GAO: URANIUM PROCESSING FACILITY AT RISK OF BREACHING $6.5B COST ESTIMATE

Recent design changes to the Uranium Processing Facility have added hundreds of millions of dollars to the facility’s estimated price tag and a recent Government Accountability Office briefing to Congress reveals that the agency is in danger of breaching the top range of the current $4.2-6.5 billion estimate for the facility. GAO was directed by Congress last year to study the facility and report quarterly to Congress, and in its first report last month, which has not been made public but was obtained by NW&M Monitor, the GAO said a recent space/fit issue that required a massive redesign of the facility had eaten up approximately 45 percent of the agency’s $1.2 billion contingency on the facility. “NNSA’s contingency planning did not account for such a large sum of money being needed to address this risk,” the GAO said in the 27-page briefing document. “It is possible that additional funds will be needed to ensure there is sufficient contingency to complete the UPF within a cost range that meets NNSA’s 85 percent confidence level,” the GAO added.

The space/fit issues on the UPF project have been welldocument since they were revealed last year. The NNSA said that the project’s design team prematurely established a footprint for the 340,000 square foot production center, and it was later revealed that all of the equipment slated to go into the facility could not fit in the designed space. The roof of the building is being raised about 13 feet, and the concrete foundation slab will have to be about a foot thicker, with the walls being thickened from 18 inches to 30 inches. The issues cost about $540 million, and pushed the approval of a baseline for the project and the start of construction to June of 2014. The project’s Critical Decision 2 package is expected to be submitted to the NNSA in September of 2013, but it is expected to take about nine months for the agency to approve the package, according to the GAO. The start of facility operations are expected to be delayed about 13 months because of the problems, the GAO said.

Space/Fit Issue Not Considered a Major Risk

The GAO said that the space/fit issues were previously identified by the NNSA as a potential project risk, but it said it was “not considered to be one of the project’s most significant risks … as its impact to the UPF’s cost was estimated to be approximately $80 million.” When the impact proved to be much more significant, the GAO said the NNSA updated its “point estimate” for the project from $5.2 billion to $5.8 billion in October of last year. The point estimate does not include contingency, and the GAO said the current point estimate for the project has grown to $6 billion because “design costs for certain processing equipment has increased.” That leaves little room for error as the project moves forward to the completion of design and the start of construction, and the GAO noted that plenty of problems could still pop up. “Several identified project risks, including all risks related to construction activities, remain and would require mitigation if they were to occur,” the GAO said. The GAO did not identify what did not comment on questions posed about current project estimates and contingency funding outlined in the GAO report, but he said the NNSA is not planning to adjust its cost range until the project baseline is set.

Other reviews of the project have suggested that the project could exceed $6.5 billion. In 2011, the Army Corps of Engineers completed an Independent Cost Estimate for the project and estimated that it could cost between $6.5 and $7.5 billion and be completed by FY 2023, but the GAO said that estimate was based on a steady, high level of funding exceeding $900 million for four straight years. When the Army Corps analyzed the impact of funding constraints outlined in February 2011 (limiting the facility to between $200 and $500 million a year), the costs grew to between $10.3 and $11.6 billion, with the start of operations on the facility being pushed back to Fiscal Year 2035. “Officials told us that the longer schedule significantly increased the costs for level-of-effort activities (e.g., program management and systems engineering), which are needed throughout the project’s duration,” the GAO said. With construction expected to ramp up on the Uranium Processing Facility in FY 2014, the Administration requested $325 million for the program, a $15 million cut from last year’s request. Ultimately, funding for the project is expected to reach about $500 million a year, NNSA Defense Programs chief Don Cook said in April.

Scope Scaled Back

The cost increases combined with the funding constraints forced the NNSA to scale back the scope of the project in 2012, deferring work on many of the capabilities planned for the project in favor of accelerating the transition out of Y-12’s Building 9212. Getting out of Building 9212, where the bulk of Y-12’s uranium production activities take place, has been identified by the NNSA as the highest priority at Y-12, and 9212 capabilities will represent approximately 70 percent of UPF’s processing equipment. Work to transition Buildings 9215 and 9204-2E is being deferred, which will eventually cost more and further delay the full completion of the facility, perhaps pushing the cost of the full project toward the Army Corps delayed funding estimate of $10.3-11.6 billion. Building 9204-2E (also known as Beta-2E) is where dismantlement operations are conducted, as well as some sensor testing with actual weapons components and other activities.

FPD Pleased With B&W Response to Concerns

This month, UPF Federal Project Director John Eschenberg said he has been “encouraged” by contractor B&W Y-12’s corrective actions taken in response to his concern about controls on the project’s design. In late March, Eschenberg sent a letter to Mark Seely, who at the time was B&W Y-12’s project director for UPF, outlining his concerns. The NNSA refused to release Eschenberg’s March 25 letter to Seely or Seely’s April 24 response, but did provide a statement from Eschenberg suggesting that positive steps had been made. “Following my letter to B&W’s UPF Project Manager Mark Seely in late March, I am encouraged to see corrective actions in place and the team developing a path forward. Resolution of these issues is a top priority for both NNSA and B&W. It is also encouraging that B&W continues to strengthen its management team with the recent addition of senior level executives with mega-project expertise,” Eschenberg said.

The concerns about design control were particularly noteworthy in light of the space/fit issues. According to a memo by staff of the Defense Nuclear Facilities Safety Board, Eschenberg’s late-March letter raised four “key” issues about the design controls, including:

— The project has not implemented an effective configuration management program for controlling the design and managing requirements;

— Design verification processes have allowed numerous errors in approved design documents;

— Corrective actions to prevent recurrence of problems have been ineffective in addressing the underlying causes; and

— There is no stand-alone baseline project Code of Record.

In early April, B&W Y-12 announced that Bechtel exec—retired Lt. Gen. Carl Strock, who formerly headed the U.S. Army Corps of Engineers—would replace Seely as the contractor’s project director. At the time, a spokeswoman said Seely would focus on design completion and construction readiness. Federal spokesman Steven Wyatt said the design of the UPF is now 70 percent completed. According to Y-12 spokeswoman Bridget Correll Waller, the old design effort was a little more than 75 percent completed “at the point we identified the need for design changes in August 2012.” Following an engineering reevaluation, the new design effort was restarted with the design completion percentage in the low 60s, she said. “We are continuing to add additional designers, engineers and modelers to our team thereby allowing us to make solid progress toward completing the design,” Waller said in email response to questions.

—Todd Jacobson and staff reports