Key drivers NNSA identified for the cost increase for the MOX facility  included the following:
DOE’s approval of the cost and schedule before design was  complete. NNSA’s budget request for fiscal year 2014 stated that the cost of  critical system components for the MOX facility averaged 60 percent  higher than estimated as a result of approval of these estimates  before design was complete. NNSA Has Not Analyzed Root Causes of the Cost Increases for the Plutonium Disposition Program’s Construction Projects

NNSA has not analyzed the underlying, or root, causes of the close to $3  billion in construction cost increases for the MOX facility and WSB. DOE’s project management order requires that lessons learned be  captured throughout a project to allow for the exchange of information  within DOE in the context of project management and to benefit future  endeavors. Without a root cause analysis, it is uncertain whether NNSA will be able  to accurately identify underlying causes of the cost increases for the MOX  facility and WSB in order to identify and implement corrective measures  and identify lessons learned to share with and apply to other DOE  construction projects. NNSA Has Taken Steps to Hold Contractors Accountable for Cost Increases by Withholding Fees

After determining that the performance of the contractors for the MOX  facility and WSB contributed to the projects’ construction cost increases,  NNSA took steps to hold the contractors accountable for their  performance by withholding fees specified under the contracts. In total, NNSA withheld $45.1 million or  close to one-third of all fees the contractor could earn as of November  2013. Milestone fees. Specifically, (1) NNSA’s draft April 2013 life-cycle cost estimate for the  overall program was partially comprehensive, partially well-documented,  and partially accurate but did not meet any of the best practices for a  credible estimate; (2) the MOX contractor’s September 2012 proposal for  increasing the cost of the MOX facility was substantially comprehensive  but partially well-documented and accurate and minimally credible; and  (3) the WSB contractor’s February 2013 monthly update to its schedule  estimate was minimally well-constructed and partially met the other three  characteristics of a reliable schedule—comprehensive, credible, and  controlled. The draft life-cycle cost estimate was not credible because  NNSA did not conduct an independent cost estimate to provide an  unbiased test of whether its estimate was reasonable, a formal  sensitivity analysis to examine the effects of changing assumptions  and ground rules, or a risk and uncertainty analysis to assess  variability in point estimates due to factors such as errors and cost  estimators’ inexperience or biases. Contractor’s Schedule Estimate for the WSB Did Not Meet Most Best Practices for Reliability

The WSB contractor’s February 2013 monthly update to its schedule  estimate did not fully reflect the characteristics of a high-quality, reliable  schedule estimate as established by best practices. Well-constructed. Conducting a root cause analysis of the cost increases for the MOX  facility and WSB could help NNSA address its long-standing difficulties in  completing projects within cost and on schedule, which has led to NNSA’s  project management remaining on GAO’s list of areas at high risk of  fraud, waste, abuse, and mismanagement. NNSA has drafted a life-cycle cost estimate of $24.2 billion for the  Plutonium Disposition program—an important step toward presenting the  full cost of NNSA’s current strategy to dispose of surplus weapons-grade  plutonium as MOX fuel. To identify lessons learned from and provide assurance of  preventing recurrence of cost increases for the MOX facility and WSB,  and to develop reliable cost estimates for the Plutonium Disposition  program, we recommend that the Secretary of Energy direct the DOE and  NNSA Offices of Acquisition and Project Management and the NNSA  office responsible for managing the Plutonium Disposition program, as  appropriate, to take the following four actions:
Conduct an analysis of the root causes of the cost increases for the  MOX facility and WSB, such as the causes of the design changes that  led to cost increases, and identify and prioritize recommended  solutions. However, as we stated in  the report, DOE’s project management order does not include a  requirement for a root cause analysis of projects experiencing significant  cost increases or schedule delays, and NNSA officials said that they  decide on a case-by-case basis whether to conduct a root cause analysis. Appendix I: Objectives, Scope, and Methodology

To assess drivers of the construction cost increases for the Mixed Oxide  (MOX) Fuel Fabrication Facility and Waste Solidification Building (WSB)  that the National Nuclear Security Administration (NNSA) identified, we  reviewed the Department of Energy’s (DOE) budget request for NNSA for  fiscal year 2014, which provided a summary of the cost drivers for both  projects. To assess the extent to which NNSA’s most recent estimates of the  Plutonium Disposition program’s life-cycle cost and of the cost and  schedule for completing the program’s construction projects met best  practices we have compiled in guides identifying the characteristics of  high-quality, reliable cost and schedule estimates, we tailored our  methodology to the differing stages of NNSA’s development and approval  of each estimate:
NNSA’s life-cycle cost estimate for the Plutonium Disposition  program. The schedule estimate sequenced activities in  ways that decreased the probability of activities starting on time  and contained activities that were not properly tied with the start  or end date of other activities, potentially obscuring the critical  path determining the project’s earliest completion date.
Why GAO Did This Study

NNSA, a separately organized agency within DOE, manages the Plutonium Disposition program to dispose of surplus weapons-grade plutonium by burning it as MOX fuel—a mixture of plutonium and uranium oxides—in specially modified commercial nuclear reactors. In 2012, DOE forecasted cost increases of close to $3 billion over the previous estimates for the program's two construction projects, the MOX facility and the WSB for disposing of waste from the MOX facility.
GAO was asked to review these cost increases and the life-cycle cost estimate. This report examines: (1) drivers NNSA identified for the cost increases; (2) the extent to which NNSA analyzed underlying causes of the cost increases; (3) steps NNSA took to hold construction contractors accountable for their role, if any, in the cost increases; and (4) the extent to which NNSA's most recent estimates met cost- and schedule-estimating best practices. GAO reviewed NNSA's draft life-cycle cost estimate and contractor estimates of the MOX project's cost and WSB schedule, compared the estimates with cost- and schedule-estimating best practices, and interviewed DOE and NNSA officials.

What GAO Found

The Department of Energy's (DOE) National Nuclear Security Administration (NNSA) identified various drivers for the close to $3 billion increase in the estimated cost of the Plutonium Disposition program's two construction projects—the Mixed Oxide (MOX) Fuel Fabrication Facility and the Waste Solidification Building (WSB). These drivers included DOE's approval of the MOX facility's cost and schedule estimates before design was complete and schedule delays in construction of the WSB. According to NNSA, the cost of critical system components for the MOX facility averaged 60 percent higher than estimated as a result of approval of estimates before design was complete.
NNSA has not analyzed the underlying, or root, causes of the Plutonium Disposition program construction cost increases to help identify lessons learned and help address the agency's difficulty in completing projects within cost and schedule, which has led to NNSA's management of major projects remaining on GAO's list of areas at high risk of fraud, waste, abuse, and mismanagement. DOE's project management order requires that lessons learned be captured throughout a project to, among other things, benefit future endeavors. NNSA officials said that, because the order does not require a root cause analysis of cost increases, NNSA decides on a case-by-case basis whether to conduct one. Unlike a root cause analysis, the cost drivers NNSA identified provided few details about why the drivers existed, such as DOE's reasons for approving the MOX facility's cost and schedule estimates before the design was complete. Without a root cause analysis, it is uncertain whether NNSA will be able to accurately identify underlying causes of the increases to identify and implement corrective measures and identify lessons learned to apply to other projects.
After determining that the performance of the contractors for the MOX facility and WSB contributed to cost increases, NNSA took steps to hold the contractors accountable by withholding fees specified under the contracts. In particular, as of November 2013, NNSA withheld $45.1 million or close to one-third of the MOX contractor's fees, including fees tied to meeting the MOX project's cost and schedule estimates. In addition, NNSA withheld $7.7 million or about 40 percent of the WSB contractor's fees tied to various performance measures for the WSB, such as completing construction milestones.
NNSA's most recent estimates for the Plutonium Disposition program did not fully reflect all the characteristics of reliable cost estimates (e.g., credible) and schedule estimates (e.g., well-constructed) as established by best practices for cost- and schedule-estimating, placing the program at risk of further cost increases. For example: (1) NNSA's draft April 2013 life-cycle cost estimate of $24.2 billion for the overall program was not credible because NNSA did not conduct an independent cost estimate to provide an unbiased test of whether the estimate was reasonable. (2) Because the MOX contractor's September 2012 proposal for increasing the cost of the MOX facility did not include a formal analysis to examine the effects of changing assumptions, it was minimally credible. (3) The WSB contractor's February 2013 monthly update to its schedule estimate was minimally well-constructed in that it contained activities that were not properly tied with the start or end date of other activities, which could potentially obscure the critical path determining the project's completion date.

What GAO Recommends

GAO is recommending, among other things, that DOE conduct a root cause analysis of the Plutonium Disposition program's cost increases and ensure that future estimates of the program's life-cycle cost and cost and schedule for the program's construction projects meet all best practices for reliable estimates. DOE generally agreed with GAO's recommendations.