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441 G St. N.W.

Washington, DC 20548

July 12, 2013

Congressional Committees

Nuclear Weapons: Factors Leading to Cost Increases with the Uranium Processing 

Facility 

The Y-12 National Security Complex in Oak Ridge, Tennessee, is the National Nuclear Security 

Administration’s (NNSA) site for conducting enriched uranium activities, producing uraniumrelated components for nuclear warheads and bombs, and processing nuclear fuel for the 

U.S. Navy.

1 According to NNSA, the Y-12 plant’s current enriched uranium operations (1) have 

an inefficient workflow due to the patchwork of facilities and equipment, (2) experience 

continually rising operations and maintenance costs and frequent outages and work 

interruptions due to facility age and deterioration, and (3) involve processes that could expose 

workers to radiological contamination, among other things. To address these issues, in 2004, 

NNSA decided to construct the Uranium Processing Facility (UPF).2

• consist of a single, consolidated uranium processing and component production facility 

less than half the size of the existing Y-12 plant facilities; 

 According to NNSA, the 

UPF will 

• reduce the costs of enriched uranium processing by using modern processing 

equipment and consolidated operations; and 

• use new technologies and other features that provide better worker protection and 

environmental health and safety. 

The UPF is to be built adjacent to the Highly Enriched Uranium Materials Facility (HEUMF)—the 

nation’s central repository for such material—and the facilities are to be joined.3 We reported in 

November 2010 that UPF had experienced significant cost increases.4

At the request of the Senate Appropriations Committee, Subcommittee on Energy and Water 

Development, and in accordance with the requirements contained in the National Defense 

More recently, the upper 

bound of the UPF’s cost range has increased from approximately $1.1 billion in 2004 to $6.5 

billion in 2012. 

 

1

NNSA is a separately organized agency within the Department of Energy. NNSA owns the buildings, equipment, and 

the components produced at the Y-12 plant, but the site is operated under contract to NNSA by Babcock & Wilcox 

Technical Services Y-12, LLC (B&W), a partnership of the Babcock & Wilcox Company and Bechtel Corporation. 

2

B&W is the contractor managing the UPF design and has subcontracted portions of the design work to four other 

contractors.

3

Constructed from 2004 to 2009, HEUMF is responsible for the receipt, shipment, and interim and long-term storage 

of current and projected inventories of highly enriched uranium. 

4 GAO, Nuclear Weapons: National Nuclear Security Administration’s Plans for Its Uranium Processing Facility 

Should Better Reflect Funding Estimates and Technology Readiness, GAO-11-103 (Washington, D.C.: Nov. 19, 

2010).
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Authorization Act for Fiscal Year 2013, GAO is to report quarterly on the UPF.5 Our objective for 

this first quarterly report was to identify factors that contributed to UPF’s cost increase.6

We conducted this performance audit from January 2013 to July 2013 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.

 During 

April 2013, we provided your staff with our preliminary observations on the reasons leading to 

UPF’s cost increases. The attached briefing slides include the information provided (see encl. I), 

and this report formally transmits this information to you. To conduct our work, we reviewed 

pertinent cost estimate documents prepared by NNSA; the UPF contractor; and the U.S. Army 

Corps of Engineers (Corps). We visited the Y-12 plant to receive briefings, tour the current 

enriched uranium facilities, and interview NNSA and contractor officials; we also interviewed 

NNSA headquarters officials and officials from the Corps. The Corps conducted an independent 

cost estimate of the UPF in 2011.

In summary, we found the following:

• Overly optimistic NNSA assumptions about the UPF contained in multiple cost estimates 

prepared from 2004 to 2011 are the primary factors that contributed to its cost increase.7

• In June 2012, the Deputy Secretary of Energy approved an updated cost range for the 

UPF ($4.2 to $6.5 billion) and deferred significant portions of the original scope. 

According to NNSA documentation, this deferral was due, in part, to the UPF’s increased 

cost estimate and to accelerate the completion of portions of the scope that were of 

highest priority. 

Initial UPF cost estimates in 2004 and 2007 were largely based on the estimated cost to 

construct HEUMF because the facilities were assumed to be similar in form and design. 

However, NNSA designed the HEUMF as a storage facility for highly enriched uranium, 

in contrast to the more complex assembly/disassembly, processing, and machining 

operations that are to be housed in UPF. In addition, revised UPF cost estimates in 2010 

and 2011 assumed that annual appropriations would not be subject to budget 

constraints. None of these assumptions proved to be accurate.

• In August 2012, the UPF contractor concluded that the UPF’s roof would have to be 

raised 13 feet and that the start of construction would be further delayed. These factors 

resulted in approximately $540 million in additional costs to the UPF and occurred 

because the contractor did not adequately manage and integrate the design work 

subcontracted to the four other contractors. Given these additional costs, the confidence 

in the cost estimate range approved in June 2012 has been reduced, and it is not clear if 

the cost estimate range remains valid.

 

5

The National Defense Authorization Act for Fiscal Year 2013 renamed the UPF as the Uranium Capabilities 

Replacement Project. NNSA uses the new nomenclature in its fiscal year 2014 budget request.

6

Subsequent quarterly reports will focus on technology readiness and risk management, among other things. 

7

In January 2010, we found that DOE and NNSA needed to improve their cost-estimating practices. See, GAO, 

Department of Energy: Actions Needed to Develop High Quality Cost Estimates for Construction and Environmental 

Cleanup Projects. GAO-10-199 (Washington, D.C.: Jan. 14, 2010).
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For additional information on the results of our work, please see the briefing slides provided in

enclosure I. While we are currently not making any recommendations for congressional 

consideration or agency action, we will continue to review UPF as required by the National 

Defense Authorization Act for Fiscal Year 2013. In addition, we have ongoing audits on NNSA 

major projects and cost-estimating practices and will make recommendations, if appropriate, 

based on these future reviews.

We provided a draft of this report to NNSA for review and comment. In written comments (see 

encl. II), NNSA’s Associate Administrator for Management and Budget stated that, while our 

presentation was generally accurate with respect to the history of the UPF cost estimates, the 

agency believes the presentation does not reflect the efforts taken to improve UPF cost 

estimating and project execution. In its comments, NNSA provided several examples of 

completed and ongoing corrective actions, such as making significant organizational changes;

applying dedicated resources to improve the evaluation of the UPF’s cost estimate; and 

articulating expectations to its contractor partners and using the contract to hold the UPF 

contractor team accountable for deficient work, which the agency believes will improve UPF 

project management. Furthermore, in its comments, the Associate Administrator for 

Management and Budget stated that NNSA had corrected the contractor’s cost estimating 

optimism bias and improved its risk management processes and are updating assessments of 

cost and impact as the UPF project design continues to mature. NNSA’s comments stated that 

with these corrective actions in place, the agency believes that the cost baseline established at 

the next key project milestone will represent a credible basis for completing the project within 

the established cost. 

Evaluating the effectiveness of UPF-related corrective actions was beyond the scope of this 

work. We are encouraged by NNSA’s stated efforts to improve its cost estimating and project 

management capabilities. It is possible that some of NNSA’s stated actions, such as correcting 

the contractor’s cost estimating optimism bias, could result in a more accurate cost estimate. 

However, there remains some uncertainty regarding UPF’s cost estimate. As noted in our 

briefing slides, NNSA did not update the June 2012 range estimate to fully reflect the $540 

million in additional costs associated with the need to raise UPF’s roof 13 feet to ensure the 

processing equipment would fit into the facility (i.e., the space/fit issue). NNSA plans to 

complete its review and approval of a new official cost estimate during the next key project 

milestone in June 2014—approximately 2 years after NNSA learned of the space/fit issue. As 

our briefing slides also discuss, several identified project risks remain and will require mitigation 

if they occur. Until the estimate is updated in June 2014, it is unclear how the agency’s stated 

corrective actions, the $540 million in additional costs, and the remaining project risks will 

impact the new cost estimate. 

- - - - -

We are sending copies of this report to the Secretary of Energy, Administrator of NNSA, and the

appropriate congressional committees. This report is also available at no charge on the GAO

website at http://www.gao.gov.
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If you or your staff members have any questions concerning this report, please contact me at 

(202) 512-3841 or trimbled@gao.gov. Contact points for our Offices of Congressional Relations 

and Public Affairs may be found on the last page of this report. GAO staff who made key 

contributions to this report were Jonathan Gill (Assistant Director), Patrick Bernard, Will Horton, 

Jason Lee, Timothy Persons, Cheryl Peterson, and Karen Richey. 

David C. Trimble

Director, Natural Resources and Environment

Enclosures—2 
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List of Committees

The Honorable Carl Levin 

Chairman

The Honorable James M. Inhofe

Ranking Member

Committee on Armed Services

United States Senate

The Honorable Dianne Feinstein

Chairman

The Honorable Lamar Alexander

Ranking Member

Subcommittee on Energy and Water Development

Committee on Appropriations

United States Senate

The Honorable Howard P. “Buck” McKeon

Chairman

The Honorable Adam Smith

Ranking Member

Committee on Armed Services

House of Representatives

The Honorable Rodney P. Frelinghuysen 

Chairman

The Honorable Marcy Kaptur

Ranking Member 

Subcommittee on Energy and Water Development 

Committee on Appropriations 

House of Representatives 
Enclosure I

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Comment from the National Nuclear Security Administration
Enclosure II

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