Guest Post by Nick Roth
For the last twenty years, the Department of Energy’s (DOE) “contract and project management” program has been a charter member of the Government Accountability Office’s (GAO) list of government programs at high risk for fraud, waste, abuse, and mismanagement.
Late last week GAO ensured that the contract and project management program would remain on the list when it released a report describing how incredibly poor DOE has been at estimating the cost of their programs…
In a report titled “Actions Needed to Develop High-Quality Cost Estimates for Construction and Environmental Cleanup Projects,” GAO looked at DOE’s process for estimating the cost of major projects. The report focused on four specific projects, including the massive Uranium Processing Facility (UPF) proposed as part of DOE’s plan to increase it’s capacity to build new nuclear weapons. For those of you keeping score at home, the UPF was one of the items that Senator Kyl included on his “nuclear weapons Christmas wish list” in a letter sent to the President in December.
Report Highlights
Below are the Top 5 Most Important, Amusing, and “WTF?!” Report Findings/ Highlights:
1. DOE has not had a policy that establishes standards for estimating the cost of projects for over a decade.
2. GAO does not consider any of the cost estimates for the UPF to be fully or even mostly credible, well documented, accurate, or comprehensive.
3. Eight of DOE’s twelve major construction projects have exceeded their initial cost estimates by a total of nearly $14 billion. Nine of the ten major environmental cleanup projects related to nuclear weapons production experienced cost increases and need an additional $25 billion to $42 billion to be completed.
4. A DOE contractor conducted a risk analysis which estimated with 95% certainty that the UPF could be constructed for $2.3 billion. Later, DOE “experts” reviewing the project thought it would require significantly more funding and added more than a $1 billion “allowance” to the project. Also, DOE has no way of knowing whether any of these cost estimates are even remotely accurate.
5. Cost estimators for the UPF did not collect evidence to support cost projections contained in their estimate. For instance, the cost estimates did not include “costs associated with developing technologies that are critical to the facility’s function but were not yet mature enough to be included in such a facility.”
The report recommends that DOE:
1. Ensure its new policy and guide fully reflect cost-estimating best practices, including by requiring independent cost estimates for its major projects.
2. Create a centralized, independent cost-estimating capability within the department.
3. Conduct independent cost estimates for those major projects that have not received one.
Future Options to Study
GAO is to be commended for highlighting DOE’s slipshod accounting practices. GAO should also conduct a study of what accountability measures can be put in place when DOE programs go way over budget. One model to consider is how the Department of Defense (DOD) deals with significant cost overruns in their weapons procurement process.
DOD is now legally required to submit Select Acquisition Reports, or “SARs,” updating Congress on the status of their acquisition programs, including estimated Life Cycle Costs. According to the Nunn-McCurdy amendment to the 1982 Defense Authorization Bill, if a DOD procurement program has a cost overrun of more than 15%, DOD has to inform Congress. If a program has a cost overrun of more than 25%, the Secretary of Defense is required to appear before Congress and meet certain certification requirements; otherwise the program is terminated. DOE needs to be held to the same standard of accountability both before AND after they do their cost estimates.
Nick Roth is the Program Director for the Alliance for Nuclear Accountability (ANA). The views expressed in this post are Nick’s and do not necessarily represent those of ANA.
