TITLE:  Nuclear Waste: DOE's Hanford Spent Nuclear Fuel Storage
	     Project--Cost, Schedule, and Management Issues
      DATE:  09/20/1999
   SUBJECT:  Schedule slippages
	     Cost overruns
	     Contract performance
	     Contract oversight
	     Nuclear waste storage
	     Nuclear waste management
IDENTIFIER:  Hanford (WA)
	     DOE Hanford Spent Nuclear Fuel Storage Project

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Cover
================================================================ COVER

Report to the Chairman, Committee on Commerce, House of
Representatives

September 1999

NUCLEAR WASTE - DOE'S HANFORD
SPENT NUCLEAR FUEL STORAGE
PROJECT--COST, SCHEDULE, AND
MANAGEMENT ISSUES

GAO/RCED-99-267

Hanford Spent Fuel Storage Project

(141317)

Abbreviations
=============================================================== ABBREV

  DOE - Department of Energy
  GAO - General Accouting Office

Letter
=============================================================== LETTER

B-283386

September 20, 1999

The Honorable Thomas J.  Bliley, Jr.
Chairman, Committee on Commerce
House of Representatives

Dear Mr.  Chairman: 

The Department of Energy (DOE) is undertaking a project to improve
the storage of spent (or irradiated) nuclear fuel from its nuclear
reactors at the Department's Hanford Site in Washington State.  This
fuel is currently stored in water basins a few hundred yards from the
Columbia River, where the deterioration of some of the fuel and the
water basins has raised health and safety concerns.  To address these
concerns, the project currently under way involves installing
equipment in the water basins to retrieve and package the fuel,
building a facility to dry the fuel, and moving the dry fuel to a new
interim storage facility farther from the river. 

In our May 1998 testimony on this project, we stated that the project
was over 4 years behind schedule and that its estimated cost had
doubled to about $1.4 billion.\1 We identified several reasons for
these problems, including an overly optimistic schedule that lacked
adequate time to address contingencies, poor performance by the
project contractor in managing the schedule and resolving technical
issues, and inadequate management and oversight by DOE and its
contractor in charge of managing the entire Hanford Site.  Since our
testimony, DOE and its contractors have been trying to address these
deficiencies and increase the progress being made toward finishing
the new facilities and beginning to remove and treat the spent fuel. 
However, ongoing quality and safety problems and recent changes in
contractors' responsibilities have raised concerns that the project
still may not be effectively managed.  Accordingly, you asked us to
revisit this project to determine (1) its current status, (2) what
problems might affect achieving current cost and schedule estimates,
and (3) whether changes have been sufficient to address management
weaknesses. 

--------------------
\1 See Nuclear Waste:  Management Problems at the Department of
Energy's Hanford Spent Fuel Storage Project (GAO/T-RCED-98-119, May
12, 1998). 

   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Although DOE has increased confidence that the project eventually
will begin to remove fuel from the water storage basins, uncertainty
remains over when the project will be finished and how much it will
cost.  Completion is currently scheduled for July 2007 at a cost of
$1.7 billionï¿½about 6 years and $1 billion beyond the original
estimates made in 1995.  However, the new completion date includes
$133.5 million and about 2 years for work activities not included in
the original estimate.  Compared with conditions that we reported on
in May of last year, the amount of progress is substantial, with
considerable construction completed and equipment installation under
way.  Nonetheless, since the current schedule was established in
December 1998, the estimated date for completing safety documentation
has slipped, operational readiness issues have become major
challenges, and most of the extra time built into the schedule for
addressing contingencies has already been used up. 

DOE's contractors have addressed the three main problems that existed
earlier in the projectï¿½an unrealistic schedule, poor control over the
project's baseline, and unresolved technical issuesï¿½but still have
several matters to resolve before being able to provide assurance
that cost and schedule estimates can be met.  In the short term, the
time required to reassess the procedures for removing loaded
fuel-shipping casks from the basins and the compressed schedule to
complete safety documentation and pass readiness reviews place in
jeopardy a project milestone to begin removing fuel from the first
storage basin by November 2000.  In the longer term, to process the
fuel within the project's completion dates and cost targets, DOE and
its contractors must ensure the reliability of complex one-of-a-kind
equipment that has not yet been operated as a system.  DOE's
contractor must also overcome challenges in hiring operations staff
and in processing the spent fuel at a rate that can meet the
project's milestones. 

Corrective actions have addressed some but not all of the management
weaknesses on the project.  Although DOE's contractor responsible for
overall management of the Hanford Site has consolidated its control
over the project and made other changes to strengthen the project's
performance, it has been slow to address problems with safety
documentation and quality assurance.  Similarly, although DOE has
increased oversight of its contractors' activities, modified
performance fees, and conducted evaluations of the project that led
to suggested improvements, continued attention is needed to ensure
that DOE's oversight will enhance the contractor's ability to meet
cost and schedule targets. 

This report makes recommendations to the Secretary of Energy to
strengthen leadership and oversight to better ensure that the project
is completed as efficiently and effectively as possible. 

   BACKGROUND
------------------------------------------------------------ Letter :2

Irradiating nuclear fuel rods was one step in the process of
producing plutonium for nuclear weapons.  After being irradiated in a
nuclear reactor, the ï¿½spentï¿½ fuel rods were stored in water-filled
basins for about 6 months and then moved to a processing facility
where plutonium was extracted.  DOE stopped producing plutonium in
the late 1980s, and now about 2,100 metric tons of fuel rods are
stored in Hanford's water basins. 

The two water-filled basins where most of Hanford's spent fuel is
stored are located about 1,400 feet away from the Columbia River. 
The basins, which were constructed in 1951, are well beyond their
useful life of 20 years and are vulnerable to leaks and earthquake
damage.  Any rupture of the basins, such as from an earthquake or
accident, could release large quantities of contaminated water to the
soil and to the Columbia River.  A loss of water from the basins
could also expose workers and the public to the airborne transmission
of radioactive materials released from the corroded fuel and the
sludge in the bottom of the basins.  Moreover, the fuel itself was
not intended for long-term storage in water, and some of it has
corroded or crumbled. 

DOE has been developing an approach for moving the fuel rods to safer
storage since 1994.  The strategy being implemented through the
current project consists of cleaning and repackaging the fuel in the
basins, removing and drying the fuel, and moving it to new interim
storage several miles from the river.  Two major new facilities are
involvedï¿½a fuel-drying facility and a storage facility.  The project
also includes special containers and metal baskets to hold the fuel;
a transportation system for moving it between facilities; various
systems to clean, package, and dry it; and special cranes to move the
loaded containers to their storage tubes inside the storage facility
where they may remain for up to 40 years, until being removed to a
national repository site.  Finally, the project involves treating and
disposing of the sludge, debris, and water left in the basins after
the fuel is removed, as well as deactivating the basins and project
equipment.  Figure 1 illustrates the major steps in the drying and
storage processes. 

   Figure 1:  Major Steps to
   Improving the Storage of
   Hanford's Spent Nuclear Fuel

   (See figure in printed
   edition.)

DOE's overall contractor for managing the Hanford Site, Fluor Daniel
Hanford, Inc.  (Fluor Daniel), has been responsible for overseeing
the project since the company assumed responsibility for the site
contract in October 1996.\2 Fluor Daniel contracted with Duke
Engineering & Services Hanford, Inc.  (Duke Engineering), to manage
the spent fuel project.  DOE, which also oversees the project
contractors, is responsible for meeting legally enforceable project
milestones under the provisions of a federal-state agreement
(commonly called the Tri-Party Agreement) with the Environmental
Protection Agency and the Washington State Department of Ecology. 

--------------------
\2 Westinghouse Hanford Company managed the project until October
1996. 

   CONSTRUCTION IS PROGRESSING,
   BUT THE PROJECT'S SCHEDULE AND
   BUDGET HAVE INCREASED
------------------------------------------------------------ Letter :3

The project's major facilities and systems are nearing completion. 
Construction of the two new facilitiesï¿½one to dry the fuel and the
other to store the loaded fuel containersï¿½is over 80-percent
complete.  The installation of the equipment in the two facilities
and within the water storage basins is in various stages of
completion.  (See table 1.)

                                Table 1
                
                Degree of Completion of Major Components
                of Hanford's Spent Fuel Storage Project

Major component                           Status as of July 1999
----------------------------------------  ----------------------------
Water storage basins Modifications to     First basin: The
these existing basins include installing  modifications are about 94-
specialized fuel-washing equipment,       percent complete. Second
water treatment systems, and overhead     basin: The modifications are
cranes and related systems for moving     about 4-percent complete.
the loaded fuel-shipping casks out of     For both basins, technical
the basins and onto the transport         problems have been
trailers.                                 encountered with these
                                          systems, and some of the
                                          components have had to be
                                          redesigned. For example, a
                                          critical bearing on the
                                          equipment to be used to wash
                                          the fuel rods failed initial
                                          testing and had to be
                                          redesigned.

Fuel-drying facility: This new facility   Construction: The building
has been designed to remove water from    is about 82-percent
the fuel containers after they are        complete; the building's
removed from the water basins.            equipment installation is
                                          about 50-percent complete.

Storage building: This new facility has   Construction: The building
been designed to store containers of dry  and equipment are about 90-
spent fuel for up to 40 years until the   percent complete.
material can be shipped to a permanent
repository.
----------------------------------------------------------------------
While progress is being made on constructing facilities and
installing equipment and systems, the project's schedule has been
extended several times as it became apparent that the contractors
could not meet the schedule.  The latest extension, approved in
December 1998, called for DOE to complete the project by July 2007,
almost 6 years beyond the original schedule.\3 The expected date to
begin removing the spent fuel from the first basinï¿½November 30,
2000ï¿½an important milestone for the project given the health and
safety risks associated with current storage conditions, is almost 3
years later than originally scheduled.  (See table 2.)

                                Table 2
                
                Changes in Key Milestones for Hanford's
                       Spent Fuel Storage Project

                                                            Cumulative
                                    Date to                   delay to
                        Date to     complete    Date to      project's
                        begin fuel  fuel        complete    completion
Schedule                removal     removal     project       (months)
----------------------  ----------  ----------  ----------  ----------
Original schedule       Dec. 1997   Dec. 1999   Sept. 2001         N/A
(Apr. 1995)

First revision          May 1998    July 2000   Sept. 2001           0
(Apr. 1997)

Second revision         July 1999   July 2001   Sept. 2003          24
(Dec. 1997)

Third revision          Nov. 2000   Dec. 2003   July                70
(Dec. 1998)                                     2007\a
----------------------------------------------------------------------
\a This date includes 23 months for the deactivation work transferred
to the project in April 1998. 

The schedule approved in December 1998 was intended to address the
major problems associated with the previous schedules, including the
lack of flexibility for addressing unforeseen problems and the
unrealistic estimates of the time needed to complete specific work. 
DOE and its contractor expressed a ï¿½high confidenceï¿½ of success in
meeting the December 1998 schedule.  For example, to address the lack
of flexibility in the previous schedules, the latest schedule
included about 7 months of contingency time to be used if unforeseen
problems were encountered.  By August 1999, however, all but 1 week
of the 7 months of the contingency time had been used because of two
developments: 

  -- Because of an error in the original safety analysis, the system
     for removing loaded fuel-shipping casks from the water basins
     had to be reevaluated to ensure that it was safe.\4

  -- When design work for the fuel-drying facility ran longer than
     expected, purchasing equipment and completing the final safety
     analysis report for the facility were delayed. 

Each time the schedule was revised, DOE and its contractors also
revised the estimate of the project's total cost.  The project's cost
estimate is now $1.7 billion, or about $1 billion more than the
original 1995 estimate.\5 This cost estimate includes $133.5 million
for work activities not included in previous cost estimates.  The
additional work is for decontaminating and deactivating the water
basins.\6 (See table 3.)

                                Table 3
                
                  Changes in Total Cost Estimates for
                  Hanford's Spent Fuel Storage Project

                         (Dollars in millions)

                                              Cost          Cumulative
Date of cost estimate                     estimate       cost increase
------------------------------  ------------------  ------------------
Oct. 1995                                     $740                 N/A
Apr. 1997                                     $814                 $74
Dec. 1997                                   $1,089                $349
Dec. 1998                                 $1,720\a                $980
----------------------------------------------------------------------
\a This amount includes $133.5 million for deactivation activities. 

--------------------
\3 In April 1998, the contractor proposed beginning fuel removal in
November 2000, completing fuel removal in August 2003, and completing
the project in December 2005.  However, DOE did not approve the
proposal, and the contractor reassessed the project, leading to the
December 1998 schedule.  The July 2007 date includes 23 months for
basin deactivationï¿½an activity not originally included in this
project. 

\4 A decision by DOE and Fluor Daniel not to redesign the
cask-lifting system may add a few weeks of contingency time back into
the schedule. 

\5 At the time of the May 1998 hearing on this project, the proposed
cost estimate was about $1.4 billion.  However, that estimate had not
been fully reviewed.  After the hearing, DOE and the contractors
developed new cost estimates based on an internal and external
review.  Subsequently, a cost estimate of $1.7 billion was formally
approved in December 1998 and was characterized as having a
90-percent probability of success. 

\6 In April 1998, these tasks were transferred to the project because
DOE and its contractors decided it would be a cost-effective way to
accomplish the activities associated with removing the debris and
water from the basins.  Until April 1998, this work was planned and
budgeted as a separate project. 

   PROBLEMS MAKE ACHIEVING THE
   SHORT-TERM MILESTONE UNLIKELY
   AND ACHIEVING THE PROJECT'S
   LONGER-TERM GOALS UNCERTAIN
------------------------------------------------------------ Letter :4

DOE and its contractors have made progress in resolving some of the
cost, scheduling, and technical issues that have plagued the project,
but they still face short-term and long-term challenges in meeting
the project's milestones.  In the short term, a November 2000
milestone to start removing fuel from the basins is in jeopardy.  In
the longer term, complex equipment and systems must perform reliably
for several years, and sufficient staff must be hiredï¿½a recruiting
task that has so far proven difficult.  However, DOE and Fluor Daniel
believe that some flexibility in the operations phase of the project
may help in addressing these challenges. 

      DOE HAS MADE EFFORTS TO
      IMPROVE PROJECT CONTROLS AND
      RESOLVE TECHNICAL ISSUES
---------------------------------------------------------- Letter :4.1

Our 1998 report pointed out three main types of problems DOE had not
resolved:  an unrealistic schedule, poor control over the project's
baseline, and unresolved technical issues.  DOE and Fluor Daniel have
resolved these problems.  The actions taken to deal with the first
problem were discussed previously.  With regard to the second
problem, DOE and Fluor Daniel have implemented a formal project
baseline management system that includes a process for making changes
to the project's baseline.  Under this system, any changes to cost or
schedule must be documented and go through a structured review and
approval process.  Fluor Daniel holds weekly meetings with managers
of the subprojects and other key staff to discuss any events or
problems that could affect the schedule.  This discipline was missing
earlier in the project. 

With regard to the third problem, a number of the technical issues
present when we issued our previous report have been resolved.  For
example, fuel elements were found to have water-bearing aluminum
hydroxide coatings that could contribute to pressurization of the
loaded container of fuel during interim storage, and decisions had
not been made about how best to obtain data on temperature, pressure,
and gas composition once fuel storage containers are in the storage
building.  As of July 1999, these issues had been resolved.  For the
most part, doing so required the contractor either to demonstrate
that its proposed processes were safe or to revise its procedures to
add an additional margin of safety. 

      BEGINNING FUEL REMOVAL BY
      NOVEMBER 2000 WILL BE
      DIFFICULT
---------------------------------------------------------- Letter :4.2

Although DOE and its contractors have made progress, several
challenges make it difficult for the contractor to begin removing
fuel from the water basins by November 2000.  These challenges
include taking time to resolve a new technical issue, completing
safety documentation, and meeting an aggressive schedule to
demonstrate the readiness of the project's operations. 

         RESOLVING A NEW TECHNICAL
         ISSUE
-------------------------------------------------------- Letter :4.2.1

Fluor Daniel has been evaluating the possibility that as the loaded
shipping casks are lifted out of the water basins and onto the
transport trailers, a cask might accidentally be dropped back into a
basin.  Dropping a cask into a water basin could damage the basin and
lead to a discharge of contaminated water to the soil and to the
Columbia River.  An earlier safety analysis had not properly analyzed
this potential occurrence.  A reassessment of the risk and
appropriate corrective actions have taken most of the remaining
contingency time in the project's schedule.  In August 1999, Fluor
Daniel and DOE decided not to redesign the cask-lifting system but
instead to modify operational procedures and develop a way to plug a
basin leak if a cask is dropped.  According to Fluor Daniel's acting
project manager, this approach will add a few weeks of contingency
time back into the project's schedule.  DOE decided that accepting
the additional risk associated with dropping a cask in the basins was
preferable to the delays and additional costs associated with
redesigning the cask-lifting system. 

         COMPLETING SAFETY
         DOCUMENTATION
-------------------------------------------------------- Letter :4.2.2

Completing safety documentation, which involves analyzing and
demonstrating that the facility or operation can be conducted safely,
has been a significant and long-standing problem.  We discussed this
problem in our May 1998 testimony, and it has continued to adversely
affect the project.  For example, since the latest schedule was
approved in December 1998, the dates for completing safety documents
for each of the project's major activities have slipped between 5 and
9 months.  (See table 4.)

                                Table 4
                
                  Delays in December 1998 Schedule for
                    Completing Safety Documentation

                              December
                              1998          Current              Delay
Safety document               schedule      schedule          (months)
----------------------------  ------------  ------------  ------------
Storage building              May 1999      Dec. 1999                7

Fuel-drying facility          June 1999     Nov. 1999                5

Water basins                  July 1999     Mar. 2000\a              8

Fuel container                Feb. 1999     Nov. 1999                9
----------------------------------------------------------------------
\a On July 13, 1999, DOE and Fluor Daniel signed an agreement for
revising the process to review and approve the safety documentation
for the water basins.  According to the agreement, the revised
process may reduce the delay in completing the documentation by
several months. 

Completing safety documentation is a critical step in the process of
getting approval to operate a nuclear facility.  The safety
documentation serves as the basis for facility operations and is
needed to develop the operating procedures and subsequent employee
training.  Therefore, any delay in getting the safety documentation
approved also affects the completion of other aspects of the project
that must be in place before a review of the project's readiness to
begin operation can occur. 

Since February 1999, the contractor has been addressing safety
documentation problems by assigning more staff to the effort,
reorganizing the workload, and working more closely with the DOE
staff who review the documentation.  While it is too soon to gauge
the overall effectiveness of these changes, early indications are
that the corrective actions may be making a difference.  For example,
the safety documentation for the fuel-drying facility that the
contractor submitted to DOE in June 1999 generated only about
one-third of the number of comments that DOE had raised in an earlier
review of safety documents for the fuel storage building.  Even so,
the remaining safety documentation must be completed on an aggressive
schedule if the contractor is to begin removing fuel from the first
basin by November 2000. 

         MEETING AN AGGRESSIVE
         READINESS SCHEDULE
-------------------------------------------------------- Letter :4.2.3

Before Fluor Daniel can begin to remove fuel from the basins, the
project must pass an extensive assessment known as an operational
readiness review.  This review, conducted by team members who are
independent of the work being reviewed, represents the culmination of
the contractor's work to ensure that the project is operationally
ready and takes place after the contractor's self-assessment of
readiness.  The fieldwork portion of the readiness review involves a
careful assessment of whether the facilities, systems, operating
procedures, personnel, and management oversight processes are in
place and effective enough to ensure that the facility can be
operated safely.  Considerable concern exists, however, that the
current schedule does not allow sufficient time to complete an
operational readiness review and to implement all needed corrective
actions. 

The schedule approved in December 1998 allowed 5 months for
completing the operational readiness review process, beginning with
the contractor's self-assessment in May 2000 and ending with DOE's
authorization for the contractor to proceed in October 2000.  In
contrast, the current schedule for demonstrating readiness to operate
has been compressed to about 3 months because delays with other parts
of the project have deferred the start of the contractor's
self-assessment until July 2000.  Fluor Daniel is compressing the
schedule for completing the readiness review because of its desire to
meet the milestone to begin removing fuel from the basins by November
2000.  Doing so will, among other things, make Fluor Daniel eligible
for about $4.9 million in contract incentive fees for fiscal year
1999 and additional fees for fiscal years 2000 and 2001.  According
to Fluor Daniel's start-up integration manager, the compressed
schedule for demonstrating operational readiness is very aggressive
and will require that all systems and personnel work perfectly when
tested.  He said that the current schedule allows only 1 month to
correct problems identified in the contractor's self-assessment
before the DOE readiness review starts and that a more normal
schedule would allow 2 or 3 months to make those corrections. 

In a June 1999 review of the project, DOE recommended adding 90 days
to the readiness review schedule.  As an alternative, however, DOE
encouraged Fluor Daniel to relieve some of the time pressures caused
by the previous delays on the project by testing some of the systems
earlier than originally planned.  As a result, the company is
planning earlier testing of the water treatment system and the fuel
retrieval system in the first basin using actual fuel elements.  DOE
and Fluor Daniel believe that this early testing initiative will
allow additional time to identify and react to any unexpected
results, will better prepare the project for the readiness review,
and will increase the company's chances of meeting the November 2000
date to start removing fuel from the basins. 

      ACHIEVING THE PROJECT'S
      LONG-TERM GOALS IS UNCERTAIN
---------------------------------------------------------- Letter :4.3

If the project is to meet its long-term goals of removing all fuel
from the basins by December 2003 and completing all work by July
2007, the systems involved must operate successfully over this
extended period.  Concerns exist, however, about the long-term
reliability of the various systems and equipment and about whether
the contractor can obtain sufficient staff for the multiple shifts of
operations it has planned to process the fuel.  Equipment failures
and other operational concerns could affect the rate at which the
contractor dries and packages the fuel for storage and, ultimately,
whether the project's cost and schedule targets are achievable. 
Because of the nature of the uncertainties remaining, it is too early
to determine whether the project will be able to meet the long-term
schedule. 

         ENSURING EQUIPMENT AND
         SYSTEMS RELIABILITY
-------------------------------------------------------- Letter :4.3.1

The spent fuel project involves one-of-a-kind equipment and system
designs, much of which has not been operated under the conditions to
be found at Hanford.  Because some of the equipment and systems must
operate continuously for a minimum of 3 years in a highly
contaminated environment, reliable performance is critical. 
Furthermore, if any of several components in the basins that are
critical to continued operations need unscheduled maintenance or
repair, a whole series of activities must stop.  For example, to
prepare fuel for transport from the basins to the drying facility,
the water treatment system, fuel retrieval system, and the crane used
to remove the loaded fuel casks must all be operational.  Failure of
any one of those components would stop operations in the basin and
delay fuel-processing activities. 

Early testing has led to opportunities to improve the performance of
some systems.  For example, early testing allowed improvements to be
made in the equipment to be used to extract moisture from the loaded
fuel containers.  Also, in June 1999, DOE learned that a critical
bearing on the equipment to be used to wash the fuel rods was failing
after only 30 seconds of use.  The equipment had to be redesigned. 
DOE's own studies have expressed concern about the need for
additional testing to ensure that the project's systems will work
together.  For example, a June 1999 DOE study raised concerns about
system reliability and noted that the systems have never performed
together.\7 The study recommended that the contractor operate the
fuel retrieval systems under actual conditions as soon as practical
to ensure that they operate properly.  According to the Fluor Daniel
Vice President in charge of the spent fuel project, the project plans
to begin this testing in December 1999 and continue the testing for
several months. 

Even after systems are successfully tested, the efficiency of the
overall process cannot be known until operations actually begin.  An
example can be seen in the water treatment system, which is designed
to capture the sludge and other debris coming off the fuel rods as
they are being cleaned.  Effective performance of the water treatment
system is critical to basin operations.  If the water becomes cloudy
and the operators cannot readily see the fuel rods being washed and
handled below the surface of the water, cleaning operations will have
to stop until the water clears.  According to the June 1999 DOE
review, the water treatment system must operate 95 percent of the
time to meet the project's production schedule of one fuel container
loaded per day.\8 Fluor Daniel officials believe that the equipment
and systems will meet the required reliability standards, but they
have also developed maintenance plans and work-around strategies to
attempt to minimize the effects of potential equipment failures. 
However, with no operating experience under actual conditions, the
overall reliability of the equipment and systems has not been
established. 

--------------------
\7 Baseline Review of the Richland Spent Nuclear Fuel Project, U.S. 
DOE, Office of Environmental Management, Office of Project
Management, June 1999. 

\8 A loaded fuel container will generally hold between 216 and 240
fuel rods and a basket of scrap material. 

         OBTAINING QUALIFIED STAFF
         FOR OPERATIONS
-------------------------------------------------------- Letter :4.3.2

Concerns also exist about obtaining enough staff to fully support the
project during its operational period.  Although the approximately
280 operations staff currently on the project apparently are
sufficient to begin the removal of the fuel from the first basin,
Fluor Daniel plans to increase the total number of operations staff
to a peak of at least 680 by 2002ï¿½more than double the current
number.  Fluor Daniel officials are concerned about being able to
hire sufficient numbers of staff to support the continuous operations
being planned.  According to the Fluor Daniel operations manager, the
company has already had difficulty filling positions at the current
staffing level.  Reasons given for the difficulty include the
commuting distance required to reach the remote location of the water
basins and the concerns voiced by potential applicants about their
employment opportunities being unclear after the project is
completed.  Fluor Daniel's Executive Vice President said the company
is developing a set of employee incentives to help overcome these
hiring barriers.  However, the staffing difficulties are already
affecting the scope of work that can be performed.  For example, a
shortage of nuclear operations staff caused Fluor Daniel to curtail
the installation of equipment in the second water basin so that work
in the first basin could be fully supported. 

In contrast to the concerns about obtaining enough staff for the
project, others have questioned the need for so many staff.  For
example, a June 1999 DOE study recommended that the contractor
reassess whether fuel has to be extracted from both basins
simultaneously because doing so will require substantially more staff
than removing the fuel from one basin at a time.  In addition, a June
1998 review of the project's baseline by an independent reviewer
raised several questions about the proposed staffing and suggested
that about 100 proposed positions could be eliminated.  Fluor Daniel
officials have agreed that operational aspects of the project,
including staffing requirements, have not been fully planned and need
further development. 

         COMBINING DEACTIVATION
         ACTIVITIES WITH THE
         CURRENT PROJECT
-------------------------------------------------------- Letter :4.3.3

In April 1998, DOE added the activities associated with deactivating
the basins and the project's equipment to the spent fuel project's
scope of work.  Originally, the deactivation was planned and budgeted
as a separate project.  Adding deactivation to the existing project
increased the project's budget by $133.5 million and lengthened the
schedule for project completion by 23 months.  However, substantial
uncertainty exists about the duration and the cost of deactivating
the basins because detailed plans for deactivation have not been
completed. 

      FLEXIBILITY IN THE CURRENT
      PLANS MAY HELP THE PROJECT
      ACHIEVE COST AND SCHEDULE
      TARGETS
---------------------------------------------------------- Letter :4.4

According to DOE and Fluor Daniel officials, a degree of flexibility
in both cost and schedule during the operational period of the
project may exist that could be used to help address some of the
challenges facing the project beyond November 2000.  This added
flexibility comes from two sourcesï¿½revised strategies for treating
the sludge in the basins and the unexpended contingency funds built
into the cost estimates. 

The project budget includes about $76 million to remove and treat
about 50 cubic meters of sludge before adding it to the other wastes
stored in Hanford's underground high-level waste tanks.\9 When
subsequent estimates of the costs of treating the sludge grew to $150
million or more, officials of DOE, Fluor Daniel, and the
Environmental Protection Agency developed an alternative strategy. 
This strategy calls for removing and packaging the sludge for storage
elsewhere on the Hanford Site until it can be combined with a larger
Hanford project that also involves treating some of the waste at the
site.  Although the ultimate cost of disposing of the sludge is
unclear, this strategy may help reduce both the cost and the time
necessary to complete the spent fuel project.  A detailed estimate of
the effects of this strategy on the project's cost and schedule is
not expected until fiscal year 2000. 

The project's baseline approved in December 1998 included about $112
million in contingency funds for uncertainties associated with
completing the project.  As of June 1999, over $100 million in
contingency funds was still available for use over the remainder of
the project. 

--------------------
\9 Treatment is required to eliminate organics and flammable
components from the sludge to meet the acceptance criteria for waste
to be stored in the underground tanks. 

   MANAGEMENT AND OVERSIGHT HAVE
   IMPROVED, BUT WEAKNESSES REMAIN
------------------------------------------------------------ Letter :5

DOE and Fluor Daniel have taken steps to address several of the
management and oversight weaknesses discussed in our May 1998
testimony.  Despite this progress, concerns continue to exist about
the project's management and oversight.  Continued and focused
management attention is needed to successfully address both the
short-term and long-term challenges on the project and, ultimately,
to bring the project to completion. 

      TYPES OF MANAGEMENT AND
      OVERSIGHT CHANGES MADE
---------------------------------------------------------- Letter :5.1

In the last year, many changes have been made in the management of
the project.  Significant among those changes has been a shift in the
role of Duke Engineering.  Originally, Duke Engineering was a
subcontractor to Fluor Daniel and was the company primarily
responsible for managing the project.  Fluor Daniel's
responsibilities were primarily to integrate the activities of the
various subcontractors on the site and to oversee those activities. 
Poor performance by Duke Engineering, however, led to a significant
expansion of Fluor Daniel's role on the project. 

In December 1997, Fluor Daniel issued a letter (called a cure notice)
to Duke Engineering, requiring the company to correct problems and
improve performance on the project or face termination for default or
other possible contractual remedies, including recompetition of the
subcontract at the end of its initial 2-year term.  Duke Engineering
prepared a recovery plan and made other organizational changes to try
to strengthen its management of the project.  Although Duke
Engineering subsequently passed the conditions set forth in the cure
notice and received conditional approval to continue to manage the
project, Fluor Daniel's management began to take greater control of
the day-to-day activities.  Key technical staff from Duke Engineering
have remained with the project, but Fluor Daniel is now fully
responsible for managing the project.  After assuming control, Fluor
Daniel integrated the staff working on the project into a single
organization.  According to Fluor Daniel's spent fuel project
director, these actions eliminated many of the organizational
conflicts plaguing the project and allowed the project director to
more directly influence the activities involved. 

Fluor Daniel also took other steps to improve the project, including
replacing several subproject managers; adding a senior manager at the
vice president level to oversee the transition from a construction
project to an operational project; and initiating increased
interaction with DOE managers and technical staff to improve
communications, identify potential problems earlier, and address
those problems.  According to DOE officials, the management of the
project has substantially improved since these changes occurred. 

DOE also took steps to improve the oversight and management of the
project: 

  -- DOE not only denied performance fee payments to Fluor Daniel for
     the project for fiscal year 1998, it imposed a ï¿½negative
     incentiveï¿½ and required Fluor Daniel to repay DOE $351,000.\10
     Also, based on commitments made at a hearing on the project in
     May 1998 before the Subcommittee on Oversight and Investigations
     of the House Commerce Committee,\11 DOE modified its contract
     with Fluor Daniel to tie part of the performance fees for fiscal
     years 1999 and 2000 to meeting the November 2000 milestone to
     begin removing spent fuel from the first basin.  For these
     years, the amount of the fee in excess of $1 million is
     contingent on Fluor Daniel's beginning to remove the first fuel
     by November 30, 2000.\12

  -- In March 1999, DOE's Acting Assistant Secretary for
     Environmental Management sent a letter to Fluor Daniel and Duke
     Engineering emphasizing the importance of completing the project
     on time and making clear that the performance fee would continue
     to be at risk regardless of the organizational structure that
     Fluor Daniel chose for managing the project. 

  -- DOE conducted two reviews of the project:  an assessment of the
     incentive fee structure and an assessment of the reasonableness
     of the project's cost and schedule baseline.  Although the
     baseline review concluded that strong and effective DOE and
     contractor management teams were in place, both reviews
     identified risks or problems and recommended actions to improve
     the project.  For example, the baseline review concluded that
     difficulties in developing safety documents were having a
     significant adverse effect on the project and recommended
     reengineering the development and approval process for safety
     documentation to increase its effectiveness. 

  -- In June 1999, DOE's Deputy Secretary announced that as part of a
     DOE-wide initiative to improve project management, the spent
     fuel project was being placed on a ï¿½watch listï¿½ monitored by
     DOE's Chief Operating Officer.  The purpose of the watch list is
     to increase the level of DOE's oversight of the project's
     activities. 

  -- The newly appointed manager of DOE's Richland Operations Office
     reviewed the project and suggested several changes, including
     (1) implementing the early start initiative discussed previously
     to test the equipment in the basin sooner than initially planned
     and (2) establishing a team of senior DOE and contractor
     executives (called the Process Improvement Team) to discuss
     overall management procedures and job processes that need
     improvement and to take steps to make those improvements. 

  -- DOE's Richland Operations Office added expertise to its group
     responsible for overseeing the project's cost and schedule. 

These actions are positive steps, but whether they will be sufficient
to stop the upward creep in both cost and schedule remains to be
seen.  To some extent, the project continues to be affected by
decisions made much earlier to ï¿½fast trackï¿½ the project by doing
testing, design, construction, and safety documentation phases
concurrently.  This approach has led to technical and managerial
problems as DOE and its contractors discovered that earlier
assumptions were not correct and that redesign and rework were
required.  For example, the Defense Nuclear Facilities Safety Board
said in July 1999 that incomplete engineering and design work
contributed to delays in completing the safety documentation on the
project.  The Board said that changes in design caused significant
amounts of safety documentation to be done over because the
documentation was being prepared concurrently with design and
testing.  This fast-track approach has also led to inefficiencies. 
For example, the fuel-drying facility was designed and constructed
with four separate bays in which to dry the fuel containers.  After
construction was well under way, however, Fluor Daniel determined
that no more than three bays would be needed to meet the project's
requirements. 

--------------------
\10 While Fluor Daniel earned no fee for fiscal year 1998 on this
project, a subcontractor to Duke Engineering that also has
organizational ties to Fluor Danielï¿½Fluor Daniel Northwestï¿½received
about $1 million in fees for work on the spent fuel project under a
cost-plus-fixed-fee subcontract with Duke Engineering. 

\11 Department of Energy's Hanford Spent Nuclear Fuel Project,
testimony by Dr.  Ernest Moniz, DOE, before the U.S.  House of
Representatives, Subcommittee on Oversight and Investigations,
Committee on Commerce, 105-90, May 12, 1998. 

\12 The 1999 fee will be awarded to Fluor Daniel before November
2000.  However, if the company subsequently misses the milestone, it
will not be permitted to retain the contingent portion of the fee
that was awarded.  Fluor Daniel could recoup some of the contingent
portion of the fee by beginning fuel movement no later than January
31, 2001.  After that date, however, none of the contingent portion
of the fee will be available to Fluor Daniel.  Any fee that has
already been paid and that Fluor Daniel is not permitted to retain is
to be offset against the next fee payment.  The fee for fiscal year
2001 could also be affected by this provision. 

      THE CONTRACTOR'S RESPONSE TO
      PROBLEMS HAS SOMETIMES BEEN
      SLOW
---------------------------------------------------------- Letter :5.2

The large number of unexpected technical and managerial problems has
contributed to Fluor Daniel's sometimes being slow to fully address
problems until they threaten the project's cost or schedule, as these
examples show: 

  -- Quality assurance.  Fluor Daniel was slow to address quality
     assurance problems, even after repeated communications from DOE
     that the problems were not being corrected.  Quality assurance
     involves ensuring, among other things, that subcontractors are
     qualified to do the work; that the work meets performance
     standards; and that poor-quality work is identified, corrected,
     and prevented from recurring.  Even after repeated warnings from
     DOE, Fluor Daniel did not take adequate steps to correct quality
     assurance problems.  In May 1999, DOE took enforcement action by
     issuing a civil penalty of $330,000 for violations of nuclear
     safety requirements.  According to Fluor Daniel officials, the
     penalty was issued for sitewide violations, of which a
     significant portion were on the spent fuel project.  This was
     the largest penalty issued in almost 4 years of the enforcement
     program and also the first time that DOE had issued a compliance
     order specifying a deadline by which a contractor must correct
     the deficiencies.\13 Fluor Daniel paid the penalty and is now
     working to address these deficiencies. 

  -- Safety documentation.  Completing safety documentation was a
     significant concern that we reported on in May 1998.  Fluor
     Daniel has been slow to correct these problems.  Delays in
     completing the safety documentation have contributed to the loss
     of the 7 months of contingency time added to the project's
     schedule in December 1998.  In early 1999, DOE and Fluor Daniel
     involved senior management to identify the underlying causes of
     the problem and to implement corrective actions.  They found
     that disputes over safety documentation issues, such as how much
     detail the documentation should contain, were not being elevated
     to higher levels for resolution.  Instead, the disputes were
     shuffled back and forth between contractor and DOE review staff. 
     According to a DOE official, the involvement of senior
     management has facilitated better communication on safety
     issues, but problems continue to exist below the senior
     management levels.  It remains to be seen whether the management
     of this important process has been significantly improved. 

Fluor Daniel also appears to be behind in planning for the
operational phase of the project.  Until recently, most of the
planning has focused on achieving the November 2000 milestone to
begin removing the fuel from the first basin.  Detailed plans for
significant aspects of the operational phase of the project are only
now being developed.  Limited planning for operations activities has
led to increased uncertainties about such matters as the number and
types of staff needed to operate the facilities, the extent that
staff will need administrative support facilities at the basins, and
the overall cost of the operational period of the project.  In its
June 1999 report on the project, DOE confirmed that little detailed
planning for operations beyond November 2000 had been done and
recommended that planning for those activities begin as soon as
practicable. 

Fluor Daniel managers told us that initiatives are under way to
improve both the quality assurance program and the safety
documentation process.  Fluor Daniel said these changes should
overcome the recent problems.  The managers said that detailed
planning for the operational phase is also under way and will be
completed in time to support the project.  However, the effectiveness
of these initiatives is not yet known. 

--------------------
\13 For a more complete discussion of DOE's nuclear safety
enforcement program, see Department of Energy:  DOE's Nuclear Safety
Enforcement Program Should Be Strengthened (GAO/RCED-99-146, June 10,
1999). 

      CONTINUED ATTENTION TO DOE'S
      OVERSIGHT IS NEEDED
---------------------------------------------------------- Letter :5.3

Although DOE has taken steps to improve its oversight of the project
and has supported many of the contractor's actions to improve
performance, several areas of concern require ongoing attention. 
These areas of concern include the structuring of the contractor's
incentive fees, decision-making about long-term storage requirements,
and sustaining the continuity of leadership on the project. 

DOE's approach to performance fees may have contributed to less than
optimal performance by the contractors.  DOE conducted an assessment
of the effect of contract incentives and penalties on performance and
concluded, among other things, that\14

  -- the incentive fee structure may have contributed to a lack of
     management attention by Fluor Daniel and Duke Engineering;

  -- the improbability of earning a fee in fiscal year 1998 likely
     caused Duke Engineering to not reassign staff from more
     profitable work to help address the problems on the spent fuel
     project; and

  -- the contract mega incentive,\15 which includes performance in
     noncritical and support areas, has diverted attention and fees
     from the major cleanup objectives. 

The DOE report makes several recommendations, including developing
financial incentives and other options for reducing the costs during
the operational period of the project and further defining the
appropriate roles of DOE's staff in managing performance-based
contracts.  As of August 1999, these recommendations were being
considered but had not been implemented. 

Concerns also exist about possible changes in packaging requirements
for the spent fuel.  Because the spent fuel may eventually be placed
in a national repository for long-term storage, the fuel baskets and
the storage containers may have to meet the repository's rigorous
quality assurance standards, which are required of those items
determined to be important to safety.  In November 1998, DOE decided
that the baskets and storage containers did not have to meet the
quality assurance standards and directed Fluor Daniel to contract for
containers and baskets under standards less rigorous than the
repository's standards.  This decision was also expected to reduce
costs and to allow the containers and baskets to be obtained in time
to meet the November 2000 milestone.  However, DOE is now
reconsidering whether these items serve a safety function.  If DOE
decides that the containers and baskets must meet the repository's
standards, then project managers will have to show that the items and
all associated work processes met quality assurance standards that
are equivalent to the repository's standards.  If the project
managers are unable to do this, they would be faced with either (1)
modifying the current procurement contracts (if packaging of the
spent fuel has not already occurred) to incorporate the requirements,
further delaying the project and potentially increasing costs by $2
million to $5 million, or (2) repackaging the fuel, which DOE
believes would be very costly. 

Finally, there has been significant turnover within DOE's team of
staff responsible for overseeing the project.  For example, during
1999, both of DOE's key day-to-day managers on the projectï¿½the
Assistant Manager for Waste Management and the Spent Fuel Project
Managerï¿½left Hanford to assume positions elsewhere in the DOE
complex.  DOE has not permanently filled either position.  In
explaining why DOE allowed a disruption in the continuity of
management at such a critical time in the project, the then Acting
Assistant Secretary for Environmental Management said that although
he would have preferred that these managers remain with the spent
fuel project, career opportunities took them elsewhere. 

Problems with the continuity of management are not new for DOE.  A
1995 study by Independent Project Analysis, Inc., concluded that the
turnover among DOE project managers was nearly twice the industry
average and was increasing in frequency.\16 Furthermore, our 1996
report on DOE's major system acquisitions disclosed that many of the
ongoing projects and most of the completed ones had cost overruns or
delays.\17 Given the overall status of the spent fuel project and the
challenges that Fluor Daniel and DOE face in successfully completing
it, DOE's leadership will continue to be important as construction is
completed and the project begins operations. 

--------------------
\14 See Hanford Spent Nuclear Fuels Project Incentives Review, June
4, 1999. 

\15 The contract's mega incentive consists of a variety of
performance factors that are secondary to safely storing the spent
fuel, such as the number of new jobs created in the community. 

\16 Project Performance Study:  Waste Management Addendum,
Independent Project Analysis, Inc., 1995. 

\17 Department of Energy:  Opportunity to Improve Management of Major
System Acquisitions (GAO/RCED-97-17, Nov.  26, 1996). 

   CONCLUSIONS
------------------------------------------------------------ Letter :6

The spent fuel storage project at Hanford has had a history of
problems.  Actions by Fluor Daniel to take managerial control of the
project from Duke Engineering have helped to strengthen the
management of the project.  DOE and Fluor Daniel have been working to
correct deficiencies and to complete the construction of facilities
and to begin removing fuel from the water basins.  Progress has been
made in constructing facilities, but many challenges remain in
ensuring that the project is successful.  Given the challenges
remaining to make the project operational, the lingering management
weaknesses, and the need to ensure that performance incentives help
to control costs during operations, effective leadership and
oversight by DOE are needed to increase the chances that the project
will be completed within current cost and schedule targets. 

   RECOMMENDATIONS
------------------------------------------------------------ Letter :7

To ensure that the Department of Energy provides effective leadership
and oversight to the project, we recommend that the Secretary of
Energy immediately take steps to permanently fill the positions of
the key day-to-day managers that oversee the project.  In addition to
establishing a continuity of DOE leadership during this critical
time, the Secretary of Energy should take steps to ensure that the
Hanford spent fuel project is completed as efficiently and
effectively as possible by (1) ensuring that the contractor's
performance incentive fees contain the proper balance between the
incentives to achieve the interim milestone to begin moving spent
fuel and the incentives to achieve efficiencies during the
operational period of the project and (2) clarifying the quality
assurance standards to be applied to the fuel containers and baskets
to minimize the long-term costs of packaging and eventually shipping
the fuel to a repository. 

   AGENCY AND CONTRACTOR COMMENTS
------------------------------------------------------------ Letter :8

We provided a draft of this report to DOE for review and comment. 
DOE generally agreed with the report's conclusions and
recommendations.  In particular, it recognized the need to
permanently fill the positions of Spent Fuel Project Director and
Assistant Manager for Waste Management and discussed its efforts for
doing so.  It similarly agreed that contractor performance incentive
fees need to contain a proper balance between incentives to begin
fuel movement and incentives to achieve operational efficiencies and
identified activities it is undertaking to this end.  Finally, it
said it is actively working to clarify quality assurance standards to
be applied to fuel containers and baskets. 

DOE also provided several technical clarifications that we have
incorporated as appropriate.  Appendix I includes DOE's comments. 

We also provided a draft of this report to DOE's contractor, Fluor
Daniel Hanford.  Fluor Daniel chose not to comment separately but
provided comments to DOE. 

   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :9

To determine the current status of the project, we reviewed our past
work on the project and DOE documents describing the spent fuel
storage project, project schedules, and cost estimates approved by
DOE.  We also reviewed status reports and correspondence from DOE and
other pertinent information.  We interviewed DOE and contractor
officials as well as officials from the Defense Nuclear Facilities
Safety Board and the Environmental Protection Agency about the
project's history, the reasons for the changes to schedule and cost
estimates, and the major events leading to those changes. 

To determine what problems still exist that might affect DOE's
ability to achieve its current cost and schedule estimates, we
reviewed our past work and DOE's, the Safety Board's, and the
contractors' records and reports.  We also interviewed officials from
those organizations to obtain their views on the causes of the
project's difficulties.  We also reviewed reports on other DOE
projects to understand why some of those projects had cost and
schedule problems.  In addition, we interviewed DOE and contractor
officials, including the Principal Deputy Assistant Secretary for
Environmental Management and officials from the Office of Civilian
Radioactive Waste Management and the DOE National Spent Fuel Program. 

To determine whether the changes that DOE and its contractors have
made since last year have been sufficient to address management
weaknesses, we reviewed the contractors' records, correspondence, and
contract files.  We also interviewed DOE and contractor officials and
attended various project meetings between DOE and Fluor Daniel.  In
addition, we interviewed DOE safety officials and members of DOE's
Independent Review Panel. 

We performed our review from April 1999 through September 1999 in
accordance with generally accepted government auditing standards. 

---------------------------------------------------------- Letter :9.1

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 to the Honorable Bill Richardson, the Secretary of
Energy.  We will also make copies available to others on request.  If
you or your staff have any questions or need additional information,
please call me at (202) 512-3841. 

Sincerely yours,

(Ms.) Gary L.  Jones
Associate Director, Energy,
 Resources, and Science Issues

(See figure in printed edition.)Appendix I
COMMENTS FROM THE DEPARTMENT OF
ENERGY
============================================================== Letter 

(See figure in printed edition.)

GAO CONTACTS AND STAFF
ACKNOWLEDGMENTS
========================================================== Appendix II

GAO CONTACTS

(Ms.) Gary Jones, (202) 512-3841
William Swick, (503) 235-8500

ACKNOWLEDGMENTS

In addition to those named above, Chris Abraham, Margaret Armen,
Dwayne Curry, Nancy Kintner-Meyer, Tom Perry, Charles Sylvis, and
Stan Stenersen made key contributions to this report. 

*** End of document. ***