DEPARTMENT OF 

ENERGY

Observations on Project and 

Program Cost Estimating in 

NNSA and the Office of 

Environmental Management 

Statement of David Trimble, Director 

Natural Resources and Environment

Testimony 

Before the Subcommittee on Strategic 

Forces, Committee on Armed Services, 

U.S. Senate

For Release on Delivery 

Expected at 2:30 p.m EDT

Wednesday, May 8, 2013

GAO-13-510T

United States Government Accountability Office
United States Government Accountability Office

Highlights of GAO-13-510T, a testimony 

before the Subcommittee on Strategic Forces, 

Committee on Armed Services, U. S. Senate

May 2013

DEPARTMENT OF ENERGY

Observations on Project and Program Cost 

Estimating in NNSA and the Office of Environmental 

Management 

Why GAO Did This Study

DOE’s NNSA and EM ensure the 

safety, security, and reliability of the 

U.S. nuclear weapons stockpile and 

address environmental cleanup of Cold 

War sites. Together, NNSA and EM 

have outlined plans that could commit 

American taxpayers to $450 billion in 

programs and projects over decades to 

address their missions. NNSA and EM 

oversee contracts for the execution of 

both projects, including capital asset 

acquisitions, and programs central to 

the achievement of their missions. 

GAO has reported on the status of 

DOE’s projects and programs and has 

repeatedly identified cost overruns as 

compared with cost estimates. A 

realistic cost estimate provides a basis 

for both an accurate budget and 

effective resource allocation. In a time 

of fiscal constraint, Congress needs 

high-quality cost information upon 

which to make decisions about NNSA’s 

and EM’s projects and programs.

This testimony focuses on GAO’s (1) 

prior findings and preliminary 

observations from ongoing work on 

cost-estimating practices for NNSA’s 

and EM’s capital asset projects, and 

(2) prior findings and preliminary 

observations from ongoing work on 

cost-estimating practices for NNSA’s

operating programs. It is largely based 

on prior GAO reports issued from 

January 2010 to February 2013. For its 

ongoing work, GAO reviewed DOE 

policies, orders, and guidance and

interviewed DOE, NNSA, and 

contractor officials.

GAO is making no new 

recommendations. DOE continues to 

act on the recommendations GAO has 

made to improve cost estimating. GAO 

will continue to monitor implementation 

of these recommendations.

What GAO Found

For more than a decade, GAO has reported on the challenges the Department of 

Energy’s (DOE) National Nuclear Security Administration (NNSA) and the Office 

of Environmental Management (EM) have faced in meeting their projects’ cost 

performance targets as developed in estimates and for ensuring that these cost 

estimates are based on sound assumptions. NNSA and EM are included on 

GAO’s High-Risk List in recognition of the potential for vulnerabilities to fraud, 

waste, abuse, and mismanagement in contract administration and management 

of major projects. In January 2010, GAO reported on DOE’s project costestimating practices and found that DOE did not have a cost-estimating policy 

and that cost-estimating guidance it had developed in the 1990s remained in 

effect but was out-of-date. GAO also found that DOE was taking steps to improve 

its cost-estimating practices, such as establishing the Office of Cost Analysis 

(OCA) in 2008 to improve cost-estimating capabilities and better ensure that 

project cost estimates are reliable by providing a new independent costestimating function. Both DOE’s NNSA, a separately organized agency within the 

department, and EM adopted policies and practices to support cost estimating. 

GAO is conducting an ongoing review of DOE’s and NNSA’s cost-estimating 

practices for this Subcommittee. Its preliminary observations indicate that while 

DOE followed through on some of GAO’s January 2010 recommendations to 

improve the department’s cost-estimating practices—such as revising the 

department’s project management order to better align it with some costestimating best practices—it has not addressed other recommendations with 

which it initially concurred. For example, GAO’s preliminary observations indicate 

that OCA has been disbanded, and DOE may not have developed a costestimating policy. 

To develop budget estimates for operating programs, NNSA has implemented a

planning, programming, budgeting, and evaluation (PPBE) process, which 

provides a framework for the agency to plan, prioritize, fund, and evaluate 

program activities. In particular, NNSA’s PPBE policy includes a process by 

which the agency reviews the cost-estimating practices used by its contractors 

and its program office to validate future budget requests. In June 2010, GAO 

reported on NNSA’s program to operate and maintain weapons facilities and 

infrastructure and found that NNSA could not accurately identify the total costs of 

this program’s activities. GAO determined that, for fiscal year 2009, the costs of 

the activities associated with this program totaled over $500 million more than 

the budget request for it. Building on these findings, in July 2012, GAO reported 

on NNSA’s implementation of its PPBE process, particularly in the area of 

validating programs’ budget requests, and found deficiencies that GAO 

concluded effect the credibility and reliability of those estimates. For example, 

GAO found that NNSA officials conducted informal, undocumented reviews of 

budget estimates that contractors submitted because, according to agency 

officials, the agency’s trust in its contractors minimized the need for formal review 

of budget estimates provided by them. Further, GAO found that NNSA’s annual 

budget validation review process occurred too late in its budget cycle to inform 

agency or congressional budget development or appropriations decisions. GAO 

made recommendations to address these two deficiencies, and NNSA agreed 

with these recommendations. Preliminary observations from GAO’s ongoing 

work for this Subcommittee on DOE cost estimating show that DOE and NNSA 

may not have specific cost-estimating requirements or guidance for programs to 

support the budget formulation process, an issue on which GAO did not make 

recommendations in its July 2012 report. 

GAO plans to report on this ongoing work later this year.

View GAO-13-510T. For more information, 

contact David Trimble at (202) 512-3841 or

trimbled@gao.gov.
 

Page 1 GAO-13-510T

Chairman Udall, Ranking Member Sessions, and Members of the 

Subcommittee:

Thank you for the opportunity to discuss our work on project and program 

cost estimating and related budget information in the National Nuclear 

Security Administration (NNSA), a separately organized agency within the 

Department of Energy (DOE), and DOE’s Office of Environmental 

Management (EM). In fiscal year 2012, NNSA and EM received 

appropriations of over $16 billion to ensure the safety, security, and 

reliability of the U.S. nuclear weapons stockpile and to address the 

environmental cleanup of Cold War sites. Together, NNSA and EM have

outlined plans that could commit American taxpayers to $450 billion in 

programs and projects over decades to address their missions.

Specifically, in 2011, NNSA put forward plans to modernize the U.S. 

nuclear security enterprise at a cost of $88 billion over the next decade 

and a total cost of over $180 billion to do so through 2031.1 In 2012, DOE 

estimated that its total liability for environmental cleanup, the largest 

component of which is managed by EM, is almost $270 billion and 

includes responsibilities that could continue beyond the year 2087.2 In a 

time of fiscal constraint, Congress needs high-quality cost and budget 

information upon which to make decisions about NNSA’s and EM’s 

projects and programs. Our recent and ongoing work on cost estimating, 

budget validation, and program expenditures highlight some of the 

challenges Congress faces in getting reliable and accurate cost 

information from NNSA and EM that it can use to make cost-informed 

decisions and effectively conduct oversight.3

NNSA and EM oversee contracts for the execution of both projects, 

including capital asset acquisitions, and programs central to the 

 

1

U.S. Department of Energy, FY 2012 Stockpile Stewardship and Management Plan

(Washington, D.C.: Apr. 15, 2011).

2

U.S. Department of Energy, Fiscal Year 2012 Agency Financial Report, DOE/CF-0081 

(Washington, D.C.: Nov. 14, 2012).

3

See, for example, GAO, Department of Energy: Actions Needed to Develop High-Quality 

Cost Estimates for Construction and Environmental Cleanup Projects, GAO-10-199 

(Washington, D.C.: Jan. 14, 2010); GAO, Nuclear Weapons: Actions Needed to Identify 

Total Costs of Weapons Complex Infrastructure and Research and Production 

Capabilities,GAO-10-582 (Washington, D.C.: June 21, 2010); and GAO, Modernizing the 

Nuclear Security Enterprise: NNSA’s Reviews of Budget Estimates and Decisions on 

Resource Trade-offs Need Strengthening,GAO-12-806 (Washington, D.C.: July 31, 2012).

 
 

Page 2 GAO-13-510T

achievement of their missions. DOE defines a capital asset acquisition 

project as having a defined start and end point with a cost that includes 

both purchase price and all other costs incurred to bring it to a form and 

location suitable for its intended use. Capital asset project costs exclude 

operating expenses that are part of routine operations and maintenance 

functions. Examples of ongoing DOE capital asset projects include 

NNSA’s Uranium Processing Facility at the Y-12 National Security 

Complex in Tennessee—currently estimated to cost up to $6.5 billion—

and EM’s Waste Treatment and Immobilization Plant in Washington, 

currently estimated to cost $13.4 billion. While capital asset projects are a 

visible part of DOE’s budget, these projects comprise a relatively small 

portion of the total budget. In fiscal year 2012, capital asset projects 

comprised just under 10 percent of NNSA’s budget, and approximately 90 

percent of that budget was for operating programs. DOE defines a 

program as an organized set of activities directed toward a common 

purpose or goal and characterized by a strategy for accomplishing one or 

more definite objectives. A program includes routine operations and 

maintenance costs and can include projects in its scope. An example of 

an ongoing program is NNSA’s Tritium Readiness Program—a program 

to produce a steady supply of tritium, a key isotope used in nuclear 

weapons—that has had an annual funding requirement of about $70 

million.

For NNSA, work activities on both projects and programs are largely 

carried out by management and operating (M&O) contractors at NNSA’s 

eight government-owned, contractor-operated sites.4

 

4

M&O contracts are agreements under which the federal government contracts for the 

operation, maintenance, or support, on its behalf, of a government-owned or -controlled 

research, development, special production, or testing establishment wholly or principally 

devoted to one or more of the major programs of the contracting federal agency. Federal 

Acquisition Regulation, 48 C.F.R. § 17.601. Specifically, NNSA manages three national 

nuclear weapons design laboratories—Lawrence Livermore National Laboratory in 

California, Los Alamos National Laboratory in New Mexico, and Sandia National 

Laboratories in New Mexico and California. It also manages four nuclear weapons 

production plants—the Pantex Plant in Texas, the Y-12 National Security Complex in 

Tennessee, the Kansas City Plant in Missouri, and the Tritium Extraction Facility at DOE’s 

Savannah River Site in South Carolina. NNSA also manages the Nevada National 

Security Site, formerly known as the Nevada Test Site.

For EM, with a 

remaining environmental cleanup mission covering 17 sites in 11 states, 

cleanup work activities are carried out by contractors as projects, such as 

by Washington River Protection Solutions for the operation of nuclear 

waste tanks at the Hanford Site in Washington.
 

Page 3 GAO-13-510T

For decades, we have reported on the status of DOE’s major projects 

(i.e., those costing $750 million or more) and programs and have 

repeatedly identified project cost overruns and schedule delays, as well 

as missed programmatic milestones. For example, in November 1996, we 

reported that, as of June 1996, most of DOE’s completed major projects 

and at least half of its 34 ongoing projects were experiencing cost 

overruns and/or schedule delays.5 Thirteen years later in March 2009, we 

testified that DOE had added nearly $14 billion and 45 years to its initial 

cost and schedule estimates of then ongoing construction projects, and it 

added an additional $25 billion to $42 billion and an additional 68 to 111 

years to initial cost and schedule estimates of ongoing environmental 

cleanup projects.6 Further, in our March 2009 report, we found that NNSA 

was able to meet its refurbishment schedule for a life extension program 

only by changing the objectives of the program and, among other things, 

reducing the number of refurbishments needed for program completion.7

In February of this year, NNSA and EM were again included on GAO’s 

High-Risk List in recognition of the potential for vulnerabilities to fraud, 

waste, abuse, and mismanagement in contract administration and 

management of major projects.8

In 2008, DOE completed an effort to document its contract and project 

management challenges, which involved identifying issues that 

significantly impeded the department’s ability to complete projects within 

 

5

GAO, Department of Energy: Opportunity to Improve Management of Major System 

Acquisitions. GAO/RCED-97-17 (Washington, D.C.: Nov. 26, 1996).

6

GAO, Department of Energy: Contract and Project Management Concerns at the 

National Nuclear Security Administration and Office of Environmental Management,

GAO-09-406T (Washington, D.C.: Mar. 4, 2009). 

7

The end of the Cold War caused a dramatic shift in how the nation maintains nuclear 

weapons. Instead of designing, testing, and producing new nuclear weapons, the strategy 

shifted to maintaining the existing nuclear weapons stockpile indefinitely. Life extension 

programs extend, through refurbishment, the operational lives of weapons in the nuclear 

stockpile by 20 to 30 years and certify these weapons’ military performance requirements 

without underground nuclear testing. NNSA is currently conducting life extension 

programs for multiple weapon types in the U.S. stockpile, including the Air Force’s B61 

gravity bomb. GAO, Nuclear Weapons: NNSA and DOD Need to More Effectively Manage 

the Stockpile Life Extension Program,GAO-09-385 (Washington, D.C.: Mar. 2, 2009). 

8

GAO, High-Risk Series: An Update,GAO-13-283 (Washington, D.C.: February 2013). In 

our 2013 High-Risk Update, we narrowed the focus of NNSA’s and EM’s high-risk 

designation to focus on major projects, those with individual values of $750 million or 

greater. 
 

Page 4 GAO-13-510T

budget and on schedule. DOE undertook this exercise—known as a rootcause analysis—as part of its effort to be removed from our list of 

agencies at high risk for fraud, waste, abuse, and mismanagement. The 

top contract and project management issue identified in that root-cause 

analysis was that DOE often does not complete front-end planning to an 

appropriate level before establishing a project’s performance baseline—a 

project’s cost, schedule, and scope— including for cost estimates and 

budget planning. According to cost estimating best practices compiled in 

our March 2009 Cost Estimating and Assessment Guide,9

Since that time, DOE has taken steps to improve the cost-estimating 

aspects of contract and project management in NNSA and EM, but 

weaknesses persist. In a time of fiscal constraint, Congress needs highquality cost information upon which to make decisions about NNSA’s and 

EM’s projects and programs. A realistic cost estimate provides a basis for 

accurate budgeting and effective resource allocation, which increases the 

probability of a project’s or program’s success in meeting its goals. My 

testimony today is based primarily on reports we issued from January 

2010 to February 2013. Specifically, I will focus my testimony on (1) our 

prior findings on cost-estimating practices for NNSA’s and EM’s capital 

asset projects, as well as preliminary observations from our ongoing work 

for this Subcommittee on NNSA cost-estimating practices for such 

the most 

rigorous method reviewers have in validating a project’s cost estimate is 

the independent cost estimate. Generated by an entity that has no stake 

in the approval of a project, an independent cost estimate provides an 

independent validation of expected project costs, according to our costestimating guide. An independent cost estimate is usually developed 

based on the same technical parameters as the project team’s estimate, 

so the estimates are comparable. Conducting an independent cost 

estimate is especially important at major milestones because it provides 

senior decision makers with a more objective assessment of the likely 

cost of a project. In mid-2008, DOE adopted a corrective action plan 

designed to mitigate the issues identified in the root-cause analysis. The 

corrective action plan included a set of actions designed to establish and 

implement a “federal independent government cost estimating capability” 

to address the issues it identified related to cost estimating.

 

9

The guide is a compilation of cost-estimating best practices drawn from across industry 

and government. GAO, GAO Cost Estimating and Assessment Guide: Best Practices for 

Developing and Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: 

March 2009). 
 

Page 5 GAO-13-510T

projects and (2) our prior findings on cost estimating and related budget 

information for NNSA’s programs, as well as preliminary observations 

from our ongoing work for this Subcommittee on NNSA’s cost-estimating 

practices for such programs. Detailed information on our scope and 

methodology for our prior work can be found in these reports.

To develop our preliminary observations, we reviewed DOE and NNSA 

policies, orders, and guidance related to preparing and reviewing cost 

estimates, as well as past GAO reports. We interviewed DOE, NNSA, and 

contractor officials to discuss the requirements and guidance used to 

prepare and review these estimates. We are conducting our ongoing work 

in accordance with generally accepted government auditing standards.

Those standards require that we plan and perform the audit to obtain 

sufficient, appropriate evidence to provide a reasonable basis for our 

findings and conclusions based on our audit objectives. We believe that 

the evidence obtained provides a reasonable basis for our findings and 

conclusions based on our audit objectives. We obtained DOE’s and 

NNSA’s views on the new information in our testimony concerning our 

ongoing work on DOE’s and NNSA’s cost-estimating practices.

NNSA relies primarily on the requirements in DOE Order 413.3B for 

planning and executing projects, from identification of need through 

project completion.10

• Milestone 0: Approve mission need.

This project management order requires, among 

other things, that cost estimates be established for these projects, and an 

independent review of these estimates be conducted for larger projects.

For example, for projects with a total cost of greater than $100 million, 

DOE’s Office of Acquisition and Project Management is required to 

validate the accuracy and completeness of a project’s performance 

baseline, including its estimated cost, at certain important milestones.

DOE’s project management order establishes five major milestones—or 

“critical decision points”—that span the life of a project as follows:

• Milestone 1: Approve alternative selection and cost range. At this 

milestone, DOE completes the conceptual design, selects its 

 

10DOE Order 413.3B, Program and Project Management for the Acquisition of Capital 

Assets, was issued in November 2010. It supersedes earlier DOE Orders 413.3A and 

413.3. 

Background 
 

Page 6 GAO-13-510T

preferred approach, and approves the project’s preliminary cost 

range.

• Milestone 2: Approve the performance baseline—defined as a 

project’s cost, schedule, and scope (the activities needed to achieve 

project goals). At this milestone, DOE completes its preliminary 

design and develops a definitive cost estimate, which is no longer a 

range. This cost estimate is to be used for establishing the project’s 

funding profile throughout construction, and it informs annual budget 

requests.

• Milestone 3: Approve the start of construction.

• Milestone 4: Approve the start of operations or project completion.

DOE’s project management order specifies the requirements that must be 

met for a project, along with the documentation necessary, to move past 

each project milestone; the order also requires that DOE senior 

management review the supporting documentation and approve the 

project at each milestone. DOE also provides suggested approaches for 

meeting the requirements contained in its project management order 

through additional guidance that is not mandatory. NNSA has 

supplemental requirements and guidance for establishing and reviewing 

project cost estimates, including requirements for conducting independent 

cost estimates, and a cost-estimating guide that provides additional 

suggestions on preparing and reviewing cost estimates.

With respect to operating programs, DOE Order 130.1 on program budget 

formulation—approved in 1995 and listed as current on DOE’s website for 

Directives, Delegations, and Requirements—outlines the requirements for 

the department’s annual budget formulation process, including that 

budget requests for operating programs “shall be based on cost estimates 

that have been fully reviewed and deemed reasonable” by the cognizant 

program organization. To this end, DOE’s budget formulation order 

recognizes that operating programs’ cost estimates bear a direct 

relationship to the future budget estimates for these programs. Further, 

consistent with Federal Accounting Standards Advisory Board guidance, 

NNSA is required to provide reliable and timely information on the full cost 

of its programs because this information is crucial for effective 
 

Page 7 GAO-13-510T

management of government operations and for budget oversight.11 To 

develop budget estimates for operating programs, NNSA is required 

under section 3252 of the National Defense Authorization Act for Fiscal 

Year 2000—the NNSA Act—to develop a planning, programming, and 

budgeting process that operates under sound financial and fiscal 

management principles.12 Beginning in 2002, NNSA issued policies that 

identify the responsibilities of NNSA management, program and site 

offices, and contractors throughout the agency’s budget cycle, including 

for validating programs’ budget requests by reviewing aspects of cost 

estimating.13

• Planning. NNSA is to identify the goals it needs to achieve over the 

next 5 years and the program activities needed to meet those goals.

According to NNSA’s policy, the cycle is composed of four 

phases—planning, programming, budgeting, and evaluation (PPBE)—

and their associated activities, which together provide a framework for the 

agency to plan, prioritize, fund, and evaluate its program activities. While 

these phases appear to be sequential, the process is continuous and 

concurrent because of the amount of time required to develop priorities 

and review resource requirements.

• Programming. NNSA is to determine which program activities and 

funding levels it will include in its next budget proposal to DOE. This 

determination is based on analysis of the activities’ estimated costs, 

as well as the need to meet the NNSA goals defined in the planning 

process. To determine these activities, NNSA program offices are to 

work with their contractors to obtain estimates for the cost of the 

program activities identified in the planning phase.

• Budgeting. NNSA is to integrate its planning and programming 

priorities into DOE’s departmental budget process by (1) submitting its 

 

11Federal Accounting Standards Advisory Board, Statement of Federal Financial 

Accounting Standards No., 4, Managerial Cost Accounting Standards and Concepts

(Washington, D.C.: July 31, 1995).

12NNSA was created by the National Defense Authorization Act for Fiscal Year 2000 (Pub. 

L. No. 106-65, § 3201 et seq. [1999]).

13See GAO, National Nuclear Security Administration: Additional Actions Needed to 

Improve Management of the Nation’s Nuclear Programs, GAO-07-36 (Washington, D.C.: 

Jan. 19, 2007). In 2008, NNSA revised many of these policies and issued others in 

response to our findings in 2007 of deficiencies in how the agency ensures the validity of 

its budget estimates and how it decides to allocate its resources. 
 

Page 8 GAO-13-510T

proposed budget to DOE and participating in a strategic review 

process; (2) validating its budget request by, in part, reviewing the 

cost-estimating practices used by the NNSA contractors and program 

offices; and (3) executing the budget and controlling funds to achieve 

the priorities established in the programming phase and maintain 

fiscal limits.

• Evaluation. NNSA is to employ an ongoing cycle of evaluations to 

review program performance.

Accurately identifying the activities necessary to conduct a program is a 

key aspect of PPBE’s programming phase. NNSA documents the 

activities associated with a program, as well as the sites responsible for 

conducting these activities, in work breakdown structures—management 

tools used to identify the work activities that completely define a program.

We published best practices for establishing work breakdown structures 

in our March 2009 cost-estimating guide.14 Among other things, these 

best practices discuss establishing work breakdown structures that allow 

a program to track cost by defined deliverables, promote accountability by 

identifying work products that are independent of one another, and 

provide a basis for identifying resources and tasks for developing a 

program cost estimate. The ability to generate reliable cost estimates is a 

critical function, and a program’s cost estimate is often used to establish 

its budgets.

For more than a decade, we have reported on the challenges NNSA and 

EM have faced in meeting their projects’ cost performance targets as 

developed in cost estimates and for ensuring that the cost estimates 

developed are based on sound assumptions. In our most recent HighRisk Update, we reported that, as of August 2012, NNSA was managing 

3 major projects with estimated costs totaling as much as $17.2 billion 

and that EM was managing 7 major projects with estimated costs totaling 

as much as $48.5 billion.15

 

14

We examined these 10 projects, but we were 

only able to analyze changes in cost estimates for 7 of them because of 

limitations in the data. For these 7 projects, we determined that DOE has 

added as much as $16.5 billion to original cost estimates with further cost 

GAO-09-3SP. 

15GAO-13-283. 

Observations on Cost 

Estimating Practices 

for NNSA and EM 

Projects 
 

Page 9 GAO-13-510T

increases anticipated. While each of these projects has faced significant 

technical execution challenges, the extent of their cost growth as 

compared with project estimates calls into question the quality of those 

original estimates. For example:

• We reported in February 2011 that NNSA’s project to design and 

construct a new Uranium Processing Facility at the Y-12 National 

Security Complex in Tennessee had experienced nearly sevenfold 

cost growth from its 2004 estimate to the current estimate of from $4.2 

to $6.5 billion.16

• We reported in March 2012 that NNSA’s project to design and 

construct a new plutonium facility at Los Alamos National Laboratory 

in New Mexico had experienced a nearly sixfold increase from $3.7 

billion to $5.8 billion before being deferred for at least 5 years.

Since our February 2011 report, the facility is to be 

redesigned and enlarged to correct issues concerning processing 

equipment at an additional cost of $540 million, and the initial scope of 

the project has been significantly reduced. According to NNSA 

officials, the initial cost estimate for the Uranium Processing Facility, 

as well as subsequent revisions were based on an estimate to 

construct a less complex facility and assumed a funding profile where 

annual appropriations were not subject to budgetary constraints.

17

• In December 2012, we reported that the estimated cost to construct 

EM’s Waste Treatment and Immobilization Plant at the Hanford Site in 

Washington has tripled to $13.4 billion since its inception in 2000.

We 

found that the facility’s original design may not have met all of the 

mission needs identified.

18

DOE’s approach to managing the work its contractors perform, including 

developing project cost estimates, has been a challenge for 30 years. In 

1982, we reported that DOE did not have sufficient guidance to provide to 

Significant technical challenges remain unresolved, contributing to 

uncertainty as to whether the project will operate safely and 

effectively.

 

16GAO, High-Risk Series: An Update, GAO-11-278 (Washington, D.C.: February 2011).

17GAO, Modernizing the Nuclear Security Enterprise: New Plutonium Facility at Los 

Alamos May Not Meet All Mission Needs, GAO-12-337 (Washington, D.C.: Mar. 26, 2012).

18GAO, Hanford Waste Treatment Plant: DOE Needs to Take Action to Resolve Technical 

and Management Challenges, GAO-13-38 (Washington, D.C.: Dec. 19, 2012).
 

Page 10 GAO-13-510T

its contractors for developing cost estimates.19

In January 2010, we reported on DOE’s project cost-estimating 

practices.

DOE subsequently 

implemented a cost-estimating policy that increased oversight by, among 

other things, placing a headquarters-based office in charge of cost 

estimating and requiring it to conduct independent cost estimates. The 

policy also directed DOE to establish guidance that outlined procedures 

to be used by contractors when generating estimates and by DOE 

officials reviewing them. In the mid-1990s, however, as part of a 

governmentwide management reform movement, DOE rescinded its costestimating policy and replaced it with a less prescriptive one that did not 

contain specifics on cost estimating but rather focused on managing the 

life cycles of the department’s physical assets.

20 We found that DOE continued to lack a cost-estimating policy 

and that the cost-estimating guide it developed in the 1990s remained in 

effect.21

 

19GAO, Further Improvements Needed in the Department of Energy for Estimating and 

Reporting Project Costs,

We also found that the guide was out of date and did not contain 

important components. For example the guide assigned responsibilities to 

offices that no longer existed and was based on policies that had been 

canceled. In addition, we found that the guide did not contain sufficient 

information to help ensure that a cost estimator following the guide would 

successfully create a high-quality cost estimate. However, we also found 

that DOE was taking steps to improve its cost-estimating practices. For 

example, DOE established the Office of Cost Analysis (OCA) in 2008 to 

improve cost-estimating capabilities and better ensure that project cost 

estimates are reliable by providing a new independent cost-estimating 

capability. Further, EM acted to place cost estimators at its large sites and 

establish an internal cost-estimating office capable of providing costestimating assistance primarily to its smaller sites. In addition, NNSA 

adopted a policy that, among other things, specified when independent 

cost estimates should be conducted. Our report recommended, among 

other things, that DOE issue a revised cost-estimating policy and updated 

guidance as soon as possible, requiring that an independent cost 

estimate be conducted for major projects at Milestones 1, 2, and 3. DOE 

generally concurred with the recommendations we made in this report but 

GAO/MASAD-82-37 (Washington, D.C.: May 26, 1982).

20GAO-10-199. 

21U.S. Department of Energy, Cost Estimating Guide, DOE G 430.1-1 (Washington, D.C.: 

Mar. 29, 1997).
 

Page 11 GAO-13-510T

did not concur with conducting an independent cost estimate at all three 

of these milestones. Rather, at this time DOE explained that its new 

policy would require an independent cost estimate for Milestones 1 and 2, 

but not for Milestone 3 unless warranted by risk and performance 

indicators or required by senior officials.

We are conducting an ongoing review of the department’s and NNSA’s 

cost-estimating practices for this Subcommittee. In particular, we are 

reviewing the extent to which NNSA’s current cost estimating 

requirements and guidance for projects and programs align with costestimating best practices. Preliminary observations from our ongoing 

work indicate that departmental and NNSA cost-estimating practices for 

projects and programs need revision to align with cost-estimating best 

practices in our 2009 guide.22

• The department may have a continuing need for a cost-estimating 

policy. DOE has not established a cost-estimating policy. DOE’s 2008 

Root-Cause Analysis identified an insufficient independent costestimating capability as one of the top five reasons that DOE was 

unable to complete projects on cost and schedule. The analysis found 

that not having a cost-estimating policy was one of the root causes 

contributing to problems with cost estimating. DOE tasked OCA with, 

among other things, implementing actions to improve cost estimating 

within DOE, including reestablishing a cost-estimating policy and 

updating associated guidance. As we previously reported, having a 

cost-estimating policy would establish roles and responsibilities for 

those preparing, reviewing, and updating all types of cost estimates.

Our ongoing review, in many ways, picks 

up where our January 2010 report left off. After initially concurring with 

most of the recommendations we made in that report to improve the 

department’s cost-estimating practices, DOE followed through on some of 

our recommendations, such as requiring an independent cost estimate for 

Milestone 2 for projects with a projected cost of $100 million or more; 

however, other actions appear to fall short of what is needed to ensure 

that DOE’s cost-estimating practices fully adhere to best practices. Our 

ongoing work is focused on several aspects of DOE and NNSA’s costestimating requirements and guidance, including the following:

23

 

22To evaluate whether NNSA is meeting cost estimating best practices, we relied on our 

cost-estimating guide, GAO-09-3SP. 

23GAO-10-199. 
 

Page 12 GAO-13-510T

Such a policy would also identify when different cost estimates would 

be conducted, while also serving as a mechanism for providing 

standardized cost-estimating procedures to agency officials and 

contractors. DOE subsequently disbanded OCA and, instead of 

issuing a specific cost-estimating policy, chose instead to revise its 

project management order and supplemental guidance that sets 

requirements and provides suggestions on how to manage capital 

asset acquisition projects. While the revisions to the order and guide 

included some provisions to improve project cost-estimating practices, 

the project management order and supplemental guide only apply to 

activities involving capital asset acquisition projects and do not apply 

to the broader range of departmental activities involving cost 

estimating.24 As part of our ongoing work, we will examine whether 

establishing a departmental cost-estimating policy that would apply to 

all departmental activities—including operating programs and 

noncapital asset projects, rather than just capital asset projects—

could contribute to improvements in departmental cost estimating.25

• The department’s revised project management order appears not to 

meet cost-estimating best practices. Our preliminary observations 

indicate that as we found in 2010, DOE’s project management order 

continues not to meet cost-estimating best practices.

For example, information on the costs of program activities can be 

used as a basis to estimate future costs in preparing and reviewing 

budgets.

26

 

24According to DOE’s capital asset acquisition order, capital asset acquisition projects 

typically include planning and execution of construction, assembly, renovation, 

modification, environmental renovation, decontamination and decommissioning, large 

capital equipment, and technology development activities. 

We noted in 

our 2010 report that this order did not specify (1) how cost estimates 

should be developed, (2) which phases of a project should be 

included in the estimate, (3) how the estimate should be maintained 

throughout the life of a project, and (4) when an independent cost 

estimate should be prepared. DOE revised its order in November 

2010 to, among other things, include a requirement that an 

independent cost estimate be prepared prior to the approval of 

25Noncapital asset projects may be managed as operating projects. Examples of such 

projects include stabilization, packaging, storage, transportation, and disposition of waste 

and nuclear materials and facility shutdown and deactivation activities.

26GAO-10-199. 
 

Page 13 GAO-13-510T

Milestone 2 for projects with total project costs equal to or greater 

than $100 million. This revision partially addresses the issue involving 

independent cost estimates but does not fully align with best practices 

that propose independent cost estimates should also be prepared for 

Milestones 1 and 3.27

• NNSA and DOE cost-estimating guidance may not fully align with 

cost-estimating best practices. NNSA and DOE issued cost-estimating 

guides in 2010 and 2011, respectively, as part of efforts to improve 

cost-estimating practices. Our preliminary observations on these 

guides show that each generally aligns with cost-estimating best 

practices but also falls short in a few areas. For example, our 

preliminary observations on NNSA’s 2010 guide show that it meets 

or substantially meets 8 of the 12 criteria in our 2009 cost-estimating 

guide

Beyond this revision, DOE’s revised order does 

not address any of the other shortcomings we reported on in 2010 as 

noted above. Our ongoing work will include a more detailed 

assessment of how this order could better align with cost-estimating 

best practices.

28

• Other NNSA actions to improve cost-estimating practices may not 

align with cost-estimating best practices. NNSA has taken actions in 

recent years to improve its cost-estimating capabilities, but these 

actions may not fully reflect cost-estimating best practices. These 

actions have included (1) issuing a policy in 2009 that defines 

requirements for conducting independent cost estimates and (2) 

issuing separate guidance in 2012 to require that preliminary design 

for high-hazard nuclear facilities be at least 90 percent complete prior 

and that it partially or minimally meets, four other criteria—

these other criteria are in the areas of determining the structure of the 

estimate, conducting risk and uncertainty analysis, conducting 

sensitivity analyses, and presenting the estimate to management for 

approval. Our ongoing review will include a more detailed assessment 

of the 2010 NNSA and 2011 DOE guides and the extent to which they 

align with cost-estimating best practices.

 

27Section 310 of the Consolidated Appropriations Act, 2012 requires a separate 

independent cost estimate to be developed prior to milestones 2 and 3 for projects under 

DOE’s project management order where the total project cost exceeds $100 million. (Pub. 

L. No. 112-74, 125 Stat 878 (2011)). 

28GAO-09-3SP. 
 

Page 14 GAO-13-510T

to the establishment of a project performance baseline.29 With respect 

to NNSA’s policy for conducting independent cost estimates, we found 

that the policy provides NNSA the discretion to conduct independent 

cost estimates for projects with estimated total costs below $100 

million at Milestone 2. NNSA officials explained that a proposed 

revision to this policy would make these reviews mandatory for 

Milestone 2. While the revised policy may align with best practices for 

conducting independent cost estimates at Milestone 2, it may not 

reflect best practices that also propose conducting these reviews at 

Milestones 1 and 3. NNSA’s guidance for completing 90 percent of 

the design for high-hazard nuclear facilities before establishing a 

performance baseline states its objective is to ensure that a highly 

credible cost estimate is developed prior to establishing a 

performance baseline. Our preliminary observations show that other 

projects may benefit from the completion of 90 percent of their 

preliminary designs, regardless of the extent to which the project is 

considered high-hazard. In addition, we have observed that NNSA’s 

guidance to implement this requirement is articulated in an NNSA 

memo that has not yet been translated into official NNSA policy. 

According to NNSA officials, the 90 percent design requirement will be 

incorporated into the revision to the independent cost estimating 

policy. Our ongoing work will further examine these policies and the 

extent to which they align with cost estimating best practices. 

In June 2010, we reported on NNSA’s program to operate and maintain 

weapons facilities and infrastructure and found that the agency’s budget 

justification for this program significantly understated its costs.30 Building 

on these findings, in July 2012, we reported on NNSA’s implementation of 

its PPBE process, particularly in the area of validating programs’ budget 

requests, and we found deficiencies that we concluded effect the 

credibility and reliability of those estimates.31

 

29DOE regulations define three categories of high-hazard nuclear facilities according to 

their potential to produce significant radiological consequences from an event that could 

either (1) extend beyond the boundaries of a DOE site, (2) remain within the boundaries of 

a site, or (3) remain within the immediate vicinity.

Preliminary observations 

from our ongoing work on cost estimating for this Subcommittee show 

30GAO-10-582. 

31GAO-12-806. 

Observations on Cost 

Estimating and 

Information for NNSA 

Programs
 

Page 15 GAO-13-510T

that DOE and NNSA may not have any specific cost-estimating 

requirements or guidance for programs.

In our June 2010 report, which focused on NNSA’s fiscal year 2009 

budget and expenditures, we reported on the extent to which NNSA’s 

budget justification accurately reflected a program’s cost. Specifically, we 

examined NNSA’s program that operates and maintains weapons 

facilities and infrastructure and found that NNSA’s budget justification 

significantly understated that program’s cost.32

Building on these findings, in July 2012, we reported on NNSA’s overall 

budget formulation process, including its implementation of PPBE. We 

We found that, because of 

allowable differences in contractors’ cost accounting practices, NNSA

could not accurately identify the total costs to operate and maintain 

weapons facilities and infrastructure. This condition is inconsistent with 

the Federal Accounting Standards Advisory Board standard on 

Managerial Cost Accounting, which states a general standard for federal 

agencies to provide reliable and timely information on the full cost of 

federal programs to allow an organization to assess the reasonableness 

of program costs and to establish a baseline for comparison. When we 

asked NNSA’s site contractors to provide us with information on their 

fiscal year 2009 costs for each of the activities described by this 

program’s work breakdown structure, six of eight sites fully responded.

The costs for these sites’ activities totaled over $500 million more—

approximately $1.1 billion—than the $558.6 million NNSA included in its 

budget request to fund the program at these sites. We determined that 

one reason NNSA’s budget estimate for this program was so different 

from the costs to execute its work scope was because NNSA’s site 

contractors were not consistent in how they identified the activities they 

paid for with program funds. We concluded that, without the ability to 

consistently identify program costs, NNSA did not have the ability to 

adequately justify future presidential budget requests and risked being 

unable to identify both the return on investment of planned budget 

increases and opportunities for cost savings. Further, we recommended 

that M&O contractors report to NNSA annually on the total costs to 

operate and maintain weapons facilities and infrastructure to allow 

Congress to better oversee management of the nuclear security 

enterprise. NNSA agreed with our report and its recommendations.

 

32GAO-10-582. 
 

Page 16 GAO-13-510T

found that, according to senior NNSA officials, NNSA does not comply 

with DOE’s order on budget formulation because the agency believes the 

order expired in 2003 and, therefore, no longer applies to NNSA budget 

activities.33

• NNSA did not have a thorough, documented process for assessing 

the validity of its budget estimates prior to their inclusion in the 

President’s budget submission to Congress. Instead, we found that 

officials conducted informal, undocumented reviews of budget 

estimates that contractors submitted, and that the level of review 

varied across site and headquarters program offices. According to 

NNSA officials, the agency’s trust in its contractors minimized the 

need for formal review of budget estimates provided.

DOE’s order on budget formulation outlines the requirements 

for the department’s annual budget formulation process including that 

budget requests “shall fully justify and describe intended program outputs 

and outcomes” and that budget requests “shall be based on cost 

estimates that have been thoroughly reviewed and deemed reasonable” 

by the cognizant program organization. Rather, we found that NNSA is 

guided by its own policy for the PPBE process, which includes how costs 

are estimated and validated for operating programs. Our 2012 review 

found significant deficiencies in NNSA’s implementation of its PPBE 

process, leading us to conclude that the credibility of NNSA’s budget 

proposals for operating programs is reduced, which effectively reduces 

the ability of Congress to decide on resource trade-offs. For example, we 

found the following:

• NNSA’s annual budget validation review process occurred too late in 

the budget cycle to inform agency or congressional budget

development or appropriations decisions. We found that, while NNSA 

policy states that the timing of NNSA’s budget validation review 

process should inform budgeting development and decisions, budget 

validation reviews were actually completed after the completion of 

budget formulation process.

• NNSA’s budget validation review process was not sufficiently 

thorough to ensure the credibility and reliability of NNSA’s budget 

because it was limited to assessing the processes contractors and 

programs used to develop budget estimates rather than assessing the 

accuracy of the resulting budget estimates. In addition, NNSA 

 

33GAO-12-806. 
 

Page 17 GAO-13-510T

guidance stipulates that to help ensure the validity of budget 

estimates NNSA conduct its validation process for 20 percent of the 

agency’s programs request annually. However, we found that in fiscal 

year 2012 NNSA completed validation reviews for only 1.5 percent of 

its budget request.

In our July 2012 report, we recommended that, to enhance NNSA’s ability 

to better ensure the validity of its budget submissions, and to decide on 

resource trade-offs, DOE should evaluate its budget formulation order 

and update it as necessary. Further, we recommended, among other 

things, that NNSA (1) amend its budget validation review process, to 

ensure that all budget estimates are thoroughly reviewed by site and 

headquarters program offices, and that these reviews are timed to inform 

NNSA, DOE, OMB, and congressional budget decisions and (2) 

reinstitute an independent cost analysis capability, as it had with OCA, to 

provide senior decision makers with independent reviews, including an 

analysis of different options for deciding on resource trade-offs, and 

facilitate NNSA making the best decisions about what activities to fund 

and whether they are affordable. NNSA, responding on behalf of DOE, 

stated that it generally agreed with six of the seven recommendations we 

made in this report, but NNSA disagreed with our report’s characterization 

that the agency’s budget estimate review process is not thorough.

In both our June 2010 and July 2012 reports, we discuss a data system 

NNSA was developing to provide a consistent framework for managing 

the PPBE process within NNSA’s Office of Defense Programs.34 In 2010, 

we found that to support development of this tool, NNSA was revising its 

work breakdown structure for its program to operate and maintain 

weapons facilities and infrastructure to ensure (1) that activities 

associated with the program were identified and (2) that the costs of 

these activities could be identified.35 In 2012, we concluded that this type 

of tool could help NNSA obtain the basic data it needs to make informed 

management decisions, determine return on investment, and identify 

opportunities for cost saving.36

 

34The Office of Defense Programs accounted for 54 percent of the President’s fiscal year 

2013 budget request for NNSA. 

For example, the tool included a 

35GAO-10-582. 

36GAO, National Nuclear Security Administration: Observations on NNSA’s Management 

and Oversight of the Nuclear Security Enterprise, GAO-12-473T (Washington, D.C.: Feb. 

16, 2012). 
 

Page 18 GAO-13-510T

mechanism to identify when decisions on resource trade-offs must be 

made if contractor-developed budget estimates for program requirements 

exceed the budget targets NNSA provided for those programs. Further, 

NNSA officials stated that they eventually plan to use this tool to compare 

budget estimates of program activities with the amounts the programs 

ultimately expended.37

While development of this tool is positive, our ongoing work for this 

Subcommittee on cost estimating has identified that at least one NNSA 

M&O contractor has acknowledged that weaknesses in NNSA’s planning 

and budgeting have led to diminished credibility with the Department of 

Defense (DOD) and Congress that need to be addressed in the nearterm. As such, DOD, in collaboration with NNSA, established an effort in 

January 2012 to balance the resources and requirements for the U.S. 

nuclear security enterprise with its budget needs for fiscal years 2014 to 

2018, particularly where DOD has allocated funds to NNSA to augment 

the agency’s budget in support of DOD requirements.

We learned in March of this year, as part of our 

work to follow up on recommendations made in our June 2010 report, that 

the tool is still in development and that NNSA has a pilot project under 

way to enhance the tool to provide full PPBE reporting for the B61 life 

extension program.

38

 

37

This effort to 

examine NNSA’s resources and requirements is being conducted by 

DOD’s Office of Cost Assessment and Program Evaluation (CAPE), 

which is tasked, among other things, with ensuring that the costs of DOD 

programs are presented accurately and completely. Among the CAPE’s 

early findings has been to question NNSA’s cost estimate for its life 

extension program for the B61 bomb. According to NNSA officials, the 

CAPE’s $10.1 billion July 2012 independent cost assessment for this 

program was $2.2 billion higher than the cost estimate NNSA included in 

its Weapon Design and Cost Report. The CAPE identified several 

GAO-12-806. 

38In 2010, the Secretaries of Defense and Energy signed a memorandum of agreement 

outlining budget commitments between the two agencies to modernize the nuclear 

weapons infrastructure of the United States and strengthen aspects of stockpile 

management. The agreement established that DOD would work to transfer to DOE $5.7 

billion of budget authority in fiscal years 2011 through 2015 to support specific NNSA 

programs—such as the life extension program for the W76 warhead—and projects, such 

as the Uranium Processing Facility discussed above. The recently released President’s 

Budget for Fiscal Year 2014 provides annual estimates from fiscal year 2015 through 

2023 for the amount by which DOD’s budget authority will decrease and NNSA’s will 

increase, totaling $14.8 billion. 
 

Page 19 GAO-13-510T

differences in assumptions that account for the difference between the 

two estimates. Additionally, the CAPE cited process issues related to 

NNSA’s cost estimate, including a lack of historical data on the costs of 

previous life extension programs and a lack of a detailed program 

definition. These are the same types of issues we identified in our June 

2010 and July 2012 reports.

Preliminary observations from our ongoing work for this Subcommittee on 

DOE cost estimating show that DOE and NNSA may lack specific costestimating requirements or guidance for programs. We have conducted 

initial meetings with the managers of several large NNSA programs to 

determine what requirements and guidance are used to generate cost 

estimates for the work in their programs. These programs include the 

Plutonium Disposition Program in NNSA’s Office of Defense Nuclear 

Nonproliferation as well as the B61 Life Extension Program and the 

Science Campaigns in NNSA’s Office of Defense Programs. NNSA 

officials responsible for the Plutonium Disposition Program told us they 

have constructed a life cycle cost estimate for the overall program, but 

that there is no (1) DOE or NNSA requirement that would prescribe how 

such an estimate should be developed or (2) requirement for an 

independent review of this estimate. An independent review of such an 

estimate is important given the magnitude of some of DOE’s and NNSA’s 

larger programs—for example, the current life cycle cost estimate for the 

Plutonium Disposition Program is more than $23 billion. Similarly, NNSA 

officials responsible for the B61 Life Extension Program told us that in 

constructing a cost estimate for the program they consulted guidance, 

including DOE’s project management order, but DOE and NNSA do not 

specify detailed cost estimating methodologies. Unlike the Plutonium 

Disposition Program, however, the estimate for this program has 

undergone several reviews, including by the CAPE. NNSA officials in the 

Science Campaigns told us that their activities are ongoing in nature 

rather than a more traditional project or program that has a definitive start 

and end date and, as a result, its cost estimates are prepared by way of 

the annual budget formulation process and prepared consistently with 

departmental budget formulation guidance and supplemental NNSA 

guidance. Our ongoing work will continue to assess these issues to 

determine how cost estimates are generated for NNSA programs and the 

extent to which any requirements and guidance for these activities align 

with cost estimating best practices.

We plan to report on this ongoing work later this year.
 

Page 20 GAO-13-510T

Chairman Udall, Ranking Member Sessions, and Members of the 

Subcommittee, this completes my prepared statement. I would be 

pleased to respond to any questions you may have at this time.

If you or your staff members have any questions about this testimony, 

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 statement. GAO staff who made key 

contributions to this testimony are Allison B. Bawden and Daniel J. 

Feehan, Assistant Directors, and Michael Meleady, Timothy Persons, 

Cheryl Peterson, Karen Richey, Peter Ruedel, Rebecca Shea, Joseph 

Thompson, and Jack Warner.

GAO Contact and 

Staff 

Acknowledgments 

(361483)
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