Benefits of NNSA’s Move to a Single M&O Contract for Y-12 and Pantex Will Remain Uncertain until NNSA Further Develops Its Proposal

NNSA’s anticipated benefits as a result of its proposal to award a single  contract for the management of Y-12 and Pantex will remain uncertain  until NNSA makes decisions about the details of the contract and  addresses several issues raised by NNSA officials, contractors, and  members of Congress. Among these benefits, NNSA anticipates that  increased efficiencies at those sites could save an estimated $895 million  in nominal dollars over the next 10 years. Some cost savings seem  likely under a single contract, but NNSA’s analysis suggests that  efficiencies also could be achieved under existing contracts. NNSA Expects Increased Efficiency and Savings of $895 Million Over 10 Years

According to its analysis on the proposed acquisition strategy, NNSA  expects that the proposed consolidation of the M&O work at its Y-12 and  Pantex sites will increase efficiencies at those sites. First, NNSA’s analysis indicates that consolidating the contracts will  streamline and make more uniform training; human resources practices;  and information systems, such as payroll, budget, and finance systems;  and improve the comparability of management data at both sites. NNSA’s analysis estimated that these efficiency gains and other  improvements could eliminate about 1,000 full-time equivalent (FTE)  support service jobs over the next 10 years at the Y-12 and Pantex sites. Proposed Consolidated M&O Strategy Raises Additional Issues

In addition to concerns over cost savings, a number of NNSA and  contractor officials have raised issues about a consolidated M&O contract  potentially disrupting the work at sites. Furthermore, because of increased complexity under a consolidated  contract, some NNSA officials said that federal oversight of a  consolidated contract may need to be enhanced. Benefits of a Single Enterprise-wide Construction Contract Will Remain Uncertain Until NNSA Further Develops Its Proposal

NNSA has identified several potential benefits associated with awarding a  single, enterprise-wide construction contract, but a number of issues have  also been raised by NNSA and others. However, NNSA’s projected  savings from a consolidated construction contract—approximately $24  million per year or $120 million in nominal dollars over a 5-year period—is  uncertain, especially since it appears unlikely that some of NNSA’s major  construction projects will be part of the contract. NNSA  and others have also identified two potential concerns associated with the  new contracting strategy, including (1) the need to closely integrate the  work of the existing M&O and new construction contractor could  necessitate increased federal oversight and (2) reduced industry interest  in the contract if major projects are not included. However, actual cost savings  resulting from implementing a consolidated construction contract strategy  that NNSA developed are uncertain for three primary reasons. Without an  accurate total cost baseline of its ongoing and planned construction  projects, it will be difficult for NNSA to accurately estimate savings. More specifically, senior NNSA officials  told us that it is unlikely that the construction contract will include UPF  and the Chemistry and Metallurgy Research Replacement facility  (CMRR) at LANL or some other major facilities because including  them would disrupt ongoing design and construction carried out by  M&O contractors. Collectively, these two facilities represent about  85 percent of NNSA’s total planned construction projects through  fiscal year 2016. However, NNSA has not identified in a systematic manner how  it plans to implement these 18 improved management practices at all of  its sites. Consistent with  cost-estimating best practices, such information should specify the costs,  risks, and benefits expected enterprise-wide and at each site for both  proposed consolidated contracts. In addition, NNSA will not complete a  study of federal site office structure and roles and responsibilities until  December 2012. Recommendations for Executive Action

We recommend that the Secretary of Energy take the following four  actions:  In order to manage NNSA’s contracts as effectively and efficiently as  possible the Secretary of Energy should direct the Administrator of NNSA  to take the following action:    Develop a plan for implementing the 18 improved management  practices identified by its analysis, as appropriate, to improve its  current contract management practices. As we also  recommended, information gathered through the draft RFP, when  combined with recent budget projections and cost estimates, should be  used by NNSA to assess, in ways consistent with federal standards for  internal control and cost-estimating best practices the costs, risks, and  benefits of NNSA’s proposal expected enterprise-wide and at each NNSA  site.
Why GAO Did This Study

The National Nuclear Security Administration (NNSA)--a semiautonomous agency within the Department of Energy (DOE)-- proposed in March 2010 a new acquisition strategy that includes consolidating the management and operating (M&O) contracts for two of its eight sites--the Y-12 National Security Complex (Y-12) in Tennessee and the Pantex Plant in Texas--and consolidating all construction projects for all of its sites under a single, enterprise-wide contract. NNSA anticipates that this strategy will reduce costs, enhance mission performance, and improve construction management. NNSA's sites are overseen by colocated federal site offices. GAO was asked to assess NNSA's preliminary proposals for (1) a consolidated M&O contract for Y-12 and Pantex and (2) an enterprise-wide construction contract. GAO reviewed analyses supporting NNSA's acquisition strategy; examined agency directives and guidance; and interviewed DOE, NNSA, and contractor officials.

What GAO Found

Based on the analysis supporting its proposed acquisition strategy, NNSA expects that the proposed consolidation of the M&O work at its Y-12 and Pantex Plants will increase efficiencies and save $895 million in nominal dollars, primarily through efficiency gains and other improvements in support services (i.e., integrated budget and finance systems, more uniform training and human resources practices), that could result in the potential elimination of about 1,000 support service jobs over the next 10 years. NNSA selected these sites because both have M&O contracts with terms that expire in 2012, as well as similar nuclear production operations. Anticipated savings from this proposed consolidation, however, are uncertain because of the assumptions NNSA used when calculating these savings, the limited details available about the actual work that will be consolidated, and the adequacy of historical data used in the analysis. NNSA officials said that savings will be more accurately determined as industry provides feedback on the recently released draft request for proposal. In addition to cost savings, a number of NNSA and contractor officials have raised other issues with a consolidated M&O contract proposal, including uncertainty about the number of actual staff reductions that can be achieved and the need for a federal oversight plan for the new consolidated contract. In addition, NNSA's analysis suggests that efficiencies may also be achieved under its existing contracts through improved management practices. However, NNSA has not developed a plan for implementing these improved management practices at all of its sites. NNSA also anticipates several potential benefits, including cost savings, associated with awarding a single, enterprise-wide construction contract. It is uncertain, however, whether these benefits will be realized because of a number of issues. For example, NNSA's projected savings from a consolidated construction contract--approximately $120 million in nominal dollars over a 5- year period--are uncertain because NNSA lacks an accurate total cost baseline of its ongoing and planned construction projects and because it is likely that the construction contract will exclude major projects, such as the Uranium Processing Facility and Chemistry and Metallurgy Research Replacement facility, out of concern that this consolidated contract would disrupt ongoing design and construction efforts. Collectively, these two facilities represent about 85 percent of NNSA's total planned construction projects through fiscal year 2016. In addition, NNSA has not conducted, consistent with federal standards of internal control and cost-estimating best practices, an assessment of risks associated with awarding an enterprise-wide construction contract, such as costs and benefits expected enterprise-wide and at each site for both proposed consolidated contracts. NNSA officials and contractors said that NNSA may need increased federal oversight to integrate the work of existing M&O and consolidated construction contractors.

What GAO Recommends

GAO recommends, among other things, that NNSA develop a plan for implementing the improved management practices identified by its analysis and assess the costs, risks, and benefits of the consolidated construction contract to better define and inform its acquisition strategy and to take appropriate future actions. NNSA generally agreed with GAO's findings and recommendations.