Nuclear Waste: Department of Energy's Pit 9 Cleanup Project Is
Experiencing Problems (Testimony, 07/28/97, GAO/T-RCED-97-221).

GAO discussed a major Department of Energy (DOE) cleanup project to
remediate wastes buried in Pit 9 at the Idaho National Engineering and
Environmental Laboratory, focusing on: (1) (DOE) basis for selecting a
fixed-price contracting approach and a subcontract for the project; (2)
the basis for awarding the subcontract to Lockheed Martin Advanced
Environmental Systems (LMAES); and (3) the current status of the
project.

GAO noted that: (1) DOE chose a fixed-price approach for the project
because DOE officials believed that, a fixed price would help limit the
project's total costs and provide an incentive for contractors to use
efficient practices in carrying out the cleanup by shifting the risk of
nonperformance to the contractor; (2) the M&O contractor awarded the
subcontract to LMAES on the basis of several factors, including the
adequacy of its technical proposal, its apparent technical and
managerial expertise, its successful completion of the test phase, the
price--about $200 million, and a guarantee of performance--under which
the company would return all payments received if its treatment system
failed to work properly; (3) because of reservations about the maturity
of the technologies, the M&O contractor expanded the test phase of the
procurement to include pilot scale testing of key aspects of the
proposed systems; (4) estimated project completion is at least 26 months
behind the original schedule, the waste retrieval and processing
facilities are not ready, and no retrieval or treatment of wastes has
begun; (5) DOE has been assessed $940,000 in fines by its regulators,
the state of Idaho and the Environmental Protection Agency for failure
to meet deadlines for submitting acceptable design documents; (6) LMAES
estimates that its costs have already exceeded the subcontract price and
has requested $257 million, as well as a new cost-based subcontract to
reimburse the company for all future costs; (7) these changes, if
implemented, would bring the total subcontract price to well over twice
its original $200-million value; (8) the company's basis for requesting
more money is its view that project problems are largely attributable to
DOE and its M&O contractor; (9) DOE and the M&O contractor disagree with
that assessment and instead point mainly to the subcontractor's
insufficient application of technical and management skills; (10)
discussions are continuing, but whatever the outcome of the disagreement
is, the Pit 9 project, as originally conceived, is clearly a failure;
(11) it cannot be completed in the timeframe or within the price agreed
to by the subcontractor; and (12) this has important future implications
because DOE's planned investment in privatization cleanup projects is
growing; DOE included over $1 billion in its fiscal year 1998 budget
request for 11 such projects.

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

 REPORTNUM:  T-RCED-97-221
     TITLE:  Nuclear Waste: Department of Energy's Pit 9 Cleanup Project 
             Is Experiencing Problems
      DATE:  07/28/97
   SUBJECT:  Hazardous substances
             Waste treatment
             Nuclear waste disposal
             Fixed price contracts
             Subcontracts
             Cost overruns
             Privatization
             Radioactive wastes
             Contractor performance
IDENTIFIER:  DOE Idaho Pit 9 Remediation Demonstration Project
             Idaho
             
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Cover
================================================================ COVER


Before the Subcommittee on Oversight and Investigations, Committee on
Commerce, House of Representatives

For Release
on Delivery
Expected at
1:00 p.m.  EDT
Monday,
July 28, 1997

NUCLEAR WASTE - DEPARTMENT OF
ENERGY'S PIT 9 CLEANUP PROJECT IS
EXPERIENCING PROBLEMS

Statement of Victor S.  Rezendes,
Director, Energy, Resources, and Science Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-97-221

GAO/RCED-97-221T


(141089)


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

  DOE -
  FAR -
  M&O -
  LMAES -
  RFP -

MR.  CHAIRMAN AND MEMBERS OF THE
SUBCOMMITTEE: 
============================================================ Chapter 0

We are pleased to be here today to discuss a major Department of
Energy (DOE) cleanup project--remediation of wastes buried in Pit 9
at the Idaho National Engineering and Environmental Laboratory.  As
you know, this project is very important to DOE because it is one of
several projects where, through fixed-price contracting and private
sector financing, DOE is trying to reduce the cost of cleaning up
waste sites while shifting the consequences of poor performance to
the contractors.  While we have been supportive of DOE's efforts to
reform its contracting practices, we have also been concerned that
the Department effectively manage this transition.  Because DOE has
several billion dollars targeted for similar types of projects, it is
important that DOE be able to effectively structure and oversee this
type of contracting arrangement. 

On the basis of our work for the Committee and the report we are
issuing today,\1 our testimony will address (1) DOE's basis for
selecting a fixed-price contracting approach and a subcontract for
the project, (2) the basis for awarding the subcontract to Lockheed
Martin Advanced Environmental Systems, and (3) the current status of
the project. 

In summary, we found the following: 

ï¿½DOE chose a fixed-price approach for the project because Department
officials believed a fixed price would help limit the project's total
costs and provide an incentive for contractors to use efficient
practices in carrying out the cleanup by shifting the risk of
nonperformance to the contractor.  DOE officials believed they had a
better chance of achieving these goals with a fixed-price approach
than with a cost-reimbursement approach, even though uncertainties
existed about the actual wastes in the pit.  DOE also directed its
M&O contractor at the Idaho Falls site to conduct the procurement
process for the selection of a subcontractor and to oversee the
project. 

ï¿½The M&O contractor awarded the subcontract to Lockheed Martin
Advanced Environmental Systems on the basis of several key factors,
including the adequacy of its technical proposal, its apparent
technical and managerial expertise, its successful completion of the
test phase, the price--about $200 million, and a guarantee of
performance--under which the company would return all payments
received if its treatment system failed to work properly.  Because of
reservations about the maturity of the technologies, the M&O
contractor expanded the test phase of the procurement from a review
of references and results of prior work to include pilot scale
testing of key aspects of the proposed systems. 

ï¿½Estimated completion of the project is at least 26 months behind the
original subcontract schedule.  Furthermore, the waste retrieval and
processing facilities are not ready, and no retrieval or treatment of
wastes has begun.  Instead, DOE has been assessed $940,000 in fines
by its regulators--the state of Idaho and the Environmental
Protection Agency--for failure to meet deadlines for submitting
acceptable design documents.  Lockheed Martin Advanced Environmental
Systems estimates that its costs have already exceeded the
subcontract price and has requested $257 million for its work through
June 30, 1997, as well as a new cost-based subcontract to reimburse
the company for all future costs.  These changes, if implemented,
would bring the total subcontract price for the Pit 9 cleanup to well
over twice its original $200 million value.  The company's basis for
requesting more money is its view that problems with the project are
largely attributable to DOE and its M&O contractor for improper
administration of the subcontract, excessive interference, and
substantially changing the estimate of types and amounts of materials
contained in Pit 9.  DOE officials said that it may be several months
before they have an official position on the company's claims, but
DOE and the M&O contractor disagree with the assessment of what
caused the problems and instead point mainly to the subcontractor's
insufficient application of technical and management skills on the
project. 

Discussions are continuing, and the outcome of the disagreement is
uncertain.  Meanwhile, because of these contract difficulties and the
related legal implications, the M&O contractor has hired outside
legal counsel for the Pit 9 project and, under the terms of the M&O
contract, DOE is responsible for paying those legal fees.  Whatever
the outcome, the Pit 9 project, as originally conceived, is clearly a
failure.  It simply cannot be completed in the time frame or within
the price agreed to by the subcontractor.  This has important future
implications because DOE's planned investment in privatization
cleanup projects is growing--DOE included over $1 billion in its
fiscal year 1998 budget request for 11 such projects. 

Before we provide you with more specifics on these issues, we would
like to briefly describe Pit 9 and the cleanup strategy. 


--------------------
\1 Nuclear Waste:  Department of Energy's Project to Clean Up Pit 9
at Idaho Falls Is Experiencing Problems (GAO/RCED-97-180, Jul.  28,
1997). 


   BACKGROUND
---------------------------------------------------------- Chapter 0:1

Pit 9 is an inactive waste disposal pit, slightly larger than 1 acre
in surface area.  From November 1967 through June 1969, various
wastes ranging from contaminated rags to storage drums with hazardous
chemicals and plutonium-contaminated sludge were dumped into the pit
and covered with a layer of soil.  DOE estimated that the pit
contains about 250,000 cubic feet of transuranic and hazardous
wastes\2 and contaminated soil needing treatment.  Because the wastes
and soil are radioactive, retrieving and treating them involves
special handling so that workers are not exposed to contamination and
radioactive materials are not released to the environment. 

Starting in 1991, DOE and its regulators began exploring ways to
remediate Pit 9.  They hoped that in doing so, they would also obtain
information that would help in cleaning up other locations at the
Idaho Falls site.  DOE and its regulators agreed to clean up Pit 9 by
retrieving soil and waste from the pit, separating those materials
that could be returned to the pit without treatment, treating the
remaining soil and waste to achieve at least a 90-percent reduction
in volume, and packaging the remaining concentrated material for
on-site storage until final disposal.  The project was to proceed in
three phases--proof-of-process by testing key components on simulated
wastes, limited production tests on actual pit wastes, and then
full-scale remediation of pit wastes. 

Pit 9 is one of the first of several privatization projects at DOE
sites.  DOE's Office of Environmental Management, which is
responsible for cleanup efforts, intends privatization projects to
involve fixed-price, competitively awarded contracts.  A private
contractor would finance, design, build, own, and operate any
required waste cleanup facilities, and DOE would pay the contractor
only for a successful cleanup.  This fixed-price approach is in
contrast to the Department's past practices, where DOE used a
cost-reimbursement contract, told the M&O contractor how to perform
waste-related cleanup activities, and paid the M&O contractor
regardless of what was accomplished. 

Now we will discuss our findings in greater detail. 


--------------------
\2 Transuranic wastes are man-made radioactive elements produced from
uranium during a nuclear reactor's operations and emit alpha
particles.  Alpha-emitters are dangerous because of inhalation
concerns.  Hazardous wastes are wastes regulated by EPA and
authorized states under the Resource Conservation and Recovery Act of
1976.  Hazardous wastes at Pit 9 include carbon tetrachloride and
mercury. 


   DOE PREFERRED A FIXED-PRICE
   SUBCONTRACT
---------------------------------------------------------- Chapter 0:2

DOE selected a fixed-price approach for the project despite some
indications that this approach was not well suited for an application
such as Pit 9.  Limited guidance exists on selecting a contract type,
but the Federal Acquisition Regulation (FAR) suggests that a firm
fixed-price contract, which best utilizes the basic profit motive of
the private sector, should be used when the risk involved is minimal
or can be predicted with an acceptable degree of certainty.  Given
that there was little certainty about the contents of the pit, this
guidance seems to suggest that a fixed-price contract may not have
been the best approach. 

Questions about whether a fixed-price approach was appropriate for
the Pit 9 cleanup surfaced during the early stages of the procurement
process.  Responses to the draft request for proposal (RFP) included
concerns from interested firms that a fixed-price approach would have
to reflect large contingencies and could therefore result in higher
bids from the competitors.  In addition, these responses stated that
a fixed-price subcontract could generate claims for additional
reimbursement if work outside the scope of the contract occurred. 

Even with these concerns, DOE decided to use a fixed-price approach. 
According to DOE officials at the Idaho Falls site, they realized
that a fixed-price approach to this cleanup entailed some risks due
to the uncertainties of the pit's contents.  However, DOE also
believed there was much to be gained, including information on how to
effectively clean up other DOE disposal sites, if this new approach
were successful.  In addition, DOE had come under criticism from
private industry for continuing to fund what was perceived as
research and development efforts of its M&O contractors without any
actual cleanup.  According to senior DOE officials, private industry
was confident that it had the technology to clean up the wastes and
preferred a fixed-price arrangement.  Therefore, senior DOE officials
at Idaho Falls and headquarters decided that the potential benefits
associated with fixed-price contracting outweighed the possible
risks. 

In conjunction with its decision to use a fixed-price approach to the
Pit 9 cleanup, DOE also decided to have its M&O contractor--EG&G
Idaho, Inc.(EG&G)--conduct the procurement process, select the
subcontractor, and oversee the subcontractor's efforts at Pit 9. 
According to DOE officials, there were several reasons for choosing a
subcontract for this effort:  (1) DOE believed that EG&G already had
the necessary expertise to evaluate the technical proposals submitted
by interested firms and to oversee the cleanup; (2) DOE considered
the Pit 9 project to be within EG&G's area of responsibility; and (3)
DOE believed the project could be executed more efficiently as a
subcontract through EG&G because using the M&O's procurement and
contracting standards would simplify and streamline the procurement
process. 


   SUBCONTRACTOR SELECTED BASED ON
   PROPOSAL, EXPERIENCE, PRICE,
   AND PERFORMANCE GUARANTEE
---------------------------------------------------------- Chapter 0:3

After several steps to provide information to interested firms, EG&G
received proposals from three competitors--a team led by Lockheed and
two other teams, one led by Rust Federal Services (formerly Waste
Management Environmental Services), and the other by Nuclear
Radiation Technologies Corporation.  EG&G used a Source Evaluation
Board (Board) to review and evaluate the three proposals.  The Board
determined that the Lockheed and Rust proposals were essentially
equivalent, but the Board had significant reservations about whether
the proposed technologies were sufficiently developed.  According to
DOE officials, the private sector--including representatives from the
two competing teams--had been telling DOE and EG&G that proven,
"off-the-shelf" technology was capable of remediating the wastes in
the pit.  However, the Board believed that while the components of
the proposed systems may have been tested individually, they had
never been combined into a total system to treat radiologically
contaminated materials. 

Although the Board had reservations, it also believed that these two
technical proposals reflected the best available processes at the
time.  To mitigate concerns about the proposed technologies, the
Board recommended that, in going forward with the procurement, the
proof-of-process phase be expanded from a review of references and
results of prior work to include pilot scale testing of critical
aspects of both treatment systems. 

Prior to the conclusion of the proof-of-process phase, EG&G sent a
request for pricing proposal to both teams.  Although DOE's original
intent had been to make no payments until actual remediation began,
the request for pricing proposal provided for some design milestone
and construction progress payments to keep the overall subcontract
price lower by offsetting the subcontractor's cost of financing. 
Because of this change in payment strategy, the request for pricing
proposal also required a corporate guarantee of performance to
protect the government's interests.  Under this corporate guarantee,
if the subcontractor's proposed system did not pass the limited
production test at completion of construction and installation, the
subcontractor would be required to return all payments made to date. 
When the Rust team declined to provide the corporate guarantee, EG&G
deemed Rust to be nonresponsive to the request for pricing proposal
and disqualified them from further consideration. 

The subcontract for the Pit 9 cleanup was signed in October 1994 and
included both design milestone and construction progress payments,
unit price payments for remediation of the contents of the pit, and
lump sum payments for decontamination and decommissioning and
profits.  Since Lockheed replaced EG&G as the M&O contractor in 1994,
to address the potential conflict of interest associated with one
Lockheed company overseeing a subcontract with another Lockheed
company, the Lockheed M&O contractor prepared an organizational
conflict-of-interest mitigation plan that was reviewed and approved
by DOE.  This resulted in the M&O contractor's Pit 9 contract
administration and oversight group being sequestered from the rest of
the organization, and the establishment of a program oversight board
to monitor the dealings between the M&O contractor and the
subcontractor. 


   SUBCONTRACTOR WANTS TO
   RENEGOTIATE CONTRACT BECAUSE OF
   SCHEDULE AND COST DIFFICULTIES
---------------------------------------------------------- Chapter 0:4

Currently, the project is stalled.  LMAES estimates it is at least 26
months behind the original subcontract completion schedule and that
its costs have already exceeded the $200 million subcontract price. 
LMAES has asked for $257.4 million in total reimbursable costs
through June 30, 1997.\3 For any work conducted after April 1, 1997,
LMAES asked to convert the existing subcontract to a
cost-reimbursement basis.  These changes, if implemented, would bring
the total subcontract price to well over twice its original $200
million value.  Furthermore, LMAES has substantially slowed its work
on the project to limit its costs and says it will not resume normal
construction activities unless the subcontract is satisfactorily
renegotiated. 

In addition to possible increases in subcontract price, DOE has
incurred or will incur other costs related to Pit 9.  For example,
DOE has paid $23.1 million for testing and preliminary design
activities and $12.9 million for project oversight by the M&O
contractor, in addition to about $3 million for DOE oversight costs. 
DOE was also assessed $940,000 in fines by its regulators for failure
to meet enforceable deadlines for submitting acceptable design
documents for the project, as specified in the Federal Facility
Agreement and Consent Order for the Idaho Falls site.  DOE will pay
the fines and is studying its options for recovering the cost from
either the M&O contractor or LMAES.  In addition, because of the
contract difficulties with LMAES, the M&O contractor has hired
outside legal counsel for the Pit 9 project and, under the terms of
the M&O contract, DOE is responsible for paying those legal fees.\4


--------------------
\3 LMAES asked for $158.1 million in payments in addition to the
$52.9 million already received through March 1997.  LMAES expected an
additional $46.4 million to be recovered through future milestone
payments or some other method. 

\4 We have previously reported on DOE efforts to control the legal
expenses its M&O contractors incur in defending themselves against
class action lawsuits.  See Managing DOE:  The Department's Efforts
to Control Litigation Costs (GAO/T-RCED-96-170, May 14, 1996);
Managing DOE:  The Department of Energy Is Making Efforts to Control
Litigation Costs (GAO/RCED-95-36, Nov.  22, 1994); and Managing DOE: 
Tighter Controls Needed Over the Department of Energy's Outside
Litigation Costs (GAO/T-RCED-94-264, July 13, 1994). 


      SUBCONTRACTOR FAULTS DOE FOR
      SCHEDULE AND COST PROBLEMS
-------------------------------------------------------- Chapter 0:4.1

LMAES blames DOE and its M&O contractor for a large portion of the
schedule and cost problems.  The company stated its case in its
Request for Equitable Adjustment to the M&O contractor and DOE.  In
summary, this document focuses on three main factors that LMAES says
were under DOE's control and led to the schedule and cost problems: 
(1) improper administration of the fixed-price subcontract, (2) too
much interference with a fast-track approach that was necessary to
meet contract deadlines, and (3) changing estimates of Pit 9's
contents.  LMAES argues that these factors, particularly DOE's
involvement in design activities and changing pit inventories, have
materially changed the Pit 9 project from what the subcontract
originally required.  Therefore, LMAES believes that its corporate
guarantee of performance is no longer applicable to the project. 


         SUBCONTRACT
         ADMINISTRATION
------------------------------------------------------ Chapter 0:4.1.1

LMAES says that it undertook the project with the expectation that it
would have comparatively more freedom on the privatized, fixed-price
Pit 9 project than on a project procured under a cost-reimbursement
approach, while accepting more risk if it failed.  The company
assumed there would be minimal government oversight and
administration of the subcontractor's effort, because of DOE's
representation in subcontract specifications that the Pit 9 project
was an "integrated 'turnkey' pilot" effort, with the "subcontractor
assuming maximum responsibility, authority, and liability." In
contrast to what it expected, LMAES says that DOE and its M&O
contractor actually administered the subcontract using substantial
and intrusive oversight that was inconsistent with DOE's
privatization concept.  According to LMAES, the amount of oversight
was a problem because the number of review comments slowed its
efforts and left the company unable to exercise the degree of
flexibility it expected when it negotiated the subcontract.  In
having to respond to this degree of oversight, LMAES said that it was
performing unanticipated work, well beyond the subcontract's scope,
in order to keep the project moving forward. 


         FAST-TRACK SCHEDULE
------------------------------------------------------ Chapter 0:4.1.2

A fast-track, phased construction project is one where design and
construction work are performed simultaneously.  Design and
construction stages are completed in phases so that when the design
is completed for part of the project, construction work on that
portion of the project begins.  LMAES, DOE, and the regulators agreed
to a fast-track approach for the project in order to comply with the
construction schedule specified in the request for price proposal. 
LMAES said, however, that a fast-track approach required that the
subcontractor be allowed a great deal of discretion in determining
the manner, means, and methods of meeting the project requirements
within the agreed-upon price and schedule.  The company believes that
DOE's oversight and involvement was so excessive as to remove all
discretion for reducing the time required for project completion.  In
addition, LMAES said that DOE did not provide all necessary
information in a timely manner, taking an average of 53 days to
provide review comments instead of the 30 days to which DOE agreed. 


         CONTENTS OF THE PIT
------------------------------------------------------ Chapter 0:4.1.3

DOE has limited information as to the actual contents of the pit
because, at the time the wastes were placed in the pit, DOE did not
intend to later retrieve them.  Few records were kept, and DOE has no
precise knowledge of what quantities and types of materials are in
the pit.  However, in 1991, the M&O contractor initially estimated
the types and quantities of radioactive and other materials in the
pit, based on available shipping records, process knowledge, written
correspondence, and other DOE information.  Those estimates were
included in the subcontract.  Then, beginning in 1993, the M&O
contractor initiated an effort to develop additional information on
all of the disposal pits and trenches at the Idaho Falls site's
subsurface disposal area, including Pit 9.  As a result, the
estimates for the Pit 9 contents were refined several times, and
LMAES cites multiple instances in which those revisions created the
potential for substantial changes in the proposed approach to
remediating the waste.  In particular, LMAES is concerned about
possible increases in salts, organics, and radioactive products. 
These materials could affect both (1) the extent of protection
workers need to safely work in the treatment building and (2) the
speed at which material could be processed through the melter. 


      DOE ATTRIBUTES MOST PROBLEMS
      TO SUBCONTRACTOR PERFORMANCE
-------------------------------------------------------- Chapter 0:4.2

DOE and its M&O contractor are studying LMAES' claims and are
involved in discussions on how to move the project forward.  However,
the M&O contractor has notified LMAES that both the M&O and DOE see
no justification for converting the subcontract to a
cost-reimbursement basis; instead, they expect LMAES to continue
performing the subcontract as awarded.  DOE officials said that it
may be several months before they have an official position on LMAES'
other financial claims.  However, DOE and the M&O contractor have a
substantially different view of why the cleanup is behind schedule
and its costs are above the subcontract price.  They attribute the
schedule delays and cost overruns primarily to the insufficient
technical and managerial skills LMAES initially placed on the
project. 


         SUBCONTRACT
         ADMINISTRATION AND
         FAST-TRACK SCHEDULE
------------------------------------------------------ Chapter 0:4.2.1

DOE and its M&O contractor contend that their oversight of the
project has been related to their responsibilities for ensuring
adequate consideration of environmental safety and health.  DOE, its
M&O contractor, and its regulators noted that initially LMAES
personnel seemed particularly limited in their knowledge about
necessary regulatory requirements, including those related to air
emissions and dealing with nuclear materials, and, as a result,
submitted inadequate designs.  Therefore, DOE and the M&O contractor
said that they had to provide much more oversight, including more
design review comments, than they expected for a fixed-price
subcontract situation.  However, DOE officials do not agree that they
were slow in providing these review comments, as LMAES contends. 


         CONTENTS OF THE PIT
------------------------------------------------------ Chapter 0:4.2.2

DOE and its M&O contractor also disagree with LMAES' contentions
regarding the significance of the updated information about the
contents of the pit that they shared with LMAES.  They noted that the
updated information was not a formal revision to the contractual
estimate of the pit's contents, and, therefore, the subcontractor had
the discretion whether to use it.  DOE and its M&O contractor further
noted that LMAES' subcontract proposal stated that all technologies
used in its proposed approach were proven in current industrial-scale
applications, and the treatment scheme was "very robust, in that any
chemical, radiological, or physical characteristic of waste in Pit 9
can successfully be processed." LMAES also claimed that its treatment
scheme ensured that the Pit 9 process could successfully handle other
buried or stored transuranic and transuranic mixed wastes as well as
low-level mixed wastes and hazardous wastes in the DOE complex. 
Finally, DOE and M&O contractor officials noted that the subcontract
included a clause allowing for future adjustments if differing site
conditions were encountered--for example, if the actual pit contents
differ from the estimates when excavation occurs. 


         INSUFFICIENT TECHNICAL
         AND MANAGERIAL SKILLS
------------------------------------------------------ Chapter 0:4.2.3

DOE and M&O contractor officials said that they believed LMAES'
parent corporation would use its vast worldwide resources to provide
the necessary expertise to accomplish the work.  However, the
officials contend that this did not happen, at least in the early
phases of the work.  For example, the officials point out that
Lockheed reported in a 1995 peer review of LMAES' Pit 9 activities
that there was a lack of adequate nuclear-experienced personnel to
successfully execute the design review function, provide
environmental safety and health oversight during construction, and
administer the environmental safety and health functions during
operations. 

Another problem contributing to lack of progress on the subcontract,
according to DOE and M&O contractor officials, was the high number of
times the LMAES project staff has changed--as of May 1997, there have
been four project managers.  LMAES acknowledges the turnover but
maintains that the administrative approach used by DOE and the M&O
contractor materially increased the complexity of the requirements
associated with the project, necessitating the assignment of managers
with more experience to get the job done.  DOE officials said that
with these frequent changes in leadership, some important actions
were left unaddressed for a considerable length of time.  For
example, it was not until February 1997, after the current manager
was appointed, that LMAES developed a complete system requirements
document, which compiles the system performance and design
requirements of the subcontract into one place so that managers can
more clearly identify what the processes should be designed to do. 

DOE has also faulted the M&O contractor for its performance in
overseeing the Pit 9 project.  DOE attributed the M&O's declining
performance on Pit 9 to a continued lack of management control
systems, an apparent lack of accountability in ensuring the timely
submittal of two key documents to regulators, and weak project
management planning and prioritization of issues.  However, DOE also
gave the M&O contractor credit for aggressively trying to keep
activities on schedule and resolve design-related issues at the
earliest opportunity.  We could not determine the impact of the M&O
contractor's performance at Pit 9 on the amount of its overall award
fee.  However, since 1994, DOE has considered the M&O's overall
performance under the contract to be "good," with performance
evaluation scores in the 86 to 90 percent range and performance award
fees totaling $33.3 million for the 2-year period. 


   CONCLUSIONS
---------------------------------------------------------- Chapter 0:5

It remains to be seen whether DOE and its M&O contractor will be able
to hold Lockheed Martin Advanced Environmental Systems accountable
for the extra project costs, negotiate changes and pay substantially
more to complete the project, or attempt to recover the government's
investments to date.  Whatever the outcome, the Pit 9 project, as
originally conceived, is clearly a failure.  It simply cannot be
completed in the time frame or within the price the subcontractor
agreed to.  This has important future implications because DOE's
planned investment in privatization cleanup projects is growing--DOE
included over $1 billion in its fiscal year 1998 budget request for
11 such projects.  In light of this growing DOE emphasis on
privatization, the outcome of the Pit 9 subcontract negotiations may
provide some insight into DOE's overall ability to achieve
privatization goals, including lower project costs and the risk of
nonperformance shifted from DOE to the contractors. 


-------------------------------------------------------- Chapter 0:5.1

Thank you, Mr.  Chairman and members of the Subcommittee.  That
concludes our testimony.  We would be pleased to respond to any
questions you may have. 


*** End of document. ***