Department of Energy: Challenges Exist in Managing the Spallation Neutron
Source Project (Testimony, 03/03/99, GAO/T-RCED-99-103).

Pursuant to a congressional request, GAO discussed the Department of
Energy's (DOE) management of the Spallation Neutron Source Project,
focusing on the: (1) project's cost and schedule; and (2) effectiveness
of the collaborating laboratories' coordination.

GAO noted that: (1) the project is not currently in trouble, but warning
signs in three key areas raise concerns about whether it will be
completed on time and within budget; (2) DOE has not assembled a
complete team with the technical skills and experience needed to
properly manage the project; (3) a permanent project director was just
hired last week, 5 months after Congress approved the start of
construction and over a year after the project's design was approved;
(4) other important positions remain unfilled, including those of a
technical director and an operations manager; (5) cost and schedule
estimates for the project have not been fully developed; (6)
furthermore, the project's contingency allowances for unforeseen costs
and delays are too low for a project of this size and scope, according
to project managers and DOE; (7) DOE's approach to managing the project
requires an unprecedented level of collaboration among five different
laboratories, managed through DOE's complex organizational structure;
and (8) coupled with DOE's history of not successfully completing large
projects on time and within budget, these warning signs make the
Spallation Neutron Source project a significant management challenge for
DOE and suggest a need for continued close oversight.

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

 REPORTNUM:  T-RCED-99-103
     TITLE:  Department of Energy: Challenges Exist in Managing the 
             Spallation Neutron Source Project
      DATE:  03/03/99
   SUBJECT:  Laboratories
             Cost control
             Energy research
             Research program management
             Strategic planning
             Research and development facilities
             Interagency relations
             Cost analysis
             Human resources utilization
IDENTIFIER:  DOE Spallation Neutron Source Project
             
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Cover
================================================================ COVER


Before the Subcommittee on Energy and Environment, Committee on
Science, House of Representatives

Fore release
on Delivery
Expected at
10 a.m.  EST
Wednesday
March 3, 1999

DEPARTMENT OF ENERGY - CHALLENGES
EXIST IN MANAGING THE SPALLATION
NEUTRON SOURCE PROJECT

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

GAO/T-RCED-99-103

GAO/RCED-99-103T

Department of Energy

(141297)


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


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

Mr.  Chairman and Members of the Subcommittee: 

We are here today to testify on the Department of Energy's (DOE)
management of the Spallation Neutron Source Project (project).  This
billion-dollar complex, to be built in Oak Ridge, Tennessee, is
designed to be the world's most powerful accelerator-based facility. 
Experiments conducted at the facility are expected to lead to the
production of new materials for use in applications ranging from
aircraft and automobiles to drugs and computer hard drives.  The
project represents the largest interlaboratory collaboration ever
attempted, bringing together the work of five national laboratories. 
This statement is based on our ongoing review for the full Committee
of the project's management, the project's cost and schedule, and the
effectiveness of the collaborating laboratories' coordination. 

In summary, Mr.  Chairman, the project is not currently in trouble,
but warning signs in three key areas raise concerns about whether it
will be completed on time and within budget.  First, DOE has not
assembled a complete team with the technical skills and experience
needed to properly manage the project.  A permanent project director
was just hired last week, 5 months after the Congress approved the
start of construction and over a year after the project's design was
approved.  Other important positions remain unfilled, including those
of a technical director and an operations manager.  Second, cost and
schedule estimates for the project have not been fully developed. 
Furthermore, the project's contingency allowances for unforeseen
costs and delays are too low for a project of this size and scope,
according to project managers and DOE.  Finally, DOE's approach to
managing the project requires an unprecedented level of collaboration
among five different laboratories, managed through DOE's complex
organizational structure.  Coupled with DOE's history of not
successfully completing large projects on time and within budget,
these warning signs make the Spallation Neutron Source project a
significant management challenge for DOE and suggest a need for
continued close oversight.  Before discussing these issues in more
detail, we would like to provide some background. 


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

The Spallation Neutron Source Project is, according to DOE and its
scientific advisers, vitally important to the nation's scientific
community.  DOE estimates that as many as 2,000 scientists from
universities, industries, and federal laboratories will use this
facility, which is scheduled to be completed in December 2005.  The
five DOE national laboratories collaborating on the project are the
Lawrence Berkeley National Laboratory in California, Los Alamos
National Laboratory in New Mexico, Brookhaven National Laboratory in
New York, Argonne National Laboratory in Illinois, and Oak Ridge
National Laboratory in Tennessee.  Each of the five participating
laboratories is responsible for designing, building, and assembling
separate components of the project.  Oak Ridge National Laboratory's
current operating contractor is Lockheed Martin Energy Research
Corporation, which serves as the project's overall manager.  \1
Several advisory committees provide scientific advice, and a DOE
review process gives technical and managerial advice.  According to
current estimates, the facility will take 7-ï¿½ years to complete and
will cost $1.36 billion.  DOE approved the conceptual design for the
project in June 1997 and has spent about $39 million on the project
through fiscal year 1998.  The Congress approved the start of the
construction phase in fiscal year 1999 and provided $130 million for
this purpose.  DOE expects actual construction to begin in mid-2000. 

We reviewed the project in the context of our past experiences in
examining large DOE construction projects.  As this Subcommittee is
well aware, DOE has not always managed large projects successfully. 
Our 1996 report on DOE's management of major system acquisitions
(defined as projects costing about $100 million and more) found that
many of DOE's large projects have cost more and taken longer to
complete than planned.  In the past, many were terminated before they
were completed, and others never performed as expected.  One reason
for the cost and schedule problems associated with these projects was
the lack of sufficient DOE personnel with the appropriate skills to
oversee contractors' operations.  \2 Most recently, we examined DOE's
efforts to clean up large concentrations of radioactive waste at the
Department's Hanford Site in southeast Washington State.  Although
DOE is making changes to improve its management of this project, we
found early indications that DOE may be having difficulty ensuring
that the proper expertise is in place.  \3


--------------------
\1 Lockheed Martin announced it will not compete for the Oak Ridge
National Laboratory contract when it expires in 2000. 

\2 Department of Energy:  Opportunity to Improve Management of Major
System Acquisitions (GAO/RCED-97-17, Nov.  26, 1996). 

\3 Nuclear Waste:  Department of Energy's Hanford Tank Waste Project
ï¿½ Schedule, Cost, and Management Issues (GAO/RCED-99-13, Oct.  8,
1998). 


   CONCERNS ABOUT THE PROJECT'S
   LEADERSHIP
---------------------------------------------------------- Chapter 0:2

In a 1997 review, DOE reported that the success of the project
depends on a having a project director skilled in accelerator science
and in the management of large construction projects.  "It is
critical that the permanent leadership for the [project] be named as
soon as possible," the review said.  "It will also be a mark of [Oak
Ridge National Laboratory's] ability to execute this project that key
scientific, technical, and management leadership, committed to making
the [project] succeed, can be successfully recruited to [Oak Ridge]
before the project is funded by Congress."\4 Despite this recognized
need and the Congress's approval of the project's construction phase
5 months earlier (the Congress provided funding for design activities
beginning in fiscal year 1996), Oak Ridge National Laboratory has
just announced the hiring of an experienced project director.  In the
interim, the laboratory's associate director has been serving as the
project director.  This announcement came shortly after DOE's
internal review committee and an independent review team strongly
recommended that a project director with the right skills be
recruited as quickly as possible.  \5 Other key positions remain
unfilled.  The project is still without a technical director, \6 and
DOE's review committee recently concluded that there was still "an
inadequate level of technical management at the [Oak Ridge]
laboratory." \7 This committee also noted that a full-time operations
manager should be appointed and that a manager is needed to oversee
the construction of the facilities that will house the equipment and
instruments being built by the individual laboratories.  In addition,
the committee reported that the slow progress in the facilities
portion of the project is due in large part to the relative
inexperience of the project facilities staff.  DOE also found that
the designs of each of the collaborating laboratories' component
parts have not effectively been integrated into the total project,
primarily because Oak Ridge National Laboratory's project office
lacks the appropriate technical expertise to integrate the designs
and to plan for commissioning and operating the facility. 

Several other key project officials were hired later than originally
planned.  For example, a manager for environment, safety, and health
was hired in December 1998, and the
architect-engineering/construction management contractor was hired in
November 1998.  DOE had hoped to fill these important positions
before the construction phase began in October 1998.  Because of
these delays in hiring staff, the project is underspending its
appropriation.  Obligations and costs are currently running at about
60 percent of the planned budget (through 4 months of the project's
87-month schedule).  A major reason for the slow pace of spending is
that Los Alamos National Laboratory only recently (Nov.  1998) hired
a permanent team leader and consequently is behind the other
laboratories in completing several project tasks.  In addition, the
architect-engineering/construction management contract was finalized
later than originally planned.  DOE officials told us they are
confident, however, that the current spending pace will not affect
the project's overall schedule and that the current spending patterns
represent the prudent use of funds. 


--------------------
\4 Department of Energy Review of the National Spallation Neutron
Source Project (June 1997). 

\5 The project is reviewed regularly by a committee of DOE and
laboratory officials.  A review by an independent contractor, EG&G
Services, was completed in February, 1999. 

\6 A DOE official told us that the incoming project director plans to
provide a technical director. 

\7 Close Out Presentation of the Spallation Neutron Source Project,
DOE Review Committee, DOE (Jan.  28, 1999). 


   CONCERNS ABOUT COST AND
   SCHEDULING
---------------------------------------------------------- Chapter 0:3

The project's cost and schedule estimates are not fully developed and
thus do not yet represent a reliable estimate (baseline).  According
to a senior DOE official, the current project team does not have the
expertise to develop a detailed cost estimate, preferring instead to
accept laboratories' cost estimates that lack supporting detail. 
This shortfall in expertise has delayed the development of an
accurate estimate of the project's total cost.  DOE's independent
reviewer expressed a similar concern, noting that the cost estimate
in the project is based on its design and that "higher quality
estimates are needed for a credible baseline." \8

Of particular concern are the inadequate allowances for contingencies
(unforeseen costs and delays) built into the project's current cost
and schedule estimates.  The project's cost estimate allows 20
percent for contingencies, well below the 25-30-percent allowance
that DOE and contractor officials believe is necessary for a project
of this scope and complexity.  Concerned about the low contingency
allowance, DOE's independent review team reported that the project
will not be completed at the current cost estimate.  The project's
contingency allowance for delays is also too low, according to
current project officials.  The project allows about 6 months for
delays, well below the 9 to 12 months desired by project managers. 
DOE and laboratory project managers told us they are confident that
they can increase these contingency allowances without jeopardizing
the project's overall cost and schedule. 


--------------------
\8 External Independent Review of the Spallation Neutron Source (SNS)
Project , EG&G Services, (DRAFT- Feb.  17, 1999). 


   CONCERNS ABOUT DOE'S MANAGEMENT
   STRUCTURE
---------------------------------------------------------- Chapter 0:4

The complex management approach that DOE has devised for the project
creates a need for the strongest possible leadership.  In particular,
integrating the efforts of five national laboratories on a project of
this scope requires an unprecedented level of collaboration.  While
staff from multiple laboratories collaborate on other scientific
programs, DOE has never attempted to manage a multilaboratory effort
as large and complex as this one.  According to DOE, a
multilaboratory structure was chosen to take advantage of the skills
offered by the individual laboratories. 

Although Oak Ridge National Laboratory serves as the project's
overall manager, staff at each of the participating laboratories do
not report to Lockheed Martin Energy Research Corporation, the
current Oak Ridge contractor that is managing the project.  Instead,
the collaborating laboratory staff report to their respective
laboratory contractors--the educational institutions or private
enterprises that operate the laboratories.  In addition, the five
laboratories participating in the project are overseen by four
separate DOE operations offices.  Further complicating this reporting
structure, four of the five laboratories receive most of their
program funding from DOE's Office of Science, under whose leadership
the project is funded and managed.  Los Alamos, however, is primarily
funded by DOE's Defense Programs, a different component within DOE's
complex organizational structure.  Achieving a high level of
collaboration among the diverse cultures, systems, and processes that
characterize the participating laboratories, operations offices and
headquarter program offices is widely recognized as the project's
biggest management challenge. 

To facilitate collaboration among the laboratories, DOE has developed
memorandums of agreement between and among the laboratories and with
the four DOE operations offices that oversee the laboratories.  These
agreements articulate each cooperating laboratory's role and
expectation for its component of the project.  However, these
agreements are not binding and represent the laboratory director's
promise to support the project and cooperate with Oak Ridge in
ensuring that required tasks at each laboratory are completed on time
and within cost.  DOE told us that only two of the laboratories--Los
Alamos National Laboratory and Argonne National Laboratory--have the
project as a performance element in their contracts with DOE. 

DOE recognizes that the multilaboratory nature of the project will be
a major challenge for the project director.  In commenting on the
need for a stronger leadership team to be put in place as soon as
possible, DOE's project review committee noted the following: 

     A construction project of this scale and complexity needs a
     single, experienced individual in charge of all aspects of the
     project.  This individual must have the responsibility and the
     full authority needed to direct all aspects of the project. 
     Because of the multi-laboratory collaborative nature of the
     project, the project leader must be able to directly access the
     management of the collaborating laboratories at the highest
     level."\9

DOE's management approach for this project raises several risks.  The
new project director will remain an employee of Argonne National
Laboratory (operated by the University of Chicago), but will work
directly with Lockheed Martin Energy Research Corporation.  The
project director will not have direct authority over other
laboratories' staff and will, in our opinion, be handicapped by
having to work through many other officials to achieve results on a
day-to-day basis.  Senior DOE officials responded to our concerns by
noting that the project director approves all work packages
authorizing funding to the participating laboratories, and thereby
exercises direct control over the project.  DOE officials told us
that the participating laboratory directors are highly committed to
the project and that senior DOE managers will not hesitate to
intervene to resolve disputes.  Finally, DOE officials observed that
the DOE review committee and the independent reviewer have praised
the level of collaboration already achieved on the project. 

We agree that the laboratories appear to be collaborating on the
project at this very early stage, but we remain concerned about DOE's
reliance on memorandums of agreements in the absence of direct
control.  In commenting on the collaboration achieved to date, the
independent reviewer also noted that "the laboratories have
traditionally operated in an independent and decentralized manner
which contributes to the Team's concern in this area." The
independent reviewers also said that there is not a clear chain of
command in the project's current organizational structure. 

Contributing to our concerns is well-documented evidence of problems
in the laboratories' chain of command.  We, along with many other
reviewers, have reported that the Department lacks an effective
organizational structure for managing the laboratories as a system. 
\10 We noted that the absence of a senior official in the Department
with program and administrative authority over the operations of all
the laboratories prevents effective management of the laboratories on
a continuing basis.  DOE officials told us that the Under Secretary
is paying close attention to the project and will intervene as
necessary to resolve disputes.  DOE officials have also told us that
the many advisory committees created to provide technical and
managerial assistance serve to enhance the laboratories'
collaboration. 

DOE and laboratory officials have cited several instances in which
the laboratories have worked together in a highly effective manner,
citing, for example, the recent completion of the Advanced Photon
Source at Argonne National Laboratory.  These achievements, however,
are not representative of the current challenges facing DOE and its
laboratories and do not resolve management problems inherent in the
project's current organizational structure and reporting
relationships. 


--------------------
\9 Close Out Presentation of the Spallation Neutron Source Project,
DOE Review Committee, DOE (Jan.  28, 1999). 

\10 Department of Energy:  Uncertain Progress in Implementing
National Laboratory Reforms (GAO/RCED-98-197, Sept.  10, 1998). 


-------------------------------------------------------- Chapter 0:4.1

Mr.  Chairman, this concludes our statement.  We would be happy to
respond to any questions from you or Members of the Subcommittee. 



   (See figure in printed
   edition.)


*** End of document. ***