National Nuclear Security Administration: Agency Expanded Use of Some Federal Oversight Reforms, but Is Still Determining Future Plans
Published: 2014-07-17T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: NNSA, a separately organized agency within DOE, has had long-standing problems managing its contracts and projects, which GAO has identified as being at high risk for fraud, waste, abuse, and mismanagement. Both DOE and, specifically, NNSA, undertook initiatives in 2002 and 2003 to improve contractor performance through revised federal oversight and greater contractor accountability. In 2006, concerned that efforts were moving too slowly, the NNSA Administrator tasked its KCP Field Office and contractor with implementing reforms at that site.
House Report 113-102, accompanying H.R. 1960, an early version of the National Defense Authorization Act for Fiscal Year 2014 mandated GAO to review the KCP reforms and issues with extending them to other NNSA sites. This report, among other things, (1) identifies key reforms implemented at KCP and reported benefits; (2) describes key factors NNSA and others identified as helping the site implement reforms; and (3) provides information on how NNSA has implemented and plans to implement similar reforms at other sites. GAO reviewed relevant documents prepared by NNSA, DOE, contractors, and others; visited KCP; and discussed the reforms with cognizant federal officials and contractor staff.
During GAO's review, Congress required NNSA to develop a study and plan for implementing the principles of the Kansas City reforms at its other sites. In light of the congressional requirement, GAO is not making additional recommendations at this time. NNSA generally agreed with the findings of this report.
section_title: What GAO Found
paragraphs: Key reforms at the National Nuclear Security Administration's (NNSA) Kansas City Plant (KCP)—a site in Missouri that manufactures electronic and other nonnuclear components of nuclear weapons—included (1) streamlining operating requirements by replacing Department of Energy (DOE) requirements with industry standards, where appropriate; (2) refocusing federal oversight to rely on contractor performance data for lower-risk activities; and (3) establishing clear contractor goals and incentives. A 2008 review of the reforms reported nearly $14 million in cost reductions were achieved at the site by implementing these reforms.
NNSA and KCP federal and contractor staff identified key factors that facilitated implementation of reforms at KCP, including the following:
High-level support from NNSA and field office leadership . Gaining and maintaining the support of the NNSA Administrator and buy-in of some KCP Field Office staff for changes from the reforms was critical.
Unique site conditions and operations . Conditions at KCP enabled implementation of the proposed reforms, including (1) the comparability of the site's activities and operations to those of commercial industry; (2) the site's relatively low-risk, nonnuclear activities generally did not involve or potentially affect nuclear safety and security; and (3) the site was managed by a contractor owned by a single corporate parent with a reputation for quality.
A cooperative federal-contractor partnership . A cooperative relationship between the KCP Field Office and the contractor facilitated implementation of the reforms.
NNSA has extended to other sites some elements of the reforms, including (1) encouraging greater use of industry standards, where appropriate; (2) directing field office oversight staff to rely more on contractor self-assessment of performance for lower-risk activities; and (3) setting clearer contractor goals by revising how the agency evaluates annual contractor performance. However, NNSA and DOE are re-evaluating implementation of some of these reforms after a July 2012 security breach at an NNSA site, where overreliance on contractor self-assessments was identified by reviews of the event as a contributing factor. Moreover, NNSA officials and other studies noted that key factors enabling implementation of reforms at KCP may not exist at NNSA's other sites. For example, most NNSA sites conduct high-hazard activities, which may involve nuclear materials and require higher safety and security standards than KCP. NNSA is evaluating further implementation of such reforms and expects to report to Congress its findings later in 2014.

section_title: Letter
paragraphs: The National Nuclear Security Administration (NNSA), a separately  organized agency within the Department of Energy (DOE), is responsible  for managing nuclear weapon- and nonproliferation-related missions in  research and development laboratories, production plants, and other  facilities—known collectively as the nuclear security enterprise. NNSA  directs these national security missions, but work activities are largely  carried out by contractors under management and operating (M&O)  contracts at NNSA’s eight government-owned, contractor-operated sites.  To implement its programs, NNSA relies on M&O contractors to manage  day-to-day site operations and to adhere to laws and regulations and  requirements provided in DOE and NNSA directiveslaboratories, production plants, and other sites within the complex.   when operating the  Because many NNSA sites conduct hazardous operations and handle  special nuclear material that can be used in nuclear weapons, such as  plutonium-239 or highly enriched uranium, effective federal oversight is  critical to ensuring that national security, human health and safety, and  the environment are not harmed.
Long-standing problems have led us to designate DOE’s and,  subsequently, NNSA’s contract and project management as high risk for  fraud, waste, abuse, and mismanagement since 1990—the first year we  published the high-risk list. To address these problems, both the  department and, specifically, NNSA, have undertaken initiatives to  improve contractor performance through revised federal oversight and  greater contractor accountability. In April 2002, for example, the DOE Undersecretary outlined approaches for improving Office of Sciencecontract performance and promoting greater contractor accountability by,  among other things, (1) relying primarily on federal, state, and local laws,  regulations, and national standards, while minimizing the use of DOE  directives; (2) using third-party certification by nationally recognized  experts to supplement federal oversight and to certify that the contractor’s  management systems meet applicable laws and regulations; and, (3)  moving from an oversight approach of compliance against requirements  to reviewing a contractor’s system for identifying and correcting problems.  In December 2002, NNSA announced a similar initiative to improve and  streamline federal oversight of its M&O contractors by reviewing the M&O  contractor’s assurance systems, processes, and data instead of  monitoring certain lower-risk activities, such as business operations.  Under this approach, contractors would self-monitor lower-risk activities.  In 2003, the Secretary of Energy tasked other offices within the  department with implementing similar reforms to those of the Office of  Science and NNSA across the department. In April 2006, concerned that  efforts to improve contractor performance were moving too slowly, the  —a site  NNSA Administrator tasked NNSA’s Kansas City Plant (KCP)that manufactures electronic and other nonnuclear components for  nuclear weapons—with implementing management and oversight  reforms.
This office was formerly known as the Kansas City Site Office during the reform  implementation period.
Tennessee, whose root causes are similar to some of the reforms  implemented at KCP.
House Report 113-102, accompanying H.R. 1960, an early version of the  National Defense Authorization Act for Fiscal Year 2014,GAO to review the KCP reforms and issues related to extending these  reforms to other NNSA sites. Accordingly, this report (1) identifies the key  reforms implemented at KCP and reported benefits; (2) describes the key  factors that NNSA, KCP and others identified as helping the site  implement reforms; and (3) provides information on how NNSA has  implemented or plans to implement similar reforms at other sites. We  provided an oral briefing of our preliminary results to your staff on  November 15, 2013. Subsequent to our briefing, section 3130 of the  National Defense Authorization Act for Fiscal Year 2014 was enacted and  requires the NNSA Administrator to develop a feasibility study and plan  that, among other things, examines the applicability of all or some of the  principles of the KCP reforms to additional facilities in the national  security enterprise by June 2014.
To describe the KCP reforms, reported benefits, as well as key factors  that NNSA and KCP officials identified as helping the site develop and  implement reforms, we reviewed NNSA, DOE, and contractor documents  relating to the development and implementation of the KCP reforms. We  also visited KCP and discussed the reforms, the implementation process,  and current status with federal and contractor officials. We also reviewed  assessments of the KCP reforms. We analyzed NNSA cost-reduction  estimates resulting from implementing the reforms and discussed these  with KCP Field Office officials and contractor representatives at KCP. In  addition, we discussed cost-reduction estimates with the author of a  January 2008 study commissioned by the KCP contractor to assess the  cost reductions associated with the reforms and the degree to which the  reforms were implemented. To obtain information on the extent to which  NNSA has implemented or plans to implement KCP reforms at other  sites, we discussed the reforms with NNSA’s Associate Principal Deputy  Administrator. We also discussed the reforms with independent experts,  including officials from DOE’s Office of Health, Safety, and Security; the  Defense Nuclear Facilities Safety Board; the National Academy of  Public Administration; the National Academy of Sciences; and a  representative from J.W. Bibler & Associates, contracted by the KCP  contractor to assess cost reductions associated with implementation of  the reforms.
We conducted this performance audit from July 2013 to July 2014 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.
subsections: section_title: Background
paragraphs: To carry out NNSA’s nuclear weapons and nonproliferation missions,  contractors at the eight NNSA sites conduct research, manufacturing,  testing at facilities located at those sites. (See fig. 1.)
DOE establishes safety or security requirements based on a  categorization of site-specific risks, including hazardous operations and  the presence of special nuclear material—material which can be used in  producing nuclear weapons. Federal regulations define three categories  of nuclear facilities based on the potential significance of radiological  consequences in the event of a nuclear accident. These categories range  from Hazard category 1 nuclear facilities with the potential for off-site  radiological consequences, to Hazard category 2 nuclear facilities with  the potential for significant on-site radiological consequences beyond the  facility but which would be contained within the site, to Hazard category 3  nuclear facilities with the potential for significant radiological  consequences at only the immediate area of the facility. In terms of  security, DOE’s security orders establish levels of security protection  according to a site’s types and quantities of special nuclear material.  Special nuclear material is classified according to 4 levels—Category I   Accordingly, DOE’s sites with  (highest risk) to Category IV (lowest risk).Category I nuclear materials—including specified quantities and forms of  special nuclear material such as nuclear weapons and nuclear weapons  components—require the highest level of security since the risks may  include the theft of a nuclear weapon or creation of an improvised nuclear  device capable of producing a nuclear explosion.
As discussed earlier, work activities to support NNSA’s national security  missions are largely carried out by M&O contractors. This arrangement  has historical roots. Since the Manhattan Project produced the first atomic  bomb during World War II, DOE, NNSA, and predecessor agencies have  depended on the expertise of private firms, universities, and others to  carry out research and development work and operate the facilities  necessary for the nation’s nuclear defense. Currently, DOE spends 90  percent of its annual budget on M&O contracts, making it the largest non- Department of Defense contracting agency in the government. NNSA’s  M&O contractors are largely limited liability companies consisting of  multiple member companies. Contractors at only two NNSA sites—the  KCP and Sandia National Laboratories—are owned by a sole parent  corporation.
NNSA requires its contractors to adhere to federal laws, departmental  regulations, and DOE and NNSA requirements that are provided in the  department’s system of directives, including policies, orders, guides, and  manuals. The agency incorporates directives into contracts and holds  contractors accountable for meeting the associated requirements.  Contractors, NNSA, DOE, and other organizations manage and oversee  operations through a multitiered approach. First, contractors manage  operations, conduct self-assessments, and perform corrective actions to  maintain compliance with government expectations. Second, NNSA  headquarters organizations (1) set processes and corporate expectations  for contractors managing the sites, (2) have primary responsibility for  ensuring contractors are performing and adhering to contract  requirements, and (3) evaluate contractor performance. Third, NNSA’s  field offices oversee the contractors on a daily basis. This includes on-site  monitoring and evaluating contractor work activities. Fourth, entities  outside of NNSA provide independent oversight of contractor  performance. In particular, DOE’s Office of Health, Safety, and Security  (HSS), is responsible for, among other things, developing the department’s safety and security policy, providing independent oversight  of contractor compliance with DOE’s safety and security regulations and  directives, and conducting enforcement activities. The Defense Nuclear  Facilities Safety Board also provides oversight of nuclear safety that is  independent of NNSA and DOE.
section_title: According to NNSA and KCP Officials, KCP Reforms to Streamline Requirements, Refocus Federal Oversight, and Establish Clear Contractor Incentives Produced a Number of Benefits
paragraphs: In implementing its new management and oversight approach in 2007,  KCP implemented reforms that sought to (1) streamline operating  requirements, (2) refocus federal oversight, and (3) provide clear  contractor goals and meaningful incentives. KCP reported that these  actions produced a number of benefits, including cost reductions at the  site. According to the KCP Field Office and contractor, KCP under took  the following actions:
Streamlined operating requirements. The KCP Field Office sought  to streamline operating requirements and limit the imposition of new  DOE requirements in the future. These changes included eliminating,  where possible, some DOE directives and replacing others with  industry or site-specific standards, such as quality assurance  requirements and emergency management requirements. The  contractor remained obligated to meet all applicable federal laws and  regulations. According to the contractor, by 2009, the site had  reduced 160 operating requirements from specific DOE orders,  regulations, and other standards to 71 site operating requirements.  For example, the site replaced requirements from DOE’s quality  assurance order with quality assurance processes outlined in the  International Standards Organization’s Standard 9001-2008, an  international standard used in private industry to ensure that quality  and continuous improvement are built into all work processes. KCP  was also able to eliminate its on-site fire department by relying on  municipal firefighting services to fulfill a DOE requirement for site fire  protection capability. To help limit future growth of requirements,  KCP implemented a directives change control board. This group, with  joint federal Field Office and contractor staff membership, reviews  new or revised directives to determine their applicability to the  contract, rejecting those requirements not deemed to be relevant.  According to a KCP Field Office official, since 2007, the board has  rejected 235 of 370 new directives issued by DOE and other  sources. The KCP Field Office official noted that reasons for  rejecting directives include their inapplicability to a nonnuclear site or  because the new directive requirements were already covered in  KCP’s site-specific standards.
Refocused federal oversight. The KCP Field Office sought to  refocus federal oversight by (1) changing its approach from reviewing  compliance with requirements to monitoring contractor assurance  systems for lower-risk activities; (2) exerting greater control over audit  findings at the field office level; and (3) increasing its use of external  reviewers. First, the field office changed its oversight approach from  reviewing compliance of all contractor activities to allowing the  contractor to assume responsibility for ensuring performance in lower- risk activities, allowing federal staff to concentrate resources on  monitoring high-risk activities such as safety and security. In this  approach, the field office moved from a traditional “transactional”  oversight—in which performance is determined by federal oversight  staff checking compliance against requirements—to a “systems- based” oversight—in which performance on lower-risk activities is  ensured by monitoring the contractor’s systems, processes, and data,  including its systems of self-assessment and actions to correct  problems. According to KCP Field Office officials, federal oversight  staff assumed the role of reviewing the contractor’s management and  oversight systems, as well as reviewing selected data provided by  these systems, to ensure adequate processes were in place to  identify and correct problems.
Second, the field office exerted greater control over audit findings  from external reviews, by determining which findings would need to be  addressed by the contractor. According to KCP Field Office and  contractor officials, this ability to accept or reject audit findings from  external reviews enabled the field office to prevent implementation of  new requirements that would not be applicable at the site. According  to another KCP Field Office official, although the field office had this  authority under the reforms, it had not rejected any audit findings.  Finally, to revise its oversight approach, the KCP Field Office relied  more on third-party assessments or certifications of contractor  performance in place of federal oversight reviews, according to a field  office official. Such assessments included those by the contractor’s  parent corporation, as well as external groups, such as the Excellence  in Missouri Foundation, which administers the Missouri Quality Award  to promote quality in business in the state.
Clear contractor goals and meaningful incentives. KCP Field  Office officials noted that, under the reforms, the Field Office and the  contractor agreed on five outcome areas for contractor performance,  and performance award fees were linked to these outcome areas.  This differed from the previous approach under which performance  award fees were linked to meeting headquarters expectations and  directive requirements. KCP Field Office officials noted this allowed  them to focus performance award fee on “what” a contractor does,  rather than on “how” it meets requirements. Under the reforms, the  five outcome areas on which performance would be evaluated  included: (1) meeting product schedule; (2) meeting product  specification; (3) managing cost; (4) managing assets and resources,  including facilities, inventory, and staff; and (5) meeting contract  standards. Under the reforms, each year, the KCP Field Office  highlighted performance areas of major importance to encourage the  contractor to focus resources on those areas, rather than expending  resources on what the field office and contractor agrees are less  important goals and requirements. In this framework, the contractor is  eligible to earn the majority of associated fees as long as adequate  performance was achieved. According to the KCP Field Office  implementing plan, this differed from the previous approach, under  which the contractor needed to exceed performance expectations to  earn more than 60 percent of an award fee. KCP Field Office officials  noted a key to effective contract management under the reforms was  the ability of the field office to hold the contractor accountable by  focusing fee on desired outcomes.
In implementing the reforms, the site reported it was able to reduce costs  in its initial year of implementation, some of which was achieved by  decreasing oversight staff. A January 2008 review commissioned by the  KCP Field Office to assess cost savings resulting from implementing the  reforms reported the Field Office achieved a cost reduction of $936,000  in fiscal year 2007 by eliminating, through attrition, eight full-time staff  positions. The total savings this review reported was nearly $14 million  (fiscal year 2006 dollars) which comprised cost reductions that had been  achieved in fiscal 2007 directly or indirectly by implementing the KCP  reforms. This reported $14 million in cost reductions was about 3 percent  of the site’s overall fiscal year 2007 budget of about $434 million.  According to a KCP Field Office official, no further analyses of cost  savings has been conducted since that time.
section_title: NNSA and KCP Identified Key Factors As Helping Reform Implementation
paragraphs: Reviews of the reforms, as well as NNSA and KCP Field Office and  contractor officials, cited several important factors that assisted with  implementation of the reforms at the site. Key factors included having (1)  high-level support from leadership for reforms, (2) site specific conditions  and operations, and (3) a cooperative federal-contractor partnership.
High-level support from NNSA and field office leadership and key  stakeholders. According to a 2008 KCP Field Office review of  lessons learned from implementing the reforms, gaining and  maintaining the support of the NNSA Administrator and buy-in from  some of the KCP federal staff for changes was critical to their  implementation. With the support of the NNSA Administrator, the  KCP Field Office Manager was given clear authority and responsibility  to make the changes necessary to implement the reforms. According  to the 2008 review, implementation required getting support from  federal staff at the site, whose oversight activities were likely to  change because of the reforms. The KCP Field Office Assistant  Manager told us field office staff involved in oversight at the site were  initially reluctant to make the necessary changes to their oversight  activities—such as moving away from a compliance-type oversight  approach to relying on reviews of contractor assurance systems—but  they ultimately agreed to the changes. The 2008 KCP Field Office  review of lessons learned noted that acceptance by stakeholders was  more easily obtained for reforms such as applying industry standards  because of the unique operations at KCP, which included lower risk,  nonnuclear activities. These stakeholders included program offices  within NNSA. Other stakeholders were more qualified in their support.  For example, DOE’s HSS reported in a March 2008 review of the KCP  reforms that, overall, the reform framework had the potential for  providing sufficient federal oversight at reduced cost for the site. The  report also found, however, that some weaknesses existed in  implementing the reforms, such as the field office not being able to  complete a significant percentage of scheduled security oversight  reviews and observations in fiscal year 2007 due to staffing shortages  and not having adequate reviews of site-specific standards for  safeguards and security.
Unique site conditions and operations. In selecting KCP to  implement the reforms in 2006, the NNSA Administrator noted that, in  comparison to NNSA’s other sites, unique conditions existed at the  site that enabled implementation of the proposed reforms. These  conditions included (1) KCP operations, which are largely  manufacturing, were comparable to those of commercial industry,  most notably the aerospace industry; (2) activities at the site were  largely lower-risk, nonnuclear, and generally did not involve or  potentially affect nuclear safety and security; and (3) the site  contractor was owned by a single corporate parent—Honeywell—that  has, according to a Field Office official, well-developed corporate  management systems and a commitment to quality. In addition, the  implementation of reforms at KCP was undertaken at a time of  broader operational changes at KCP. More specifically, NNSA was in  the process of modernizing KCP operations to lower operations and  maintenance costs. This included building and relocating to a new  modernized production facility and increasing the use of external  suppliers for nonnuclear components rather than producing the  components in-house. According to a KCP Field Office official, as of  April 2014, more than 70 percent of operations had been moved to  the new facility.
A cooperative federal-contractor partnership. The KCP Field  Office noted in its April 2008 review of lessons learned from  implementing the reforms that development of the reforms was  enabled because of a cooperative relationship between the field office  and the contractor. According to the review, a steering committee with  members from both the KCP Field Office and the contractor managed  the implementation of the reforms. These members agreed to the  overall objectives and key elements of the reforms early in the  process and worked together to develop those key reforms. According  to this field office review, this cooperative relationship not only eased  implementation of the reforms but assisted in gaining approval for the  reforms from NNSA and DOE headquarters officials. The January  2008 study assessing cost reductions resulting from implementing the  reforms found that this cooperation between site federal and  contractor officials had developed over a period of years.
In addition, KCP Field Office officials told us that having the  leadership and involvement by the contractor’s parent corporation  resulted in greater accountability. According to a 2009 review  commissioned by NNSA to assess the reforms, the parent corporation was responsible for setting core processes and policies,  determining best practices to be implemented, and ensuring the field  office maintained transparency in how the site was managed. This  was a change from the previous approach, whereby the contractor  adhered to NNSA-set expectations and requirements. In addition,  under the reforms, the contractor was allowed to leverage corporate  management systems, in place of DOE-required systems to manage  work and performance. KCP Field Office officials noted that, although  the contractor was held responsible for the agreed-upon mission  performance outcomes, it fell to both the contractor and the parent  company to fix any problems. According to the 2009 review, allowing  the contractor to use corporate management systems resulted in  encouraging the parent company to take a more active part in  providing oversight.
section_title: NNSA Has Implemented Some KCP-Like Reforms at Its Other Sites, but Applicability and Future Plans Are Still Being Determined
paragraphs: Since the 2007 implementation of reforms at KCP, NNSA has taken steps  to extend some elements of the site’s reforms at other NNSA sites and to  integrate the reforms into subsequent agency-wide initiatives to improve  contractor performance and accountability. However, NNSA is revisiting  the reforms following a July 2012 security breach at one of its sites, and  NNSA’s future plans to continue extending KCP-like reforms at its other  sites are currently uncertain.
After KCP undertook implementation of its reforms in 2007, NNSA began  to implement similar reforms at selected sites and subsequently,  incorporated elements of the reforms into agency-wide initiatives to  improve oversight and management of M&O contractors. At the site level,  in 2009, the NNSA Administrator formed an internal team to look at ways  of accelerating efforts to implement KCP-like reforms at other NNSA  sites, where appropriate. In addition, in February 2010, the NNSA  Administrator tasked officials at the Sandia National Laboratories and  Nevada Test Site with implementing reforms similar to those implemented  at KCP for nonnuclear activities. These two sites were to, among other  things, (1) streamline operating requirements by identifying opportunities  to eliminate some agency requirements and make greater use of industry  standards; (2) refocus federal oversight by, among other things, making  greater use of the contractor’s management system; and (3) set clear  contractor goals and meaningful incentives following the KCP approach.  The two sites were tasked with identifying cost efficiencies associated  with implementing these reforms.
In 2010, NNSA issued two Policy Letters that sought to streamline  security requirements for the control of classified information, such as  classified documents and electronic media, and on the physical protection  of facilities, property, personnel, and national security interests, such as  special nuclear material. These two policy letters were included in  NNSA’s M&O contracts in place of the corresponding DOE directives.
Subsequently, in 2011, NNSA issued a new policy for all of its sites that  outlined basic requirements for a new oversight and management  approach that had roots in the KCP reforms. This new policy—called  “transformational governance”—directed, for example, site oversight staff  to focus greater efforts on assessing contractor performance in higher- risk activities, such as security, and for lower-risk activities, rely more  heavily on monitoring contractor assurance systems. More broadly, DOE  was undertaking similar reforms during this period. Specifically, in March  2010, the Deputy Secretary of Energy announced an initiative to revise  DOE’s safety and security directives by streamlining or eliminating  duplicative requirements, revising federal oversight and encouraging  greater use of industry standards. As we reported in 2012, DOE’s effort  resulted in reducing the overall number of directives. For example, DOE  reduced its number of safety directives from 80 to 42.
However, according to NNSA officials, since the July 2012 security  breach at NNSA’s Y-12 National Security Complex in Oak Ridge,  Tennessee, some of NNSA’s efforts to extend KCP-like reforms to other  sites have been placed on hold or are being revised, and NNSA’s plans  on how to further implement KCP-like reforms are still being determined.  DOE and NNSA reviews of the security breach indicated that its  underlying causes may have been related to implementation of reforms  similar to some of those implemented at KCP. For example, a 2012  review of the security breach by the DOE’s Office of Inspector General  noted that a breakdown in oversight, specifically one based on monitoring  the contractor’s systems instead of compliance with requirements, did not  alert site officials to conditions that led to the breach.
In the aftermath of the security breach, NNSA and DOE have moved  cautiously to reevaluate or revise reforms, and agency officials told us it is  still determining how reforms will be implemented in the future. NNSA is  currently reevaluating how to implement some of the principal aspects of  the KCP reforms identified earlier in this report—streamlining  requirements, refocusing federal oversight, and establishing clear  contractor goals, including:
Streamlining operating requirements. Since the July 2012 Y-12  security breach, NNSA has been reassessing the need for some  NNSA-specific policies. For example, NNSA initiated actions to  rescind certain NNSA security policies and reinstate DOE’s security  directives. NNSA initiated these actions in response to a  recommendation made in 2012 by the NNSA Security Task Force—a  task force established by the NNSA Administrator in August 2012 to  assess NNSA’s security organization and oversight in the wake of the  Y-12 security breach. As of March 2014, according to NNSA officials,  NNSA sites were in varying stages of incorporating the DOE  directives into their contracts and implementing the associated  requirements.
Refocusing federal oversight. Since the July 2012 Y-12 security  breach, NNSA has been reviewing the use of contractor assurance  systems in its oversight model and for evaluating contractor  performance. According to a February 2013 report by the Office of  Inspector General, the July 2012 Y-12 security breach highlighted the  negative outcomes that may result when contractor assurance  systems are too heavily relied on for federal oversight. The February  2013 report noted that the Y-12 contractor’s assurance system did not  identify or correct major security problems that led to the security  breach, and that while federal oversight staff knew of some security  problems, they believed that the agency’s oversight approach of  relying on the contractor assurance system prevented them from  intervening in contractor activities to correct problems. In reevaluating  NNSA’s oversight approaches, according to the Associate Principal  Deputy Administrator, the agency is continuing to work on establishing  contractor assurance systems but is moving toward using these  systems to enable, rather than replace, federal oversight. In addition,  according to the official, NNSA has recommitted to strengthening  oversight, both by working to ensure sufficient oversight staff are in  place in field offices and by leveraging independent oversight by  DOE’s HSS. According to NNSA’s Acting Assistant Administrator for  Infrastructure and Operations, as of February 2014, the agency was  looking at opportunities to evaluate how best to use contractor  assurance systems and data in federal oversight of contractor performance and was currently revising its oversight policy.
Setting clear contractor goals and meaningful incentives. Prior to  the July 2012 Y-12 security breach, NNSA had been reassessing how  it evaluated contractor performance and held contractors responsible  for meeting agency goals. In fiscal year 2013, NNSA introduced its  Strategic Performance Evaluation Plan, which lays out broad,  common goals to which each site must contribute to achieve the  overall agency mission. According an NNSA headquarters official, the  plan streamlines NNSA evaluation of contractor performance by  focusing on each site’s contribution to the common set of desired  agency outcomes—such as its nuclear weapons mission, and science  and technology objectives. The official indicated that NNSA will  evaluate each site using a standardized set of ratings as defined in  regulation to replace the previous system of unique site-office- developed and site-office-evaluated performance ratings. According to  the NNSA official, the Strategic Performance Evaluation Plan should  help ensure consistent performance evaluation across the  enterprise.
Although some opportunities may exist for implementing KCP-like reforms  at other NNSA sites, since the Y-12 security breach, NNSA officials and  studies we reviewed noted that key factors enabling implementation of  the reforms at KCP may not be present across the nuclear security  enterprise. As noted above, these factors include having (1) high-level  support for such reforms at NNSA headquarters; (2) specific site  conditions to enable implementation, such as having a contractor with a  single parent corporation and work activities that are solely nonnuclear in  nature; and (3) a cooperative federal-contractor relationship. First,  regarding high-level headquarters support for extending the KCP reforms,  NNSA’s Acting Assistant Administrator for Infrastructure and Operations  told us, in February 2014, that critical organizational issues, such as  clarifying headquarters’ organization and establishing field office roles  and responsibilities for overseeing contractors, were still being discussed  within NNSA and need to be settled before moving forward on KCP-like  reforms.
Second, most NNSA sites differ considerably from KCP (see table 1).
For example, reports we reviewed noted that, because most NNSA sites  are managed and operated by limited-liability companies made up of  multiple member companies, instead of by a single parent corporation,  adopting the reforms elsewhere would be challenging. According to the  January 2008 study commissioned by the KCP to assess cost reductions  from implementing the reforms, having multiple corporate partners could  limit successful implementation of KCP-like reforms at other NNSA sites.  Specifically, the study notes that a single corporate parent can more  easily use existing corporate systems to oversee and manage its  subsidiary M&O entity, whereas this model may not work with an M&O  having multiple member organizations. In addition, as noted above, the  KCP M&O contractor’s parent company was a Fortune 100 company  with, according to a KCP Field Office official, a strong commitment to  quality. In addition, an April 2008 KCP Field Office review of the reforms  noted that implementation was enabled at KCP because the site activities  were considered low-risk and nonnuclear. The review stated that it was  not clear how to apply similar reforms to other NNSA sites, most of which  have some nuclear operations, nuclear or other high-risk materials, or  nuclear waste requiring disposition. Further, the March 2008 review by  the department’s HSS noted that KCP is a unique operation within NNSA  and that careful analysis would need to be done if consideration will be  given to applying the reforms to other sites, particularly where hazards  are more complex or where the contractor’s ability to self-identify and  correct program weaknesses is not mature.
Third, the January 2008 cost reductions study noted that having a single  parent company governing the KCP M&O contractor for decades resulted  in establishing a cooperative relationship between the federal government  and its contractor. More specifically the study noted that successful  implementation of reforms at KCP resulted, in part, from the mutual trust  built between the field office and contractor staff. However, a February  2012 National Research Council report that examined NNSA’s  management of its three national security laboratories found there had  been an erosion of trust between NNSA and its laboratories, and it  recommended the agency work toward rebuilding positive relationships  with its laboratories. Diminished trust between NNSA and its sites was  also highlighted in a recently issued report by a congressional advisory  panel, which described the relationship as “dysfunctional.”
During the course of our work, in December 2013, the National Defense  Authorization Act for Fiscal Year 2014 was enacted. act required the NNSA Administrator to develop a feasibility study and  plan for implementing the principles of the KCP pilot to additional facilities  in the national security enterprise by June 2014. We agree that further  study of the applicability, costs, and benefits of the KCP reforms is  warranted, and, in light of the congressional direction to NNSA, we are  not making recommendations at this time.
section_title: Agency Comments
paragraphs: We provided a draft of this report to NNSA for its review and comment. In  written comments, reproduced in appendix I, NNSA generally concurred  with the overall findings of the report. The agency noted that it continues  to study the appropriateness of further expansion of the Kansas City Pilot  oversight reforms to other sites and implementation of NNSA’s  governance policy. NNSA also provided technical comments that we  incorporated, as appropriate.
We are sending copies of this report to the appropriate congressional  committees, the Secretary of Energy, and other interested parties. In  addition, the report is available at no charge on the GAO website at  http://www.gao.gov.
Pub. L. No. 113-66, 127 Stat. 672.
If you or your staff members have any questions about this report, please  contact me at (202) 512-3841 or trimbled@gao.gov. Contact points for  our Offices of Congressional Relations and Public Affairs may be found  on the last page of this report. GAO staff who made key contributions to  this report are listed in appendix II.
section_title: Appendix I: Comments from the Department of Energy
section_title: Appendix II: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: In addition to the individual named above, Jonathan Gill, Assistant  Director; Nancy Kintner-Meyer; Cynthia Norris; and Kiki Theodoropoulos  made key contributions to this report.