Background NNSA is responsible for managing national nuclear security missions: ensuring a safe, secure, and reliable nuclear deterrent; supplying nuclear fuel to the Navy; and supporting the nation’s nuclear nonproliferation efforts. NNSA largely relies on management and operating contractors to carry out these missions and to manage the day-to-day operations at eight sites collectively known as NNSA’s nuclear security enterprise. The Y-12 National Security Complex in Tennessee is the primary site among these with enriched uranium capabilities. Y-12’s primary mission is processing and storing uranium, processing uranium for naval reactors for the Navy, and developing associated technologies, including technologies to produce uranium-related components for nuclear warheads and bombs. According to NNSA documents, Y-12’s enriched uranium operations have key shortcomings, including an inefficient workflow, continually rising operations and maintenance costs stemming from facility age, and hazardous processes that could expose workers to radiological contamination. To address these shortcomings, NNSA developed plans to replace aging infrastructure at Y-12 and relocate key processing equipment without jeopardizing uranium production operations. History of UPF Project In 2004, NNSA initially proposed relocating Y-12’s main uranium processing equipment into a new facility referred to as the UPF. NNSA planned to construct this single, consolidated facility that would reduce the overall size of existing uranium processing facilities, reduce operating costs by using modern equipment, and increase worker and environmental health and safety. NNSA estimated in 2007 that the UPF would cost approximately $1.4 billion to $3.5 billion to design and construct. In June 2012, the Deputy Secretary of Energy approved an updated cost estimate range for the UPF of $4.2 billion to $6.5 billion, with the latter being the project’s maximum allowable cost. However, by August 2012, the UPF contractor concluded that the UPF as designed would not provide enough space to house all of the uranium processing and other equipment. In October 2013, an external review estimated that the UPF project could cost as much as $11 billion. In 2014, because of the high cost and scheduling concerns of a solution focused solely on constructing new buildings, NNSA established its uranium program within its Office of Defense Programs. NNSA also prepared a high-level strategic plan based on its objectives of 1) completing the UPF project with a reduced scope within the cost and schedule limits established for the original UPF project and 2) phasing out mission dependency on Building 9212. Under NNSA’s revised approach, the agency plans to transition production operations out of Building 9212 and into the re-scoped UPF or existing buildings at Y-12 after they have been upgraded as described in further detail below. Building 9212. Constructed in 1945, the building’s design predates modern nuclear safety codes. It consists of a number of interconnected buildings that contain capabilities for uranium purification and casting, among other things. One of NNSA’s key goals is to shut down the Building 9212 operations that have the highest nuclear safety risks. Because of these risks, NNSA is implementing a four-phase exit strategy to systematically phase out mission dependency on Building 9212. According to NNSA’s September 2018 implementation plan for the exit strategy, the first three phases focus on reducing inventory, system isolation and clean out, and relocating capabilities from Building 9212 to other existing Y- 12 facilities or to the UPF once startup is complete. Building 9212 will then enter a phase of post-operational clean out, during which operations will be limited to simple processing, recovery, and inventory accountability. By about 2035, management of the building will transition to DOE’s Office of Environmental Management for decontamination and decommissioning activities. Building 9215. Constructed in the 1950s, the building’s design predates modern nuclear safety codes. It consists of three main structures, and its current primary function is fabrication, which involves metal machining operations for enriched uranium. As part of the Building 9212 exit strategy, NNSA plans to move capabilities into Building 9215, such as the uranium purification and the processing of uranium metal scraps resulting from machining operations. The uranium program is managing the development and deployment of new technologies to increase the efficiency and effectiveness of these capabilities. NNSA initially intended to house these two capabilities in the UPF before re-scoping the project to meet its cost and schedule goals. According to NNSA documents, NNSA is identifying and prioritizing infrastructure investments for Building 9215 that are to ensure its reliability through the 2040s. Building 9995. Constructed in the mid-1950s, this building’s design predates modern nuclear safety codes. It consists of a laboratory with capabilities for analytical chemistry operations, which can sample enriched uranium for material assay, chemistry content, and metallography in support of production. NNSA initially intended to house the analytical chemistry capabilities to support enriched uranium processing and material characterization in the UPF before re-scoping the project to meet its cost and schedule goals. According to NNSA documents, NNSA is identifying and prioritizing infrastructure investments for Building 9995 that are to ensure its reliability through the 2040s and its continued analytical chemistry support for the UPF and Y-12 more broadly. Building 9204-2E. Constructed in the late 1960s, this building’s design predates modern nuclear safety codes. It consists of a three- story, reinforced concrete frame structure that includes capabilities for assembly and disassembly of enriched uranium components with other materials. According to NNSA officials, the agency installed its radiography capability in Building 9204-2E in April 2017. According to NNSA documents, NNSA is identifying and prioritizing infrastructure investments for Building 9204-2E that are to ensure its reliability through the 2040s. Highly Enriched Uranium Materials Facility (HEUMF) (also called Building 9720-82). Beginning operations in January 2010, this building was built to modern nuclear safety codes. It is a reinforced concrete and steel structure that provides long-term storage of enriched uranium materials and accepts the transfer of some legacy enriched uranium from older facilities. HEUMF is the central repository for highly enriched uranium. Figure 1 shows NNSA’s planned relocation of uranium processing capabilities out of Building 9212 and into the re-scoped UPF and existing Y-12 facilities. The figure also indicates which existing facilities will require infrastructure investments to support enriched uranium operations. Under the new approach, the re-scoped UPF will be smaller than the UPF project’s original design and will house capabilities for casting, oxide production, and salvage and accountability of enriched uranium. NNSA has stated that the re-scoped UPF is to be built for no more than $6.5 billion by the end of 2025 through seven subprojects, described below. Site Readiness. This subproject included work to relocate an existing road, construct a new bridge, and extend an existing haul road. Site Infrastructure and Services. This subproject included demolition, excavation, and construction of a parking lot, security portal, concrete batch plant, and support building. Substation. This subproject included construction of an electrical power substation to provide power to the UPF and Y-12, replacing an existing substation at Y-12. Process Support Facilities. This subproject includes work to provide chilled water and storage of chemical and gas supplies for the UPF. Salvage and Accountability Building. This subproject includes construction of a nuclear facility for the decontamination of wastes and recovery of chemicals associated with uranium processing. Main Process Building. This subproject includes construction of the main nuclear facility to contain casting and special oxide production capabilities and a secure connecting portal to the HEUMF. Mechanical Electrical Building. This subproject includes construction of a building to house mechanical, electrical, heating, ventilation, air conditioning, and utility equipment for the Salvage and Accountability Building and Main Process Building. Requirements and Best Practices for Project Management and Technology Readiness Assessments NNSA is required to manage construction of capital asset projects with a total project cost of greater than $50 million, such as the UPF, in accordance with DOE Order 413.3B. NNSA’s Office of Acquisition and Project Management manages the UPF project under DOE Order 413.3B with funding from NNSA’s Office of Defense Programs through the uranium program. DOE Order 413.3B requires that the project go through five management reviews and approvals, called “critical decisions” (CD), as the project moves from planning and design to construction and operation. (See fig. 2.) DOE Order 413.3B also requires that, before project completion (CD-4), NNSA issue a transition-to- operations plan, which is to ensure efficient and effective management as a project becomes operational and provide a basis for attaining initial and full operational capability. For projects likely to have an extended period of transition to the start of operations, an August 2016 memorandum from DOE requires that NNSA develop a more detailed plan to attain full operational capability. The plan must be developed earlier in the project management process— before start of construction (CD-3). In addition, NNSA must provide quarterly updates to DOE’s Project Management Risk Committee after completing construction until full operational capability is attained. The memorandum notes that DOE’s complex nuclear facilities can have significant risks that continue after project completion. These ongoing risks may impact achievement of full operational capability and thus require more efficient management. In September 2019, we reported that DOE officials stated that the August 2016 memorandum was largely created in response to experience with the Integrated Waste Treatment Unit facility at Idaho National Laboratory. This facility, which is intended to treat two forms of nuclear waste, is not operating as expected approximately 7 years after the completion of its construction. DOE Order 413.3B also states that projects with a total estimated cost of more than $100 million should have an independent cost estimate and external independent review prior to approval of the project’s performance baselines for cost and schedule (CD-2). Further, appropriations acts since fiscal year 2012 have included a limitation that prohibits the use of funds to approve CD-2 (approval of the project’s performance baselines for cost and schedule) or CD-3 (approval to start construction) for capital asset projects where total project costs exceed $100 million until a separate independent cost estimate has been developed. According to DOE’s standard operating procedure for conducting independent cost estimates, an independent cost estimate is prepared by an organization independent of the project sponsor—DOE-PM, in this case—using the same detailed technical and procurement information that was used to make the initial project estimate. The purpose of the estimate is to validate the project’s performance baselines—which include cost and schedule estimates—to determine these estimates’ accuracy and reasonableness. DOE-PM may use the independent cost estimate as supporting information in developing the external independent review. The external independent review is a broader analysis of the project to provide an unbiased assessment of whether NNSA can execute the project within the proposed scope, schedule, and cost commitments while meeting key performance requirements and fulfilling the mission need. Many of the federal government’s more costly and complex capital asset projects, including the UPF, require the development of cutting-edge technologies and integration of those technologies into large and complex systems. For example, DOE and NNSA use a systematic approach for assessing how far a technology has matured to evaluate the technology’s readiness to be integrated into a system—Technology Readiness Levels (TRL). This approach is intended to ensure that new technologies are sufficiently mature in time to be used successfully when a project is completed. TRLs progress from the least mature level, in which the basic technology principles are observed (TRL-1), to the highest maturity level, in which the total system is used successfully in project operations (TRL- 9). DOE Order 413.3B requires that each critical technology item or system on which a project depends must be demonstrated as a prototype in an operational environment (TRL-7) before the project’s performance baselines are approved (CD-2). According to our guide on evaluating technology readiness, assessing technology readiness does not eliminate the risk of relying on new technology but can identify concerns and serve as the basis for realistic discussions on how to mitigate potential risks associated with the project’s scope, for example. Requirements and Best Practices for Program Management According to the Project Management Institute, Inc. (PMI), effective program management, in addition to effective project management, is important to the success of efforts such as NNSA’s uranium program. According to PMI’s standard for program management, effective program management helps ensure that a group of related projects and program activities are managed in a coordinated way to obtain benefits not available from managing them individually. Program management involves aligning multiple components to achieve the program’s goals. Other general standards relevant to program management for the uranium program include our cost-estimating guide and schedule assessment guide. In March 2009, we issued our cost-estimating guide to provide a consistent methodology that is based on cost-estimating best practices and that can be used across the federal government for developing, managing, and evaluating program cost estimates. The methodology outlined in the guide is a compilation of best practices that federal cost-estimating organizations and industry use to develop and maintain reliable cost estimates throughout the life of a government acquisition program. According to the guide, developing accurate life- cycle cost estimates has become a high priority for agencies in properly managing their portfolios of capital assets and in decision-making throughout the process. A life-cycle cost estimate provides an exhaustive and structured accounting of all resources and associated cost elements required to develop, produce, deploy, and sustain a particular program. The guide also states that a reliable cost estimate reflects all costs associated with a program—meaning that the estimate must be based on a complete scope of work—and the estimate should be updated to reflect changes in requirements (which may affect the scope of work). In December 2015, we issued our schedule guide, which develops the scheduling concepts introduced in our cost-estimating guide and presents them as best practices associated with developing and maintaining a reliable, high-quality schedule. According to the schedule guide, a well- planned schedule is a fundamental management tool that can help government programs use funds effectively by specifying when work will be performed and by measuring program performance against an approved plan. An integrated master schedule integrates all of the planned work in the program, the resources necessary to accomplish that work, and the associated budget, and it should be the focal point for program management. This schedule can show, for example, the completion dates for all activities leading up to major events or milestones, which can help determine if the program’s parameters are realistic and achievable. An integrated master schedule may consist of several or several hundred individual project or other activity schedules that represent the various efforts within a program. It should include the entire known scope of work, including the effort necessary from all government, contractor, and other key parties for a program’s successful execution. In addition, NNSA has various program management policies and guidance that apply to uranium program efforts that are not capital asset projects and that fall outside of DOE Order 413.3B. For example: NNSA issued a program management policy in January 2017 that defines general roles and responsibilities for the program managers for all of its strategic materials, such as uranium. This policy broadly outlines the managers’ authority and responsibilities for managing the strategic materials; these responsibilities include developing program documentation and managing risk. NNSA issued a program management policy in February 2019 that states program managers should establish and document the requirements for scope, schedule, and cost management using a tailored approach to their program. These requirements include the development of schedule and cost estimates that cover the life cycle of a program where appropriate, among other things. NNSA’s program guidance—applicable to the uranium program and others that fall under the Office of Defense Programs—recommends the development of an integrated master schedule and states that having one supports effective management of a program’s scope, risk, and day-to-day activities. Specifically, the guidance states that during the initial phases of a program, an integrated master schedule provides an early understanding of the required scope of work, key events, accomplishment criteria, and the likely program structure by depicting the progression of work through the remaining phases. The guidance allows for tailoring of the agency’s management approach based on the particular program being managed. NNSA Reports That the UPF Project Is on Schedule and within Budget and Likely to Start Operations in 2026 According to NNSA documents and officials, the UPF project is on schedule and within budget, and NNSA has developed a plan to receive start-up authorization for UPF operations in 2025 and attain full operational capability in 2026. NNSA Reports That the UPF Project Is Currently on Schedule and within Budget NNSA documents and officials reported that the UPF project is on track to meet its cost and schedule baseline estimates, and thus is expected to be constructed for $6.5 billion by the end of 2025. According to DOE’s project report and NNSA officials, three of the seven UPF subprojects are complete and four are ongoing as of December 2019. When we last reported in September 2017, NNSA had completed the Site Readiness subproject. In February 2018, NNSA completed the Site Infrastructure and Services subproject—about 2 months early and about $18 million under budget. In December 2019, NNSA completed the Substation subproject—about 6 months early and $13 million under budget. As shown in table 1, by March 2018 all UPF subprojects’ formal scopes of work and cost and schedule baseline estimates were approved (CD-2), and NNSA gained approval to start construction on them (CD-3). Since establishing these cost and schedule baseline estimates, NNSA officials stated that they have not made any significant changes that would require DOE executive-level approval. According to DOE policy, changes that affect the project’s ability to satisfy the mission need or that increase costs by the lesser of $100 million or half the project costs must be approved by the DOE Deputy Secretary as DOE’s Chief Executive for Project Management. According to DOE’s project report and NNSA officials, the four ongoing subprojects were progressing on schedule and within budget as of December 2019. NNSA officials stated that they expect these subprojects to meet their respective cost and schedule performance baselines and that the overall UPF project will be constructed for $6.5 billion by the end of 2025. (See fig. 3 for photograph of Main Process Building and Salvage and Accountability Building’s construction progress as of September 2019.) NNSA Plans to Start UPF Operations in 2025 and Reach Full Operational Capability in 2026 NNSA and its contractor for Y-12 have developed a plan to receive start- up authorization for UPF operations in 2025 and then will likely attain full operational capability for the UPF in 2026, according to NNSA officials and contractor representatives. DOE and NNSA approved this plan, which is required by DOE policy, in February 2018. This plan outlines three major risks associated with the UPF project that NNSA will need to address so that the project can attain full operational capability: 1. Capabilities and systems integration within the UPF. Addressing this risk includes actions to ensure that all of the UPF’s systems, and the capabilities that those systems provide (e.g., casting, oxide production), can function together as designed through testing. 2. Process prove-in and design authority qualification. Addressing this risk includes actions to ensure that the UPF’s systems meet certain metrics and are qualified for mission work. Aspects of this include laboratory analysis, statistical validation of repeatability, and engineering evaluations. 3. Integration of UPF with other facilities. Addressing this risk includes actions to ensure that the UPF systems can interface with other facilities’ systems (e.g., those in Buildings 9215, 9204-2E, and 9995) as designed and that all systems are able to support full-scale operations. NNSA officials estimated that construction of the UPF will be completed in 2022. According to the plan, the UPF will then go through various preoperational testing and operational readiness reviews to demonstrate the capabilities using nonhazardous surrogate material. Following testing and readiness reviews, the UPF will gain startup authorization, go through additional testing and first use, and then attain full operational capability— also referred to as “operational release.” NNSA officials and contractor representatives stated in June 2019 that the UPF should receive startup authorization sometime in 2025, before the project’s estimated completion (CD-4) date of December 2025. These officials and representatives estimated that the UPF would attain full operational capability about a year from receiving that startup authorization—that is, sometime in 2026. (See fig. 4.) NNSA officials stated in October 2019 that in fiscal year 2020 they will update the plan to attain full operational capability to include a schedule with more specific time frames for startup authorization, hot functional testing, first use, and operational release, among other things. According to NNSA’s plan, attaining full operational capability for the UPF is the final step that will ultimately lead to and enable the cessation of uranium operations in Building 9212, which could then be turned over to DOE Office of Environmental Management for final disposition in 2035. NNSA Obtained Independent Cost Estimates as Required and Used Them to Inform Contractor Negotiations and Baseline Estimates NNSA followed requirements to obtain independent cost estimates for the UPF (i.e., the four largest UPF subprojects) whose total estimated costs exceeded $100 million. NNSA then used those estimates to help negotiate with contractors and inform baseline estimates. NNSA Had UPF Cost and Schedule Baseline Estimates Validated through Reconciled Independent Cost Estimates for the Four Largest Subprojects NNSA obtained independent cost estimates from DOE-PM for the four UPF subprojects for which total costs exceeded $100 million. As noted above, projects with total costs that exceed $100 million are subject to an appropriations limitation unless independent cost estimates are obtained, and DOE policy requires such estimates for such projects. DOE-PM, an office independent from NNSA and its management of the UPF project, conducted the independent cost estimates for the four larger subprojects: the Mechanical Electrical Building, Process Support Facilities, Salvage and Accountability Building, and Main Process Building subprojects. In addition, NNSA officials stated that they obtained independent reviews for the three subprojects for which costs did not exceed $100 million. DOE policy does not require independent cost estimates for projects whose total estimated costs are less than the $100 million threshold. However, a NNSA policy states that NNSA should obtain an independent cost estimate or independent cost review to validate a project’s cost baselines for those projects for which estimated costs are between $20 million and $100 million. NNSA organized the independent cost estimates for the four larger subprojects so that some of the independent cost estimates included work for more than one subproject. Specifically, DOE-PM completed two estimates—one in March 2016 and one in December 2016—that included site preparation work and long lead procurements for the Salvage and Accountability Building and Main Process Building subprojects. In November 2016, DOE-PM completed the independent cost estimate for the Mechanical Electrical Building, which was the only estimate to include a single UPF subproject. NNSA officials explained that they handled the estimate for this subproject differently because work for the Mechanical Electrical Building could be separated easily from the other subprojects, and it was largely designed as a commercial-grade building. Lastly, in November 2017, DOE-PM completed the independent cost estimate for the majority of the work for the Process Support Facilities, Salvage and Accountability Building, and Main Process Building subprojects. NNSA officials stated they organized the independent cost estimates in this way to meet DOE requirements and appropriations limitations but still be able to begin work on the aspects of the overall UPF project that need to be completed earliest. DOE-PM conducted the four UPF subprojects’ independent cost and schedule estimates using our cost estimating and scheduling best practices, according to DOE-PM’s independent cost estimate reports. DOE-PM reviewed the project’s key cost drivers—elements whose sensitivity significantly affects the total project cost. The DOE-PM team then established independent estimates for those cost drivers, which may include vendor quotes for major equipment and detailed estimates for other materials, labor, and subcontracts. The team also prepared an independently generated resource-loaded schedule that allowed them to check for adequate funding compared with the project’s funding profile developed by the project team. DOE-PM’s analyses are based on their review of the UPF project’s work breakdown structure and associated documents, which include all of the activities that make up the project’s scope. DOE-PM also compared the UPF project estimates with our cost estimating and scheduling best practices, according to DOE-PM’s independent cost estimate reports. For example, DOE-PM’s November 2017 report found that the three larger UPF subproject’s cost and schedule estimates partially met the best practices and recommended some changes to the contractor to address those estimates that did not. DOE-PM reconciled the results of its independent cost estimates with the initial project estimates, as required by DOE’s standard operating procedure and NNSA’s business operating procedure for conducting independent cost estimates. During the reconciliation, DOE-PM worked with the UPF project team to adjust both the initial project estimates and its own independent cost estimates to correct any errors or misinterpretations of project requirements, according to the independent cost estimate reports. Under DOE’s and NNSA’s independent cost estimate procedures and according to DOE-PM officials, any remaining differences should be identified and explained, but estimates should not be changed. DOE-PM drew from the independent cost estimates for the Mechanical Electrical Building subproject to complete an external independent review of that subproject in November 2016. Then, DOE-PM drew from the independent cost estimates that included work for the Main Process Building, Salvage and Accountability Building, and Process Support Facilities subprojects to complete its external independent review of the UPF project in March 2018. NNSA Used Information from the Independent Cost Estimates and External Independent Reviews to Inform the UPF’s Cost and Schedule Baseline Estimates NNSA officials stated that they used information from DOE-PM’s independent cost estimate and external independent review reports to help negotiate remaining work with the contractor and finalize the overall UPF project’s baseline estimates before starting construction. In June 2018, NNSA prepared a strategy to guide its negotiation of the remaining UPF project work that had not yet been priced with the contractor. Based on our review of NNSA’s negotiation strategy, we found that NNSA used DOE-PM’s independent cost estimate and external independent review reports to negotiate at least 14 of the 22 major and minor issues identified for discussion. These 14 issues included, for example, reducing concrete and freight direct costs, reducing the margin added to cover any increase in design scope, reducing subcontractor indirect costs, and increasing accuracy of other cost and schedule estimates. DOE approved NNSA’s cost and schedule baseline estimates (CD-2) and start of construction (CD-3) in March 2018 for three UPF subprojects. (See table 2 for the recommended cost and schedule baselines from the external independent review report and the final cost and schedule baseline estimates for all UPF subprojects.) In five of the seven subprojects, the final cost baseline estimates were close to or below the recommended baselines from DOE-PM’s external independent review. Also, in four of the seven subprojects, the final schedule baseline estimates were close to the recommended baselines. According to NNSA officials, the UPF project final baseline cost estimate includes cost contingency, and the December 2025 final schedule baseline estimate includes a year of schedule contingency. NNSA officials stated that, if necessary, they could use available funds to expedite the schedule. NNSA officials also expressed confidence that the UPF project will meet its goal of construction for $6.5 billion by the end of 2025. NNSA Has Made Progress Implementing the Uranium Program’s Scope of Work and Recently Developed a Program Schedule and Cost Estimate Since we last reported in September 2017, NNSA identified and made progress in implementing the uranium program’s scope of work and developed an integrated master schedule and life-cycle cost estimate— key management information for the program. The uranium program’s integrated master schedule extends through fiscal year 2035, and the life- cycle cost estimate includes the $7.4 billion in program costs from fiscal years 2016 through 2026. NNSA Has Identified and Made Progress in Implementing the Uranium Program’s Scope of Work Since we last reported in September 2017, NNSA identified the uranium program’s scope of work and made progress in carrying out key activities. Specifically, NNSA identified the uranium program’s scope of work as required under NNSA program management policy and which we identified as a leading practice in our cost estimating and schedule guides. According to NNSA documents we reviewed and officials we interviewed, NNSA developed the uranium program’s scope of work in a work breakdown structure, which defines in detail the work or activities necessary to accomplish the program’s objectives. NNSA officials stated that the uranium program’s scope of work includes the UPF project as well as the capabilities and other activities necessary for the overall modernization effort that are not part of the UPF project. NNSA made progress implementing the following three main areas of the uranium program’s scope of work: Process Technology Development. Since we last reported in September 2017, NNSA’s uranium program has made progress in three of the four process technology projects that it manages to develop new uranium processing capabilities. According to NNSA officials, these capabilities are not included in the UPF project but are necessary to complete the suite of uranium capabilities required to meet weapons program needs. NNSA approved the electrorefining project’s cost and schedule performance baselines and start of construction (CD-2/3) in February 2019. This project, along with the direct chip melt projects discussed further below, are designed to provide a capability that was scoped out of the UPF project. Specifically, the electrorefining project is to provide the capability to purify uranium metal. NNSA officials stated that the calciner project will have its cost and schedule baselines and start of construction approved (CD- 2/3) in May 2020. This project is to provide the capability to convert uranium-bearing solutions to uranium oxide (a dry solid) so that it can be stored pending further processing in the future. The project will be located in Building 9212 and supports the exit of that building by enabling the processing of certain uranium- bearing solutions (such as the solutions resulting from cleaning out the building’s pipes and vessels) into a dry solid oxide that can be stored pending further processing. According to NNSA officials, the direct chip melt projects include two related efforts—a front-loading furnace and a bottom- loading furnace—that will provide the capability to process uranium scrap metal. Officials stated that the front-loading furnace direct chip melt project received approval to start work in September 2019 and has an estimated project completion of May 2021. This will provide near-term capability to process uranium scrap metal until the bottom-loading furnaces are designed and constructed. Officials said NNSA initiated the bottom-loading furnace direct chip melt project in July 2019 and expects to start construction in January 2021. Because the direct chip melt projects fall below the $50 million threshold for management under DOE Order 413.3B, they do not have CD dates. However, NNSA officials stated they will manage and oversee the bottom- loading furnace project under the Office of Defense Programs’ authorization-to-proceed memorandum and follow the sound project management principles outlined in the order. NNSA officials stated that the agency requires an oxide-to-metal conversion capability. In June 2019, NNSA issued a Notice of Intent to enter into a sole-source contract to provide the uranium oxide to metal conversion capability. According to NNSA officials, this potential sole-source contract is a near-term strategy that could cover any gap caused by phasing out operations in Building 9212. According to NNSA, under this contract the contractor could provide conversion services in 2023, effectively covering any gap caused by phasing out conversion operations in Building 9212. NNSA officials stated that the agency intends to continue pursuing the direct electrolytic reduction technology to provide the oxide-to-metal conversion capability after the sole-source contract, but the technology has not progressed since we last reported in 2017. Extended Life Programs. In December 2017, NNSA developed the implementation plan for the extended life programs for Buildings 9215 and 9204-2E. NNSA also developed an extended life program for Building 9995 in November 2017 and the implementation plan for that program in September 2018. NNSA updated both of these implementation plans in September 2019. Further, in September 2018, NNSA developed an implementation plan for its strategy to stop operations in Building 9212 and begin post-operations clean-out activities. These implementation plans identify a specific scope of work, and the necessary funding, that NNSA must execute in order to extend the operational lives of Buildings 9215, 9204-2E, and 9995 through the 2040s. Reducing Material at Risk in Older Buildings. Since we last reported in September 2017, NNSA has made progress in its efforts to move uranium materials out of older facilities and into the HEUMF. Specifically, NNSA officials said in November 2019 that they were about 77 percent done with this effort and had moved more than 50 metric tons of uranium out of older facilities and into the HEUMF since fiscal year 2015. In June 2019, NNSA officials said that their current strategy focuses on incorporating near-just-in-time inventory practices and further reducing material at risk by 2023. According to NNSA officials, this strategy is to further minimize the amount of material that is staged in Y-12’s older buildings. Also, according to NNSA officials, NNSA achieved a target working inventory of material in Building 9215 in 2016 and in Building 9204-2E in 2019. NNSA officials stated that, as of November 2019, they were on schedule to complete the remaining efforts by their estimated time frames. NNSA officials stated that the program’s scope of work includes elements for which additional analyses may be required and that any additional program work identified by those analyses will be incorporated into the scope of work, as appropriate. For example, NNSA identified the additional environmental and seismic analyses necessary to develop the scope of work for addressing certain structural deficiencies in Buildings 9215 and 9204-2E. NNSA is under a court order to complete additional environmental and seismic risk analyses following a 2014 update in the seismic hazard map for the area, which showed a greater risk than the previous version. According to Defense Nuclear Facilities Safety Board officials, in response to its 2015 report, NNSA identified their approach for re-evaluating the facilities’ conditions and risks and addressing some of the board’s seismic-related concerns. According to board officials, NNSA plans to start the re-evaluation of these structures in early fiscal year 2020. NNSA officials stated that if the additional analyses identify additional necessary work for the uranium program, NNSA will update the scope of work and revise the extended life program implementation plans to include that work. NNSA Has Developed an Integrated Master Schedule and a Life-Cycle Cost Estimate to Manage Its Uranium Program In December 2019, NNSA developed an integrated master schedule through fiscal year 2035 and a life-cycle cost estimate for the program through fiscal year 2026 that includes over $850 million in costs in addition to the UPF project. Successful management of federal acquisition programs, such as NNSA’s uranium program, partly depends on developing this key management information, as stated in our cost estimating and schedule guides. In September 2017, we found that NNSA had not yet developed an integrated master schedule or life-cycle cost estimate for the uranium program and recommended that NNSA set a time frame for doing so. NNSA agreed with this recommendation and has made progress in implementing it. A complete scope of work is required to develop an integrated master schedule and life-cycle cost estimate. (See fig. 5.) NNSA Developed an Integrated Master Schedule to Help Manage Its Uranium Program In December 2019, NNSA developed an integrated master schedule based on the uranium program’s scope of work to help manage its uranium program, as recommended in NNSA’s program guidance as well as our schedule guide and other best practices. According to PMI’s Program Management Standard, a program-integrated master schedule is the top-level planning document that includes individual program elements’ schedules and defines their dependencies among those required to achieve the program’s goals. According to NNSA officials, NNSA included all of the uranium program’s capabilities and elements that make up its scope of work, as well as other work that may affect the program, through fiscal year 2035. NNSA officials stated that the schedule includes the key milestones for each uranium program capability and element, such as project completion (CD-4) and operational release, since these key milestones are important for tracking the uranium program’s critical path of activities and for overall program management. NNSA officials stated that they will start reporting the uranium program’s progress against this integrated master schedule beginning in 2020. NNSA officials stated that they expect the integrated master schedule to be iterative and that they will update it to capture any changes or additions to the program’s scope of work. NNSA’s Life-Cycle Cost Estimate Identified Additional Costs for Uranium Program In December 2019, NNSA developed a life-cycle cost estimate through fiscal year 2026 for the uranium program, as called for in our cost estimating guide and other best practices. NNSA estimated that the uranium program will spend a total of approximately $7.4 billion from fiscal years 2016 through 2026 to support its uranium processing modernization efforts. Specifically, NNSA officials stated that the life-cycle cost estimate includes $6.5 billion in UPF project costs and over $850 million in program costs that include developing the uranium processing capabilities that are not part of the UPF project, integrating those capabilities with the UPF, improving the infrastructure of existing buildings, and transitioning out of Building 9212. NNSA officials stated that they estimated uranium program life-cycle costs from fiscal years 2016 through 2026 because they could not accurately estimate some of the activities in the program’s scope of work that are enduring for the nuclear security enterprise rather than specific projects with finite schedules for construction. According to our cost- estimating guide, a reliable cost estimate reflects all costs associated with a program’s scope of work, and the estimate should be updated to reflect any changes in requirements—that is, a life-cycle cost estimate can be iterative. NNSA officials stated that they expect to update the life-cycle cost estimate with additional program costs, once known, and will include any additional future scope added to the program. Schedule milestones and cost estimates included in NNSA’s integrated master schedule and life-cycle cost estimate for the uranium program are summarized in table 3. We are encouraged that NNSA may be able to better manage the day-to- day activities of the uranium program and mitigate any risks associated with integrating the UPF project with other aspects of the program through its development of key program management information—a scope of work, an integrated master schedule, and a life-cycle cost estimate. Successful program management through the life of a program depends in part on all of these efforts and may provide decision makers such as Congress with needed information on the program’s complete scope of work, key events, and expected long-term program costs. Agency Comments We provided DOE and NNSA with a draft of this report for review and comment. NNSA provided technical comments, which we incorporated as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Energy, the Administrator of the National Nuclear Security Administration, and other interested parties. In addition, the report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or trimbled@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made key contributions to this report are listed in appendix I. Appendix I: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the individual mentioned above, Jonathan Gill (Assistant Director), Elizabeth Luke (Analyst in Charge), Danny Baez, John Bauckman, Brian Bothwell, Juaná Collymore, Jennifer Echard, Justin Fisher, Juan Garay, William Gerard, Cynthia Norris, Dan Royer, and Kiki Theodoropoulos made key contributions to this report.


Background NNSA’s Missions and Organization NNSA largely executes its missions at eight sites that comprise the nuclear security enterprise and that are managed by seven M&O contractors. These eight sites are three national security laboratories—Lawrence Livermore National Laboratory in California, Los Alamos National Laboratory in New Mexico, and Sandia National Laboratories in New Mexico and other locations; four nuclear weapons production plants—the Pantex Plant in Texas, the Y-12 National Security Complex in Tennessee, the Kansas City National Security Complex in Missouri, and tritium operations at DOE’s Savannah River Site in South Carolina; and the Nevada National Security Site, formerly known as the Nevada Test Site. As shown in figure 1, each of NNSA’s eight sites has specific responsibilities within the nuclear security enterprise. NNSA also executes portions of its missions across several other DOE sites, such as the Pacific Northwest National Laboratory in Washington and the Oak Ridge National Laboratory in Tennessee. At this time, NNSA’s common financial reporting efforts are focused on the eight sites, as required by the National Defense Authorization Act for Fiscal Year 2017. NNSA’s sites are owned by the federal government but managed and operated by M&O contractors. According to DOE, the use of M&O contracts is supported by an underlying principle: the federal government employs highly capable companies and educational institutions to manage and operate government-owned or -controlled scientific, engineering, and production facilities because these companies and educational institutions have greater flexibility than the government in bringing scientific and technical skills to bear. As we previously found, an M&O contract is characterized by, among other things, a close relationship between the government and the contractor for conducting work of a long-term and continuing nature. To support its missions, NNSA is organized into program offices that oversee the agency’s numerous programs. For example, the Office of Defense Programs oversees the B61-12 Life Extension Program, and the Office of Defense Nuclear Nonproliferation oversees the Nuclear Smuggling Detection and Deterrence Program. NNSA’s program offices are Defense Nuclear Nonproliferation; Safety, Infrastructure, and Operations; Defense Nuclear Security; Counterterrorism and Counterproliferation; and Naval Reactors. Mission-related activities are primarily overseen by these program offices, which are responsible for integrating the activities across the multiple sites performing work. NNSA field offices, co-located at the sites, oversee the day-to-day activities of the contractors as well as mission support functions such as safety. Cost Accounting Requirements and Methods of Accounting for and Tracking Costs NNSA is subject to different cost accounting requirements than its seven M&O contractors. NNSA is required to follow Managerial Cost Accounting Standards. The principal purpose of Managerial Cost Accounting Standards is to determine the full cost of delivering a program or output to allow an organization to assess the reasonableness of this cost or to establish a baseline for comparison. The standards state that federal agencies should accumulate and report the costs of their activities on a regular basis for management information purposes. The standards also state that agencies should allow flexibility for agency managers to develop costing methods that are best suited to their operational environment. Such information is important to Congress and to NNSA managers as they make decisions about allocating federal resources, authorizing and modifying programs, and evaluating program performance. Separate standards—referred to as federal Cost Accounting Standards—govern how NNSA’s M&O contractors structure and account for their costs. Federal Cost Accounting Standards provide direction for the consistent and equitable distribution of a contractor’s costs to help federal agencies more accurately determine the actual costs of their contracts and the contractor’s costs associated with specific projects and programs. To comply with federal Cost Accounting Standards, M&O contractors classify costs as either direct or indirect when they allocate these costs to programs. Direct costs are assigned to the benefitting program or programs. Indirect costs—costs that cannot be assigned to a particular program, such as costs for administration and site support—are to be accumulated, or grouped, into indirect cost pools. The contractor is to estimate the amount of indirect costs to distribute to each program (accumulated into indirect cost pools) and make adjustments by the end of the fiscal year to reflect actual costs. The contractor is then to distribute these costs proportionally across all programs based on a rate in accordance with the contractor’s cost allocation model. The final program cost is the sum of the total direct costs plus the indirect costs distributed to the program. In implementing these allocation methods, federal Cost Accounting Standards provide contractors with flexibility regarding the extent to which they identify incurred costs directly with a specific program and how they collect similar costs into indirect cost pools and allocate them among programs. Therefore, different contractors may allocate similar costs differently because the contractors’ cost allocation models differ—that is, a cost classified as an indirect cost at one site may be classified as a direct cost at another. Because each contractor can allocate similar indirect costs differently and contractors may change the way they allocate indirect costs over time, it is difficult to compare contractors’ costs among sites and accurately calculate total program costs when work for a program is conducted at multiple sites. The seven NNSA M&O contractors and NNSA’s program offices account for and track costs differently. We previously found that NNSA’s M&O contractors have historically developed their own processes to manage and track costs for work at each site even when their work contributes to the same program. These processes have generally differed from the ones NNSA program offices have developed to describe the scope of its programs. This makes it difficult for NNSA and others to track and compare costs for analogous activities across programs, contractors, and sites. For example, in May 2018, we found that NNSA’s work breakdown structure for the B61-12 Life Extension Program and its $7.6 billion cost estimate (at that time) did not include $648 million in activities that were undertaken by other NNSA programs, such as research and development, test and evaluation activities, and infrastructure elements. Leading practices for developing work breakdown structures state that a work breakdown structure should include all activities that contribute to a program’s end product, and should not treat contributing activities separately. DOE’s and NNSA’s financial management and accounting system—the Standard Accounting and Reporting System (STARS)—provides budget execution, financial accounting, and financial reporting capabilities for the department. STARS is also integrated with other agency systems for procurement, funds distribution, travel, and human resources. The M&O contractors’ financial systems must be able to directly provide cost reports to NNSA’s financial management system. The primary source of cost data contained in STARS comes from summary-level cost reports provided by M&O contractors, which they report for NNSA’s appropriations at the budget and reporting code level. Program offices access STARS financial data through the DOE Office of the Chief Financial Officer’s integrated data warehouse. While financial data collected through STARS represent DOE’s official financial data, the data are not detailed and therefore may not satisfy the information needs of NNSA’s program offices. For example, STARS financial data do not differentiate labor costs from other programmatic costs, nor do they provide detailed information about the costs of activities that contribute to program costs. In addition, according to M&O contractor representatives, if one M&O contractor provides funding to another contractor, such as to conduct testing, NNSA does not have the ability in STARS to identify that funding was transferred. In the absence of an automated managerial cost accounting system that collects data from financial systems and relevant operating systems to consistently and uniformly produce useful cost information, NNSA’s program offices developed various systems, tools, and spreadsheets to track relevant cost information. Specifically, NNSA’s program offices separately collect cost information from M&O contractors that is more detailed than costs reported through STARS. Collecting these data requires M&O contractors to map, or “crosswalk,” their cost data to the work breakdown structures of one or more of NNSA’s program offices. Some program offices collect financial data through ad hoc data calls, rather than regular data calls. Some tools the program offices use include program management systems or spreadsheets designed to meet each program office’s programmatic, budgetary, and project requirements. For example, the Office of Defense Programs built the Enterprise Portfolio Analysis Tool in 2007 to capture financial data from the M&O contractors for its programs. Also, in 2007, officials from the Office of Defense Nuclear Nonproliferation developed a program management system designed to integrate and manage data such as scope, schedule, budget, and cost at the program level with greater detail than the data in STARS. The Office of Safety, Infrastructure, and Operations later adopted this system and called it the G2 program management system. M&O contractors use the G2 system to upload crosswalks of financial data for those program offices’ work breakdown structures after the costs were incurred. This process allows M&O contractors to report detailed financial data to the respective program offices every month. The process to track cost information is different for each program office and depends on the tool used and the information collected. However, for all program offices the process to track cost information is in addition to the financial reporting that M&O contractors provide for STARS (see fig. 2). NNSA’s Approach to Implementing Common Financial Reporting To implement common financial reporting and standardize financial reporting by the M&O contractors across programs and sites, NNSA is pursuing an approach in which the agency collects M&O contractors’ financial data in a common reporting framework using an NNSA-wide data reporting and analysis tool. M&O contractors produce crosswalks of their financial data and submit the data to NNSA using a data reporting and analysis tool called CostEX. NNSA then stores the reported financial data in the DOE Office of the Chief Financial Officer’s integrated data warehouse. The Office of Defense Programs has used this process to collect financial data from the M&O contractors for its programs since fiscal year 2017. NNSA implemented this process for the broader common financial reporting effort in fiscal year 2018. Figure 3 illustrates NNSA’s data management process for common financial reporting. To implement common financial reporting, NNSA established a common reporting framework using agreed-upon work breakdown structures and common cost elements and definitions. However, in January 2019, we found that NNSA did not establish a common work breakdown structure for all of the participating program offices, although the agency had established 22 common cost elements and definitions. Specifically, the Offices of Defense Programs, Emergency Operations, Defense Nuclear Security, and Counterterrorism and Counterproliferation used NNSA’s common work breakdown structure, while the Offices of Safety, Infrastructure, and Operations and Defense Nuclear Nonproliferation used their own programmatic work breakdown structures. The M&O contractors crosswalk their internal financial data into a work breakdown structure for each of the participating program offices (either NNSA’s common work breakdown structure or a programmatic work breakdown structure) using common cost elements and definitions. The M&O contractors’ business systems capture their financial data at a more detailed level than is needed for common financial reporting. Each M&O contractor tracks financial data for its site based on how it manages the work using projects, tasks, and expenditure types. For example, M&O contractors collect time and attendance data from their employees based on the number of hours spent working on a project for the pay period. The M&O contractors aggregate this information across multiple employees to report on labor costs for a project. When the M&O contractors prepare their data for common financial reporting, site managers identify the component(s) of the applicable work breakdown structure and cost elements with which the project aligns and crosswalk their financial data to the NNSA structure using professional judgment. Figure 4 shows an example of how an M&O contractor crosswalks its financial data into an NNSA work breakdown structure in CostEX. After the M&O contractors submit their financial data in CostEX, NNSA performs data quality and accuracy checks of the M&O contractors’ data, referred to as “data validation” and “data reconciliation.” NNSA performs data validation using CostEX, which automatically checks each row for data quality—such as confirming that the correct contractor is entering data for the site—and formatting based on 45 validation checks. CostEX identifies data that do not pass the validation check as errors and rejects them, and the M&O contractor corrects and resubmits the data until it passes the validation check. NNSA performs data reconciliation with STARS using CostEX at the budget and reporting code level. CostEX extracts STARS data for selected budget and reporting codes and compares it with the data the M&O contractors submitted for common financial reporting. CostEX identifies data that differ from the STARS data by more than $1 as an error and rejects the data, and the M&O contractor corrects and resubmits the data until it passes the reconciliation check. According to NNSA officials, it is important for the agency to perform these data validation and reconciliation checks prior to accepting the M&O contractors’ financial data to ensure data quality. NNSA Made Progress toward Implementing Agency-Wide Common Financial Reporting but Faces Challenges in Fully Implementing the Effort NNSA has made progress toward implementing common financial reporting across the nuclear security enterprise since our last report in January 2019, but it faces challenges in fully implementing the effort. We identified seven steps related to NNSA’s efforts to implement common financial reporting in our January 2019 report: (1) identifying an approach and developing a tool to implement common financial reporting, (2) developing a policy, (3) establishing common cost elements and definitions, (4) identifying and reporting costs for programs of record and base capabilities, (5) implementing a common work breakdown structure, (6) collecting financial data from the M&O contractors, and (7) publishing and analyzing data. To date, the agency has completed three steps but has not yet completed four others, as shown in table 1. As required by the National Defense Authorization Act for Fiscal Year 2017, NNSA is to implement common financial reporting by December 23, 2020, to the extent practicable. NNSA’s progress to implement common financial reporting in these seven steps since our January 2019 report is described below: Identify an approach and develop a tool to implement common financial reporting. NNSA identified an approach and developed a tool to implement common financial reporting prior to our January 2019 report. NNSA continues to use CostEX to collect financial data from the M&O contractors and stores the data in DOE’s integrated data warehouse. Develop a policy. NNSA developed a policy for common financial reporting. NNSA began developing the policy in October 2016 and approved it in February 2019. Establish common cost elements and definitions. NNSA established common cost elements and definitions prior to our January 2019 report. An NNSA official said NNSA established the cost elements and definitions based on data that the M&O contractors could readily provide from their business systems. In fiscal year 2019, NNSA used the established cost elements to collect the M&O contractors’ data and added a requirement for the contractors to report data on unpaid commitments. NNSA officials are considering adding cost elements in the future, such as additional details on labor categories. NNSA is working with the M&O contractors to ensure they can provide the additional data. Identify and report costs for programs of record and base capabilities. NNSA has not yet identified and reported costs for all programs of record or costs for base capabilities. The National Defense Authorization Act for Fiscal Year 2017 required NNSA to establish definitions and methodologies for identifying and reporting costs for programs of record and base capabilities as part of its efforts to implement common financial reporting. According to the program director for financial integration, NNSA establishes its programs of record in its congressional budget justification and other documents to align with agency appropriations, which include Weapons Activities, Defense Nuclear Nonproliferation, and Federal Salaries and Expenses. Through common financial reporting in fiscal year 2018, NNSA collected financial data from the M&O contractors for $8.9 billion of $13 billion from these appropriations. In May 2018, NNSA issued guidance that identified 25 base capabilities that the M&O contractors used to develop their site strategic plans. We reviewed the M&O contractors’ site strategic plans for 2018 and found that the contractors identified base capabilities for their sites, but did not include information about the costs to maintain each sites’ base capabilities. NNSA is working to determine whether or how to collect information on the cost of base capabilities through the M&O contractor site strategic planning process in coordination with the common financial reporting effort. We will continue to monitor NNSA’s progress in addressing this requirement. Implement a common work breakdown structure. NNSA has not yet implemented a common work breakdown structure across the program offices in the nuclear security enterprise, but plans to assess the feasibility of implementing a common structure in fiscal year 2020. The National Defense Authorization Act for Fiscal Year 2017 requires NNSA to develop a common work breakdown structure as part of its efforts to implement common financial reporting. In January 2019, we found that NNSA decided not to pursue a common work breakdown structure. Rather, NNSA collected financial data from the M&O contractors using a common work breakdown structure for four program offices and used different, programmatic work breakdown structures for two other program offices. As we found in January 2019, these two offices did not want to change their work breakdown structures to the common structure. For example, the Office of Safety, Infrastructure, and Operations did not want to change its work breakdown structure because it uses the structure for scope, schedule, and risk management, in addition to budget and cost. We recommended that NNSA implement a common work breakdown structure across its participating program offices because without doing so, NNSA could not ensure that its efforts would result in the collection of reliable, enterprise-wide financial data that satisfies the needs of Congress and enables NNSA to report the total costs of its programs. At the time of that report, NNSA neither agreed nor disagreed with the recommendation. The agency stated that it would continue to use its current approach, while focusing on enhancing analysis and reporting to provide comparative data across the enterprise. Once this was completed, NNSA planned to assess the effectiveness of the approach and evaluate what changes, if any, were necessary to the work breakdown structures to meet the overarching objectives of common financial reporting. In May 2019, in response to our recommendation, NNSA changed its approach and decided to conduct an assessment in fiscal year 2020 of the feasibility of implementing a common work breakdown structure across all participating program offices. To do so, NNSA plans to collect M&O contractors’ financial data in fiscal year 2020 using both the common work breakdown structure for all program offices and— specifically for the Offices of Safety, Infrastructure, and Operations and Defense Nuclear Nonproliferation—the programmatic work breakdown structures while it assesses the feasibility of a common work breakdown structure. NNSA decided to take this approach to assess the potential benefits while mitigating potential risks to the program offices that use the data collected through the programmatic work breakdown structures to oversee their programs. NNSA officials said that reporting the same data using two different work breakdown structures will require additional resources for the M&O contractors to prepare their data submissions, which NNSA does not view as a long-term solution for common financial reporting. NNSA planned to collect data using these two approaches in parallel starting in November 2019 and make a decision on whether to implement a common work breakdown structure across the nuclear security enterprise in March 2020. NNSA plans to assess the feasibility of implementing a common work breakdown structure using criteria such as (1) whether using a common work breakdown structure reduces burden on the M&O contractors, (2) how much it will cost NNSA to update other program management systems, (3) whether NNSA can collect financial data quickly enough to meet the needs of the program offices, and (4) whether financial data collected using the common work breakdown structure provides program offices with comparable data to support existing program analysis. Collect financial data from M&O contractors. Since our January 2019 report, the M&O contractors submitted their financial data for fiscal years 2018 and 2019 for the participating program offices using CostEX. However, NNSA and the M&O contractors faced challenges in collecting accurate and consistent financial data for common financial reporting across the nuclear security enterprise. Specifically, NNSA faced challenges in (1) fully implementing its data validation and reconciliation process, (2) collecting financial data from each M&O contractor for all of the program offices, and (3) communicating information about changes in a timely manner. First, NNSA faced challenges fully implementing its data validation and reconciliation process for fiscal year 2018. NNSA designed CostEX to automatically validate the M&O contractors’ data to check data quality and formatting and perform data reconciliation with STARS. However, according to an NNSA official, for fiscal year 2018, the agency manually reconciled the M&O contractors’ fiscal year 2018 data with STARS to identify and fix issues with the process prior to automation. For example, an NNSA support contractor manually submitted and reconciled data for one M&O contractor that manages two sites because the M&O contractor submits combined data for the two sites into STARS, but NNSA collects financial data for common financial reporting by site. For the fiscal year 2019 data collection effort, NNSA officials said they corrected the submission issue and CostEX was able to automatically reconcile the M&O contractors’ data with STARS. Another M&O contractor’s fiscal year 2018 financial data did not reconcile each month with STARS. NNSA officials and representatives from the M&O contractor said the reconciliation issue was due to timing differences between when the contractor reported data into STARS and CostEX. Specifically, M&O contractor representatives for the site said that when NNSA is delayed in collecting data for common financial reporting in CostEX, the relationships between the data reported into STARS and CostEX will have changed, which may result in reconciliation errors. During that time, the site changed how it tracked some of the data, which led to differences in how the data were provided for STARS and common financial reporting, and which caused the reconciliation errors. NNSA officials said they resolved the issue with the M&O contractor for fiscal year 2019 and completed data collection in October 2019. Second, NNSA faced challenges in collecting data from each M&O contractor for all of the participating program offices. Specifically, the Office of Defense Nuclear Nonproliferation made ongoing changes to its work breakdown structure templates throughout the fiscal year 2018 data collection effort. This resulted in challenges for the M&O contractors when reporting data for this program office. NNSA did not collect complete fiscal year 2018 financial data for this office, in part because one of the contractors had significant data validation and reconciliation errors, resulting in data that NNSA could not validate and reconcile. Third, NNSA faced challenges in communicating information about changes to the work breakdown structure in a timely manner to M&O contractors. Leading project management practices emphasize the importance of establishing and implementing change control processes, which include reviewing and approving all change requests, documenting the changes, and communicating the decisions. In fiscal years 2018 and 2019, not all NNSA programs consistently ensured that changes to the work breakdown structure were approved, documented, or communicated to the M&O contractors in a timely manner because NNSA had not established and implemented a work breakdown change control process. NNSA established aspects of such a process, in which program offices submitted changes to the work breakdown structures to the financial integration team so the team could upload the changes into CostEX and notify the M&O contractors of the changes prior to their data submissions. However, according to officials with the financial integration team, the federal program managers did not always follow the process. Officials with the financial integration team said that in some instances, the sites’ program managers contacted the M&O contractors directly to request changes to their work breakdown structures. The financial integration team identified issues with the program offices’ work breakdown structures when the M&O contractors’ data could not be validated and reconciled. In such instances, the financial integration team contacted the program managers to request the updated work breakdown structures for CostEX. Further, the existing process does not include some aspects of change control processes that are consistent with leading practices. Approving changes. Under the existing process, the financial integration team does not check whether changes that federal program managers submit to them have been reviewed and approved, at a minimum, by program office management prior to making changes to the work breakdown structures in CostEX. The program director for financial integration said that they defer to the program offices to ensure that program office management review and approve changes to the work breakdown structure before the program managers submit these changes to the financial integration team. Documenting changes. NNSA officials said that not all program offices have tracked changes to their work breakdown structures over time. NNSA’s Office of Defense Programs has a process for tracking changes to its work breakdown structure, but that process—or a similar process—was not utilized consistently by all of NNSA’s other program offices. If the program offices do not track the changes to their work breakdown structures over time, they cannot ensure the data are comparable across fiscal years. According to officials, NNSA built a tool in CostEX to track work breakdown structure changes across fiscal years. NNSA officials said the tool was tested at the end of fiscal year 2019 by the Office of Defense Programs. NNSA plans to test using the tool to track changes for the other program offices in fiscal year 2020. Communicating decisions. NNSA did not always communicate changes to the work breakdown structure to the M&O contractors in a timely manner. Representatives from the seven M&O contractors stated that they encountered challenges in submitting their data in CostEX on multiple occasions throughout fiscal years 2018 and 2019 because federal program managers in some offices made frequent changes to the work breakdown structures that often were not communicated to the M&O contractors in a timely manner. When work breakdown structures change, representatives from the seven M&O contractors said they have to redo the crosswalk of their financial data to the new work breakdown structures before they submit the data— this takes time and additional resources and may result in delayed data submissions. Representatives from three of the M&O contractors said the frequency of changes to the work breakdown structures decreased for the fiscal year 2019 data collection effort, but representatives from six M&O contractors said they continued to encounter challenges when changes were made to the work breakdown structures. Without establishing and systematically implementing a work breakdown structure change control process, NNSA will not be able to verify that, at a minimum, program office management has approved changes to the work breakdown structure or that these changes have been documented, potentially leading to challenges in ensuring that the data are comparable over time. Furthermore, NNSA cannot ensure that changes to the work breakdown structures are communicated to the M&O contractors in a timely manner, which results in contractors using additional time and resources to address validation or reconciliation errors. Publish and analyze data. NNSA has published the M&O contractors’ financial data for fiscal years 2018 and 2019, but NNSA has not conducted agency-wide analysis of the data. The NNSA financial integration team has a website for common financial reporting from which the program offices can download financial data. However, an NNSA official stated that agency-wide analysis of the data was not feasible for fiscal years 2018 or 2019 because NNSA did not use a common work breakdown structure for all participating program offices. In addition, an NNSA official stated that the agency needs to collect at least 3 years of data to produce useful NNSA-wide findings. Some of the NNSA program offices have started to analyze the financial data collected through the common financial reporting effort. For example, the Office of Defense Programs is using financial data collected through common financial reporting for program evaluation and to make budgetary decisions. In addition, an NNSA official from the Office of Counterterrorism and Counterproliferation stated that the office has used financial data from common financial reporting to identify and address accounting issues, such as identifying previously unidentified unspent funds carried over from prior fiscal years and redirecting these funds to support program activities in fiscal year 2019. However, some of the program offices have not used the data collected through common financial reporting for various reasons. For example, officials from the Office of Safety, Infrastructure, and Operations stated that the fiscal year 2018 data were not useful for analysis because they were not collected in a timely manner. NNSA officials said they completed data validation and reconciliation of the M&O contractors’ fiscal year 2018 financial data in February 2019—nearly halfway through the following fiscal year—making the data late and not useful for that office’s purposes. Additionally, officials from the Office of Defense Nuclear Security stated that they have not used the data collected through the common financial reporting effort because they want to ensure that the data are accurate and consistent before using it for decision-making. NNSA’s Approach Provides Limited Assurance That Data Collected are Accurate and Consistent to Perform Agency-Wide Data Analysis NNSA Has Not Verified Whether Contractors Accurately Crosswalk Financial Data to Work Breakdown Structures As discussed previously, M&O contractors crosswalk their financial data into a reporting framework using work breakdown structures and common cost elements and definitions, and they submit their data to NNSA using CostEX. To help ensure the accuracy of the data, NNSA performs data quality checks of the M&O contractors’ financial data submitted using CostEX. If NNSA cannot validate and reconcile the submitted data using the agency’s processes, it rejects and returns the data to the M&O contractor to correct the errors. NNSA also provides the M&O contractors with error reports from CostEX that they can use to identify and correct errors. Each M&O contractor has established processes to check data quality prior to submitting the data to NNSA in CostEX. For example, representatives from all of the M&O contractors said they reviewed their data for missing information and errors before submitting the data into CostEX. In addition, all of the M&O contractors performed checks to compare their data submissions for common financial reporting with their STARS submissions before submitting the data into CostEX. After the M&O contractors complete their internal data quality checks, they submit their financial data into CostEX. At most sites, M&O contractor representatives said the way their site tracks financial data does not align with how NNSA requests the data be reported in the work breakdown structure and cost elements. Officials from NNSA’s Office of Cost Estimating and Program Evaluation said that because the M&O contractors do not track their financial data using NNSA work breakdown structures, the contractors have to make decisions using professional judgment as to how to crosswalk their project costs, raising concerns that each M&O contractor may make different decisions about how to allocate costs. The officials said this may result in data that are not accurate or comparable for conducting agency- wide analysis. We identified several limitations to the approach NNSA uses to collect common financial data that could affect the accuracy and consistency of the data: NNSA’s data reconciliation process does not ensure M&O contractors’ financial data are accurate. M&O contractors identified potential issues with using STARS for reconciliation to ensure data accuracy. For example, two M&O contractors said that errors can sometimes occur in their monthly STARS reporting. Errors in STARS can be created when a number is mistyped or corrections are made to purchase card or time sheet information. Once the M&O contractor submits its data to STARS, errors cannot be corrected until at least the following month. However, because the common financial reporting data must reconcile with STARS, the M&O contractor has to submit financial data into CostEX that includes the error. The program director for financial integration said a process is in place for the M&O contractors to identify any issues with STARS reporting and correct their reported data in the future. More significantly, some M&O contractors said they make changes to their data before submitting it into CostEX to ensure that the data reconcile. Specifically, representatives from two M&O contractors said they compare their financial data for common financial reporting with their STARS data submission. If data from the two systems do not match for small dollar amounts, the contractors manually make adjustments to the data for common financial reporting rather than making the corrections in their business systems. The representatives also said they do not notify NNSA officials of the manual changes. NNSA requires that financial data for common financial reporting reconcile with STARS. Specifically, NNSA rejects M&O contractor financial data that differs from the STARS data by more than $1. According to federal standards for internal control, management should define objectives clearly to enable the identification of risks and define risks tolerances. For the fiscal year 2018 data collection effort, NNSA documentation indicated that M&O contractors reported financial data for $8.9 billion of costs and reconciled the data with their STARS cost reporting to a total difference of $5.03. According to an NNSA official, M&O contractors reported financial data for $10.2 billion of costs and reconciled the data with STARS to a total difference of $8.97 for fiscal year 2019. However, NNSA has limited assurance that the financial data provided internally reconcile as required because the agency does not know the extent of changes that M&O contractors made to ensure the data reconcile with STARS or the potential effects of those changes on the accuracy of the data. Assessing the extent to which M&O contractors make manual changes to ensure reconciliation with STARS for common financial reporting and determining the effect of these changes could provide additional assurance that the financial data collected through common financial reporting are accurately reported. M&O contractors crosswalk site projects and tasks to NNSA work breakdown structures, resulting in the potential for differences in how costs are allocated. Each M&O contractor tracks financial data for its site based on how it manages the work using projects and tasks, as allowed by federal Cost Accounting Standards. When a site’s projects and tasks do not align with NNSA’s work breakdown structure, site program managers identify the component of the NNSA work breakdown structure with which the project and tasks best align and crosswalk their financial data to the NNSA structure using professional judgment. One site program manager said it is sometimes challenging to identify which of their internal projects and tasks aligns with the NNSA work breakdown structure, especially when internal projects have similar names to describe different project scopes. Another site program manager said the site’s projects and tasks closely align with the NNSA work breakdown structure approximately 30 to 40 percent of the time, and contractor representatives use professional judgment to crosswalk the remaining 60 to 70 percent of their projects and tasks. To create the crosswalk, site program managers consider which NNSA program the project mostly supports. It can be difficult to crosswalk the site data into NNSA’s work breakdown structure, especially for work that benefits multiple weapons programs. For example, a site program manager said that the site’s project to develop inert material for NNSA’s high explosives activities supports multiple weapons programs. The site tracks that work as one project, but NNSA’s work breakdown structure requires that the costs be reported across multiple programs. When M&O contractors make decisions to crosswalk their financial data using professional judgment, the contractors do not provide information to NNSA on how the costs are allocated. By verifying this information, NNSA could ensure that allocation decisions are made consistently across the nuclear security enterprise. M&O contractors provided different financial data for the same projects. M&O contractors continue to report financial data for some program offices into multiple systems, including the G2 program management system, WebPMIS, and spreadsheets. For fiscal year 2018, NNSA compared financial data that the M&O contractors reported, for two NNSA program offices, into the G2 program management system and the CostEX tool used for common financial reporting and found differences between the data reported for the same budget and reporting codes and levels of the work breakdown. The program director for financial integration said he worked with the program offices and identified the cause of the differences in the data. NNSA cannot ensure the accuracy of the data submitted for common financial reporting because NNSA does not have an internal process to verify whether M&O contractors crosswalk their financial data accurately from their business systems to the NNSA work breakdown structure. According to federal standards for internal control, management should use quality information to achieve the agency’s objectives. Under the financial integration policy, the program director for financial integration is responsible for executing a plan for NNSA to achieve enterprise-wide financial integration to collect standardized financial management data; increase transparency of financial accountability; and improve cost analysis, comparability, and reporting consistency among programs and M&O contractors. The program director for financial integration said that verifying whether the M&O contractors properly crosswalk their data to the work breakdown structure is an area in which the agency should improve its common financial reporting effort. NNSA officials stated that the common financial reporting effort does not have a process to validate financial data that are more detailed than STARS and indicated that until the agency has assurances the reported data are accurate, NNSA should not use that more detailed data for agency decision-making. By developing an internal process for NNSA to verify the M&O contractors’ crosswalks, the agency will have better assurance that the data collected through common financial reporting will produce accurate, enterprise- wide financial data that is comparable across the M&O contractors and that satisfies the needs of Congress and other stakeholders. Further, this would help address long-term issues with NNSA’s ability to report the total costs of its programs, in accordance with Managerial Cost Accounting Standards. NNSA Has Not Verified Whether Contractors Accurately Crosswalk Financial Data to Cost Elements As part of common financial reporting, M&O contractors crosswalk their financial data to NNSA’s cost elements. Cost elements capture discrete costs of a particular activity of work and include direct costs such as labor and equipment and indirect costs such as general and administrative costs. In March 2018, NNSA established 22 cost elements and definitions—including 10 indirect cost elements—that the M&O contractors use to report financial data. As we found in our January 2019 report, NNSA officials said this was a critical step toward implementing common financial reporting because without common cost elements, the agency was limited in its ability to report lower-level costs consistently across programs and sites. In addition, having the M&O contractors report financial data across common cost elements would allow NNSA to improve its management of programs across the enterprise. NNSA developed the cost elements and definitions in consultation with the M&O contractors based on the data they could provide because officials said it is important for the contractors to report accurate financial data using the NNSA cost elements. M&O contractors manage their sites’ financial data using expenditure types to track the costs of their projects. These expenditure types capture similar costs as the cost elements, but at a more detailed level, and are specific to each individual M&O contractor based on how the contractor manages its expenses. M&O contractors have flexibility to determine how they structure their work and the expenditures they track in their financial systems consistent with Cost Accounting Standards. Based on our review of M&O contractor documents, M&O contractors varied significantly in the number of expenditure types they tracked. For example, the M&O contractor for one of the national laboratories tracked its financial data using over 900 expenditure types, while another national laboratory used around 50 expenditure types. NNSA officials said that the number of expenditure types at the sites varies based on the nature of the work performed at each site. Most of the M&O contractors cannot crosswalk their expenditures to certain NNSA cost elements because of how they track costs in their systems. Specifically, representatives from five of the M&O contractors said they cannot accurately crosswalk their indirect expenditure types to NNSA’s indirect cost elements because their systems do not capture the data in the way that NNSA wants these data reported. M&O contractors have discretion to classify which costs are considered indirect, and costs for similar activities can be allocated differently by each contractor. In fiscal year 2018, NNSA’s M&O contractors reported spending $3.5 billion on indirect activities. Generally, in cases in which the M&O contractors could not crosswalk their indirect costs to specific NNSA cost elements, representatives from one of the M&O contractors said they allocated their indirect costs to NNSA’s cost elements using percentages, while others said they reported data that did not adhere to the NNSA cost elements. Below are examples of situations in which M&O contractors were not able to accurately report expenditures into NNSA’s indirect cost elements: Representatives from one M&O contractor said they could not accurately report financial data for the general and administrative cost element and site support from other overhead cost elements because the site did not capture its data in that way. As a result, the M&O contractor allocated its indirect costs using formulas and composite rates, rather than reporting actual cost data to NNSA. Representatives from two M&O contractors said they could not accurately report financial data across the site support and infrastructure support cost elements because the structure of their indirect cost pool did not allow them to track those expenditures separately. As a result, representatives from one of the M&O contractors said they reported all of their infrastructure expenditures to the site support cost element. NNSA officials said they were aware of the M&O contractors’ issues with reporting their expenditure types using the NNSA cost elements. Although M&O contractors are required to provide financial data using NNSA’s cost elements, the program director for financial integration said he was aware that M&O contractors report some indirect costs for separate cost elements to a single cost element in CostEX, meaning that they do not accurately report some indirect costs based on NNSA’s definitions. Additionally, the financial integration team identified differences between indirect cost data collected from the M&O contractors for common financial reporting and data reported to another group in NNSA’s Office of Management and Budget. NNSA plans to conduct a review of the data reported through the two efforts to determine the cause of the differences. Officials from the Office of Safety, Infrastructure, and Operations stated that it is important that the common financial reporting effort is able to collect accurate information on M&O contractors’ costs related to infrastructure spending. NNSA is aware of the challenges its M&O contractors have with accurately reporting their expenditure types against the NNSA cost elements. However, NNSA cannot ensure that the agency collects accurate financial data because NNSA does not have a process to verify how the M&O contractors crosswalk their expenditure types to NNSA’s cost elements, consistent with the previously described information quality standard under the federal standards for internal control and NNSA’s financial integration policy. M&O contractors reporting data based on allocated—as opposed to actual—costs is not ideal because NNSA cannot ensure that each M&O contractor is consistently applying the allocation and because the data may not be standardized and comparable across the sites, which affects the quality of the data. By developing an internal process for NNSA to verify how the M&O contractors crosswalk their expenditure types, the agency could better ensure that the data collected through common financial reporting will produce accurate financial data across the nuclear security enterprise that satisfies the needs of Congress and other stakeholders. Further, this would help address long-term issues with NNSA’s ability to report the total costs of its programs. Conclusions NNSA continues to make progress toward implementing agency-wide common financial reporting. However, NNSA faces challenges in fully implementing the effort. For example, NNSA has not consistently ensured that changes to the work breakdown structure are approved, documented, and communicated to the M&O contractors in a timely manner because NNSA has not established and implemented a change control process for the changes. Without establishing and fully implementing a work breakdown structure change control process, NNSA will not be able to verify that the changes to the work breakdown structure are approved by program office management, at a minimum; documented and tracked for accurate data analysis and comparison over time; and communicated to the M&O contractors on a timely basis. NNSA’s approach to implementing common financial reporting relies on M&O contractors to crosswalk their internal financial data into a common reporting framework using a work breakdown structure and common cost elements and definitions, with certain quality checks to help ensure the accuracy of the data. However, NNSA has limited assurance that the financial data that the M&O contractors provide for common financial reporting are accurate because the agency does not know the extent of the changes the M&O contractors make to the data so that the data reconcile to the agency’s accounting system or the potential effects of these changes. By determining the extent of these changes and whether these changes affect the accuracy of the data, NNSA could have greater assurance that the financial data collected through common financial reporting are accurate. Additionally, NNSA cannot ensure that M&O contractors accurately crosswalk their financial data to either the NNSA work breakdown structure or the common cost elements because NNSA has not established processes to verify the information. By developing internal processes that would allow NNSA to verify how the M&O contractors crosswalk their data to the work breakdown structure and common cost elements, NNSA could better ensure that the data collected through common financial reporting will produce accurate enterprise-wide financial data that is comparable across the M&O contractors and that satisfies the needs of Congress and other stakeholders. Further, this would help to address long-term issues with NNSA’s ability to report the total costs of its programs. Recommendations for Executive Action We are making four recommendations to NNSA: The Program Director for Financial Integration, with input from NNSA’s Office of Management and Budget and respective program offices, should establish and implement a work breakdown structure change control process for common financial reporting that ensures changes are approved by program office management, at a minimum; documented; and communicated to M&O contractors on a timely basis. (Recommendation 1) The Program Director for Financial Integration should assess the extent to which M&O contractors make manual changes to their financial data to reconcile with STARS and determine whether it has an effect on the accuracy of the data collected for common financial reporting. (Recommendation 2) The Program Director for Financial Integration should develop and implement an internal process for NNSA to verify how the M&O contractors crosswalk financial data from their systems to the appropriate NNSA work breakdown structure to ensure the reported data are accurate and consistent. (Recommendation 3) The Program Director for Financial Integration should develop and implement an internal process for NNSA to verify that the M&O contractors are consistently applying common cost element definitions at their sites and across the nuclear security enterprise. (Recommendation 4) Agency Comments We provided a draft of this report to NNSA for comment. In its written comments, which are reproduced in appendix II, NNSA agreed with the report’s four recommendations and described actions it intends to take to address them. NNSA also provided technical comments that we incorporated into the report as appropriate. We are sending copies of this report to the appropriate congressional committees, the Secretary of Energy, the Administrator of NNSA, and other interested parties. In addition, this report is available at no charge on the GAO website at http://www.gao.gov. If you or your staff have any questions about this report, please contact me at (202) 512-3841 or bawdena@gao.gov. Contact points for our Offices of Congressional Relations and Public Affairs may be found on the last page of this report. GAO staff who made significant contributions to this report are listed in appendix III. Appendix I: Status of GAO’s January 2019 Recommendations to the National Nuclear Security Administration on Its Common Financial Reporting Effort In our January 2019 report on the National Nuclear Security Administration’s (NNSA) efforts to implement common financial reporting, we made seven recommendations. Table 2 describes NNSA’s progress to implement these recommendations, as of December 2019. Appendix II: Comments from the National Nuclear Security Administration Appendix III: GAO Contact and Staff Acknowledgments GAO Contact Staff Acknowledgments In addition to the individual named above, key contributors to this report included Hilary Benedict (Assistant Director), Amanda K. Mullan (Analyst in Charge), Colette Alexander, Antoinette Capaccio, Jennifer Echard, Cindy Gilbert, Michael LaForge, Jason Lee, Holly Sasso, and Sheryl Stein.