U.S. DEPARTMENT OF ENERGY
                   OFFICE OF INSPECTOR GENERAL
                                
                                
                                
                                
                                
                            AUDIT OF
                                
             THE USE OF HANFORD SITE RAILROAD SYSTEM
                                
                                
                                
                                
 
 
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Report Number:  WR-B-97-04
Western Regional Audit Office
Date of Issue:  March 20, 1997
Albuquerque, New Mexico 87185
                            
                            
                            AUDIT OF
             THE USE OF HANFORD SITE RAILROAD SYSTEM
 
 
 
 
                        TABLE OF CONTENTS
 
 
                                                        Page
 
 
Summary................................................   1
 
PART I  -  APPROACH AND OVERVIEW ......................   2
 
           Introduction   .............................   2
 
           Scope and Methodology  .....................   2
 
           Background  .............................      3
 
PART II -  FINDING AND RECOMMENDATIONS  ............      5
 
           Use Of Hanford Site Railroad System  .......   5
 
PART III - MANAGEMENT AND AUDITOR COMMENTS ...........    9
 
 
                    U.S. DEPARTMENT OF ENERGY
                   OFFICE OF INSPECTOR GENERAL
                    OFFICE OF AUDIT SERVICES
                  WESTERN REGIONAL AUDIT OFFICE
                                
 
                            AUDIT OF
             THE USE OF HANFORD SITE RAILROAD SYSTEM
                                
Audit Report Number:  WR-B-97-04
March 20, 1997
 
                             SUMMARY
                                
     One goal of the Department of Energy (DOE) is to manage its
physical assets as valuable national resources.  As outlined in a
DOE Order, O 430.1, the Richland Operations Office (Richland) is
responsible for the stewardship of the DOE's physical assets at
the Hanford Site (Hanford).  One such asset is the railroad
system, which provides sitewide transportation services.
Although Hanfords railroad system was established in the 1940s,
it is still maintained in usable condition.  The purpose of the
audit was to determine whether Richland ensured that Hanford
contractors were fully utilizing the railroad system.
     
     The audit determined that Hanford's $58 million railroad
system was not fully used to support Richland's environmental
programs.  The asset was not integrated into Hanford's activities
because Richland did not ensure that its contractor fully
evaluated transportation alternatives for moving large quantities
of material.  The audit showed that if Richland incorporated the
rail system into the transportation segment of one ongoing
project, DOE could save about $29 million over the life of that
project.
     
     We recommended that the Manager, Richland Operations Office,
ensure that Hanford contractors fully implement the project
management principles outlined in the DOE Order and take every
effort to cost-effectively use the railroad system and other
Hanford physical assets.
     
     
     
 
     _______________________________
     
     OFFICE OF INSPECTOR GENERAL
     
                             
                             
                             PART I
                                
                      APPROACH AND OVERVIEW
 
INTRODUCTION
 
     The DOE, in partnership with its contractors, strives to
operate, maintain, and use existing physical assets to meet
mission needs.  Field offices have first line responsibility to
ensure stewardship of the assets.  Part of stewardship
responsibility involves ensuring assets are fully evaluated for
use in meeting the DOE's mission.
     
     One of Richlands oldest, yet well-maintained multi-million
dollar physical assets, is the Hanford railroad system.  This
system, constructed in the 1940s, includes tracks, railcars, and
locomotives and provides sitewide transportation.  Because of the
availability of this asset, the objective of the audit was to
determine if Richland ensured that Hanford contractors were fully
utilizing the railroad system.
     
SCOPE AND METHODOLOGY
 
     The audit was performed from July 16, 1996 through October
31, 1996, at Richland and its prime contractors:  Bechtel Hanford
Inc. and Westinghouse Hanford Company (Westinghouse was replaced
by Fluor Daniel Hanford Inc. on October 1, 1996), as well as at
Hanford.
     
     We accomplished the audit objective by:
     
     o  reviewing laws and regulations;
     
     o  interviewing Richland and contractor personnel;
     
     o  examining procurement and accounting procedures;
     
     o  reviewing utilization of Hanford railroad system 
        equipment;
     
     o  comparing the cost of transportation by rail to 
        the cost for trucking;
     
     o  observing transportation by railroad and paved road; 
        and, 
        
     o  reviewing and comparing transportation safety reports.
 
     In addition, we interviewed officials from commercial firms
engaged in transporting large volumes of contaminated material
and suppliers of related heavy equipment required to load
material onto railcars.  We also spoke with Department of
Transportation officials to determine the safety advantages of
transporting material by railroad rather than by truck.
     
     The audit, conducted in accordance to generally accepted
Government Auditing Standards for economy and efficiency audits,
included tests of internal controls, laws, and regulations to the
extent necessary to satisfy the audit objective.  We did not rely
extensively on computer-generated data; therefore, we did not
fully examine the reliability of that data.  Because our review
was limited, it would not necessarily have disclosed all internal
control deficiencies that may have existed.
     
     The findings in this report were discussed with Richland
management and staff as well as contractor personnel responsible
for transportation infrastructure and project management at
Hanford.  An exit conference was held on February 21, 1997, with
the Assistant Manager, Environmental Restoration.
     
BACKGROUND
 
     DOE's goal is to manage its physical assets as "valuable
national resources."  As outlined in the DOE Order, Richland is
responsible for the stewardship of the DOE's assets at Hanford.
The Order provides guidance for management to ensure a process
for formal, comprehensive, integrated, and documented planning
methods for the acquisition and use of the DOE's assets.  One of
the DOE's valuable national resources is the Hanford railroad
system.
 
     Although the railroad system was established in the early
1940s, it is still a valuable asset that has a current estimated
replacement cost of almost $58 million.  Since Fiscal Year 1994,
Richland has spent about $8.8 million for upgrading switches and
rail tracks, $1.2 million for two new double shell tank railcars,
and about $l00,000 for upgrading 43 flatcars.
     
     At the time of the audit, the railroad system included 119
miles of track.  As shown in the map on page 4, the track extends
from the northern part of Hanford to commercial rail tracks south
of Richland.
                     MAP OF THE HANFORD SITE
                                
                                
                  (MAP not included)              
                                
 
                                
                                
                                
 
     In addition to nearly 119 miles of track, the railroad
system has four locomotives, 24 tank cars, 98 flatcars, and
maintenance equipment.  The cost to operate and maintain the
track and related equipment was $1,363,700 in Fiscal Year 1996.
The railroad system has a budget of $999,700 for Fiscal Year
1997.
                             
                             
                             PART II
 
                   FINDING AND RECOMMENDATIONS
                                
               Use Of Hanford Site Railroad System
                                
FINDING
 
     As part of its stewardship responsibilities, Richland must
ensure that all available physical assets are integrated into the
project management process and used in a cost-effective manner to
accomplish the DOE's missions.  This audit determined, however,
that the $58 million railroad system was not used to support
Richland's environmental programs.  This asset was not integrated
into Hanford's activities because Richland, contrary to the DOE
Order, did not ensure its contractor, Bechtel Hanford Inc., fully
evaluated transportation alternatives for moving large quantities
of material within Hanford.  Additionally, Richland planned to
excess and dispose of the system; this discouraged potential
system users from considering it for use in their cleanup plans.
Our audit showed that if Richland incorporated the rail system
into the transportation segment of one ongoing project, the DOE
could save about $29 million over the life of that project.  In
addition, by using the railroad to transport the material, the
risk of accidents is significantly reduced.
 
RECOMMENDATIONS
 
     We recommend that the Manager, Richland Operations Office,
ensure that Hanford contractors:
     
     1.  Fully implement the project management principles
         outlined in DOE O 430.1.
     
     2.  Take every effort to cost-effectively use the railroad
         system and other Hanford physical assets.
     
MANAGEMENT REACTION
 
     The Manager, Richland Operations Office, partially concurred
with recommendation 1 and concurred with recommendation 2.  The
Manager's comments and auditor responses are presented in Part
III.
 
                       DETAILS OF FINDING
                                
     The DOE's goal is to manage its physical assets as a
"national resource."  The Order outlines a process to ensure that
resources, such as the railroad system, are used to accomplish
DOE missions in the most cost-effective method.  The Order
requires field offices, such as Richland, to ensure that formal,
comprehensive, integrated, and documented planning methods are
used to manage the DOE's physical assets.  In addition, this
guidance requires project planning to ensure that physical assets
are integrated with other projects and activities, and that asset
design alternatives are considered.
     
     The Order has assigned certain responsibilities for project
management to the field offices.  Under the Order, Richland is
responsible for overseeing Hanford projects and verifying that
contractors meet project management requirements, including
consideration of alternatives.  In addition, the Order
establishes Richland as the lead for verifying that Hanford
contractors use an economic approach to physical asset management
when planning for the DOE's cleanup mission.
     
INTEGRATION OF PHYSICAL ASSETS FOR MISSION NEEDS
 
     However, Richland had not ensured that the railroad system
was used in ongoing projects or integrated into the planning
process for future projects.  During the audit, we noted several
projects that could have effectively used the railroad system to
accomplish the cleanup mission.  One ongoing restoration project
operated by Bechtel, for example, involves the movement by truck
and disposal of over 4.6 million cubic yards of low-level
radioactive contaminated soil.  Over the life of this project,
the estimated cost to use trucks to transport the soil is almost
$128 million.
     
     Bechtel, however, when planning the restoration project,
recommended the use of trucks without fully evaluating the use of
the railroad system.  When the Office of Inspector General (OIG)
inquired about the possibility of using the railroad system,
Bechtel officials stated that they did not want to use the
railroad because they would have to share the railroad resources
with another project in Hanford's 200 West Area.  However, our
review showed that sharing transportation resources was not an
issue because waste from the 200 West Area was being moved by
pipeline.  Bechtel also raised concerns about the cost for
special equipment to load and unload the trains.  Even with
additional equipment, however, the cost of transporting by
railroad averages over $1.4 million per year less than the cost
of transporting by truck.
     
     In addition to the ongoing project, we also determined that
future projects could use Hanford's railroad system.  For
example, contractors at Hanford could use the railroad system to:
     
     o transfer radioactive waste from 300 Area laboratories 
       in 1998;
     
     o move 2.4 million gallons of contaminated liquids 
       from the 100 Area K-Basins starting in 2001;
     
     o move transuranic waste from other DOE sites to 
       Hanford's new Waste Receiving and Processing
       facility;
     
     o eventually move excess and/or
       contaminated railroad equipment; and,
     
     o transport nearly 2,500 cubic yards of low-level 
       radioactive contaminated rubble from the
       decommissioning of seven production reactors.
 
CONSIDERATION OF ALTERNATIVES
 
     The Order gives Richland the lead for verification that
Hanford's contractors have a cost-effective approach to physical
asset management.  However, despite several completed reports
suggesting that the railroad system was cost effective, Richland
did not ensure that Bechtel fully evaluated the most economical
transportation alternatives.  In fact, Hanford contractors
produced seven reports since 1992 that advocated the use of the
railroad system for cost-effective movement of material.  In one
such report, "Site Transportation System Evaluation" (August 8,
1995), the railroad system was selected as the most cost-
effective mode of transport for bulk and hazardous material.  In
addition to the Hanford reports, a May 1992 OIG report
"Packaging, Transporting, and Burying Low-Level Waste," showed
that railroads were the most cost-effective method to transport
bulk shipments.
     
     Not fully evaluating alternatives was also the topic of a
March 1995 OIG Report, "Audit of Richland Operations Office Site
Characterization Program."  The OIG reported that Richland had
not evaluated alternatives before deciding on more costly methods
to complete characterization objectives and recommended that
Richland develop procedures to ensure economic analyses of all
alternatives are completed before making decisions as to how a
program objective will be accomplished.
 
     Project managers also did not consider using trains on
future projects.  This happened because project managers believed
Richland's senior management considered the railroad
nonessential.  This view is supported by a number of actions
taken by Richland.  On January 23, 1996, for example, Richland
approved the Hanford railroad system's degradation from Class 3
to Class 1.  This action, if continued, will eventually decrease
the effectiveness of the railroad because it reduces the safe
operating speed of the train from 40 miles per hour to 10 miles
per hour as the system degrades.  Another example occurred just
after the start of our audit when Richland's Director of Site
Infrastructure directed a Hanford contractor to excess all the
flatbed railcars and one locomotive.  During this period, another
Hanford contractor completed a draft study for the ultimate
disposal of all railroad assets.  Finally, Richland has continued
to support Bechtel's plans to remove usable railroad tracks in
the 100 B/C and 100 D/DR Areas of Hanford so that Bechtel can
more effectively use its trucks to move contaminated soil.
     
     Richland, by not ensuring its contractors fully evaluate
alternatives and allowing the railroad system to degrade, is
eliminating a valuable alternative for movement of large
quantities of bulk material.  The railroad system, currently
maintained as Class 3, provides the safest and least costly
method to move bulk material.  In addition, with proper
maintenance, the system will last until the end of the Richland
environmental mission.
 
COST-EFFECTIVE USE OF RAILROAD SYSTEM
 
     As noted, a previous OIG report showed that the use of
trains to haul bulk material is less costly than the use of
trucks.  The OIG recommended using rail for bulk shipments and to
evaluate the feasibility of using a combination of rail and other
shipment methods, including trucks.  Richland could also realize
savings if Bechtel used the Hanford railroad system to transport
bulk shipments of contaminated material.  Richland, for example,
would save over $29 million over the life of the project to
remove 4.6 million cubic yards of contaminated soil.  These
savings could be realized even though Richland would have to
purchase equipment, build additional rail spurs, and pay contract
termination costs to a trucking firm for the current
transportation contract.
     
     Additional monetary savings will also occur due to decreased
use of Hanford's road system.  For example, Bechtel estimates
that using trucks to transport the 4.6 million cubic yards of
soil will completely degrade the haul roads after 5 years.
Consequently, Bechtel plans to gravel the roads once the asphalt
has deteriorated.  The change to gravel roads will not only
impact road maintenance costs but will also impact operations by
reducing haul speeds.  The combination of these factors will,
therefore, increase the cost to haul contaminated soil to
Hanford's disposal facility.
     
     Effectively using trains on current projects will also
provide a valuable asset for future projects.  For example,
although the future projects discussed earlier cannot by
themselves support the cost of the railroad system, each could
use the system to reduce project costs.  In addition, DOE has
projects that could use trains which will not even start until
early in the next century.  One such project is the movement of
transuranic waste from the Idaho National Engineering and
Environmental Laboratory to a waste handling and packaging
facility at Hanford.
     
     Finally, using trains rather than trucks will also result in
nonmonetary safety benefits.  According to Department of
Transportation statistics, trains were 72 times safer per ton-
mile than trucks in Calendar Year 1994.  At Hanford, in fact,
employees have operated the railroad system for over 48 years
without lost time from injury.
                            
                            PART III
                                
                 MANAGEMENT AND AUDITOR COMMENTS
                                
     The Manager, Richland Operations Office, partially concurred
with recommendation 1 and concurred with recommendation 2.  He
also commented on the reports observations and conclusions,
finding, and reasonableness.
     
     Management Comments.  The Manager only partially concurred
with recommendation 1, to fully implement project management
principles outlined in the DOE Order, because he stated that
every effort had already been made to ensure that Hanford
contractors fully implement them.  Likewise, the Manager
disagreed with the reports finding that project management
principles had not been fully implemented by pointing out that
Richland completed a value engineering study on various waste
transportation modes, including the railroad system, in February
1997.
     
     Auditor Comments.  Despite his use of the term "partial"
concurrence, the Managers response addresses the OIG's concern
about the absence of evaluating alternatives before making
decisions.  A value engineering study that fully documents fair
analyses of all alternatives is appropriate and consistent with
DOE policy.  Further, the value engineering study was finished
after the audit verification work was completed.
     
     Management Comments.  The Manager concurred with
recommendation 2 to take every effort to cost-effectively use the
railroad system and other Hanford physical assets.  He added that
the railroad system is recognized as a sitewide asset and will
continue to be evaluated as an alternative for transportation
functions.  For at least one project, transfer of waste from the
300 Area laboratories, the railroad has been selected as the
preferred transportation method.
     
     Auditor Comments.  The Manager's comments are responsive to
the recommendation.
     
Additional Comments
     
     Management Comments.  The Manager said the decision to
utilize trucks to transport waste to the Environmental
Restoration Disposal Facility was based on the need to reduce
initial capital costs of the Disposal Facility.  The value
engineering study also supported this decision.
 
     Auditor Comments.  At the exit conference, a contractor
representing Richland and Bechtel described the results of the 4
day value engineering study.  He said that the study did not
recommend either the current method of transport or trains, but
suggested an alternative transportation method using trucks which
may be best suited for the project.  The study concluded that
changing from the current trucking approach to a modified system
could save DOE over $16 million.  The study also showed that a
railroad with trucking option had the lowest total cost.
     
     Although we did not fully review this study, it appeared
responsive to our recommendation.  However, there are some
concerns.  First, the study was staffed primarily with contractor
personnel involved in the original decision to use trucks.  Other
key individuals, such as Hanford railroad experts, site
infrastructure personnel, and Richland budgeting and safety
personnel did not participate in the study.  These individuals
could have brought additional perspective and objectivity to the
study.  Additionally, the study's ranking factors included a
number of intangible criteria such as "simplest system, safest
operations and maintenance, best meets schedule, and most
flexible to operate."  The only criteria used for the original
decision was capital cost.  Finally, the brevity of this 4 day
study may not have resulted in sufficient depth to support a
major program decision.
     
     Management Comments.  The Manager stated that truck usage
will be required in addition to the railroad system to service
small and widely scattered remediation activities.  The Manager
further said that the OIG had not included these costs in its
estimated monetary impact statement.
     
     Auditor Comments.  The railroad is adjacent to most remedial
sites.  Any additional trucking should therefore be minimal.
     
     Management Comments.  The Manager did not think there was
sufficient basis to support a savings estimate of $29 million.
Although recently performed project estimates indicated that the
railroad system could have lower life-cycle costs than trucks,
the amount of such savings is highly dependent on key assumptions
including funding, schedule, and waste volumes.  Estimates
indicate that reducing the amount of material to be remediated
and transported to the Disposal Facility could decrease the
advantages of the railroad system and may eliminate it as a
viable alternative.  The OIG report shows a break-even in year
2003.  Due to uncertainty of volumes, remediation rates, and
funding availability, it is possible that program may never reach
the break-even point.  The Manager also stated that a 10-year
plan is being developed which will further impact savings.
     
     Auditor Comments.  Any estimate involves judgments about
future events.  Our analysis was based on the best data provided
by Bechtel, including its multi-year work plan showing the
remediation effort taking place over a 20-year schedule.
Further, Richland and Bechtel officials and other Hanford
contractors assisted in our savings analysis and  fully reviewed
our analysis.  Based on these reviews, we adjusted our cost
estimates downward to the $29 million figure cited.  During the
audit, Richland did not present any evidence that data used to
complete the 20-year schedule was not current and accurate.
     
     We are still not aware of changes in budget, volumes, or
schedule that would affect our estimates.  In fact, Richland is
committed by the Tri-Party Agreement to support the project as
shown in our report.  Reductions in the quantities of
contaminated material to be moved will have to be agreed to by
the Environmental Protection Agency and the Washington State
Department of Ecology under the Tri-Party Agreement.  We were not
aware of any agreed upon changes to the Tri-Party Agreement.
     
     Finally, without decreasing the waste volumes, a move to a
10-year schedule will require increases in funding levels.
However, should Richland initiate a 10-year plan, our analysis
showed trucks were still over $15 million more costly than the
Hanford railroad system.
     
     Management Comments.  The recommendation not to utilize
existing tracks in the 200 West Area for transporting waste to
the Disposal Facility was made by Bechtels predecessor.  A new 8-
mile railroad spur outside the 200 West Area would have been
required and the expense of constructing such a spur was
considered excessive in light of project budget reductions.
     
     Auditor Comments.  Even with the new spur, which was
estimated to cost $13 million, a lifecycle analysis would have
supported the use of trains.
     
     Management Comments.  The Manager did not agree with our
assessment concerning the damage to Hanford highways.  The
Manager stated that roads will have an expected service life of 5
years and may last longer.  Remediation sites at 100-B/C will be
completed in less than 4 years and burial ground remediation will
take place later and may continue another 4 years.
 
     Auditor Comments.  Although work at any one site may take
less than 4 years, Bechtel planning documents show a project life
of 20 years.  Common roads such as Route 4 North will therefore
need extensive maintenance.  In addition, roads such as Route 4
North will continue to be used after the 100 areas have been
remediated.
     
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