GAO 

United States Government Accountability Office

Report to the Subcommittee on Energy 

and Water Development, Committee on 

Appropriations, House of 

Representatives 

DEPARTMENT OF 

ENERGY 

Actions Needed to 

Develop High-Quality 

Cost Estimates for 

Construction and 

Environmental 

Cleanup Projects 

January 2010 

GAO-10-199 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

January 2010

DEPARTMENT OF ENERGY 

Actions Needed to Develop High-Quality Cost 

Estimates for Construction and Environmental 

Highlights of GAO-10-199, a report to the Cleanup Projects

Subcommittee on Energy and Water 

Development, Committee on 

Appropriations, House of Representatives 

The Department of Energy (DOE) 

spends billions of dollars on 

construction projects—those that 

maintain nuclear weapons, conduct 

research, and process nuclear 

waste—and projects that clean up 

nuclear and hazardous wastes at 

DOE’s sites; these projects are 

largely executed by contractors. 

DOE has struggled to keep these 

projects within cost and schedule 

estimates. GAO was asked to 

assess (1) DOE’s cost-estimating 

policies and guidance, (2) the 

extent to which selected projects’ 

cost estimates reflect best 

practices compiled in GAO’s costestimating guide, and (3) DOE’s 

recent actions to improve cost 

estimating. GAO reviewed relevant 

documents, including support for 

cost estimates at three major 

construction projects—those 

costing $750 million or more—and 

one environmental cleanup project, 

and interviewed DOE officials. 

What GAO Recommends

GAO is making six 

recommendations to improve 

DOE’s cost estimating. Among 

other things, GAO recommends 

that DOE (1) ensure its new policy 

and guide fully reflect costestimating best practices, in part by 

requiring independent cost 

estimates (ICE) for its major 

projects, (2) create a centralized, 

independent cost-estimating 

capability within the department, 

and (3) conduct ICEs for those 

major projects that have not 

received one. In commenting on a 

draft of this report, DOE generally 

agreed with GAO’s 

recommendations. 

DOE has not had a policy that establishes standards for cost estimating in 

place for over a decade, and its guidance is outdated and incomplete, making 

it difficult for the department to oversee the development of high-quality cost 

estimates by its contractors. DOE’s only cost-estimating direction resides in 

its project management policy that does not indicate how cost estimates 

should be developed. In addition, DOE’s outdated cost-estimating guide 

assigns responsibilities to offices that no longer exist and does not fully 

include most of the best practices from government and industry in GAO’s 

cost-estimating guide. Lacking a documented policy and associated guidance 

that contain best practices, DOE does not have appropriate internal controls 

in place that would allow its project managers to provide contractors a 

standard method for building high-quality cost estimates. DOE has drafted a 

new cost-estimating policy and guide but the department expects to miss its 

deadline for issuing them by more than a year. 

The cost estimates for the four projects we reviewed did not exemplify the 

four characteristics of high-quality cost estimates as established by best 

practices—credible, well-documented, accurate, and comprehensive. The four 

estimates lacked credibility because DOE did not sufficiently identify the level 

of confidence associated with the estimates, adequately examine the effects of 

changing key assumptions on the estimates, or cross-check the estimates with 

an ICE—an estimate created by an entity with no vested interest in the 

project. In addition, the four estimates were only partially documented, in part 

because the projects did not ensure that the contractors thoroughly 

documented the details of how they developed the estimates. Moreover, all 

four estimates lacked accuracy because they were not based on a reliable 

assessment of costs most likely to be incurred. Finally, none of the four 

estimates were comprehensive; for example, three of the estimates did not 

include costs associated with the full life cycle of the projects, and the 

estimating teams’ expertise and compositions did not reflect best practices. 

Although DOE has undertaken some actions to improve cost estimating, the 

department may undercut their impact by limiting the role and effectiveness 

of its new Office of Cost Analysis (OCA). In contrast to best practices and 

DOE’s stated mission for OCA, DOE’s draft cost-estimating policy does not 

require OCA to conduct ICEs at project milestones unless requested by senior 

management. As a result, major projects are likely to continue to be approved 

without this independent check, limiting their credibility. Further, locating 

OCA apart from the existing DOE office that performs a similar but broader 

review function may lead to duplication of efforts and does not reflect best 

practices. That is, centralizing a cost-estimating team, rather than maintaining 

separate teams, facilitates sharing resources and using standard processes. 

Finally, placing OCA under the office that manages DOE’s finances may limit 

OCA’s independence and its access to relevantly skilled staff. It is also 

inconsistent with Congress’ recent action to establish an independent costestimating office at the Department of Defense, whose project management 

responsibilities are similar to those of DOE. 

View GAO-10-199 or key components.

For more information, contact Gene Aloise at 

(202) 512-3841, or aloisee@gao.gov. 
Page i GAO-10-199 

Contents 

Letter 1

Background 3 

DOE Lacks a Cost-Estimating Policy and Its Guidance Is Outdated 

and Incomplete, Impeding the Department’s Development of 

High-Quality Cost Estimates 8 

The Four Project Cost Estimates We Reviewed Were Not HighQuality 12 

DOE Has Begun Taking Actions to Improve Its Cost Estimating, 

but Actions May Be Hampered by Limited Role and 

Organizational Location of New Cost Estimating Office and Lack 

of Coordination between DOE and Its Program Offices 21 

Conclusions 27 

Recommendations for Executive Action 28 

Agency Comments and Our Evaluation 29 

Appendix I Scope and Methodology 32 

Appendix II Four Characteristics of a High-Quality Cost 

Estimate with Their Corresponding 12 Key 

Cost-Estimating Steps 34 

Appendix III Assessments of Four Project Cost Estimates 

Reviewed 35 

Appendix IV Comments from the Department of Energy 55 

Appendix V GAO Contact and Staff Acknowledgments 58 

Tables 

Table 1: Extent to Which DOE’s Cost-Estimating Guide Contains 

12 Key Steps for Developing High-Quality Cost Estimates 10 

Table 2: Cost-Estimating Criteria for NSLS-II 37 

 Department of Energy 
Table 3: Cost-Estimating Criteria for Uranium Processing Facility 43 

Table 4: Cost-Estimating Criteria for Salt Waste Processing Facility 48 

Table 5: Cost-Estimating Criteria for EM Cleanup at Y-12 53 

Figures 

Figure 1: Extent to Which Four Cost Estimates We Reviewed Were 

Credible, Well-Documented, Accurate, and 

Comprehensive 12 

Figure 2: National Synchrotron Light Source–II 36 

Figure 3: Uranium Processing Facility 42 

Figure 4: Salt Waste Processing Facility 47 

Figure 5: EM Cleanup at Y-12 52 

Abbreviations 

CFO Chief Financial Officer 

DOD Department of Defense 

DOE Department of Energy 

EM Office of Environmental Management 

ICE independent cost estimate 

NNSA National Nuclear Security Administration 

NSLS National Synchrotron Light Source 

OCA Office of Cost Analysis 

OECM Office of Engineering and Construction 

Management 

Science Office of Science 

WBS work breakdown structure 

Weapons Systems Act Weapons Systems Acquisition Reform Act of 

2009 

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Page ii GAO-10-199 Department of Energy
Page 1 GAO-10-199 

 

United States Government Accountability Office

Washington, DC 20548 

 

January 14, 2010 

The Honorable Peter J. Visclosky 

Chairman 

The Honorable Rodney P. Frelinghuysen 

Ranking Member 

Subcommittee on Energy and Water Development 

Committee on Appropriations 

House of Representatives 

The Department of Energy (DOE) is the largest civilian contracting agency 

in the federal government, spending about 90 percent of its annual budget 

to operate its laboratories, nuclear production facilities, and 

environmental cleanup sites. DOE’s current projects include over 100 

construction projects—those that, among other things, help maintain the 

nuclear weapons stockpile, conduct research and development, and 

process nuclear waste so it can be disposed of—at an estimated total cost 

of nearly $90 billion and more than 90 nuclear and hazardous waste 

cleanup projects at an estimated total cost of more than $220 billion. 

DOE’s two largest program offices, the Office of Environmental 

Management (EM) and the Office of Science (Science), and the National 

Nuclear Security Administration (NNSA), a separately organized agency 

within DOE,1

 manage the vast majority of this work, which is almost 

entirely conducted by contractors at DOE’s sites. 

For years, DOE has had difficulty managing its contractor-run projects, 

and, despite repeated recommendations from us and others regarding 

specific steps that would improve project management, DOE continues to 

struggle to keep its projects within their cost, scope, and schedule 

estimates. For example, we reported in March 2007 that 8 of DOE’s 12 

major construction projects had exceeded their initial cost estimates by a 

total of nearly $14 billion;2

 we also reported in September 2008 that 9 of 

1

NNSA was created by the National Defense Authorization Act for Fiscal Year 2000, Pub. L. 

No. 106-65 (1999), with responsibility for the nation’s nuclear weapons, nonproliferation, 

and naval reactors programs. 

2

Major construction projects are those with a total cost of more than $750 million; major 

cleanup projects are those whose costs exceed $1 billion in the near term—usually a 5-year 

window of the project’s total estimated life cycle. See GAO, Department of Energy: Major 

Construction Projects Need a Consistent Approach for Assessing Technology Readiness 

to Help Avoid Cost Increases and Delays, GAO-07-336 (Washington, D.C.: Mar. 27, 2007). 

 Department of Energy 
 

the 10 major EM cleanup projects had experienced cost increases and that 

DOE had estimated that it needed an additional $25 billion to $42 billion to 

complete these projects over the initial cost estimates.3

 Because of DOE’s 

history of inadequate management and oversight of its contractors, we 

have included DOE contract and project management on our list of 

government programs at high risk for fraud, waste, abuse, and 

mismanagement since the list’s inception in 1990.4

 In response to its 

continued presence on our list, in 2008, DOE examined the root causes of 

its contract and project management problems and found that 

independent cost estimating was one of the top five areas needing 

improvement. 

In March 2009, we issued a cost-estimating guide, a compilation of costestimating best practices drawn from across industry and government.5

Specifically, the cost guide identifies four characteristics of a highquality—that is, reliable—cost estimate. Such an estimate would be 

credible, well-documented, accurate, and comprehensive.6

 In addition, the 

guide lays out 12 key steps that, when followed correctly, should result in 

high-quality cost estimates. 

In this context, you asked us to assess cost estimating at DOE. This report 

determines (1) the extent to which DOE’s policies and guidance support 

the creation of high-quality cost estimates, (2) the extent to which cost 

estimates of selected DOE projects reflect the four key characteristics of 

high-quality cost estimates, and (3) the actions DOE has taken recently to 

improve its cost estimating. 

For the first objective, we analyzed the policies and guidance in effect 

across DOE and compared them with the best practices identified in 

GAO’s cost-estimating guide. We also interviewed several project 

 

3

GAO, Nuclear Waste: Action Needed to Improve Accountability and Management of 

DOE’s Major Cleanup Projects, GAO-08-1081 (Washington, D.C.: Sept. 26, 2008). 

4

Because of progress DOE has made in this area since 2007, in 2009 we narrowed the scope 

of this high-risk area to focus on NNSA and EM, although projects across DOE continue to 

receive scrutiny. 

5

GAO, GAO Cost Estimating and Assessment Guide: Best Practices for Developing and 

Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: March 2009). 

6

In the context of our cost guide, a cost estimate is the summation of individual cost 

elements, using established methods and valid data, to estimate the future costs of a 

project, based on what is known today. 

Page 2 GAO-10-199 Department of Energy
 

managers to identify the policies and guidance they followed when 

overseeing their contractors’ work in generating their cost estimates. For 

the second objective, we reviewed the most recent total project cost 

estimates from each of four selected DOE projects, including NNSA: three 

major construction projects—Science’s National Synchrotron Light 

Source-II at Brookhaven National Laboratory in New York, NNSA’s 

Uranium Processing Facility at Y-12 National Security Complex in 

Tennessee, and EM’s Salt Waste Processing Facility at the Savannah River 

Site in South Carolina—and one environmental cleanup project, EM’s 

decontamination and decommissioning project for the Y-12 National 

Security Complex in Tennessee (EM Cleanup at Y-12). We compared the 

methods used to develop these estimates with cost-estimating best 

practices. For the third objective, we reviewed documentation of proposed 

and recently implemented DOE actions and evaluated it against the best 

practices in our cost-estimating guide. We also interviewed departmentlevel management officials, including NNSA, and officials from EM and 

Science. Appendix I contains additional information on our scope and 

methodology. 

We conducted this performance audit from September 2008 to January 

2010, 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. 

DOE relies on its contractors to operate its sites and carry out its diverse 

missions, including developing, maintaining, and securing the nation’s 

nuclear weapons capability; cleaning up the nuclear and hazardous wastes 

resulting from more than 50 years of weapons production; and conducting 

basic energy and scientific research, such as mapping the human genome. 

This mission work is carried out under the direction of DOE’s program 

offices, including EM and Science, and NNSA. 

Background 

Project cost estimates are a necessary part of DOE’s work for many 

reasons—for example, to support decisions about funding one project 

over another, to evaluate resource requirements at key project milestones, 

and to develop performance baselines. Having a realistic, up-to-date 

estimate of projected costs—one that is continually revised as the project 

matures—supports the development of annual budget requests, supports 

Page 3 GAO-10-199 Department of Energy
 

effective resource allocation, and increases the probability of a project’s 

success. 

DOE’s Project 

Management Order 

In 2000, DOE issued Order 413, which established a process for managing 

projects, from identification of need through project completion.7

 This 

project management order applies to construction projects—projects that 

build large complexes that often house unique equipment and technologies 

such as those that process waste or other radioactive material—and 

environmental cleanup projects, also referred to as “capital assets.” 

Specifically, the order establishes five major milestones—or “critical 

decision points”—that span the life of a project. 

• Milestone 0: Approve mission need. DOE formally establishes the project 

and begins the process of conceptual planning and identifying a range of 

alternative approaches to meet the identified need. 

• Milestone 1: Approve an approach and cost range. At this milestone, DOE 

completes the conceptual design, selects its 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. For construction projects, the cost estimate is 

now a point estimate and no longer a range; for cleanup projects, the cost 

estimate is also a point estimate but includes only the near-term scope of 

the project, covering about a 5-year period. 

• Milestone 3: Approve the start of construction. At this milestone, design 

and engineering are essentially complete and have been reviewed, and 

project construction or implementation begins. 

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

construction projects, at this milestone DOE completes the project and 

begins the transition to operations. For cleanup projects, this milestone 

represents completion of the project’s activities and turnover of 

responsibility for management to another organization. 

 

7

DOE Order 413.3A was approved in 2006, and changed in 2008. This order cancels DOE 

Order 413.3, which was issued in 2000. For this report, we use Order 413 to refer to the 

order in effect, unless otherwise specified. 

Page 4 GAO-10-199 Department of Energy
 

Order 413 specifies the requirements that must be met, along with the 

documentation necessary, to move past each 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 

Order 413 through additional guidance. 

DOE’s project management order also requires that the department 

conduct a variety of independent reviews of projects at the major 

milestones. For example, external independent reviews examine a 

project’s estimated cost, scope, and schedule and are intended to provide 

reasonable assurance that the project can be successfully executed on 

time and within budget. These reviews are to be conducted by DOE’s 

Office of Engineering and Construction Management (OECM)—an 

independent office outside the program offices— at milestone 2 for 

projects that cost $100 million or more and at milestone 3 for the major 

projects. For projects estimated to cost less than $100 million, Order 413 

requires independent project reviews, which serve a similar function. 

Independent project reviews are required to be conducted at milestones 2 

and 3 by reviewers from the respective program office or NNSA, who have 

no association with the project being reviewed. Order 413 also requires a 

technical independent project review for nuclear projects approaching 

milestone 1; this review focuses on ensuring that the project’s design 

integrates safety and security measures. 

In validating a project’s cost estimate as part of an external independent 

review or independent project review, reviewers have a number of 

methods available to them. According to the best practices compiled in 

our cost guide, the most rigorous method is the independent cost estimate 

(ICE). Generated by an entity that has no stake in the approval of the 

project, an ICE provides an independent view of expected project costs. 

An ICE is usually developed based on the same technical parameters as 

the project team’s estimate, so the estimates are comparable. Conducting 

an ICE is especially important at major milestones because it provides 

senior decision makers with a more objective assessment of the likely cost 

of a project. A second, less rigorous method for validating a project’s cost 

estimate—an independent cost review—focuses on examining the 

estimate’s supporting documentation and interviewing relevant staff. 

Moreover, independent cost reviews address the cost estimate’s highvalue, high-risk, and high-interest aspects without evaluating the 

remainder of the estimate. 

Page 5 GAO-10-199 Department of Energy
 

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

developing cost estimates, has changed substantially several times over 

the past 30 years. In 1982, we reported that DOE lacked sufficient 

guidance to provide to its contractors for developing cost estimates.8

 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 

cost-estimating 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. DOE has acknowledged 

that some of its actions likely went too far in removing oversight of the 

work of its contractors, and, over the past several years, the department 

has taken steps to reintroduce some cost-estimating oversight functions. 

However, some of these efforts were never officially implemented or were 

abandoned. For example, DOE proposed to create a “cost engineering 

group” in 2002 with a mission to improve DOE’s cost estimating, but the 

effort was never fully implemented. 

Evolution of Cost 

Estimating at DOE 

In late 2007, DOE initiated an effort to address its contract and project 

management challenges, which involved identifying issues that 

significantly impeded the department’s ability to complete projects within 

budget and on schedule. DOE undertook this exercise—known as a root 

cause analysis—as part of its effort to be removed from our list of 

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

senior staff identified an insufficient independent cost estimating 

capability as one of the top five reasons that DOE was unable to complete 

projects on cost and schedule—the other top reasons were inadequate 

front-end planning, biased identification and management of risks 

associated with projects, failure to request and obtain adequate funding 

for projects, and inadequate federal personnel, including cost estimators. 

DOE officials identified root causes associated with the department’s 

challenges—for cost estimating, these included a lack of policy or 

standards, lack of personnel with appropriate skills, and lack of databases 

with historical cost information. In mid-2008, DOE adopted a corrective 

 

8

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

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

Page 6 GAO-10-199 Department of Energy
 

action plan designed to mitigate the issues identified in the root cause 

analysis. The corrective action plan includes a set of actions designed to 

establish and implement a “federal independent government cost 

estimating capability” to address the issues related to cost estimating. 

Cost-Estimating Best 

Practices 

Drawing from federal cost-estimating organizations and industry, our costestimating guide includes four characteristics of a high-quality cost 

estimate that management can use for making informed decisions.9

 A highquality cost estimate is credible, well-documented, accurate, and 

comprehensive. Following are some of the criteria that the cost-estimating 

guide cites as central to achieving these characteristics. An estimate is 

• credible when it has been cross-checked with independent cost estimates, 

the level of confidence associated with the point estimate has been 

identified,10 and a sensitivity analysis has been conducted—that is, the 

project has examined the effect of changing one assumption related to 

each project activity while holding all other variables constant in order to 

identify which variable most affects the cost estimate; 

• well-documented when supporting documentation is accompanied by a 

narrative explaining the process, sources, and methods used to create the 

estimate and contains the underlying data used to develop the estimate; 

• accurate when it is not overly conservative or too optimistic and based on 

an assessment of the costs most likely to be incurred; and 

• comprehensive when it accounts for all possible costs associated with a 

project, is structured in sufficient detail to ensure that costs are neither 

omitted nor double-counted, and the estimating teams’ composition is 

commensurate with the assignment. 

In addition, our cost guide lays out 12 key steps that should result in highquality cost estimates. The guide also contains hundreds of best practices 

drawn from across industry and government for carrying out these steps. 

 

9

GAO-09-3SP.

10A point estimate is the best guess or most likely value for the cost estimate, given the 

underlying data. The level of confidence for the point estimate is the probability that the 

point estimate will actually be met. For example, if the confidence level for a point estimate 

is 80 percent, there is an 80 percent chance that the final cost will be at or below the point 

estimate and a 20 percent chance that costs will exceed the point estimate. 

Page 7 GAO-10-199 Department of Energy
 

Appendix II shows how these 12 key steps relate to each characteristic of 

a high-quality cost estimate. 

DOE has not had a cost-estimating policy in place for more than 10 years, 

one factor that makes it difficult for the department to oversee the 

development of high-quality cost estimates. A cost-estimating policy would 

establish roles and responsibilities for those preparing, reviewing, and 

updating all types of cost estimates, including independent cost estimates. 

A policy would also identify when different cost estimates would be 

conducted, while also serving as a mechanism for providing standard costestimating procedures to agency officials and contractors. As we have 

previously reported, the lack of a cost-estimating policy at other agencies 

has led to cost estimates of poor quality.11

The only direction DOE currently provides related to project cost 

estimating is contained in its project management order, which states that 

cost estimates should be developed and reviewed at most of the major 

milestones that span the life of a project. For example, the order simply 

states that the performance baseline developed for milestone 2 should be a 

“definitive cost estimate,” encompassing the total project cost; it does not 

specify how the cost estimate should be developed. In addition, the order 

sets out requirements for the type of cost estimate project teams need to 

produce at each milestone—for example, ranges versus detailed point 

estimates—but does not identify which phases of a project should be 

included in each estimate (e.g., research and development, operations or 

decommissioning) or how the estimate should be maintained throughout 

the life of the project. Moreover, guidance accompanying the order 

contains a description of the process a project team could follow when 

developing the cost portion of a performance baseline, but that description 

is limited as well. For example, the guidance discusses the importance of 

including certain information in the estimate’s supporting documentation, 

such as the cost-estimating methodology used, but does not offer direction 

on how to choose the appropriate methodology. 

DOE Lacks a CostEstimating Policy and 

Its Guidance Is 

Outdated and 

Incomplete, Impeding 

the Department’s 

Development of HighQuality Cost 

Estimates 

 

11GAO, Information Technology: FBI Following a Number of Key Acquisition Practices 

on New Case Management System, but Improvements Still Needed, GAO-07-912

(Washington, D.C.: July 30, 2007); Telecommunications: GSA Has Accumulated Adequate 

Funding for Transition to New Contracts but Needs Cost Estimation Policy, GAO-07-268

(Washington, D.C.: Feb. 23, 2007); Homeland Security: Recommendations to Improve 

Management of Key Border Security Program Need to Be Implemented, GAO-06-296

(Washington, D.C.: Feb. 14, 2006). 

Page 8 GAO-10-199 Department of Energy
 

Regarding the direction on reviewing cost estimates, while DOE’s project 

management order specifies that its projects receive either an external 

independent review or an independent project review prior to approval of 

both milestone 2 (the approval of the performance baseline) and milestone 

3 (the approval of the start of construction), the order is not clear on when 

an external independent review should include an ICE, and the order is 

silent on the method to be used for an independent project review. 

Although, as explained in our cost guide, an ICE is considered a best 

practice, the order states that ICEs should be done only for major projects 

where “complexity, risk, cost or other factors create a significant cost 

exposure” for the department; however, it does not define what is meant 

by “significant.” Moreover, even though DOE officials have acknowledged 

that the department’s major projects would benefit from ICEs, OECM has 

not conducted them, and instead has traditionally examined project cost 

estimates through independent cost reviews, a less rigorous approach. We 

recently reported that the usefulness of these independent cost reviews is 

questionable given that 4 of the 10 DOE major cleanup projects we 

reviewed in 2008 had significantly increased their cost estimates even 

though these reviews had found the estimates were valid.12 Moreover, the 

project management order does not require an independent review of any 

project’s cost estimate prior to milestone 1, even though, according to 

senior DOE officials, there is significant risk to the project at this early 

milestone given the large number of unknowns that could affect the 

project team’s ability to complete the project within cost and on schedule. 

Although DOE lacks a cost-estimating policy, the cost-estimating guide it 

developed in the 1990s remains in effect;13 this guide is out of date and 

lacks important components. For example, the guide assigns 

responsibilities to offices that no longer exist and is based on policies that 

have been canceled. More specifically, the guide’s description of DOE’s 

project management system is based on the policy that preceded Order 

413, and the guide states that it serves as a companion to DOE’s defunct 

cost-estimating policy. In addition, the guide does not contain sufficient 

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

successfully create a high-quality cost estimate. Table 1 shows the extent 

to which DOE’s guide contains information on the steps identified as best 

practices for developing high-quality cost estimates. 

 

12GAO-08-1081. 

13DOE, Cost Estimating Guide, DOE G 430.1-1, 3/28/1997. 

Page 9 GAO-10-199 Department of Energy
 

Table 1: Extent to Which DOE’s Cost-Estimating Guide Contains 12 Key Steps for Developing High-Quality Cost Estimates 

12 key steps Fully Mostly Partially Somewhat Not 

1. Define estimate’s purpose, scope, and schedule ●

2. Develop the estimating plan ●

3. Define the program ●

4. Determine the estimating approach ●

5. Identify ground rules and assumptions ●

6. Obtain the data ●

7. Develop the point estimate and compare it to an independent 

cost estimate ●

8. Conduct sensitivity analysis ●

9. Conduct risk and uncertainty analysis ●

10. Document the estimate ●

11. Present the estimate to management ●

12. Update the estimate to reflect actual costs and changes ●

Source: GAO Analysis of DOE Guide 430.1-1 (1997). 

Note: The ratings we used in this analysis are as follows: “Fully” means that the guide included 

information that satisfied the criterion; “Mostly” means that the guide included the majority of the 

information to satisfy the criterion; “Partially” means that the guide included information satisfying part 

of the criterion; “Somewhat” means that the guide included information satisfying a minor part of the 

criterion; and “Not” means that the guide did not include information that satisfied the criterion. 

Specifically, DOE’s guide contains all the information necessary to fully 

carry out 2 of the 12 key steps identified in our cost guide as necessary for 

developing high-quality cost estimates: defining the estimate’s purpose, 

scope, and schedule and developing an estimating plan. Defining the 

estimate’s purpose, scope, and schedule is important to ensure that the 

estimate supports the department’s missions, goals, and strategic 

objectives; that it will meet the customer’s needs; and that there will be 

sufficient time to develop the estimate. In addition, developing a written 

estimating plan that details a master schedule of specific tasks, 

responsible parties, and due dates helps ensure that all stakeholders are 

involved and aware of their responsibilities and deadlines. Moreover, 

although the guide includes varying degrees of information for mostly, 

partially, or somewhat carrying out 8 of the 12 steps, it contains no 

specifics about 2 other key steps: conducting a sensitivity analysis and 

presenting the estimate to management for approval. A sensitivity analysis 

is important because it determines the effects of changing key 

assumptions underlying the cost estimate and allows project managers to 

develop appropriate mitigation measures, where warranted. In addition, 

according to best practices, management should be briefed on how a cost 

Page 10 GAO-10-199 Department of Energy
 

estimate was developed before it is approved, and that briefing should 

include risks associated with the underlying data and methods. While 

DOE’s project management order identifies the decision maker 

responsible for approving project cost estimates, the DOE guide does not 

provide information on what to include when briefing management. 

Without a documented cost-estimating policy and related guidance, DOE 

project managers do not have a standard method to provide to their 

contractors to help them build high-quality cost estimates or for DOE to 

use as a basis for evaluating those estimates. According to the Standards 

for Internal Control in the Federal Government, federal agencies are to 

employ internal control activities, such as reviews by management, to help 

ensure that management’s directives are carried out and to determine if 

agencies are effectively and efficiently using resources.14 However, DOE 

project managers do not have a documented standard to use when 

comparing actual performance of its contractors—in terms of the cost 

estimates the contractors deliver—to planned or expected results. As a 

result, for the four projects we reviewed, contractors had developed cost 

estimates using their own company policies, along with the minimal 

direction provided by DOE’s project management order, and some of the 

project managers we spoke with looked elsewhere for guidance. For 

example, one DOE project manager said he still used the cost-estimating 

policy DOE canceled in the mid-1990s to help oversee the contractor; 

another project manager said he relied on cost-estimating guidance that 

had been drafted but never formalized. Specifically, in 2004, a team drafted 

an update to DOE’s cost-estimating guide that, according to one of its 

authors, was ready to be submitted for agency-wide approval when seniorlevel support for it evaporated. According to this official, although it was 

never officially adopted, the draft guide is still shared among DOE staff, 

especially those within EM. According to the corrective action plan DOE 

developed to address its contract and project management issues, it has 

identified the need to update its cost-estimating guide, as well as to reestablish a cost-estimating policy. According to DOE officials, it has begun 

drafting the new policy and guide. 

 

14GAO, Standards for Internal Control in the Federal Government, GAO/AIMD-00-21.3.1 

(Washington, D.C.: Nov. 1999). 

Page 11 GAO-10-199 Department of Energy
 

The Four Project Cost 

Estimates We 

Reviewed Were Not 

High-Quality 

Our analysis of the four DOE project cost estimates we reviewed found 

that they did not fully achieve the four characteristics of high-quality 

estimates as identified by the professional cost-estimating community and 

documented in our cost guide—credible, well-documented, accurate, and 

comprehensive. More specifically, the four estimates were only somewhat 

credible and only partially well-documented, accurate, and 

comprehensive, as shown in figure 1. Appendix III contains more 

information about each project, including the project cost estimate, stage 

of development, and how well the project followed the 12 key steps of the 

cost-estimating process that lead to high-quality estimates. 

Figure 1: Extent to Which Four Cost Estimates We Reviewed Were Credible, WellDocumented, Accurate, and Comprehensive 

Not

Somewhat

Mostly

Fully

Projects and characteristics

Rating

Source: GAO analysis.

Partially

Salt Waste

Processing

Facility

Well-documented

Credible

Accurate

Comprehensive

EM Cleanup

at Y-12

Well-documented

Credible

Accurate

Comprehensive

National

Synchrotron

Light Source-II

Well-documented

Credible

Accurate

Comprehensive

Uranium

Processing

Facility

Well-documented

Credible

Accurate

Comprehensive

Note: The ratings we used in this analysis are as follows: “Fully” means that the program provided 

documentation that satisfied the criterion; “Mostly” means that the program provided the majority of 

the documentation to satisfy the criterion; “Partially” means that the program provided documentation 

satisfying part of the criterion; “Somewhat” means that the program provided documentation 

satisfying a minor part of the criterion; and “Not” means that the program did not provide 

documentation that satisfied the criterion. 

The Four Project Cost 

Estimates We Reviewed 

Were Somewhat Credible 

The cost estimates of the four projects we reviewed lacked credibility 

because DOE did not sufficiently cross-check the projects’ cost estimates 

with ICEs, use best practices when identifying the level of confidence 

associated with the estimates, or sufficiently analyze project sensitivities. 

More specifically, DOE did not conduct ICEs for three of the four 

projects—National Synchrotron Light Source-II, Uranium Processing 

Page 12 GAO-10-199 Department of Energy
 

Facility, and EM Cleanup at Y-12. Instead, these three projects receive

independent cost reviews as part of external independent reviews or 

independent project reviews. An independent cost review is less rigorous 

than an ICE because it addresses the cost estimate’s high-value, high-risk, 

and high-interest aspects without evaluating the remainder of the estimate.

In some cases, the project teams or program offices conducted additio

reviews beyond what was required under DOE’s project management 

order. For example, a team from a number of DOE’s national labs and 

Science officials performed a peer review of the National Synchrotron 

Light Source-II estimate, and its contractor hired a firm to conduct two 

independent estimates of the construction portion of the project’s scope, 

though not for the entire project. These additional reviews add value, b

are not as independent as the best practice—although the contractor 

obtained an independent estimate for the construction portion, it was 

conducted by an entity without a stake in the

d 

nal 

ut 

not 

 approval of the project, 

compromising the estimate’s independence. 

E 

e 

h 

s 

m 

ks 

In contrast, although DOE conducted an ICE at the fourth project, Salt 

Waste Processing Facility, after DOE’s Deputy Secretary requested it, DO

did not follow best practices when reconciling the ICE’s results with th

project team’s estimate, contributing to the project estimate’s lack of 

credibility. By extrapolating costs from a smaller scale, similar project 

already operational near the Salt Waste facility, the ICE team estimated 

the cost for the project could reach $2.7 billion, more than twice as much 

as the project team’s estimate of $1.3 billion. According to our cost guide, 

ICEs are usually higher and more accurate than baseline estimates, whic

are created by project teams; if a project’s estimate is close to an ICE’

results, one can be more confident that it is accurate. It is also a best 

practice that, after the ICE is completed, the ICE team and project tea

identify the major differences between the two estimates and, where 

possible, reconcile those differences; a synopsis of the estimates and their 

differences should then be provided to management. According to officials 

from the ICE team and the project team, this formal process did not occur.

The difference between the ICE and the project team’s estimate primarily

stemmed from the ICE’s incorporation of additional costs to cover ris

the ICE team felt were insufficiently addressed in the project team’s 

Page 13 GAO-10-199 Department of Energy
 

estimate.15 The ICE team provided the project with a high-level summ

of its findings but did not provide the supporting details of its estim

Based on the information provided, the project team increased its 

estimated total cost by $100 million. According to project officials, by 

increasing the estimate by this amount, the estimate included sufficient 

funding to mitigate the risks raised by the ICE team. Moreover, during

time DOE conducted the ICE, OECM conducted an independent cost 

review as part of its external independent review and, after taking the 

ICE’s conclusions into consideration, validated the project team’s final 

estimate of $1.3 billion. It is too soon to tell whether the risks id

the ICE will materialize; the project was approved to begin full 

construction in January 2009 and has had some challenges with quality 

assurance in constructing the foundation for the building, but accord

the project team, these is

ary 

ate. 

 the 

entified by 

ing to 

sues are not expected to have a significant 

impact on performance. 

gh 

c 

t 

 or 

ities. 

 

Additionally, the methods DOE used to identify the level of confidence

associated with the cost estimates for the four projects only partially 

reflected best practices, which limited the estimates’ credibility. Althou

each project conducted a risk analysis to identify the confidence level 

associated with its estimate—if calculated correctly, a confidence level 

tells the likelihood of the project being completed at or under a specifi

cost—none of the projects used best practices when constructing the

computer models used to support the risk analysis and the resulting 

confidence level.16 For example, one significant problem common across 

all four projects was that, when building their models, the projects did no

correlate—or link—different project activities that are dependent on

tied to one another. Correlation captures the fact that, for example, 

technical performance problems experienced by one activity could result

in unexpected design changes and unplanned testing for other activ

Similarly, a schedule slip experienced by one activity could have a 

 

n and 

acility once 

construction is complete. Even without these hot commissioning costs, the ICE was more 

than $1 billion higher than the project team’s estimate. 

15The $2.7 billion estimated cost from the ICE also included $360 million to cover costs 

associated with the demonstration phase of the project, in which a facility is turned o

tested to see whether it will work as designed. According to project officials, these costs 

are captured by a separate project that will fund the operation of the f

16Before conducting a risk analysis, each of the four projects identified risks associated 

with executing the project that could limit the project team’s ability to deliver the project 

on cost and schedule, such as increases in commodity prices, unexpected need for greater 

design complexity, or technology uncertainty. 

Page 14 GAO-10-199 Department of Energy
 

cascading effect on other activities, such as if a supplier delivers an ite

late, other scheduled deliveries could be missed, resulting in additio

cost. According to best practices, ignoring correlation, as the four projects

did, can significantly affect the results of a risk analysis, creating a false

sense of confidence in the resulting estimate. As a result, the confidence 

levels associated with the projects’ cost estimates—ranging from 80 

percent to 95 percent confidence—are likely overstated. 

A second problem with how the estimates’ levels of confidence were 

identified was that two of the projects did not use best practices in

determining their contingency reserves.

m 

nal 

e 

ed 

r 

 of the 

s 

t 

illion 

llion 

al 

 

17 According to best practices, th

difference in cost between the project team’s estimate and the desir

confidence level should determine the required contingency amount. Fo

example, if a project team estimates its cost and determines, through its 

risk analysis, that it has 50 percent confidence in completing the project 

for no more than that cost, in order to increase the confidence level

estimate, it should add contingency reserves based on the statistical 

output from the risk analysis.18 In contrast, two of the projects we 

reviewed did not add contingency reserves to their estimates using thi

method. For example, the Uranium Processing Facility contractor 

conducted a risk analysis in accordance with many best practices tha

showed that, by adding contingency reserves, the project would have 95 

percent confidence of success in completing the project with a $2.3 b

estimate. However, contrary to best practices, NNSA headquarters 

officials then added more than $1 billion in contingency to the contractor’s

estimate, bringing the high end of the project’s estimated cost range up to 

$3.5 billion. This billion-dollar “allowance” was added, according to a 

senior NNSA official, because the experts reviewing the project thought it 

would require significantly more than the project team’s $2.3 bi

estimate to complete the project, and NNSA did not want to exceed the

high end of its cost estimate range in the future. The allowance was 

supported by a memo outlining risks to the project it was intended to 

cover that were not included in the initial risk analysis, including materi

17Contingency reserves are funds that may be needed to cover potential cost increases 

stemming from a variety of project risks. 

18As we reported in our cost guide, how much contingency should be allocated to a 

program beyond the 50 percent confidence level depends on the program cost growth an 

agency is willing to risk. While no specific confidence level is considered a best practice, 

experts agree that project cost estimates should be budgeted to at least the 50 percent 

confidence level, but budgeting to a higher level (for example, 70 percent to 80 percent, or 

the mean) is now common practice. 

Page 15 GAO-10-199 Department of Energy
 

and commodity cost growth and schedule impacts associated with de

decision making or arrival of expected funds; the high-level natu

memo stands in sharp contrast to the detail involved in the project 

risk analysis. Further, because the risks in the memo were not 

incorporated into the project team’s risk analysis, the confidence level 

associated with the $3.5 billion high end of the estimate range is not 

known, leaving decision makers within DOE and Congress without a

sound basis for determining appropriate funding levels for the project. 

A third problem with how projects identified the level of confidence 

associated with their estimates was that two of the projects we 

reviewed—EM Cleanup at Y-12 and Uranium Processing Facility—

included contingency reserves in their cost estimates but their program

offices did not budget for all of it, limiting the funding available to cov

the costs associated with risks that may materialize once the project is 

under way. According to best practices, having adequate funding is 

paramount for optimal project execution, since it can take many months 

to obtain necessary funding to address an emergent issue. Without readily 

available risk funding, additional cost growth is likely. For example,

EM Cleanup at Y-12 project’s near-term cost estimate included more than 

$50 million in contingency reserves, but EM has not committed to funding

any of it. Without this contingency reserve available, according to the 

project baseline, the likelihood of completing the project’s near-term 

scope within its budget is 50 percent. As we previously reported, al

EM project managers build contingency funding into their near-term an

out-year estimates, EM management does not generally include fundin

its budget requests to cover contingency for clean

layed 

re of the 

team’s 

er 

 the 

though 

d 

g in 

up projects until after it 

is actually needed to address a problem. We also reported that this 

s cost 

1 

 

practice was likely a contributing factor to the cost increases and schedule 

delays recently experienced by EM’s major cleanup projects.19 Similarly, 

even though the approved upper end of Uranium Processing Facility’

estimate range is $3.5 billion, NNSA does not intend to include the $

billion allowance in the project’s budget.20 According to the memo 

explaining the allowance, if any of the risks covered by the allowance 

were to occur, they would be beyond NNSA’s budget parameters and 

would have to be funded on a case-by-case basis. 

 

19GAO-08-1081. 

20The cost estimate we reviewed of the Uranium Processing Facility project was a cost 

estimate range because the project’s most recently approved estimate was for milestone 1 

(the approval of an approach and cost range). 

Page 16 GAO-10-199 Department of Energy
 

Finally, none of the four projects conducted a sensitivity analysis, furt

undermining their estimates’ credibility. By conducting this analysis, the 

variable that most affects the cost estimate becomes more obvious, 

thereby allowing

her 

 project managers to develop risk mitigation steps 

specific to that variable. Because this analysis can help decision makers 

hoose among alternatives, it is especially important early in a project’s 

e 

ng 

age 

ary 

d the 

ded 

id 

y, cost estimators at Uranium Processing Facility did 

not collect evidence of all the data that supported costs contained in the 

e 

 likely 

ng 

The Four Project 

Estimates Were Only 

Partially Documented, 

Accurate, and 

Comprehensive 

c

life cycle while assumptions can still be changed. For the one project w

reviewed that was at such an early stage of development—Uranium 

Processing Facility—not conducting a sensitivity analysis meant that 

project managers were not able to give decision makers an understandi

of the impacts on project cost of, for example, varying the square foot

of the building. 

The four estimates we reviewed lacked complete documentation. For 

example, three of the four projects did not generate a narrative summ

explaining the process, sources, and methods used to create the estimates, 

and outlining clearly and concisely the cost estimate results, including 

information about cost drivers and high-risk areas. Documenting the 

estimate in a narrative at this level of detail provides enough information 

so that someone unfamiliar with the project could easily recreate or 

update it. In addition, none of the four projects systematically include

underlying data on which the estimates were based in the documentation 

sets, which can cause an estimate’s credibility to suffer because the 

rationale supporting the specific costs is not clear. More specifically, at the

EM Cleanup at Y-12 project, while the project team created notebooks 

containing supporting documentation for the estimate that inclu

detailed descriptions of how each cost was derived, these notebooks d

not consistently contain evidence of the source data—for example, quotes 

from vendors or historical data from another project—used for each 

calculation. Similarl

estimate, which led to a lack of transparency of what work activities wer

included in the estimate. As a result, after the estimate was approved, as 

project engineers continued to identify activities necessary for 

constructing the facility, there was no documented record for them to 

refer to in order to determine which activities were already present in the 

estimate or whether they represented new work that would increase the

cost of the project. 

Moreover, the four project cost estimates we reviewed lacked accuracy 

because they were not based on a reliable assessment of costs most

to be incurred. For example, two of the projects—Uranium Processi

Page 17 GAO-10-199 Department of Energy
 

Facility and National Synchrotron Light Source-II—did not always 

appropriate estimating methodologies. These projects both used a highly 

detailed method that is appropriate for a project whose design is stable 

and not anticipated to change. However, this was not the case for Urani

Processing Facility or for the portions of National Synchrotron Light 

Source-II that had not been fully designed yet. As a result, according to 

best practices, a less detailed methodology focused more on using 

statistical relationships to extrapolate costs would have been more 

appropriate. Further, NNSA’s technical independent review of the 

Uranium Processing Facility estimate echoed this sentiment, stating that 

the project’s cost estimate range was unsupported in part because it was

prepared with significant detail—for example, the estimate provided a

count of pipings and fittings for the facility—despite the fact that there had 

been no design of technical systems or of the building on which to base 

these details. In addition, three of the four project estimates—Salt Wa

Processing Facility, National Synchrotron Light Source-II, and Uranium

Processing Facility—did not use adequate data to estimate the projects’ 

costs. According to best practices, basing an estimate largely on valid an

useful historical data is a key step in developing a sound cost estimat

however, these three estimates were not primarily based on relevant 

historical actual costs. For example, at National Synchrotron Light Sourc

II, only 12 percent of the cost estimate was based on historical costs. For 

the remainder of the estimate, the project team relied heavily on the

professional opinion of the technical experts working on the project. 

Although these individuals had significant experience working wi

light sources, relying on judgment lacks objectivity and introduces bias

into the estimate. These projects did not use historical data, in part, 

because, in contrast to best practices, DOE does not have a database of 

historical costs from previously completed projects available for newer 

projects to use, nor does the department explicitly require projects 

historical data when generating cost estimates. In addition, even if 

historical 

use 

um 

ste 

d 

e; 

eth other 

to use 

data did exist, they would not always be available for use. For 

example, at Uranium Processing Facility, historical costs from a 

ly 

 of its 

e 

comparable project that was built next door would have been direct

relevant but were not available because of their proprietary nature. In 

addition, although the EM Cleanup at Y-12 project had directly relevant 

historical actual costs to draw from, its cost estimate lacked accuracy in 

part because the project team did not determine the validity of the 

statistical relationships it used when calculating the out-year portion

estimate. 

Finally, none of the four projects were fully comprehensive, in part 

because they did not account for all possible costs. Specifically, Salt Wast

Page 18 GAO-10-199 Department of Energy
 

Processing Facility, National Synchrotron Light Source-II, and Uran

Processing Facility did not include costs associated with the full life of the 

project. According to best practices, life cycle costing—a “cradle to 

approach that includes costs from design and construction through 

operations, decommissioning, and disposal—enhances decision making 

and provides valuable information about how much projects are expecte

to cost over time. However, DOE’s Order 413 does not require 

construction projects to produce life cycle cost estimates at every m

milestone; as a result, the three construction project estimates we 

reviewed represented a more limited scope of activities.

ium 

grave” 

d 

ajor 

officials, these costs 

were captured under a separate operations project. As a result, the full life 

ng costs 

e 

I and 

 required 

ght 

. 

 

21 For instance, the

estimate for Salt Waste Processing Facility did not include costs to 

maintain and operate the facility, including the time during which the 

facility is turned on and tested to see whether it will work as designed—

known as “hot commissioning.” According to DOE 

cycle cost of the facility, including the operations it supports, is not 

transparent or easily identified. The ICE for Salt Waste Processing Facility 

recommended that DOE at least incorporate the hot commissioni

into the total project cost, since it more completely captures the work it

takes to prepare the facility for full operations. In response, according to 

agency officials, DOE is considering changing its policy to include thes

costs in the scope of future construction projects. 

In addition, the cost estimates of National Synchrotron Light Source-I

Uranium Processing Facility left out significant portions of scope

to complete construction of their facilities, further limiting their 

comprehensiveness. In particular, although National Synchrotron Li

Source-II was designed to include 58 points at which the X-ray generated 

by the light source is directed into experimental facilities—known as 

beamlines—the project’s scope, and thus, its cost estimate, only included 

funding for 6 of those beamlines. Based on the data supplied by a senior 

project official, we estimate that including funding for the rest of the 

beamlines would add roughly $400 million to $500 million to the 

estimate—about 50 percent more than the approved total project cost

According to project officials, the costs for the beamlines were not 

included in the scope of the project because other agencies are expected 

21Although not required at every milestone, Order 413 and its accompanying guidance 

direct DOE’s construction projects to generate a life cycle cost estimate to inform the 

process of selecting the preferred alternative before milestone 1. According to project 

officials, the three construction projects we reviewed, including Uranium Processing 

Facility, developed life cycle costs as part of this process. 

Page 19 GAO-10-199 Department of Energy
 

to contribute funding for them. However, excluding them from the projec

resulted in a cost estimate that did not include the facility’s full—or even 

partial—capability and did not represent the total cost to the taxpayers. At

the Uranium Processing Facility, the cost estimate did not include cost

associated with developing technologies that are critical to the facility’s 

functioning but were not yet mature enough to be included in such a 

facility. Although not part of the total project cost for the facility, these 

technology development costs are managed and funded by the contractor 

running the Y-12 site. However, this situation presents a challenge to the

project’s managers, since the funding to develop these technologies is not 

under their control.

t 

s 

s 

n the high end of its range. For example, while the $3.5 billion 

high end of the range includes costs associated with a tunnel that will be 

g 

 the 

ows 

s for all four of the projects we 

reviewed. As we reported in our cost guide, reliance on support 

contractors raises questions from the cost-estimating community about 

whether numbers and qualifications of federal personnel are sufficient to 

provide oversight of and insight into contractor cost estimates. At DOE, it 

appears this is not the case—as part of its effort to address its contract 

and project management challenges, DOE found that one of the root 

causes of these problems was its lack of federal personnel, including cost 

estimators, to oversee its contractors. 

 

22 Moreover, Uranium Processing Facility’s $1.4 billion 

cost estimate for the low end of its range includes less of the project’

scope tha

used to safely transport dangerous materials between Uranium Processin

Facility and an adjacent storage building, the low end does not include this 

tunnel. Because the low end of the estimate range does not include the 

same scope as the high end, presenting $1.4 billion as a possible cost of

facility is misleading, especially given that the project’s risk analysis sh

there is a zero percent likelihood of constructing the facility for that 

amount. 

Finally, the four projects’ estimates lacked comprehensiveness because 

the teams who generated the estimates were not comprised in accordance

with best practices. Although each of these teams was led by or included 

some experienced and trained cost analysts, the teams were generally 

made up of scientists and engineers who did not appear to have such 

experience or training. Further, it was the contractors’ staff—not federal 

staff—who developed the cost estimate

22Although the estimate does not include the cost for the technology development, it does 

include contingency reserves to mitigate the risk of the technologies not being ready when 

they are needed. 

Page 20 GAO-10-199 Department of Energy
 

DOE Has Begun 

Taking Actions to 

Improve Its Cost 

Estimating, but 

Actions May Be 

Hampered by Limited 

Role and 

Organizational 

Location of New Cost 

Estimating Office and 

Lack of Coordination 

between DOE and Its 

Program Offices 

DOE recently initiated a number of actions at the department-wide level to 

improve its cost estimates, the first of which was to establish the Office of 

Cost Analysis (OCA) in 2008. OCA has started implementing a number of 

actions that are designed to improve cost estimating, but these actions 

may be hampered for various reasons. In addition, some program offices 

have taken independent steps to improve the quality of their cost 

estimates, some of which reflect best practices; however, a lack of 

coordination on some actions may lead to duplication of effort. 

DOE Has Begun Taking 

Actions to Improve Cost 

Estimating at the 

Department-wide Level 

DOE established OCA in order to improve the department’s costestimating capabilities and better ensure that its project cost estimates are 

reliable by providing a new independent cost-estimating function for the 

department. In addition, as outlined in its recently developed corrective 

action plan, DOE has given OCA the primary responsibility for 

implementing the department’s cost-estimating improvement efforts. 

Specifically, DOE tasked OCA with the following actions: 

• developing a new cost-estimating policy for the department and updating 

its guidance on cost estimating; 

• conducting independent cost estimates and analyses for major projects; 

• developing escalation rates to help program managers and DOE 

contractors estimate future costs of commodities and labor; 

• developing a historical cost database, designed to improve cost-estimating 

accuracy by allowing project managers and contractors access to 

historical costs of completed DOE projects; 

• developing cost-estimating skills of field office staff, in part through new 

training courses; 

Page 21 GAO-10-199 Department of Energy
 

• creating a common work activity structure, known as a work breakdown 

structure, to better enable side-by-side comparisons of project estimates 

and to facilitate collecting comparable cost data; and 

• identifying lessons learned from external independent reviews and 

developing relevant corrective actions. 

These actions appear to represent a comprehensive approach to improving 

cost estimates, and although OCA is making progress in completing some 

of these actions, it has fallen behind on other tasks. Most notably, OCA has 

developed ICEs for several projects, including the ICE for Salt Waste 

Processing Facility, and has begun publishing annual escalation rates that 

projects will be required to use and that are based on OCA’s evaluation of 

economic conditions and industry trends.23 According to OCA’s Director, 

the office also held its first training course on cost estimating in August 

2009 and is establishing an online “Cost Analysis Community Portal” 

where DOE staff can access training and electronic links to professional 

development tools. In contrast, OCA missed its December 2008 deadline 

for completing the new cost-estimating policy and guide. According to 

OCA’s Director, the new cost-estimating policy—Order 415—and the costestimating guide are now anticipated to be issued sometime in the first 

quarter of 2010. Also according to the OCA Director, the office has 

experienced a delay in completing its historical cost database, which is 

expected to provide project managers with better data for building future 

cost estimates. Originally to be completed in June 2009, OCA recently 

changed its approach for developing the database and now the Director of 

OCA expects it to be completed in May 2010. 

The Limited Role and 

Organizational Location of 

DOE’s New Independent 

Cost-Estimating Office 

May Undercut 

Improvements 

While DOE has made some progress on its cost-estimating improvement 

efforts, the most recent draft of its cost-estimating policy does not reflect 

best practices and falls short of fulfilling DOE’s stated mission for OCA—

to conduct ICEs of major projects before approval of milestones 1, 2, and 

3. In fact, the current draft policy does not require OCA to conduct ICEs of 

any project at any milestone, in contrast to best practices. Instead, the 

draft directs OCA to conduct ICEs only at the request of DOE senior 

 

23Escalation is the provision in a cost estimate that captures increases in the cost of 

equipment, material, and labor due to continuing price changes over time. Escalation rates 

and indexes are used to forecast future project costs or to bring historical costs to the 

present. Most cost estimating is done in current-year dollars and then escalated to the time 

when the project will be accomplished. 

Page 22 GAO-10-199 Department of Energy
 

management. Senior DOE officials told us that when OCA could not obtain 

the support necessary within the department for mandatory ICEs at these 

milestones, it eliminated the requirement from the draft policy. 

Consequently, many of DOE’s projects will continue to be approved 

without independent cost estimates, thereby limiting their credibility. In 

contrast, for many years, Congress has required that the Department of 

Defense’s (DOD) independent cost office, the Office of the Deputy 

Director for Cost Assessment,24 perform ICEs of major projects before 

DOD’s equivalent of milestones 2 and 3. Furthermore, Congress recently 

moved to improve DOD’s cost estimating by passing the Weapons Systems 

Acquisition Reform Act of 2009 (Weapons Systems Act), in which it 

expanded the requirement that DOD conduct ICEs to include DOD’s 

milestone A, the equivalent of DOE’s milestone 1.25

DOE’s decision to locate the new cost-estimating office where it did within 

the organization limits OCA’s ability to effectively function as intended in 

several ways. First, instead of locating OCA within an office that has staff 

with similar skills and expertise and that performs similar functions, such 

as OECM, DOE located OCA under the Chief Financial Officer’s (CFO) 

Office—an office that serves as the principal advisor for DOE’s financial, 

budgeting, and strategic planning issues. According to best practices, an 

agency’s cost-estimating team should be centralized—that is, 

consolidated—in order to facilitate the use of standardized processes and 

more effective sharing of resources. Under the current configuration, 

however, DOE’s cost-estimating functions are split across the two offices. 

Further, the National Academy of Public Administration reported in July 

2009 that DOE’s mission-support offices—which include OCA and 

OECM—need better integration. While the report stated that the 

department’s mission-support offices communicate with one another, they 

tend to operate independently, and there is no ongoing mechanism to 

coordinate common efforts. Moreover, complicating the fact that OCA and 

OECM are in separate offices, their roles and responsibilities are not clear 

and may overlap. Specifically, the draft cost-estimating policy does not 

clearly delineate the roles of these two offices, stating only that, “the 

Office of Cost Analysis will not duplicate cost reviews performed by the 

Office of Engineering and Construction Management.” A senior DOE 

 

24Legislation recently changed the name of DOD’s independent office from the Cost 

Analysis Improvement Group; see Pub. L. No. 111-23 (2009), Weapons Systems Acquisition 

Reform Act of 2009.

25Pub. L. No. 111-23 (2009). 

Page 23 GAO-10-199 Department of Energy
 

program office official has raised concerns that without a clearer 

articulation of the roles of these offices, an additional layer of review 

could be added, leading to duplication of work. This type of duplication 

occurred at Salt Waste Processing Facility when, prior to milestone 3 and 

within weeks of each other, OECM performed an independent cost review 

as part of an external independent review and OCA conducted a separate 

ICE. Because the reviews were not coordinated, the project team spent 

extra time separately briefing and providing many of the same documents 

to each independent team, taking away from the time it could spend 

executing the project. In addition, the two teams drew very different 

conclusions. DOE’s Deputy Secretary ultimately approved the project at 

the level recommended by OECM. DOE has developed a draft 

memorandum of understanding between OCA and OECM to better 

articulate the roles of each office; however, although the memorandum 

contains additional details about the responsibilities for each office, it still 

leaves the department’s independent cost-estimating function divided 

between them. 

The second way in which locating OCA under the CFO may not effectively 

support OCA’s ability to fulfill its mission relates to the skills that will be 

available to OCA within the Office of the CFO. In contrast to OCA, staff in 

an agency’s CFO office—including the CFO—tend to have accounting and 

financial analysis skills used to develop and evaluate budgets, while OCA 

staff need to have strong analytical skills to understand engineering and 

technical details that are used as the basis for developing independent cost 

estimates. Although DOE’s current CFO comes from an analytical 

background that meshes well with OCA’s mission, a more traditional CFO 

trained as an accountant may not be willing to support OCA’s independent 

cost-estimating function as effectively. 

Moreover, the House Appropriations Committee has weighed in on the 

issue of locating OCA under the Office of the CFO. More specifically, the 

House Appropriations Committee Chairman’s Explanatory Statement that 

accompanies the Omnibus Appropriations Act of 2009 directed DOE to 

move OCA’s staff and function out of the CFO Office, to be managed by 

OECM.26 Subsequently, in its fiscal year 2010 budget request, DOE 

indicated it had decided against this, instead opting to maintain OCA 

where it was initially placed in the CFO. In response, the Committee 

Report accompanying the recently enacted Energy and Water 

 

26Pub L. No. 111-85 (2009); see 155 Cong. Rec. H1962. 

Page 24 GAO-10-199 Department of Energy
 

Development and Related Agencies Appropriations Act of 2010 noted 

DOE’s decision and reiterated the Committee’s direction that OCA be 

moved from the Office of the CFO.27 Further, the report also stated that 

the Committee generally opposes creating a new office to address an iss

with existing mission functions. 

ue 

 

Finally, subsuming OCA under another office whose primary 

responsibilities do not include cost estimation and analysis also diverges 

from the approach Congress has taken in establishing an independent 

cost-estimating office at DOD. DOE is similar to DOD in that both agencies 

rely heavily on contractors to construct complex and unique projects, and 

both have struggled to develop accurate cost estimates for these projects. 

The Weapons Systems Act moved DOD’s independent cost-estimating 

office out from under another office within DOD to increase its 

independence by having it report directly to the Secretary and Deputy 

Secretary. According to the legislative history, Congress mandated the 

change to ensure that this office would have the independence and 

authority to make objective determinations and be able to report these 

determinations directly to the Secretary and Deputy Secretary.28 In recent 

testimony, we also supported the idea of having an independent costestimating office at DOD, noting that establishing an independent office 

that reports directly to DOD’s Secretary or Deputy Secretary would 

provide an increased level of accountability.29

Some Program Offices’ 

Actions Offer Potential to 

Improve Quality of 

Estimates, but Lack of 

Coordination on Some 

Actions May Lead to 

Duplication of Effort and 

Rework 

Recognizing that their projects’ cost performance needed improvement, 

EM and NNSA recently initiated actions—some of which reflect best 

practices—to improve their cost estimating, largely independently of the 

actions being taken concurrently by OCA. At EM, these actions included 

placing cost estimators at its large sites and establishing an internal costestimating office capable of providing cost-estimating assistance primarily 

to its smaller sites, but also to its large sites on an as-needed basis, 

including conducting ICEs and training on cost estimating. EM’s costestimating office has already conducted a number of independent 

estimates and reviews, including many to support EM’s American 

27Pub. L. No. 111-85 (2009), H.R. Rep. No. 111-203 at 124-125 (2009). 

28155 Cong. Rec. S5205 – 5224 (2009). 

29GAO, Defense Acquisitions: DOD Must Balance Its Needs with Available Resources and 

Follow an Incremental Approach to Acquiring Weapon Systems, GAO-09-431T

(Washington, D.C.: Mar. 3, 2009). 

Page 25 GAO-10-199 Department of Energy
 

Recovery and Reinvestment Act work. It has also built a database—

Environmental Cost Analysis System—containing historical actual costs 

from two of EM’s cleanup projects and has helped develop a standard way 

of organizing work scope within a project to ensure all cleanup projects 

collect actual costs in a way that is consistent with the new database. In 

addition, NNSA has recently implemented actions to improve its costestimating capability. In early 2009, NNSA adopted a new independent 

cost-estimating policy. Among other things, the policy requires either 

NNSA or OCA to conduct an ICE prior to approval of milestone 2 for 

NNSA’s major projects—those estimated to cost more than $750 million.30

By requiring ICEs for these projects at this milestone, NNSA’s policy better 

reflects best practices than DOE’s new draft cost-estimating policy. The 

policy also designates the NNSA project management office to serve as the 

focal point for all cost-estimating policy and standards within NNSA. 

Finally, in contrast to the improvements that EM and NNSA are 

undertaking, Science does not have efforts under way specific to 

improving its cost estimating. According to the director of Science’s 

project management office, Science has had a process in place for several 

years to conduct independent project reviews of its projects on an ongoing 

basis that, in addition to other oversight it performs, already sufficiently 

validates its cost estimates. We reported in 2008 that although Science has 

generally achieved its projects’ original cost and schedule targets, 

sometimes it has done so by trimming selected components from some 

projects’ scope.31 OECM and DOE’s Inspector General have expressed 

concern that such changes in scope may not always preserve a project’s 

technical goals. 

Although several of these efforts show potential to improve cost 

estimating, some of them have not been well coordinated with 

department-level efforts, which may lead to duplication of effort or 

inefficiencies. Specifically, we saw two examples of efforts that were not 

well-coordinated. First, we found that NNSA’s new independent costestimating policy may conflict with OCA’s draft policy on cost estimating. 

Although NNSA’s new policy requires either NNSA or OCA to conduct an 

 

30According to NNSA’s policy, NNSA should conduct an independent estimate for projects 

estimated to cost between $100 million and $750 million, and OCA should conduct an 

independent estimate for projects estimated to cost greater than $750 million. 

31GAO, Department of Energy: Office of Science Has Kept Majority of Projects within 

Budget and on Schedule, but Funding and Other Challenges May Grow, GAO-08-641

(Washington, D.C.: May 30, 2008). 

Page 26 GAO-10-199 Department of Energy
 

ICE for NNSA’s projects before approving milestone 2, according to a 

senior NNSA official, NNSA intended to avoid duplicating departmentlevel independent review efforts at that milestone by having the ICE 

replace the cost review portion of OECM’s external independent review. 

However, OECM officials recently told us they were not aware of NNSA’s 

new policy, and they intend to continue conducting the cost review 

portion of the external independent review for NNSA’s projects in addition 

to any ICE that NNSA or OCA may conduct, which may lead to a 

duplication of effort. Second, although EM’s new database has the 

potential to provide useful historical cost data to cleanup projects 

developing cost estimates, according to a senior OCA official, it may be 

challenging to share data between EM’s database and OCA’s planned 

historical cost database, representing a missed opportunity for 

collaboration. According to this OCA official, OCA’s database will use a 

different structure for organizing its data, one that is better suited to 

DOE’s projects. As a result, project teams interested in using information 

from both databases may find it difficult to gather compatible information 

from the databases to use in their estimates. 

DOE’s responsibilities include overseeing billions of dollars worth of 

environmental cleanup, scientific research, nuclear weapons management, 

and other mission work vital to the nation’s safety, security, and energy 

supply. Given the task of managing nearly 200 projects expected to cost 

hundreds of billions of dollars, along with DOE’s history of struggling to 

complete its projects within their cost estimates, obtaining realistic 

estimates from the contractors carrying out the projects is increasingly 

critical to inform officials’ project management decisions. 

Conclusions 

However, DOE’s lack of both a policy for estimating the costs of projects 

and current guidance containing best practices to help contractors 

implement the policy has left the department without the benefit of the 

internal controls specified in federal standards. More specifically, without 

a way to ensure that its contractors use best practices in generating cost 

estimates, and without adequate federal personnel to gauge the quality of 

the contractors’ cost estimates, DOE has effectively ceded a significant 

portion of its control of this process to its contractors. Further, because 

DOE’s draft cost-estimating policy does not require the department’s new 

independent cost-estimating office—or any other entity within DOE—to 

conduct ICEs for any projects, including the major projects, at any of the 

milestones, DOE is not using the most rigorous method available for 

validating its cost estimates. As a result, some project estimates are likely 

to continue to lack credibility, and DOE will not have a sound basis for 

Page 27 GAO-10-199 Department of Energy
 

making decisions on how to most effectively manage its portfolio of 

projects. 

Despite its policy and guidance deficiencies, DOE has taken an important 

step in recognizing its need for an independent cost-estimating capability. 

However, by creating a new office, OCA, that has review functions that are 

similar to those of an office that already exists, DOE has increased the 

likelihood that duplicative independent review efforts will continue. 

Further, because OCA reports to the CFO, OCA lacks the independence 

necessary to dictate its own agenda and remain focused on its core 

mission and may not be fully able to provide top management with 

objective determinations. A recent change at DOD serves as a model in 

this case: at the direction of Congress, DOD provided its centralized, costestimating office with greater independence by having it report directly to 

the Secretary and Deputy Secretary. 

Finally, because the cost estimates of the four projects we reviewed were 

not high quality, the projects are more likely to exceed their estimates, 

similar to DOE’s eight major construction projects that, as we recently 

reported, exceeded their initial estimates by a total of nearly $14 billion, 

and DOE’s nine major cleanup projects that exceeded their initial 

estimates by $25 billion to $42 billion. Without better estimates of what 

construction and cleanup projects will cost, neither DOE nor Congress has 

reliable information for supporting funding decisions at all stages of the 

department’s project life cycles. Moreover, given the shortcomings of the 

four cost estimates we reviewed, we are concerned that DOE’s cost 

estimates for its remaining major construction projects and major 

environmental cleanup projects—which represent tens of billions of 

dollars combined—have the potential to be similarly problematic. If this is 

the case, DOE may have greatly miscalculated the amount of funding it 

will require to complete its portfolio of projects 

To better ensure that DOE is able to develop high-quality project cost 

estimates, we are making the following six recommendations. 

First, we recommend that the Secretary of Energy issue the department’s 

forthcoming cost-estimating policy and updated guidance as soon as 

possible, ensuring that 

Recommendations for 

Executive Action 

• the policy requires DOE and its contractors to generate cost estimates in 

accordance with best practices; 

Page 28 GAO-10-199 Department of Energy
 

• the policy requires that ICEs be conducted for major projects at 

milestones 1, 2, and 3; and 

• the guidance fully reflects best practices. 

In addition, to minimize duplication of effort and promote the 

independence of the cost-estimating review process, we recommend that 

the Secretary of Energy 

• create a centralized cost-estimating capability by combining the functions 

that OCA and OECM have in common; and 

• consider the structure recently adopted by the Department of Defense, 

under which its independent cost-estimating office reports directly to the 

Secretary and Deputy Secretary. 

Finally, given the limitations of the cost estimates of the four projects we 

reviewed, we recommend that the Secretary of Energy direct OCA to 

conduct an ICE for each major project that has not received one, including 

three of the four projects we reviewed, all major projects that have not yet 

started construction or operations, and all future major projects. 

In commenting on a draft of this report, the Deputy Secretary of Energy 

said that DOE concurs with our recommendations in general. However, 

DOE did not fully concur with two of our recommendations: to require 

ICEs for major projects at milestones 1, 2, and 3 and to conduct an ICE for 

each major project that has not received one. 

Agency Comments 

and Our Evaluation 

Specifically, regarding requiring ICEs for major projects at milestones 1, 2, 

and 3, DOE said that the department’s new independent cost-estimating 

policy will require ICEs for these projects at milestones 1 and 2 but that 

the department does not intend to require ICEs at milestone 3 unless 

“warranted by risk and performance indicators or required by senior 

officials.” DOE provided no reason for treating milestone 3 differently 

from milestones 1 and 2. We continue to believe that requiring ICEs at all 

three milestones is important. According to cost-estimating best practices, 

conducting an ICE at major milestones, such as milestone 3, is critical 

because it provides an independent check—and thus a more objective 

assessment—of the project team’s cost estimate. In particular, because 

DOE projects generate a new or updated cost estimate for milestone 3, 

which is the final approval milestone before construction or cleanup 

operations begin, it is essential to cross-check a project team’s updated 

Page 29 GAO-10-199 Department of Energy
 

estimate with a new or updated ICE to help ensure the estimate’s 

credibility. 

In addition, DOE only partially agreed with our recommendation to 

conduct ICEs for all major projects that have not received one, including 

for three of the four projects we reviewed—National Synchrotron Light 

Source-II, the Uranium Processing Facility, and EM Cleanup at Y-12. We 

have two concerns about DOE’s response to this recommendation. First, 

although DOE said it will conduct an ICE for the Uranium Processing 

Facility before it reaches milestone 2, the agency noted that since both 

National Synchrotron Light Source-II and EM Cleanup at Y-12 have passed 

milestone 3, it will conduct ICEs for these projects only if they encounter 

significant performance issues. We believe, however, that checking these 

two projects’ most recent cost estimates by conducting ICEs is both 

warranted and important and would improve the credibility of their cost 

estimates. 

Second, although the scope of our recommendation is broader than the 

three projects we reviewed that have not received an ICE, DOE did not 

address an important component of our recommendation: that DOE 

should conduct ICEs for “each major project that has not received one.” 

As a result, it is not clear whether DOE intends to immediately begin 

conducting ICEs for all major projects already under development that 

have not yet started construction or operations as well as all future major 

projects. We have amended our recommendation to clarify the need to 

conduct these additional ICEs—without waiting until the department has 

passed its new cost-estimating policy. Moreover, given DOE’s statement 

that it does not intend to require ICEs at milestone 3, we reiterate that our 

recommendations include conducting ICEs for all major projects at all 

three milestones. 

In addition, although DOE agreed with our recommendation to issue its 

forthcoming cost-estimating policy and guidance in accordance with best 

practices, we have two concerns. First, DOE did not state when it plans on 

issuing the policy and guidance. We believe DOE should issue the policy 

and guidance as soon as possible since they are already more than a year 

overdue. Second, DOE did not indicate whether it intends to require that 

its contractors generate cost estimates in accordance with the 

department’s new guidance and the best practices contained therein, as 

we recommended. We are concerned that, without this requirement, 

DOE’s contractors may continue to develop project cost estimates 

according to their own individual policies, as they did at the four projects 

we reviewed—undermining a DOE-defined, standard approach to cost 

Page 30 GAO-10-199 Department of Energy
 

estimating. Although having an updated DOE cost-estimating guide in 

effect is critical for establishing a standard method for generating and 

evaluating cost estimates, its impact will be limited unless the department 

ensures that its contractors generate project cost estimates based on the 

standard set forth within the guide. 

Finally, in responding to our recommendations that DOE create a 

centralized cost-estimating capability and consider the organizational 

structure adopted by the Department of Defense, DOE agreed. However, 

the department did not address whether it will do so by combining the 

functions that OCA and OECM have in common, as we recommend. It is 

unclear whether DOE plans instead to implement its draft memorandum of 

understanding between the two offices without combining their 

functions—a decision that would not meet cost-estimating best practices. 

In addition to its written comments, which are reprinted in appendix IV, 

DOE provided detailed technical comments, which we incorporated as 

appropriate. 

We are sending copies of this report to other interested congressional 

committees and to the Secretary of Energy. The report will also be 

available at no charge on the GAO Web site at http://www.gao.gov. 

If you or your staffs have any questions regarding this report, please 

contact me at (202) 512-3841 or aloisee@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 major contributions to this 

Gene Aloise 

report are listed in appendix V. 

Director, Natural Resources 

 and Environment 

Page 31 GAO-10-199 Department of Energy
Appendix I: Scope and Methodology 

Page 32 GAO-10-199 

Appendix I: Scope and Methodology 

To determine the extent to which the Department of Energy’s (DOE) costestimating policies and guidance support the development of high-quality 

cost estimates, we analyzed policies and guidance in effect across the 

department containing specifics on cost estimating. We then compared 

them with the best practices identified in our cost guide1

 and identified 

differences. We also interviewed several DOE project directors and asked 

them to identify the policies and guidance they provided to their 

contractors before the contractors created the projects’ cost estimates in 

addition to the policies and guidance the project directors followed in 

overseeing the contractors’ estimating work. 

To determine the extent to which selected cost estimates reflected the 

four key characteristics of high-quality cost estimates—credible, welldocumented, accurate, and comprehensive—we chose three major 

construction projects—the Office of Science’s (Science) National 

Synchrotron Light Source-II at Brookhaven National Laboratory in New 

York, the National Nuclear Security Administration’s (NNSA) Uranium 

Processing Facility at Y-12 National Security Complex in Tennessee, and 

the Office of Environmental Management’s (EM) Salt Waste Processing 

Facility at the Savannah River Site in South Carolina—and one 

environmental cleanup project, EM’s decontamination and 

decommissioning project for the Y-12 National Security Complex in 

Tennessee (EM Cleanup at Y-12), to include in our review. We selected 

these projects because they require a significant commitment of resources 

by DOE, were at different stages in the milestone approval process, and 

were managed by different program offices. We then analyzed the 

supporting documents related to each project’s most recently approved 

total project cost estimate. These documents included independent review 

reports, risk analysis outputs, project execution plans, summaries of 

project assumptions, and design and technical documents. We visited each 

site, and while there, interviewed DOE project managers and contractor 

officials about the process used to prepare the cost estimates. We shared 

our cost guide and the criteria against which we would be evaluating the 

projects’ cost estimates with DOE officials. We then compared DOE’s 

methods and approaches for preparing the estimates with the best 

practices contained in our cost guide. 

 

1

GAO, GAO Cost Estimating and Assessment Guide: Best Practices for Developing and 

Managing Capital Program Costs, GAO-09-3SP (Washington, D.C.: March 2009). 

 Department of Energy 
Appendix I: Scope and Methodology 

Page 33 GAO-10-199 Department of Energy

To assess the actions DOE has taken recently to improve its cost 

estimating, we analyzed documentation of proposed and recently 

implemented actions at the department level and at EM, NNSA, and 

Science and evaluated these actions against the best practices found in o

cost-estimating guide. This documentation included DOE’s proposed ne

cost-estimating policy, Order 415, as drafted by the Office of Cost Analysis 

(OCA), as well as draft guidance on cost estimating. At the progra

offices, we reviewed NNSA’s Independent Cost Estimate Policy and EM’s 

Cost Estimating Strategy. In addition, we interviewed department-level

officials from the Office of the Chief Financial

ur 

w 

m 

 Officer, OCA, and Office of 

Management, including officials from the Office of Engineering and 

e 

e to 

ating. 

Group, 

ur 

d 

 by 

alysis 

hat 

e 

Construction Management and the Office of Procurement and Assistanc

Management, as well as various officials within EM, NNSA, and Scienc

obtain their perspective on efforts being taken to improve cost estim

We also interviewed officials with the Energy Facility Contractors 

an organization of DOE contractors, to obtain their perspective on DOE’s

proposed actions to enhance cost estimating. Finally, to further inform o

assessment, we reviewed recently passed legislation—the Weapons 

Systems Acquisition Reform Act of 2009—that includes direction intende

to improve cost estimating at the Department of Defense (DOD)

making changes to the structure and function of the Cost An

Improvement Group, DOD’s cost estimating office, and interviewed t

office’s director. 

We conducted this performance audit from September 2008 to January 

2010, 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 believ

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives. 
Appendix II: Four Characteristics of a HighQuality Cost Estimate with Their 

Corresponding 12 Key Cost-Estimating Steps 

Page 34 GAO-10-199 

Appendix II: Four Characteristics of a HighQuality Cost Estimate with Their 

Corresponding 12 Key Cost-Estimating Steps 

Characteristic Step 

Credible • Develop the point estimate and compare it to an 

independent cost estimatea

• Conduct sensitivity analysis 

• Conduct risk and uncertainty analysis 

Well-documented • Define the estimate’s purpose, scope, and schedul

• Define the program 

• Identify ground rules and assumptions 

• Obtain the data 

• Document the estimate 

• Present the estimate to management 

e 

Accurate • Develop the point estimate and compare it to an 

independent cost estimate 

• Update the estimate to reflect actual costs and changes 

Comprehensive • Develop the estimating plan 

• Determine the estimating approach 

Source: GAO. 

a

This step applies to two of the characteristics—credibility and accuracy. 

 Department of Energy 
Appendix III: Assessments of Four Project Appendix III: Assessments of Four Project Cost Estimates Reviewed 

Cost Estimates Reviewed 

This appendix provides a project-by-project assessment of the four DOE 

timates we reviewed in detail. Each assessment provides 

• a brief description

• project facts, including he status of the 

approved; and 

• our analysis of the extent oject’s cost-estimating processes 

and methodologies inclu cessary for preparing highquality cost estimates, and some key examples of the rationale behind our 

analysis. 

Brookhaven N i

n 

year-old 

SLS-I facility. It is designed to deliver ultra-high brightness radiation—

meet the nation’s need 

r a high brightness, medium energy X-ray source. The Office of Science 

intends for the light source to serve a large and diverse scientific user 

community, including nanoscale imaging for energy, biology, medicine, 

chemical, and environmental research. 

project cost es

 of the project’s mission; 

the cost estimate we reviewed and t

project—the milestone, or “Critical Decision” (CD) point, most recently

 to which the pr

ded the 12 key steps ne

Office of Science

at onal Laboratory, New York 

National Synchrotron 

Light Source–II 

National Synchrotron Light Source (NSLS)-II is a next generation electro

synchrotron light source intended to replace the current, 27-

N

10,000 times brighter than NSLS-I—and will help 

fo

Page 35 GAO-10-199 Department of Energy
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

Figure 2: National Synchrotron Light Source–II 

• Total Project Cost: $912 million. 

• Status: Critical Decision 3 approved on January 9, 2009; construction is scheduled 

 to be completed in fiscal year 2015.

Project timeline

CD-1

(07/07)

CD-2

(01/08)

CD-3

construction

(01/09)

GAO 

review

(11/09)

CD-4

completion

(06/15)

Source: DOE.

Calendar year

Project facts

2007 2008 2009 2010 2011 2012 2013 2014 2015

Page 36 GAO-10-199 Department of Energy
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

Table 2: Cost-Estimating Criteria for NSLS-II 

Four characteristics of highquality cost estimates and 12 key 

steps Fully met 

Mostly 

met 

Partially 

met 

Somewhat 

met Not met 

Key examples of rationale for 

assessment 

Department of Energy

Well documented ●

1. Define the estimate’s purpose ● Estimate was prepared at a very 

low level of detail, consistent with 

the level of design maturity of one 

part of the estimate, but not others, 

including the accelerator and 

experimental systems. Also, 

personnel contributing to the 

estimate lacked significant cost 

analysis experience and there was 

little experienced supervision 

available to assist. 

3. Define the program ● Technical baseline is sufficiently 

addressed in documentation, but is 

documented across many 

documents rather than one single 

document. Additionally, there was 

a lack of traceability from 

quantitative information contained 

within the technical documents to 

the cost estimate documentation 

provided for the CD-3 milestone. 

5. Identify ground rules and 

assumptions 

 ● Ground rules and assumptions 

were documented; however they 

lacked thorough rationale; source; 

and traceability to specific work 

breakdown structure (WBS) 

elements, cost estimate 

documentation, and risk analysis 

models. 

6. Obtain the data ● As the foundation of the estimate, 

little data were gathered from 

historical data sources; only 12 

percent of the total project cost was 

based on these data. The 

remainder of the estimate was 

based on professional judgment, 

vendor quotes, and catalog prices. 

For portions of the estimate not 

based on historical data, the data 

used were not subjected to 

validation checks. 

Page 37 GAO-10-199 
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

Four characteristics of highquality cost estimates and 12 key 

steps Fully met 

Mostly 

met 

Partially 

met 

Somewhat 

met Not met 

Key examples of rationale for 

assessment 

10. Document the estimate 

ildup of cost in a 

al format and is stored in an 

lectronic, collaborative format that 

t 

s, 

● The cost estimate documentation

outlines the bu

logic

e

is accessible by authorized 

personnel. However, it insufficiently

describes the underlying data and 

basis for the calculation used; lacks 

narrative for describing the cos

estimate process, data source

and methods; and does not 

document linkages to technical 

baseline documentation. 

11. Present the estimate to 

management 

 ● ly at a high 

lly 

t 

The project team briefed 

management, but on

level, atypical of the content usua

presented to management. In 

addition, the briefing did no

provide all assumptions and 

methodologies and did not address

cost drivers. 

Department of Energy

Comprehensive ●

2. Develop the estimating plan ● 

e 

ed 

on. 

The estimating plan lacked the 

detail to address specific costestimating tasks. While most of the 

team responsible for generating th

cost estimate inputs has significant

technical experience in their 

assigned project areas, they lack

significant experience in cost

estimating and were not from a 

centralized cost-estimating 

organizati

4. Determine the estimating 

approach 

● The estimate is generally 

structured well, employing a 

product-oriented WBS. However, 

the WBS dictionary lacks the detail 

necessary to describe the 

resources and functional activities

required to produce each element. 

 

Page 38 GAO-10-199 
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

Four characteristics of highquality cost estimates and 12 key 

steps 

Mostly 

met 

Partially 

met 

Somewhat 

met 

Key examples of rationale for 

Fully met Not met assessment 

Accurate ●

7. Develop the point estimate and 

compare to an independent cost 

estimatea

 ● n 

to 

The point estimate relied largely o

expert opinion as the basis of the 

estimate. The estimate lacked the 

use of statistical techniques and 

cost-estimating relationships. While 

the point estimate was aggregated 

logically according to the WBS, no 

references that relate the results 

cross-checks or accuracy checks

were found. 

12. Update the estimate to reflect ● pdate 

actual costs and changes 

The project team did not u

the point estimate to reflect actual 

costs and changes, and did not 

document lessons learned. 

Department of Energy

Credible ●

7. Develop the point estimate and 

compare to an independent cost 

estimate 

 ● d 

onventional facilities, 

e ICEs only covered a portion of 

Although the estimate receive

independent project reviews and 

two independent cost estimates 

(ICE) for the c

th

the overall project estimate and 

were not developed outside the 

project approval chain. DOE did 

not perform a project-level ICE. 

8. Conduct sensitivity analysis ● ffects 

The 

ysis did not follow 

ing a 

nd as 

f 

Although a sensitivity analysis was 

conducted, it did not assess e

of changing discrete performance, 

physical, or programmatic 

parameters, preventing the 

analysis of design changes. 

sensitivity anal

the typical steps for prepar

credible sensitivity analysis, a

a result does not provide a range o

possible costs or the means for 

performing what-if analyses. 

Page 39 GAO-10-199 
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

Four characteristics of highquality cost estimates and 12 key 

steps Fully met 

Mostly 

met 

Partially 

met 

Somewhat 

met Not met 

Key examples of rationale for 

assessment 

9. Conduct risk and uncertainty ● lthough a risk analysis was 

y forecasts risk at the 

analysis 

A

performed, there was no quantifiable 

linkage between key cost driver 

assumptions and factors and the 

probability of occurrence and impact 

values. The risk analysis input 

parameters are subjectively based, 

lacking any historical basis or 

statistical derivation. Additionally, the 

risk analysis fails to consider 

correlation between cost elements 

and improperl

individual WBS element as well as 

year by year. 

Sources: DOE (data), GAO (analysis). 

ratings we used n this anal are as follows: “Fully” means that the program provided 

ation that satisfied the criterion; “Mostly” means th rogram provided the majority of 

mentation to sati he criterion; “Partially” ans t tion 

satisfying part of the criter mewhat” means tha the p

satisfying a minor part of the criterion; and “Not” means that 

documentation that satisfied the criterion. 

a

This step applies to both accuracy and credibility. 

Note: The 

document

 i ysis 

at the p

the docu sfy t

ion; “So

me

t

hat the program provided documenta

rogram provided documentation 

the program did not provide 

Page 40 GAO-10-199 Department of Energy
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

National Nuclear Security Administration 

Y-12 National Security Complex, Tennessee 

d th ranium roc

ensure the long-term viability, safety, and se

The project is expected to consolidate all of 

operations at Y-12 into a single, modern facil

safeguards, replacing current operations tha

facilities that do not meet modern safety and security standards. The effort 

is expected to support the nation’s nuclear w

nonproliferation activities, and provide fuel 

Uranium Processing 

Facility 

NNSA is planning to buil e U P essing Facility in order to 

curity of its enriched uranium.

NNSA’s enriched uranium 

ity with new technologies and

t are located in deteriorating 

eapons stockpile and 

for navy reactors. 

Page 41 GAO-10-199 Department of Energy
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

Page 42 GAO-10-199 

Figure 3: Uranium Processing Facility 

• Preliminary Cost Range: $1.4 billion to 3.5 billion. 

• Status: Critical Decision 1 approved on July 25, 2007; the first of multiple Critical Decision 2 

 milestones is projected for September 2010.

Source: DOE.

Project facts

CD-1

(7/07)

CD-2/3

Site prep and long

lead procurement

(9/10)

CD-2/3

Building

and Phase 1

equipment

intallation

(01/12)

CD-3

(10/13)

GAO

review

(11/09)

CD-4

completion

(9/18)

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Calendar year

Project timeline

Department of Energy
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

Table 3: Cost-Estimating Criteria for Uranium Processing Facility 

Four characteristics of highquality cost estimates and 12 key 

steps Fully met 

Mostly 

met 

Partially 

met 

Somewhat

met Not met 

Key examples of rationale for 

assessment 

Department of Energy

Well documented ●

1. Define the estimate’s purpose ● Project clearly defined the 

estimate’s purpose, but the level of 

detail at which the estimate was 

conducted was not consistent with 

available design of the project. 

3. Define the program ● The typical elements found in a 

technical baseline were addressed 

by multiple documents; however, it 

is not clear what key portions of the 

technical baseline were reflected in 

the estimate. 

5. Identify ground rules and 

assumptions 

 ● Although the project published a 

document listing key assumptions, 

no rationales or backup data were 

provided, nor was there a clear 

trace of specific assumptions to the 

underlying estimate. 

6. Obtain the data ● The foundation of the estimate was 

not based on data from primary 

sources and the estimate of total 

number of design documents and 

design labor hours was based on 

professional judgment. However, 

estimators had access to a 

commercial construction cost 

database and historical costs from a 

contractor who had done work at 

the site in the past. 

10. Document the estimate ● There is no step-by-step centralized 

document that ties together the 

underlying input data used to 

construct the estimate along with 

the estimating methodology utilized. 

It would be very difficult for an 

analyst unfamiliar with the project to 

replicate the estimate. 

11. Present the estimate to 

management 

 ● The formal presentation provided to 

DOE management contained a 

summary of the cost estimate that 

was not detailed—for example, it 

did not address cost drivers or 

contain information on the 

confidence levels associated with 

the estimate. 

 

Page 43 GAO-10-199 
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

Four characteristics of highquality cost estimates and 12 key Mostly Partially

steps Fully met met met 

Somewhat

met Not met 

Key examples of rationale for 

assessment 

Comprehensive 

Department of Energy

●

2. Develop the estimating plan st estimators were 

om a centralized cost-estimating 

t 

● Contractor’s co

fr

group, however, cost estimate 

documentation stated the team of 

30-40 people who worked on the 

estimate included two certified cost

consultants, a certified cost 

engineer, and 8-10 estimators. I

was not clear who was an 

experienced and trained cost 

analyst. 

4. Determine the estimating approach ● 

roject with the 

The WBS appeared to contain all 

work that needs to be done to 

complete the p

exception of technology 

development costs; but it was not 

based on a standard WBS. 

Accurate ●

7. Develop the point estimate and 

pendent cost 

 ● ploy various 

g 

compare to an inde

estimatea

Contractor did not em

cost-estimating methods, but rather 

relied solely on a detailed, bottomsup method. Contractor’s estimatin

system was very detailed and did 

not lend itself to a more top-down, 

statistical approach. 

12. Update the estimate to reflect 

actual costs and changes 

 ● 

ance 

 this 

Since approval of CD-1, the 

contractor is collecting perform

data on the design portion of the 

project’s life cycle, but no one is 

tracking the effect of

performance on total project cost. 

Estimate will not be updated until 

CD-2. 

Credible ●

7. Develop the point estimate and 

compare to an independent cost 

estimate 

 ● 

roject team 

h 

Project did not receive an ICE; 

NNSA conducted a technical 

independent review, which included 

examining costs. The p

cross-checked the estimate with 

data from other projects, althoug

those data reflected estimated 

costs, not actual costs. 

8. Conduct sensitivity analysis ● Project team did not conduct a 

sensitivity analysis. 

Page 44 GAO-10-199 
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

Four characteristics of highquality cost estimates and 12 key 

steps Fully met 

Mostly 

met 

Partially 

met 

Somewhat

met Not met 

Key examples of rationale for 

assessment 

9. Conduct risk and uncertainty roject team conducted a risk 

e” 

nge 

ot 

ted in the analysis. 

analysis 

● P

analysis that examined technical 

and programmatic, cost, and 

schedule risk to the project; 

however, this risk analysis did not 

account for correlation between 

cost elements. Separate from the 

risk analysis, NNSA headquarters 

added an additional $1.1 billion 

unfunded “programmatic allowanc

to the upper end of the cost ra

to account for additional risks n

incorpora

Sources: DOE (d GAO (analysis). 

Note: The ratings we used in this analysis are as follows: “F

documentation that satisfied the criterion; “Mostly” means th majority of 

the documentation to satisfy the criterion; “Partially” means n 

satisfying part of the criterion; “Somewhat” means that the p

satisfying a minor part of the criterion; and “Not” means that

ation that satisfied the criterion. 

 step applies to both accuracy an edibility. 

ata), 

ully” means that the program provided 

at the program provided the 

that the program provided documentatio

rogram provided documentation 

 the program did not provide 

document

a

This d cr

Page 45 GAO-10-199 Department of Energy
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

Office of Environmental Management 

Savannah River Site, South Carolina 

will construct a facility to eat 

reprocessing and other liquids generated by n 

operations at the Savannah River site, conve for 

eventual disposal in a geological repository.

gallons of this waste are being stored on an 

underground storage tanks at the site—of th e 

salt waste slated for treatment at the new fa

Salt Waste Processing 

Facility 

This project tr large quantities of waste from

nuclear materials productio

rting it into a stable form

 Approximately 37 million 

interim basis in 49 

is, about 34 million gallons ar

cility. 

Page 46 GAO-10-199 Department of Energy
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

Figure 4: Salt Waste Processing Facility 

• Total Project Cost: $1.34 billion.

• Status: Critical Decision 3 approved on January 2, 2009; construction is expected to be 

 completed in October 2015.

Source: DOE.

Project facts

Project timeline

CD-0

(06/01)

CD-2/3A

(09/07)

CD-3B

(01/09)

GAO review

(11/09)

CD-4

completion

(10/15)

CD-1

(10/04)

2001 2002 2003 2004 2005 2006 200 2007 2009 2010 2011 2012 201 8 3 2014

Calendar year

2015

Page 47 GAO-10-199 Department of Energy
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

Table 4: Cost-Estimating Criteria for Salt Waste Processing Facility 

Four characteristics of highquality cost estimates and 12 key 

steps Fully met 

Mostly 

met 

Partially 

met 

Somewhat 

met Not met 

Key examples of rationale for 

assessment 

Department of Energy

Well documented ●

1. Define the estimate’s purpose ● Although the estimate and scope 

were clearly defined and based on a 

bottoms-up review, it is not clear that 

there was enough time or resources 

to develop and review the estimate. 

3. Define the program ● Although the contractor supplied 

several documents that appear to 

sufficiently address the technical 

baseline, the contractor did not fully 

demonstrate that the technical 

baseline was developed by qualified 

personnel. Furthermore, it was not 

possible to evaluate the technical 

baseline because underlying data 

used to develop the cost estimate 

were not provided. 

5. Identify ground rules and 

assumptions 

● Although the estimate defines and 

documents most of the ground rules 

and assumptions it makes, it does 

not provide the historical data for 

some of its key assumptions to back 

up claims. In addition, although the 

schedule is assessed for impacts, 

the estimate does not model 

schedule activity uncertainties. 

6. Obtain the data ● Although the contractor claims that 

historical data were used to develop 

the estimate, historical cost data and 

data from other technical sources 

were not provided. As a result, we 

could not analyze the data to 

determine whether they were 

reasonable. 

10. Document the estimate ● The estimate insufficiently describes 

the underlying data and bases for the 

calculations used. As a result, we 

could not analyze data to determine 

whether they contain elements of a 

high-quality estimate. 

Page 48 GAO-10-199 
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

Four characteristics of highquality cost estimates and 12 key Mostly Partially Somewhat 

steps Fully met met met met Not met 

Key examples of rationale for 

assessment 

11. Present the estimate to 

management and obtained DOE 

oval to continue the project; 

owever, the briefing was at a high 

● The project team briefed 

management, 

appr

h

level and did not provide detailed 

information about assumptions or 

methodologies. 

Department of Energy

Comprehensive ●

2. Develop the estimating plan ●

, it 

. 

The estimating approach and 

schedule is documented, however

is not clear that team members are

from a centralized cost-estimating 

group or have the proper experience

or access to subject area experts 

knowledgeable about large, complex 

nuclear construction projects of the 

scale and complexity of this facility

4. Determine the estimating 

approach 

● it 

uct oriented with 

Although the estimate has a WBS, 

is only partially prod

product-oriented structures 

embedded in a functionally oriented 

structure. 

Accurate ●

7. Develop the point estimate and 

compare to an independent cost 

estimatea

 ● 

data.

It is not clear what estimation 

methodologies were used because 

there were few details about 

methodology and no supporting 

12. Update the esti

actual costs and chan

mate to reflect 

ges 

● The project team had a process for 

updating the estimate, and updated 

the point estimate to reflect actual 

costs and changes, but did not 

document lessons learned. 

Credible ●

7. Develop the point estimate and 

compare to an independent cost 

 ● t cost 

e request of the Deputy 

here 

were differences in their estimates. 

estimate 

OCA performed an independen

estimate at th

Secretary of Energy, resulting in an 

estimate of $2.7 billion–more than 

twice as high as the project team’s 

estimate. However, no formal 

reconciliation process occurred 

between OCA and the project team 

to determine where and why t

8. Conduct sensitivity analysis ● The contractor did not conduct a 

sensitivity analysis. 

Page 49 GAO-10-199 
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

Four characteristics of highquality cost estimates and 12 key 

steps 

Mostly 

met 

Partially 

met 

Somewhat 

met 

Key examples of rationale for 

Fully met Not met assessment 

9. Conduct risk and uncertai

nalysis 

nty 

a

tainty 

t identified. In 

ddition, an S-curve of alternative 

ost estimate probabilities was not 

● Although a risk and uncer

analysis was performed and cost 

drivers were identified, the 

correlation between cost elements 

was not accounted for, and the 

probability associated with the point 

estimate was no

a

c

provided. 

Sources: DOE (data), GAO (analysis). 

Note: The ratings we used in this analysis are as follows: “

documentation that satisfied the criterion; “Mostly” means 

the documentation to satisfy the criterion; “Partially” mean

satisfying part of the criterion; “Somewhat” means that the

satisfying a minor part of the criterion; and “Not” means tha

documentation that satisfied the criterion. 

a

This step applies to both accuracy and credibility. 

Fully” means that the program provided 

that the program provided the majority of 

s that the program provided documentation

 program provided documentation 

t the program did not provide 

Page 50 GAO-10-199 Department of Energy
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

Office of Environmental Management 

Y-12 National Security Complex, Tennessee 

This project involves the cleanup of t Y-1 , a 

significant source of environmental contam des 

construction and operation of on-site landf

Management Waste Facility disposal facilit

decommissioning of contaminated facilities, including the Alpha 4 Facility; 

soil, sediment, scrap, and burial ground rem

monitoring of soils and water sources to as

cleanup actions. Much of the project’s scope will be transferred to EM’s 

position Project, a large project encompassing 

Nuclear Facility 

Decontamination and 

-12 

(EM Cleanup at Y-12) 

Decommissioning at Y he 2 National Security Complex

ination. Specifically, it inclu

ills and the Environmental 

y; decontamination and 

ediation; and environmental

sess the effectiveness of 

Integrated Facility Dis

decontamination and decommissioning and remediation of soil and 

groundwater at Y-12 and the neighboring Oak Ridge National Laboratory. 

Page 51 GAO-10-199 Department of Energy
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

Figure 5: EM Cleanup at Y-12 

• Near-term Baseline (NTB): $338 million. 

• Total life cycle cost: $1.1 to 1.2 billion.

• Status: Critical Decision 2/3 approved on February 13, 2008; NTB period is from 

 fiscal year 2008-2012. 

Source: DOE.

Project facts

Project timeline

CD-2/3 

for NTB

(02/08)

End of

NTB

(09/12)

CD-4

completion

(9/22)

GAO

review

(11/09)

2008 2009 2010 2011 2012 2013 2014 2016 2017 201 2015 8 2019 2020 2021 2022

Calendar year

Page 52 GAO-10-199 Department of Energy
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

Table 5: Cost-Estimating Criteria for EM Cleanup at Y-12 

Four characteristics of high-quality 

cost estimates and 12 key steps Fully met 

Mostly 

met 

Partially 

met 

Somewhat 

met Not met 

Key examples of rationale for 

assessment 

Department of Energy

Well documented ●

1. Define the estimate’s purpose ● Fully meets all assessment criteria. 

3. Define the program ● The technical baseline exists and is 

updated as changes become known, 

and it was mostly developed by 

qualified personnel. However, the 

baseline provided was only at a 

summary level. 

5. Identify ground rules and 

assumptions 

 ● Although the estimate defines and 

documents the ground rules and 

assumptions, there is no evidence 

that they have been approved by 

upper management and there is no 

rationale provided to support some of 

the assumptions. 

6. Obtain the data ● The data used to prepare the cost 

estimates were based on conceptual 

design as well as actual data, 

historical data, quotes from vendors, 

expert opinion, and experience. 

However the program was not able to 

provide documentation regarding the 

source of the data used. 

10. Document the estimate ● The program has formal 

documentation books for each cost 

element. These books contain 

technical and programmatic 

information. While the books contain 

the methodology used to create the 

estimate, only some examples of the 

data sources used were provided. 

11. Present the estimate to 

management 

 ● The program held a formal briefing in 

January 2008. The briefing contains 

summary information about the 

project but does not contain detailed 

information about the cost estimate 

methodology. 

Comprehensive ●

2. Develop the estimating plan ● The cost estimators who developed 

the cost estimates are qualified 

estimators. However there was no 

schedule developed for creating the 

estimate. 

Page 53 GAO-10-199 
Appendix III: Assessments of Four Project 

Cost Estimates Reviewed 

Four characteristics of high-quality 

cost estimates and 12 key steps Fully met 

Mostly 

met 

Partially 

met 

Somewhat 

met Not met 

Key examples of rationale for 

assessment 

4. Determine the estimating approach ● The program has a WBS that is 

product oriented and reflects all work

that needs to be accomplished. 

However the agency does not have a

standardized WBS. 

Department of Energy

Accurate ●

7. Develop the point estimate and 

compare to an independent cost a

 ● 

ere used to develop 

estimate

A variety of cost-estimating 

methodologies w

the cost estimate. However, limited 

statistical testing was done on the 

underlying data. 

12. Update the estimate to reflect 

actual costs and changes 

● jor 

line, or if a major 

Cost estimates are updated for ma

events such as when a new 

contractor is selected, at the end of 

the near-term base

funding change is approved. The 

program does not have a formal 

process for capturing lessons learned.

Credible ●

7. Develop the point estimate and 

compare to an independent cost 

estimate 

 ● 

f the 

ed to 

In November 2007, an independent 

assessment was performed. The 

independent assessment only 

reviewed a selected portion o

project and is typically us

validate the technical approach. 

8. Conduct sensitivity analysis ● A sensitivity analysis was not 

performed. However, the project does 

consider variations in cost elements. 

9. Conduct risk and uncertainty 

analysis 

 ● Although a risk analysis was 

performed, the analysis did not 

address correlation. Also, the 

documentation and rationale behind 

the risk analysis were not provided. 

Sources: DOE (data), GAO (analysis) 

Note: The ratings we used in this analysis are as follows: 

documentation that satisfied the criterion; “Mostly” means provided the majority of 

e documentation to sa he criterion; “Partially” means that the program provided documentation 

ying p the criterion; “Somewhat” means t gram provided documentation 

tisfying a minor part o criterion; and “Not” m ns th

documentation that satisfied the criterion. 

a

This step applies to both accuracy and credibility. 

“Fully” means that the program provided 

 that the program

th

satisf

tisfy t

art of hat the pro

sa f the ea at the program did not provide 

Page 54 GAO-10-199 
Appendix IV: Comments from the Department Appendix IV: Comments from the of Energy 

Department of Energy 

Page 55 GAO-10-199 Department of Energy 
Appendix IV: Comments from the Department 

of Energy 

Page 56 GAO-10-199 Department of Energy
Appendix IV: Comments from the Department 

of Energy 

Page 57 GAO-10-199 Department of Energy
Appendix V: GAO Contact and Staff 

Acknowledgments 

Page 58 GAO-10-199 

Appendix V: GAO Contact and Staff 

 Department of Energy 

Gene Aloise, (202) 512-3841 or aloisee@gao.gov

In addition to the individual named above, Daniel Feehan, Assistant 

Director; Brian Bothwell; Rudy Chatlos; Nancy Crothers; Tisha Derricotte; 

Jennifer Echard; Mike Gallo; Kristen Massey; Brian Octeau; Cheryl 

Peterson; Leslie Kaas Pollock; and Jacqueline Wade made key 

contributions to this report. 

Acknowledgments 

GAO Contact 

Staff 

Acknowledgments 

(361004) 
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