Haste Makes Waste—UPF Mistake Cost $539 Million

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Feb 26, 2013 1 Comment ›› orepa

No One Held Accountable Yet: TIME TO PUT THE BRAKES ON UPF SPENDING UNTIL MANAGEMENT AND SECURITY PROBLEMS ARE ADDRESSED

 

It is one of those lessons we are supposed to learn in kindergarten—or at least in elementary school. Haste makes waste.

 

The Department of Energy knows it. In DOE Guidance 413.3-5, the agency cautions that efforts to speed projects up increase project risk, often lead to schedule delays and will likely result in overall higher costs for the project.

 

The Uranium Processing Facility project in Oak Ridge, Tennessee, the flagship of the next generation of the US nuclear weapon production complex, received a big bump in funding last year—from $161 million to $347 million—to “accelerate construction.”

 

But construction was not accelerated—instead, NNSA admitted publicly in October, five months after it first learned about it, that it had run into a “space/fit issue” with the UPF design. The building, as it approached 80% design completion, would not hold all the equipment it needs to hold.

 

NNSA had few answers when questioned in October, but answers have been dribbling out since. With the release of the annual Performance Evaluation, we learn the cost of the space/fit issue—$539 million dollars.

 

The Y12 Final Performance Review—the report used by NNSA to decide how much Award Fee it will give its contractor each year—NNSA judges B&W’s work on the UPF design to be “Unsatisfactory,” citing the “space/fit issue,” as the most serious problem.

 

“The engineering plan delivered on October 19, reported a TPC cost impact of $539M and 13 month impact to the overall project schedule as a result of the Space/Fit issue, effectively using 45% of the NNSA contingency established during CD-1 Reaffirmation in April.” (Performance Evaluation Report for Babcock and Wilcox Y-12 Technical Services, LLC, Evaluation Period: October 1, 2011 through September 30, 2012, p.7)

 

Translation: the space/fit fiasco cost taxpayers more than half a billion dollars and burned through almost half the buffer NNSA built into the $6.5 billion cost estimate.

 

This revelation—that half the contingency is gone, while the design completion stands at 66% and before a single spade of dirt has been turned—suggests NNSA will not be bringing the UPF project in on budget.

 

Among the many challenges the NNSA has faced in the Uranium Processing Facility project has been giving the public, or Congress, or anyone, really, real numbers when it comes to estimating cost.

 

The first cost projections, in 2005, for the UPF predicted a range of $600 million – $1.5 billion for the entire project. That was eventually shifted to $1.5 – $3.5 billion. But those numbers were criticized by the General Accounting Office as not being grounded in any reality because they were overly specific—predicting the cost of pipe, for instance, when the facility had not yet been designed.

 

More recently, the Army Corps of Engineers speculated the cost of the UPF might be as high as $7.5 billion; DOE/NNSA have used $3.5 – 6.4 billion as their price range. NNSA says a contingency amount is included in that range, bolstering their confidence that the numbers reflect the cost of the UPF project. But in the budget presented to Congress last year, the outyear numbers for the UPF were listed as “TBD.” And NNSA has said it will not be prepared to submit numbers for an Independent Cost Estimate until a year after reaching 90% design completion, now predicted for September 2014.

 

This is important because NNSA has been severely criticized by the General Accounting Office for being unable to project costs accurately for major construction projects, part of the general assessment of GAO that NNSA lacks the capacity to manage major projects. GAO’s concerns are borne out when one considers the Waste Treatment Facility at Hanford, the Mixed Oxide Fuel fabrication plant at Savannah River, and the National Ignition Facility in Lawrence Livermore. At each of these projects, original cost projections were wildly low; at each of these projects Congress continues to pour as much as $500 million/year; and at each of these projects, work is behind schedule with no end in sight.

 

Last year Congress adopted the President’s budget request for a significant increase in funding—to $347 million dollars—to “accelerate construction” of the UPF. At the time, OREPA noted DOE Guidance on construction clearly warns against efforts to speed up construction projects. Commenting on two commonly used methods—crashing a project and compressing a schedule, DOE’s Guidance says efforts to speed projects up increase project risk, will likely lead to schedule delays and will result in overall higher costs for the project.

 

So far, DOE’s Guidance is dead-on. NNSA has conducted an “after action” review to determine how the space/fit problem came about, but it does not address the push to accelerate the project. Instead, it identifies seven management issues that led to the problem.

 

This year, the NNSA is expected to ask Congress to give it a raise; early budget drafts are rumored to push UPF funding up to half a billion dollars a year for the next five years.

 

Given the dramatic setback the UPF design team suffered, combined with the changeover in management at Y12, and the fact that NNSA has yet to demonstrate a willingness to identify responsible parties in the space/fit fiasco or to hold any management accountable for the problem, funding increases for the UPF are both premature and imprudent.

 

Congress should, before pouring any more money down the UPF drain, require accountability. It is unconscionable that an agency not be held accountable for wasting half a billion dollars; Congress should hold hearings to determine where responsibility lies. (In September 2012, after a $15 million security breach at Y12, personnel were reassigned or fired, contractors were demoted then relieved, and both the House and Senate held hearings.)

 

Congress also should, since NNSA won’t, take a hard look at the serious security issues being raised about the above-ground UPF design. Funding from Congress should incentivize careful planning and deliberate, conservative project design rather than pushing the job forward faster than management can handle.

 

In short, Congress should rein in the NNSA by putting the brakes on UPF funding until management issues and design issues are sorted out.

 

 


Comments

  1. […] for the proposed Uranium Processing Facility (UPF) cost taxpayers over a 1/2 billion dollars. A statement from the Oak Ridge Environmental Peace Alliance (OREPA) sheds light on the FY2012 Y-12 Performance Evaluation Report […]

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