Nuclear Waste: Management Problems at the Department of Energy's Hanford
Spent Fuel Storage Project (Testimony, 05/12/98, GAO/T-RCED-98-119).

Pursuant to a congressional request, GAO discussed the Department of
Energy's (DOE) project to change how DOE stores spent (or irradiated)
nuclear fuel from its nuclear reactors at DOE's Hanford site in
Washington, focusing on the: (1) risks posed by the storage of the spent
nuclear fuel; (2) project's status; (3) major reasons for delays and
cost increases; and (4) measures being taken to address these delays and
cost increases.

GAO noted that: (1) as stored, most of the spent fuel at Hanford
presents a risk of releasing nuclear materials to the environment and a
consequent danger both to workers and the public; (2) this fuel sits in
two water basins that are well beyond their design life and are located
just 1,400 feet from the Columbia River; (3) never designed for
long-term storage in water, some of the spent fuel has corroded,
creating a radioactive sludge that has accumulated in the storage
basins; (4) because of leaks in the basins, workers risk exposure to
radioactive materials if contaminated water is released to the soil, and
the public risks exposure if this water moves through the soil to the
river; (5) it is likely that radioactive materials carried in water
leaking from one of the basins have reached the river at least twice in
the past; (6) although progress has been made in designing and
constructing the new facilities, the schedule proposed by the
contractors in April 1998 is over 4 years behind the original schedule
for completion, and the estimated costs to build and operate the project
have almost doubled, to about $1.4 billion; (7) the date to begin moving
the spent fuel out of the basins, an important milestone for the
project, given the health and safety risks associated with storage
conditions, will be delayed until November 2000--almost 3 years beyond
the original plan; (8) DOE wanted a compressed schedule for completing
the project because of safety concerns at the existing storage basins
and because DOE thought that a compressed schedule would improve the
contractor's performance; (9) the lack of adequate management by the
companies working on the spent fuel project for DOE--Westinghouse
Hanford Company, the company that managed the project until 1996, and
Duke Engineering, the company now responsible for the project--also
contributed to schedule delays and cost overruns; (10) furthermore,
oversight by both DOE and its management and integration contractor at
the Hanford site--Fluor Daniel Hanford, Inc.--was insufficient to ensure
that problems were quickly corrected; (11) recent management changes
have been made, and oversight of the project has become more aggressive;
(12) in addition, Duke Engineering has replaced several key managers and
reorganized its operations and procedures; (13) DOE is negotiating with
its regulators--the Environmental Protection Agency and the Washington
Department of Ecology--new milestone dates that DOE believes it can
meet; and (14) these problems and unresolved technical questions will
continue to affect DOE's ability to set reliable targets.

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

 REPORTNUM:  T-RCED-98-119
     TITLE:  Nuclear Waste: Management Problems at the Department of 
             Energy's Hanford Spent Fuel Storage Project
      DATE:  05/12/98
   SUBJECT:  Nuclear waste disposal
             Contractor performance
             Cost overruns
             Nuclear waste management
             Hazardous substances
             Radioactive pollution
IDENTIFIER:  Columbia River (WA)
             
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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
Tuesday
May 12, 1998

NUCLEAR WASTE - MANAGEMENT
PROBLEMS AT THE DEPARTMENT OF
ENERGY'S HANFORD SPENT FUEL
STORAGE PROJECT

Statement of Gary L.  Jones, Associate Director,
Energy, Resources, and Science Issues,
Resources, Community, and Economic
Development Division

GAO/T-RCED-98-119

GAO/RCED-98-119T


(141147)


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

  DOE -
  EPA -
  PCB -

============================================================ Chapter 0

Mr.  Chairman and Members of the Subcommittee: 

We are pleased to be here today to discuss a Department of Energy
(DOE) project to change how DOE stores spent (or irradiated) nuclear
fuel from its nuclear reactors at the Department's Hanford site in
Washington State.  The fuel is currently stored in water basins, but
health and safety concerns exist because of the deteriorating
condition of this fuel and its storage facility.  To address these
problems, the project currently under development calls for building
a facility to dry the spent fuel, placing the fuel in canisters, and
moving it to a new interim storage facility.  Project-related
activities are being directed by a contractor, Duke Engineering &
Services Hanford, Inc.  (Duke Engineering) and DOE's management and
integration contractor, Fluor Daniel Hanford, Inc.  (Fluor Daniel). 
Recently, however, the project has fallen substantially behind
schedule, and estimates of the project's cost have significantly
increased. 

You asked us to address (1) the risks posed by the current storage of
the spent nuclear fuel, (2) the project's current status, (3) the
major reasons for delays and cost increases, and (4) the measures
being taken to address these delays and cost increases, together with
an assessment of the likelihood that the latest cost and schedule
targets will be met. 

In summary,

  -- As currently stored, most of the spent fuel at Hanford presents
     a risk of releasing nuclear materials to the environment and a
     consequent danger both to workers and the public.  This fuel
     currently sits in two water basins that are well beyond their
     design life and are located just 1,400 feet from the Columbia
     River.  Never designed for long-term storage in water, some of
     the spent fuel has corroded, creating a radioactive sludge that
     has accumulated in the storage basins.  Because of leaks in the
     basins, workers risk exposure to radioactive materials if
     contaminated water is released to the soil, and the public risks
     exposure if this water moves through the soil to the river.  In
     fact, it is likely that radioactive materials carried in water
     leaking from one of the basins have reached the river at least
     twice in the past. 

  -- Although progress has been made in designing and constructing
     the new facilities, the schedule proposed by the contractors in
     April 1998 is over 4 years behind the original schedule for
     completion, and the estimated costs to build and operate the
     project have almost doubled to about $1.4 billion.  The date to
     begin moving the spent fuel out of the basins, an important
     milestone for the project, given the health and safety risks
     associated with current storage conditions, will be delayed
     until November 2000--almost 3 years beyond the original plan. 

  -- The original schedule for completing the project was overly
     optimistic because it provided virtually no flexibility to deal
     with problems.  DOE wanted a compressed schedule for completing
     the project because of safety concerns at the existing storage
     basins and because DOE thought that a compressed schedule would
     improve the contractor's performance.  In addition, the lack of
     adequate management by the companies working on the spent fuel
     project for DOE--Westinghouse Hanford Company (Westinghouse),
     the company that managed the project until 1996, and Duke
     Engineering, the company currently responsible for the
     project--also contributed to schedule delays and cost overruns. 
     For example, Westinghouse was slow in incorporating severe
     weather design requirements for the storage building, which
     delayed the project, and Duke Engineering had difficulty
     identifying and resolving technical and management problems that
     affected the project's schedule and cost.  Furthermore,
     oversight by both DOE and its management and integration
     contractor at the Hanford site--Fluor Daniel--was insufficient
     to ensure that problems were quickly corrected.  In 1997, DOE
     and Fluor Daniel began taking aggressive action to address these
     problems. 

  -- Recent management changes have been made, and oversight of the
     project has become more aggressive.  Fluor Daniel has directed
     Duke Engineering to improve performance or face the possibility
     of losing the contract.  Both contractors' earnings are likely
     to be affected by reductions in the performance fee that DOE
     awards if the contractors meet predetermined performance
     objectives.  In addition, Duke Engineering has replaced several
     key managers and reorganized its operations and procedures.  The
     effect that such changes will have on meeting future schedule
     and cost targets is uncertain.  DOE is negotiating with its
     regulators--the Environmental Protection Agency and the
     Washington State Department of Ecology--new milestone dates that
     DOE believes it can meet.  However, in March 1998, DOE told
     Fluor Daniel that many of the management problems identified
     earlier continue to plague the project.  These problems and
     unresolved technical questions will continue to affect DOE's
     ability to set reliable targets. 


   DETERIORATING SPENT FUEL AND
   STORAGE BASINS MAY BECOME
   UNSAFE
---------------------------------------------------------- Chapter 0:1

For many years, DOE obtained plutonium for nuclear weapons by
reprocessing spent fuel from some of its nuclear reactors.  Before
the spent fuel could be reprocessed, however, it had to be stored
temporarily in water basins so that short-lived fission products
could decay, reducing radiation levels to the point where the fuel
could be handled with less danger to workers and less damage to
chemicals used to extract the plutonium.  When Hanford's
fuel-processing facilities were permanently shut down in 1992, DOE
had no strategy for dealing with the stockpiled fuel.  Hanford
currently has more than 2,100 metric tons of spent fuel--about 80
percent of the Department's total inventory. 

DOE and the Defense Nuclear Facilities Safety Board\1 have identified
the following safety problems at its spent fuel storage basins: 

  -- The spent fuel, which is made of uranium and has been irradiated
     in a nuclear reactor, was not intended for long-term storage in
     water and is corroding and crumbling.  The fuel is stored in
     canisters at the bottom of the basins, which contain about 16
     feet of water to absorb heat from the radioactive decay of the
     fuel and shield workers from radiation.  Because DOE's spent
     fuel is designed to be dissolved during processing in order to
     remove the plutonium it contains, only a thin coating (called
     cladding) was placed over the uranium; in some cases, this
     cladding is broken or damaged.  As a result, uranium, plutonium,
     and other radioactive materials from the spent fuel have
     accumulated in the bottoms of storage canisters, in sludge at
     the bottom of the storage basins, and in the filters and other
     basin components. 

  -- The two storage basins, which were not designed for the
     long-term storage of spent fuel, are vulnerable to leaks and
     earthquake damage.  Constructed in 1951, the basins are now well
     beyond their expected useful life of 20 years.  They are
     seismically unsound, and at least one has leaked water directly
     to the surrounding soils.  For example, from 1974 through 1979,
     about 15 million gallons of contaminated water leaked from one
     basin.  The same basin leaked again in 1993.  In both incidents,
     it is likely that contamination reached the Columbia River. 

  -- The buildings that house the basins are also inadequate, and the
     location is environmentally precarious.  The buildings are not
     airtight and allow sand, dirt, and dust to enter the water
     basins, contributing to the buildup of sludge at the bottom of
     each pool.  The basins are about 1,400 feet away from the
     Columbia River--much too close, in the view of DOE and other
     parties interested in protecting the river from environmental
     damage. 

The existing storage poses risks of exposing workers, the public, and
the environment to radioactive materials.  For example, an earthquake
or even an industrial accident could cause a basin to rupture,
releasing large quantities of contaminated basin water to the soil
and the Columbia
River.\2 The loss of water in 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.  Evaluations conducted in 1993 by DOE and 1994 by the Safety
Board concluded that improving the spent fuel's storage was urgently
needed.  Because of the deteriorated condition of the spent fuel and
one of the storage basins, the Safety Board described the situation
as one where "imminent hazards could arise within two or three
years," a time period that has already passed.  The Safety Board
recommended that, among other things, DOE take action to improve the
storage of spent fuel on a high-priority, accelerated basis. 


--------------------
\1 The Defense Nuclear Facilities Safety Board is an independent,
executive-branch oversight body responsible for evaluating DOE's
nuclear facilities.  The Safety Board recommends to DOE specific
measures that should be adopted to ensure that public health and
safety are adequately protected. 

\2 Soil around the basins has already been contaminated during past
reactor operations at the site.  Additional basin leaks could flush
contamination out of the soil and into the river. 


      PROJECT WOULD STABILIZE AND
      DRY FUEL FOR INTERIM STORAGE
      FARTHER FROM THE RIVER
-------------------------------------------------------- Chapter 0:1.1

DOE has responded to the safety concerns about the spent fuel by
developing a plan to dry the fuel and store it farther from the
Columbia River.  This strategy, which has been evolving since 1994,
includes cleaning and packaging the fuel in the basins, removing and
drying the fuel at a new processing facility to be built near the
basins, and transporting the fuel to a new interim storage facility
on the Hanford site several miles from the river.  The fuel will be
stored there in sealed containers until its final disposition occurs,
in a permanent geologic repository.  The project also involves
treating and disposing of the sludge, debris, and water left in the
basins after the fuel is removed.\3

The spent fuel project is organized into subprojects and includes
constructing two major facilities--a fuel-drying facility and a
canister storage facility.  The project also involves designing and
constructing a transportation system to move the fuel between the
facilities; special canisters to hold the fuel; and various systems
and processes to clean, package, and dry the fuel and to move the
14-foot-long canisters to their storage tubes once inside the
canister storage building.  Although the dry storage of spent fuel is
common in the commercial nuclear industry, the specific form of spent
fuel that DOE uses--metallic uranium--is more difficult to dry
because of its tendency to ignite when in contact with air.  Because
the spent fuel project at Hanford involves handling, conditioning,
and packaging nuclear materials, and DOE eventually expects to be
subjected to external regulation for nuclear safety, DOE has required
safety standards for the project equivalent to the Nuclear Regulatory
Commission's requirements, to the extent practicable. 

DOE wants to achieve at least three goals through this
projectï¿½eliminating the continued corrosion of the fuel; quickly
reducing the safety risks to workers, the public, and the
environment; and lowering the costs associated with the safe storage
of the fuel until its final disposition occurs.  DOE believes that
the dry storage of the spent fuel presents the best option for
achieving these goals. 


--------------------
\3 The project also includes moving about 30 metric tons of spent
fuel stored at other locations on the Hanford site to the new storage
facility or to storage pads adjacent to the new facility. 


   PROJECT IS BEHIND SCHEDULE AND
   OVER BUDGET
---------------------------------------------------------- Chapter 0:2

The original project schedule established in April 1995 called for
starting the fuel's retrieval in December 1997 and completing the
project in September 2001.  The schedule has been revised twice since
then, and in April 1998, the contractors proposed a new schedule that
would begin the fuel's retrieval in November 2000 and complete the
project by December 2005.  (See table 1.)



                                Table 1
                
                   Schedule Slippage for Key Dates in
                  Hanford's Spent Nuclear Fuel Project

                                                            Cumulative
                                                              delay to
                                    Complete                 project's
                        Begin fuel  fuel        Complete    completion
Schedule                retrieval   retrieval   project       (months)
----------------------  ----------  ----------  ----------  ----------
Original schedule       Dec. 1997   Dec. 1999   Sept. 2001         N/A
(Apr. 1995)

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

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

Third revision          Nov. 2000   Aug. 2003   Dec. 2005           51
(proposed) (Apr. 1998)
----------------------------------------------------------------------
DOE's recurring revisions to the project's schedule reflect an
uncertainty about DOE's ability to meet a firm completion date--an
uncertainty that has not abated.  For example, the April 1998
proposed schedule revision has occurred for two reasons.  First, Duke
Engineering officials identified additional schedule slippage beyond
the dates shown in the December 1997 schedule.  Second, EPA and
Ecology have demanded enforceable milestones in the Tri-Party
Agreement for the spent fuel project.\4 DOE's Assistant Manager for
Waste Management said that DOE did not want to establish project
milestones with its regulators on the basis of the December 1997
schedule, which was an accelerated schedule with high risk, only to
have the dates change before the negotiations were
complete.\5 Milestone commitments under the Tri-Party Agreement
represent contractual commitments that, if not met, can result in
fines being assessed against DOE.  To establish a schedule that it
had a better chance of meeting, and one that hopefully would not
change again during negotiations with the regulators, in April 1998,
Duke Engineering and Fluor Daniel proposed a schedule that includes
contingency for unforeseen problems.  DOE and its regulators expect
to have an enforceable agreement on the project's milestones by July
31, 1998. 

With each change in the schedule, the estimates of the project's
total costs have increased.  The original cost estimate was about
$740 million,\6 while the cost estimate associated with the April
1998 proposed schedule is about $1.4 billion--an 84 percent increase. 
(See table 2.)



                                Table 2
                
                  Changes in Total Cost Estimates for
                  Hanford's Spent Nuclear Fuel Project

                         (Dollars in millions)

                                                       Cumulative cost
Date of cost estimate                Cost estimate            increase
------------------------------  ------------------  ------------------
October 1995                                  $740                 N/A
April 1997                                     814                 $74
December 1997                                1,089                 349
April 1998 (proposed)                        1,365                 625
----------------------------------------------------------------------
In a February 9, 1998, letter to this Committee, DOE stated that the
estimates of spent fuel project costs of over $1 billion and 9 years
to complete the project (the December 1997 revision) were still less
than early estimates of the cost of addressing the spent fuel storage
problem at Hanford, which were projected to cost up to $2 billion and
take up to 15 years to complete.\7 DOE reasoned that, even with the
cost increases now being experienced, the project would still cost
roughly $1 billion less and take 6 years less than the original
project concept.  However, we believe that to evaluate cost and
schedule performance on a specific project that DOE is implementing,
current estimates need to be compared with the original estimates for
this project.  Such a comparison shows that estimated costs have
nearly doubled and that the project's duration has been extended by
over 4 years. 

Cost and schedule growth on a DOE major system acquisition project
(generally projects costing $100 million or more) are not unusual. 
In our 1996 report on DOE's major system acquisitions, we reported
that at least half of the ongoing projects and most of the completed
projects had cost overruns and/or schedule slippage.\8 Some of the
reasons for cost overruns and schedule slippage are similar to the
management problems that have occurred on this spent fuel project. 
For example, our 1996 report notes that the management of one project
was criticized for insufficient attention to technical,
institutional, and management issues.  Also in that report, we cited
a 1993 report that described the causes of cost increases in the
environmental restoration program, including design changes, poor
project definition, and turnover within the project team.  We noted
in our report that in recent years, DOE had implemented several
initiatives to improve its overall management of these large
projects. 


--------------------
\4 The Tri-Party Agreement is a legally binding agreement between
DOE, EPA, and Ecology.  Among other things, the agreement establishes
a schedule for cleaning up the various environmental hazards at the
Hanford site.  Until the recent negotiations, the Tri-Party Agreement
milestones related to spent fuel called for encapsulating and
removing the spent fuel and sludge from the storage basins by
December 2002. 

\5 This has already happened once during the project.  In 1997, DOE
and the regulators tentatively agreed on the enforceable milestones
for the project.  However, while public comments were being obtained
on a draft of the agreement, DOE learned from its contractors that
the milestones could not be achieved.  Because DOE would not sign the
agreement, the enforceable project dates had to be renegotiated. 

\6 At the time when DOE's original project schedule was approved in
April 1995, no corresponding cost estimate was available, according
to contractor officials.  In October 1995, DOE's contractor for the
project estimated that the project would cost about $740 million. 
All project cost estimates used in this report are in current dollars
and include both capital construction costs and operating costs over
the life of the project. 

\7 According to the Assistant Manager for Waste Management at
Hanford, the $2 billion estimate refers to a cost that was reported
in DOE's 1995 Baseline Environmental Management Report.  In that
report, the cost of dealing with Hanford's spent fuel was estimated
to be well over $2 billion. 

\8 See Department of Energy:  Opportunity to Improve Management of
Major System Acquisitions (GAO/RCED-97-17, Nov.  26, 1996). 


   UNREALISTIC SCHEDULES AND
   INADEQUATE MANAGEMENT AND
   OVERSIGHT CONTRIBUTED TO
   PROJECT DIFFICULTIES
---------------------------------------------------------- Chapter 0:3

The schedule for the project that DOE approved in April 1995 was
intentionally optimistic and had virtually no contingency for
unforeseen problems.  DOE insisted on a very optimistic schedule for
the project because of the deteriorated condition of the spent fuel
and the storage basins and the need to resolve the storage problems
expeditiously.  In addition, DOE officials thought that a tight
schedule would force Westinghouse to accomplish the project more
quickly.  However, virtually no schedule or cost flexibility existed
to address either the technical problems disclosed after
characterizing the fuel or other changes implemented as the project
progressed. 

When the initial project proposal was presented to DOE's Assistant
Secretary for Environmental Management in November 1994, under the
proposed schedule, the removal of the fuel from the basins was to
begin in December 1998, and the project was to be completed by April
2006.  The proposal was developed by Westinghouse, the company that
was the management and operations contractor at Hanford until October
1996.  In order to meet those dates, the proposal included several
shortcuts to normal DOE procedures, such as (1) allowing some of the
project's activities, including procurement actions, to start before
the Environmental Impact Statement Record of Decision was issued and
(2) allowing a "fast-track" approach in which the project's
activities--such as the characterization of the fuel, design of
facilities and equipment, safety analyses, and construction--would
proceed concurrently instead of sequentially.\9

The Assistant Secretary approved the proposal but directed that the
schedule be compressed so that beginning the retrieval of the fuel
could be moved up by 18 months--to June 1997.  DOE and Westinghouse
officials reevaluated the project and determined that there was
virtually no chance that the date specified by the Assistant
Secretary could be met.  Westinghouse proposed--and DOE accepted--a
compromise schedule under which retrieval of the fuel would start by
December 31, 1997--12 months earlier than under the initial
Westinghouse proposal.  Westinghouse estimated that it had an
80-percent chance of meeting the date. 

As part of its program to reduce costs while accelerating cleanup,
DOE rewarded Westinghouse for the estimated savings associated with
adjusting the project to an accelerated schedule by making an
additional incentive fee payment.  The program, called Challenge 170,
provided incentives for Westinghouse to improve its productivity and
eliminate unnecessary work.  Westinghouse's fee was calculated as a
percentage of the productivity increase or reduction in work scope. 
Westinghouse submitted formal change requests on the spent fuel
project to reflect the compressed schedule and other savings, and DOE
estimated that these actions would save $6.9 million, of which, about
$2.5 million could be attributed to accelerating the schedule.  In
1996, DOE paid Westinghouse as much as $368,000 in fees for these
expected savings.\10 However, because of certain cost increases in
future years, these claimed savings appear to be deferrals of work
that were performed in succeeding years that would not be eligible
for an award fee.  DOE would need to conduct a detailed analysis to
determine if the $2.5 million was a savings.  It is unclear,
according to a DOE contracting officer, if DOE has the contractual
authority to demand that Westinghouse repay any of the $368,000 fee
if DOE determines that the savings did not materialize.  He said that
at the time of our review, DOE had not assessed its legal basis for
seeking repayment of the fee. 

Unfortunately, the compressed schedule, including the deadline of
December 31, 1997, for beginning the retrieval of the fuel had little
chance of being achieved because it was based on an underlying
premise that the project would encounter few problems that would
affect the schedule.  Therefore, the schedule had virtually no
flexibility to address unforeseen problems.  Actual experience,
however, did not match the assumption; problems were encountered that
changed the scope of work required and affected the project's
schedule.  For example: 

  -- Characterization activities after the schedule was established
     revealed several surprises, including the poor condition of the
     fuel in closed canisters\11 (which necessitated developing a new
     water treatment system for one basin); the presence of aluminum
     hydroxide on some of the fuel, which in part, led to a redesign
     of the storage canisters to better withstand any buildup of
     hydrogen gas; and the presence of uranium particles and
     polychlorinated biphenyls (PCBs) in the pool sludge, which
     necessitated chemical treatment of the sludge before disposal. 

  -- Strategies for drying the fuel and for controlling pressure in
     the fuel storage canisters changed significantly.  Fuel-drying
     strategies evolved from a hot-conditioning system, in which the
     fuel would be heated to 300 degrees centigrade; to a two-step
     approach of cold drying at 50 degrees centigrade followed by hot
     conditioning; to a strategy approved in April 1998 to eliminate
     hot conditioning and rely solely on the cold drying of the fuel. 
     For the fuel storage canisters, the strategy evolved from using
     closed containers with a pressure relief system to sealed
     containers with no pressure relief.  These changes occurred as
     DOE and its contractors learned more about the characteristics
     of the spent fuel and incorporated new strategies to increase
     safety and reduce long-term storage costs. 

According to the Assistant Manager for Waste Management at Hanford,
the optimistic schedule for the project reflected a trade-off between
the health and safety risks associated with continuing to store the
spent fuel in the basins and the management risks associated with
setting an optimistic schedule and knowing that it would be difficult
to meet.  The Assistant Manager said that DOE wanted to resolve the
basin storage problems quickly and that DOE was also looking for ways
to improve the performance of its contractors.  Setting an optimistic
schedule for the spent fuel project was one strategy that DOE used to
try to obtain improved performance. 


--------------------
\9 For a discussion of DOE's use of a fast track approach on other
projects with cost and schedule problems, see Nuclear Waste: 
Department of Energy's Project to Clean Up Pit 9 at Idaho Falls Is
Experiencing Problems (GAO/RCED-97-180, July 28, 1997) and Nuclear
Waste:  Defense Waste Processing Facility--Cost, Schedule, and
Technical Issues (GAO/RCED-92-183, June 17, 1992). 

\10 DOE confirmed Westinghouse's savings of nearly $300 million for
the entire Challenge 170 program and paid, as a fee, 3.93 percent of
the first $170 million in savings and 15 percent of the savings over
$170 million.  Applying the 15-percent marginal rate, the amount of
the fee paid on the $2.452 million estimated savings for accelerating
the spent fuel project schedule was about $368,000. 

\11 One basin has closed fuel canisters, the other, open canisters. 
In both basins, however, water is in direct contact with fuel
elements. 


      MANAGEMENT BY COMPANIES IN
      CHARGE EXACERBATED PROBLEMS
      WITH ORIGINAL SCHEDULE
-------------------------------------------------------- Chapter 0:3.1

During the project's history, two different companies have been
responsible for the project.  Westinghouse, which at the time, was
the overall Hanford management and operations contractor for DOE,
managed the project from its inception in late 1994 until October
1996.  In October 1996, the responsibility for the spent fuel project
shifted to Duke Engineering, a company that has managed the project
as a subcontractor to Fluor Daniel, the new site contractor.\12 Under
both Westinghouse and Duke Engineering, the project has suffered from
management problems that exacerbated the problems already inherent in
the project's schedule.  The following are examples: 

  -- Westinghouse had difficulty implementing sound project
     management practices.  According to DOE officials and available
     documentation, Westinghouse did not use consistent and reliable
     estimating procedures to develop project baseline costs or make
     effective use of the baseline schedule as a tool to manage the
     project.  For example, although Westinghouse developed a
     baseline for the project and had a system for controlling
     changes to the baseline, DOE officials said that Westinghouse
     did not have a sound planning basis for some of its cost
     estimates.  DOE found that some cost estimates had inadequate
     supporting documentation and that estimating procedures were not
     applied consistently.  In addition, when Duke Engineering
     assumed responsibility for the project in October 1996, several
     adjustments had to be made to the project baseline to
     incorporate more realistic estimates of the time needed to
     accomplish certain tasks and to add work scope not previously
     included in the schedule.  The former Westinghouse spent fuel
     project director disagreed that these adjustments were needed
     and said that when Westinghouse turned over the project to the
     new contractors in October 1996, the project was on schedule and
     within budget.  DOE officials at Hanford, however, said the
     Westinghouse schedule did not have a good planning basis or
     sound justifications and that it never met the requirements for
     baseline management and control that Westinghouse agreed to in
     the project management plan. 

  -- Severe weather design requirements were not incorporated into
     the canister storage building in a timely manner.  The former
     Westinghouse spent fuel project director said that neither the
     requirement nor the options for meeting it were clear, but DOE's
     position has been that the requirement was clear and that
     Westinghouse failed to implement the requirement in a timely
     manner, extending the construction schedule for the building and
     jeopardizing the start of spent fuel retrieval from the basins. 

  -- Duke Engineering was unable to keep the various subprojects
     working in accordance with the project's schedule.  When Duke
     Engineering took responsibility for the project in October 1996,
     with the help of Fluor Daniel, it established an integrated
     project baseline schedule and a system of controlling change
     that DOE approved in April 1997.  However, DOE's evaluation of
     the project in September 1997 found significant problems with
     the management of the project, including Duke Engineering's poor
     management and contracting practices.  For example, DOE
     criticized Duke Engineering for the weak management of
     subcontractors when the subcontractors did not perform
     satisfactorily.  In October 1997, the Safety Board reported that
     the project had management deficiencies, including the
     inadequate identification of problems, inadequate actions to
     resolve problems, and a failure to communicate changes and
     performance expectations to project personnel.  Fluor Daniel and
     DOE officials told us that, in their opinion, these problems
     occurred because Duke did not have the management and technical
     expertise in place to properly manage the project.  The current
     president of Duke Engineering told us he agreed with these
     assessments. 

  -- Duke Engineering also has had problems with the management and
     staffing of the project's safety analysis documentation effort. 
     The Safety Board, in its October 1997 report, concluded that a
     key element in the ultimate success of the project was the
     timely completion of a number of subproject safety analyses.  We
     found delays in getting the safety documentation prepared and
     approved on various subprojects.  For example, the approval of
     the final safety analysis report for the canister storage
     building is now 9 months later than originally planned.  The
     safety analysis report for the cold vacuum drying facility is
     now 13 months late and was recently rejected by DOE as
     unacceptable.  Because safety documentation for the drying
     facility is on the "critical path" for the project schedule,
     delays in completing the documentation will add an estimated 46
     days to the overall project.\13 According to DOE's Assistant
     Manager for Waste Management, safety documentation has been
     inadequate because of problems with the underlying engineering
     and design work on the project.  He said that Duke Engineering
     and its subcontractors have not been doing acceptable
     engineering work on the project and that Duke Engineering did
     not have people with sufficient skills assigned to prepare
     safety documents.  Duke Engineering officials agreed that there
     have been design and engineering problems associated with the
     safety documentation process.  They said that they recently
     added staff with additional safety expertise and made other
     changes to address these problems. 


--------------------
\12 In October 1996, the site management contract at Hanford was
awarded to Fluor Daniel.  The Fluor Daniel team included five major
subcontractors.  Duke Engineering assumed responsibility for the
spent nuclear fuel storage project and also provides support for
other companies at the site. 

\13 Duke Engineering officials estimate that revising the safety
documentation to address DOE's concerns will cost an additional
$450,000. 


      OVERSIGHT WAS NOT SUFFICIENT
      TO GET PROBLEMS CORRECTED
      QUICKLY ONCE IDENTIFIED
-------------------------------------------------------- Chapter 0:3.2

Although DOE and Fluor Daniel were aware of the problems that were
causing the schedule to slip, their oversight actions were not
effective in resolving those problems.  During the time that
Westinghouse was still in charge of the project, DOE officials did
not take aggressive action to improve contractor performance.  These
officials said they could not get Westinghouse to develop a sound
planning basis for the project baseline and cost estimate or improve
its management controls.  According to DOE's spent fuel project
manager and the Assistant Manager for Waste Management at Hanford,
Westinghouse staff did not have the skills necessary to implement
project management techniques.  However, we found only limited
documentation showing that DOE officials were pointing out these
deficiencies to Westinghouse and asking for improved performance. 

The former Westinghouse spent fuel project director disagreed with
this assessment of Westinghouse's performance.  He said that
Westinghouse had made substantial progress on the project and that
DOE's evaluations of Westinghouse's performance were generally
positive.  DOE's Assistant Manager for Waste Management told us that
Westinghouse did make progress while managing the project but that,
overall, Westinghouse's performance was mixed and left considerable
room for improvement, especially in the areas of developing a sound
basis for the project baseline and making effective use of project
management tools.  He added that DOE was trying to get improved
performance from Westinghouse by focusing performance reviews on the
positive aspects of performance, not by emphasizing the deficiencies. 
In addition, the Manager of DOE's Richland Operations Office told us
that changing site management contractors in October 1996 from
Westinghouse to Fluor Daniel resulted from DOE's actions to deal with
Westinghouse's performance, including the problems with
Westinghouse's performance on the spent fuel project. 

After Duke Engineering assumed responsibility for the project as part
of the new site management contract, Fluor Daniel provided primary
oversight of the project for DOE.  According to Fluor Daniel's spent
fuel project director, it became apparent in December 1996 that Duke
Engineering was struggling to establish an integrated project
baseline, and in April 1997, after the baseline was approved, Duke
Engineering had difficulty ensuring that the various subprojects
stayed on schedule.  She described Fluor Daniel's oversight of Duke
Engineering as increasing in scope and intensity during this period
as Duke Engineering struggled to perform on the project. 

During this period, DOE officials expressed to Fluor Daniel several
concerns about the project, including poor quality assurance,
unresolved technical issues, and schedule slippage.  In its
evaluation of Fluor Daniel's performance at Hanford during fiscal
year 1997, DOE gave the company a marginal rating for its performance
on the spent fuel project.  While giving Fluor Daniel credit for
having a strong project director and for aggressively pursuing
project-related issues, DOE said the marginal rating was justified
because of unfavorable cost and schedule variances, missed
milestones, and safety issues.  Fluor Daniel assessed its own
performance on the project as marginal because of construction safety
problems, safety analysis reporting issues, and the large slippage in
the schedule resulting from Duke Engineering's performance.  Despite
these oversight actions by DOE, in October 1997, the Safety Board
reported that DOE officials at Hanford were not sufficiently aware of
the technical details of the project to prevent delays from
occurring.  They also reported that, up to that point, DOE had not
been able to accurately determine the status of the project on a
routine basis. 


   RECENT CORRECTIVE ACTIONS MAY
   NOT STOP COST AND SCHEDULE
   GROWTH
---------------------------------------------------------- Chapter 0:4

DOE and its contractors have been working to improve their
performance on the project.  The December 1997 revision to the
project's schedule was first proposed in August 1997, and it became a
catalyst for action on the project.  The Safety Board and DOE both
conducted reviews that were critical of Duke Engineering's project
management.  Fluor Daniel stepped up its oversight activities, and in
December 1997, it sent Duke Engineering a letter (called a cure
notice) requiring the company to correct problems and improve
performance on the project or face possible contractual remedies,
including termination for default or recompetition of the subcontract
rather than extending it. 

In response, Duke Engineering prepared a recovery plan and added
several new managers, including a new spent fuel project director. 
The company also made several organizational changes to strengthen
the management of the subprojects, establish greater accountability
for meeting the project's schedule, and speed the resolution of
technical issues.  In addition, Duke Engineering modified its
procedures to better identify emerging issues and control changes to
the project's technical baseline. 

On May 1, 1998, Flour Daniel notified Duke Engineering that it had
remedied the problems identified in the cure notice and that if
improvements continued, Duke Engineering's subcontract would probably
be extended.  DOE's Manager, Richland Operations Office, however, was
concerned with these decisions and asked Flour Daniel for (1)
information on its basis for deciding that the problems had been
remedied and (2) a recommendation with supporting justification by
May 29, 1998, to either extend or recompete the subcontract with Duke
Engineering. 

DOE has also strengthened its oversight of the project and has taken
steps to improve its process for reviewing safety documentation.  For
example, the Assistant Manager for Waste Management at Hanford began
devoting more of his time to the project and specifically to
overseeing the contractors' actions.  DOE also worked with the
contractors to clarify expectations for safety documents and improve
the safety review process to reduce the number of duplicative,
conflicting, or insignificant comments being made. 

DOE also increased its use of incentive fees to influence contractor
performance.  Both Fluor Daniel and Duke Engineering have
cost-reimbursement contracts under which the incentive fees are based
on the achievement of certain performance objectives.  To a more
limited extent, this was also true when Westinghouse was the site
contractor.  For example, for fiscal year 1996, DOE reduced the
incentive fees paid to Westinghouse by $625,000 below the $3 million
available, primarily because of the company's delays in finishing the
design of the canister storage building.\14 Fees paid to Fluor Daniel
and Duke Engineering are also being affected by performance. 
Although DOE has not completed its evaluation of the fees to be paid
to Fluor Daniel and Duke Engineering for fiscal year 1997, Fluor
Daniel's director of contract management estimated that Fluor Daniel
and Duke Engineering will earn only about $1.0 million of the $3.2
million fee available on the spent fuel project.\15 For fiscal year
1998, at least $8.1 million in incentives is available for the spent
fuel project.\16

DOE officials at Hanford are negotiating a revised project schedule
with the regulators that, the Assistant Manager for Waste Management
said, includes a contingency to address unforeseen problems so DOE
and its contractors are more confident that the dates can be met.  In
addition, Duke Engineering is exploring opportunities to shorten the
project's time frame by providing the suppliers and lower tier
subcontractors with incentives.\17

Despite recent actions to improve contractors' performance and to
make the schedule more realistic, however, remaining uncertainties
with the project make it difficult for DOE to predict project
outcomes with a high degree of reliability.  The following are the
main uncertainties: 

  -- Technical questions and changes continue.  For example, concerns
     persist about the discovery of an aluminum hydroxide coating on
     some of the fuel.  Aluminum hydroxide is about 35 percent water
     and not easy to remove from the fuel.  As radiation breaks down
     the water in the aluminum hydroxide into its basic elements, it
     could become a significant source of pressure in the storage
     canisters.  According to DOE's spent fuel project director, the
     companies working on this part of the project believe they have
     a technical solution but it has not yet been approved.  Any
     delay in completing the safety basis for dealing with the
     increased pressure, or implementing methods to remove the
     aluminum hydroxide coating, could delay the start of fuel
     removal. 

  -- Operational performance has not been proven.  According to DOE's
     spent fuel project director, other than some limited testing,
     systems and equipment to clean basin water, handle the spent
     fuel, and dry the fuel have not been operated to test
     reliability, the speed of operation, or the adequacy of operator
     training.  She said that operational performance is now the area
     of greatest uncertainty with the project. 

  -- The overall project continues to lose ground against the
     baseline schedule.  For example, 1 month after the December 1997
     schedule revision, the project was already $22 million over
     budget and the schedule was beginning to slip.  Only 3 months
     later, in April 1998, the contractors proposed a new schedule
     adding over 2 more years and $277 million to the project.  This
     latest proposed schedule included about 5 months and $47 million
     in contingency for unforeseen problems.  Even so, it is unclear
     if all of the delays and new work have been identified, or if
     the factors contributing to these cost and schedule increases
     have been discovered and dealt with. 

  -- Although Duke Engineering has recently made changes to its
     management team and operating procedures and Fluor Daniel has
     stepped up its oversight of the project, it is too early to tell
     if these changes will improve Duke Engineering's ability to
     manage the project within cost and schedule constraints. 
     However, DOE's Assistant Manager for Waste Management said in a
     March 1998 letter to Fluor Daniel that many of the management
     problems identified 6 months earlier continue to exist.  He also
     cited a lack of teamwork between Fluor Daniel and Duke
     Engineering that was interfering with technical integration of
     the work and overall progress on the project. 


--------------------
\14 This fee reduction was independent of the fees that DOE paid to
Westinghouse under the Challenge 170 program discussed earlier in
this testimony. 

\15 The maximum amount available to the contractors through
accomplishing a "critical few" performance measures for the project
was $3.2 million.  In addition, the contractors could earn fee by
accomplishing other performance measures tied to a single "mega"
objective.  Several of the measures for the mega objective pertain to
the spent fuel project.  The mega objective has a maximum of $20.6
million in available fee if all of the measures are met. 

\16 DOE and Fluor Daniel officials said that although they have been
unable to agree on the specific performance measures, DOE included
the performance measures it proposed in a contract modification and
expects Fluor Daniel to work in accordance with those measures. 

\17 In its review of the project in October 1997, the Safety Board
criticized DOE and the project contractors for failing to use
incentives and penalties to influence the performance of vendors and
suppliers on the project. 


   OBSERVATIONS
---------------------------------------------------------- Chapter 0:5

The management and oversight problems with the spent fuel project at
Hanford are examples of a long DOE history of difficulties in
managing major construction projects.  The projects that do get
finished are usually late and well over budget.  The spent fuel
project at Hanford is no exception--DOE and its contractors have
clearly not met cost and schedule targets.  The original project
schedule contained virtually no flexibility to deal with unforeseen
problems, and management and oversight problems exacerbated problems
inherent in the original schedule.  Although adding time to the
schedule and contingency funding and taking steps to improve the
project's management and oversight should improve the probability of
meeting future cost and schedule targets, several remaining
uncertainties affect DOE's and its contractors' ability to reliably
predict a completion date or cost.  As a result, it is important that
DOE continue to be vigilant and aggressive in its oversight of
contractors' activities if the project is to be completed within the
latest proposed schedule and cost. 


   AGENCY AND COMPANIES' COMMENTS
---------------------------------------------------------- Chapter 0:6

We provided DOE with a draft of our testimony for its review and
comment.  We met with DOE officials, including the Manager of the
Richland Operations Office.  DOE generally agreed with our testimony,
but said the testimony did not clearly state that spent fuel project
costs include both capital construction costs and operating costs
over the life of the project.  We have clarified the testimony
accordingly.  DOE also said we should recognize that its action to
replace Westinghouse as the Hanford site management contractor was
due, in part, to DOE's dissatisfaction with Westinghouse's
performance on the spent fuel project and represented a significant
action on DOE's part.  We added this information to our testimony. 
In addition, DOE noted that it had aggressively identified contractor
problems since the inception of the project but had addressed them
with Westinghouse informally.  Because there was only limited
documentation of these actions and contractor management problems
continued, we did not add this information to the body of the
testimony.  Finally, DOE said that our testimony did not make it
clear that (1) some of the changes to the project schedule were due
to unavoidable increases in project scope as solutions to technical
problems were developed and (2) the April 1998 proposed project
schedule and cost estimate included a contingency for additional
unforeseen problems.  We clarified our testimony accordingly.  DOE
also suggested several technical corrections, which we incorporated
as appropriate. 

We also discussed our findings with Fluor Daniel, Duke Engineering,
and Westinghouse.  Fluor Daniel and Duke Engineering generally agreed
with our findings and provided several technical corrections, which
we incorporated as appropriate.  Westinghouse disagreed with our
findings regarding its performance on the project.  Westinghouse
officials said that when they turned over the project to the new
contractors it was on schedule and within budget, that they had made
substantial progress on the project, and that DOE's evaluations of
Westinghouse's performance were generally positive.  We have
summarized Westinghouse's views in our testimony.  However, we
believe we have described Westinghouse's performance accurately. 
Westinghouse also suggested several technical corrections, which we
incorporated as appropriate. 

Our scope and methodology are included as an appendix to our
testimony. 


-------------------------------------------------------- Chapter 0:6.1

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. 


SCOPE AND METHODOLOGY
=========================================================== Appendix I

To determine the risks associated with current spent fuel storage at
Hanford and the Department of Energy's (DOE) plans to reduce those
risks, we reviewed DOE and Defense Nuclear Facilities Safety Board
reports on current storage conditions and DOE documents describing
the spent fuel storage project.  We also reviewed the environmental
impact statement for the spent fuel project.  In addition, we
interviewed DOE and contractor officials, as well as officials from
the Environmental Protection Agency and the Washington State
Department of Ecology. 

To determine the current status of the project, we reviewed project
schedules and cost estimates approved by DOE, as well as related
project documents, including safety basis documentation, project
status reports, and correspondence.  We also interviewed DOE and
contractor officials to understand the project's history, the reasons
for the changes to schedule and cost estimates, and the major events
leading to those changes. 

To determine the major causes of schedule delays and cost increases,
we reviewed 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. 

To determine what steps have been taken to correct the project's
problems, any penalties for poor performance, and the likelihood of
meeting the latest schedule and cost estimates, we reviewed the
contractors' records, correspondence, and contract files.  We also
interviewed DOE and contractor officials. 

Our review was performed from January through April 1998, in
accordance with generally accepted government auditing standards. 


*** End of document. ***