Nuclear Weapons: Opportunities Exist to Improve the Budgeting, Cost Accounting, and Management Associated with the Stockpile Life Extension Program
Published: 2003-07-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: As a separately organized agency within the Department of Energy (DOE), the National Nuclear Security Administration (NNSA) administers the Stockpile Life Extension Program, whose purpose is to extend, through refurbishment, the operational lives of the weapons in the nuclear stockpile. NNSA encountered significant management problems with its first refurbishment. NNSA has begun three additional life extensions. This study was undertaken to determine the extent to which budgetary, cost accounting, and other management issues that contributed to problems with the first refurbishment have been adequately addressed.
section_title: What GAO Found
paragraphs: GAO found that NNSA's budget for the Stockpile Life Extension Program has not been comprehensive or reliable. For instance, the fiscal year 2003 budget for this program was not comprehensive because it did not include all activities necessary to successfully complete each of the refurbishments. As a result, neither NNSA nor the Congress was in a position to properly evaluate the budgetary tradeoffs among the refurbishments in the program. NNSA does not have a system for tracking the full costs associated with the individual refurbishments. Instead, NNSA has several mechanisms that track a portion of the refurbishment costs, but these mechanisms are used for different purposes, include different types of costs, and cannot be reconciled with one another. As a result, NNSA lacks information regarding the full cost of the refurbishment work that can help identify cost problems as they develop or when management intervention in those cost problems may be necessary. Finally, NNSA does not have an adequate planning, organization, and cost and schedule oversight process. With respect to planning, NNSA has not, for instance, consistently developed a formalized list of resource and schedule conflicts between the individual refurbishments in order to systematically resolve those conflicts. Regarding organization, NNSA has not, for example, clearly defined the roles and responsibilities of those officials associated with the refurbishments or given the refurbishments' managers proper project/program management training required by DOE standards. Finally, NNSA has not developed an adequate process for reporting cost and schedule changes or developed performance measures with sufficient specificity to determine the progress of the three refurbishments that GAO reviewed. As a result, NNSA lacks the means to help ensure that the refurbishments will not experience cost overruns potentially amounting to hundreds of millions of dollars or encounter significant schedule delays.

section_title: Letter
paragraphs: Nuclear weapons have been and continue to be an essential part of the  nation’s defense strategy.  However, the end of the Cold War has caused a  dramatic shift in how the nation maintains its planning and support for  such weapons.  Instead of designing, testing, and producing new nuclear  weapons, the strategy has shifted to maintaining the existing nuclear  weapons stockpile indefinitely.  To accomplish this goal, in January 1996,  the Department of Energy (DOE) created the Stockpile Life Extension  Program.  Now administered by the National Nuclear Security  Administration (NNSA), which was created in October 1999 as a separately  organized agency within DOE, this program intends to use a standardized  approach for planning and conducting nuclear weapons refurbishment  activities to extend the weapons’ operational lives.  While complete cost  data on the Stockpile Life Extension Program does not exist, NNSA  requested $476 million in fiscal year 2004 for life extension program  activities.
Within NNSA, the Office of Defense Programs is responsible for  administering the Stockpile Life Extension Program.  For those nuclear  weapons that are refurbished, this office must (1) determine which  components, such as the high explosives package, will need refurbishment  to extend each weapon’s life; (2) design and produce the necessary  components; (3) install the components in the weapons; and (4) certify that  the changes do not adversely affect the safety and reliability of the  weapons.  Because research and development is needed to refurbish the  nuclear weapons, this program requires a coordinated effort among the  design laboratories and production facilities that comprise the nation’s  nuclear weapons complex.
As of May 1, 2003, according to NNSA officials, three nuclear weapons  were undergoing research and development activities prior to the  commencement of refurbishment production—the W-80 warhead, the B-61  bomb, and the W-76 warhead.  The W-80 warhead is designed to be carried  on a cruise missile launched from an attack submarine or a B-52 bomber  and its first unit is scheduled for refurbishment production beginning in  February 2006.  The B-61 bomb is designed to be carried on the B-52 or B-2  bomber.  Its first unit is scheduled for refurbishment production beginning  in June 2006.  The B-61 also has a nonstrategic variation for use on the F-15  and F-16 aircraft.  The W-76 warhead is designed to be carried on the  Trident II missile.  Its first unit is scheduled for refurbishment production  beginning in September 2007.
One nuclear weapon already has begun refurbishment production—the   W-87 strategic warhead, which is designed to be carried on the land-based  Peacekeeper missile.  In December 2000, we reported that the W-87 had  experienced significant design and production problems that increased its  refurbishment costs by over $300 million and caused schedule delays of  about 2 years.  At the heart of many of the problems that contributed to  this outcome were an inadequate Office of Defense Programs management  process and unclear leadership, which prevented the Office from  adequately anticipating and mitigating the problems that arose.  We  reported that, for the W-87 refurbishment, there was no overall program  plan, cost and schedule baseline, or system to effectively oversee design  and production changes.  Moreover, no one person was expressly  accountable for the W-87, and leadership appeared to move around from  one NNSA office to another.  As a result, we made a series of  recommendations to improve NNSA management, including that NNSA  assign a manager who is responsible and accountable for each life  extension.  In response to our recommendations, NNSA took some actions  to improve its management of the Stockpile Life Extension Program  including designating a program manager for each life extension.
You asked us to determine the extent to which (1) the program’s budget  requests for fiscal years 2003 and 2004 were comprehensive and reliable;  (2) NNSA has a system for accumulating, tracking, and reporting   program costs; and (3) other program management problems exist at  NNSA.
subsections: section_title: Background
paragraphs: The nation’s nuclear weapons stockpile remains a cornerstone of U.S.  national security policy.  As a result of changes in arms control, arms  reduction, and nonproliferation policies, the President and the Congress in  1993 directed that a science-based Stockpile Stewardship Program be  developed to maintain the stockpile without nuclear testing.  After the  establishment of that program, DOE, in January 1996, created the Stockpile  Life Extension Program.  The purpose of this program is to develop a  standardized approach for planning nuclear weapons refurbishment  activities to enable the nuclear weapons complex to extend the operational  lives of the weapons in the stockpile well beyond their original design lives.
Within NNSA, the Office of Defense Programs is responsible for the  stockpile.  This responsibility encompasses many different tasks, including  the manufacturing, maintenance, refurbishment, surveillance, and  dismantlement of weapons in the stockpile; activities associated with the  research, design, development, simulation, modeling, and nonnuclear  testing of nuclear weapons; and the planning, assessment, and certification  of the weapons’ safety and reliability.  A national complex of nuclear  weapons design laboratories and production facilities supports the Office  of Defense Programs’ mission.  This complex consists of three national  laboratories that design nuclear weapons: Lawrence Livermore National  Laboratory in California, Los Alamos National Laboratory in New Mexico,  and Sandia National Laboratories in New Mexico and California.  The  complex also includes the Nevada test site and four production sites: the  Pantex plant in Texas, the Y-12 plant in Tennessee, the Kansas City plant in  Missouri, and the Savannah River site in South Carolina.
NNSA refurbishes nuclear weapons according to a process called Phase  6.X, which was jointly developed with the Department of Defense.  This  process consists of the following elements:  Phase 6.1, concept assessment.  This phase consists of studies to  provide planning guidance and to develop information so that a decision  can be made on whether or not to proceed to a phase 6.2.
Phase 6.2, feasibility study.  This phase consists of developing design  options and studying their feasibility.
Phase 6.2A, design definition and cost study.  This phase consists of  completing definition of selected design option(s) from phase 6.2  through cost analysis.
Phase 6.3, development engineering.  This phase consists of conducting  experiments, tests, and analyses to validate the design option and assess  its potential for production.
Phase 6.4, production engineering.  This phase consists of making a  strong commitment of resources to the production facilities to prepare  for stockpile production.
Phase 6.5, first production.  This phase consists of producing a limited  number of refurbished weapons and then disassembling and examining  some of them for final qualification of the production process.
Phase 6.6, full-scale production.  This phase consists of ramping up to  full-production rates at required levels.
As of May 1, 2003, according to NNSA officials, four nuclear weapons were  undergoing phase 6.X refurbishment activities.  The W-80 warhead, the B-61  bomb, and the W-76 warhead are all in phase 6.3, development engineering,  while the W-87 warhead is in phase 6.6, full-scale production.
Prior to its budget submission for fiscal year 2001, the Office of Defense  Programs divided the operating portion of the Weapons Activities account  into two broad program activities—stockpile stewardship and stockpile  management.  Stockpile stewardship was defined as the set of activities  needed to provide the physical and intellectual infrastructure required to  meet the scientific and technical requirements of the (overall) Stockpile  Stewardship Program.  Stockpile management activities included DOE’s  historical responsibilities for surveillance, maintenance, refurbishment,  and dismantlement of the enduring stockpile.  However, each category was  dominated by a single large activity known as core stewardship and core  management, which made it difficult to determine precisely where funds  were being spent.  For example, in the Office of Defense Programs’ budget  submission for fiscal year 2000, core stewardship accounted for 48 percent  of the stockpile stewardship activity’s budget request, while core  management accounted for 73 percent of the stockpile management  activity’s budget request.  The lack of clarity associated with this broad  structure caused concern both at DOE and in the Congress.
In February 1999, the Deputy Assistant Secretary for Research,  Development, and Simulation, who manages the stockpile stewardship  activity, began to develop a new program activity structure to improve the  planning process for his program and more closely integrate the program  with the needs of the stockpile.  The new structure was built around three  new program activities—Campaigns, Directed Stockpile Work, and  Readiness in Technical Base and Facilities.
Campaigns are technically challenging, multiyear, multifunctional  efforts conducted across the Office of Defense Programs’ laboratories,  production plants, and the Nevada test site.  They are designed to  develop and maintain the critical capabilities needed to enable  continued certification of the stockpile into the foreseeable future,  without underground testing.  Campaigns have milestones and specific  end-dates or goals, effectively focusing research and development  activities on clearly defined deliverables.
Directed Stockpile Work includes the activities that directly support  specific weapons in the stockpile.  These activities include the current  maintenance and day-to-day care of the stockpile, as well as planned life  extensions.
Readiness in Technical Base and Facilities includes the physical  infrastructure and operational readiness required to conduct Campaign  and Directed Stockpile Work activities at the production plants,  laboratories, and the Nevada test site.  This includes ensuring that the  infrastructure and facilities are operational, safe, secure, compliant, and  ready to operate.
Within each of these three activities is a set of more detailed subactivities.   For example, within the Campaigns activity are individual campaigns to  study, among other things, the primary in a nuclear weapon or to develop a  new capability to produce nuclear weapons pits.  Similarly, the Directed  Stockpile Work activity includes subactivities to conduct surveillance or  produce components that need regular replacement within nuclear  weapons.  Finally, the Readiness in Technical Base and Facilities activity  includes subactivities to capture the costs for the operation of its facilities.   In submitting its new program activity structure to the Office of the Chief  Financial Officer for review and approval for use in the budget submission  for fiscal year 2001, the Office of Defense Programs believed that the new  structure would, among other things, better reflect its current and future  missions; focus budget justification on major program thrusts; and improve  the linkage between planning, budgeting, and performance evaluation.   Budget requests developed since fiscal year 2001 have been presented  using the Campaigns, Directed Stockpile Work, and Readiness in Technical  Base and Facilities activity structure.
Within the Office of Defense Programs, two organizations share the  responsibility for overall weapons refurbishment management.  Those  organizations are the Office of the Assistant Deputy Administrator for  Research, Development, and Simulation and the Office of the Assistant  Deputy Administrator for Military Application and Stockpile Operations.   The first office directs funding to the laboratories for research and  development, while the second office directs funding for engineering  development and production to the laboratories and production sites.   According to NNSA’s Life Extension Program Management Plan, both  organizations also share responsibilities.  Both oversee life extension  program execution; ensure that the life extension program baseline, if  successfully accomplished, will meet customer requirements; and provide  life extension program information to higher levels for review.  The  management plan also stipulates that each life extension shall have one  program manager and one deputy program manager, with one being  assigned from each of the two aforementioned organizations, and that  these two individuals will share program management responsibilities.
section_title: NNSA Has Not Provided Congress with a Clear Picture of the Stockpile Life Extension Program Budget or Reliable Budget Figures
paragraphs: While NNSA’s fiscal year 2003 budget request did not provide a clear picture  of all activity necessary to complete the Stockpile Life Extension Program,  NNSA has begun to take action to produce a more comprehensive and  reliable picture of the program for fiscal year 2004 and beyond.  With  respect to fiscal year 2003, NNSA did not develop a comprehensive  Stockpile Life Extension Program budget because historically it has  developed its budget by broad function—such as research and  development—rather than by individual weapon system or program  activity such as the Stockpile Life Extension Program.  NNSA provided the  Congress with supplementary information in its fiscal year 2003 budget  request that attempted to capture the budget for the Stockpile Life  Extension Program; however, this information was not comprehensive  because it did not include the budget for activities necessary to  successfully complete the life extension efforts.  For example, the budget  for high explosives work needed to support three life extension efforts was  shown in a different portion of NNSA’s budget request.  Recently NNSA has  decided, after forming a task force to study the issue, to budget and manage  by weapon system beginning with its fiscal year 2004 budget request, with  this transition officially taking place with congressional approval of the  fiscal year 2005 budget request.  As a result, NNSA’s fiscal year 2004 budget  request was more comprehensive because it attributed a larger portion of  the Defense Programs’ budget to the life extension program.  NNSA’s fiscal  year 2003 and 2004 budget requests were also not reliable because the data  used to develop them had not been formally reviewed—through a process  known as validation—as required by DOE directive.  Instead, NNSA relied  on more informal and less consistent analyses.  NNSA officials have stated  that a formal budget validation process would be reintroduced for the fiscal  year 2005 budget cycle.
subsections: section_title: NNSA Developed Its Budget Requests by Broad Function Rather Than by Individual Weapon System
paragraphs: NNSA’s congressional budget request for fiscal year 2003 did not contain a  comprehensive, reliable budget for the Stockpile Life Extension Program  or the individual weapon systems undergoing refurbishment.  NNSA  developed its budget by broad function—such as Campaigns, Directed  Stockpile Work, and Readiness in Technical Base and Facilities—rather  than by individual weapon system or program activity such as the Stockpile  Life Extension Program.
While the Congress has accepted previous NNSA budget submissions as  structured, it also has requested detailed information on NNSA’s stockpile  life extension efforts.  Specifically, the fiscal year 2002 Energy and Water  Development Appropriations Act conference report directed NNSA to  include detailed information by weapon system in the budget justification  documents for its fiscal year 2003 and subsequent presidential budget  requests to Congress.  The conference report also indicated that the budget  should clearly show the unique and the fully loaded cost of each weapon  activity, including the costs associated with refurbishments, conceptual  study, and/or the development of new weapons.
NNSA responded to the congressional requirement by providing an  unclassified table in an annex to its fiscal year 2003 budget that contained  data on the budget request for the four individual life extensions.  This data,  however, did not contain budget funding for work outside the Directed  Stockpile Work program activity that is required to carry out the life  extensions.  For example:   The narrative associated with the High Explosives Manufacturing and  Weapons Assembly/Disassembly Readiness Campaign indicates that  $5.4 million, or an 80 percent funding increase, was needed in fiscal year  2003 to support the B-61, W-76, and W-80 refurbishments.  The narrative  did not provide a breakdown by individual refurbishment.  However,  NNSA’s implementation plan for this campaign indicated that nearly $50  million would be needed to support the three refurbishments over fiscal  years 2002 through 2006.
The narrative associated with an expansion project at the Kansas City  plant within the Readiness in Technical Base and Facilities program  activity indicated that $2.3 million was needed in fiscal year 2003 and  $27.9 million was needed in the outyears to support the B-61, W-76, and  W-87 refurbishments.  The narrative also indicated that this expansion  was required in order to meet first production unit schedules associated  with the refurbishments.
In addition, a significant portion of the funding in the annex table was not  assigned to any specific refurbishment but rather was included under a  budget line item termed “multiple system.”  NNSA officials told us they did  not ask field locations to break down the multiple system funding by  individual refurbishment because this funding was for “general capability”  activities that would continue to be required even if a weapon system were  cut.  Further, they said that there was currently no good allocation scheme,  so a breakdown by weapon system would be inaccurate and, therefore,  serve no useful purpose.  However, NNSA officials provided us no  information indicating that NNSA had ever studied possible allocation  schemes or showing that allocation was not feasible.  Moreover, according  to the DOE’s chief financial officer, NNSA can and should break out the  multiple system funding by weapon system.  This official indicated that  doing so would put the budget in line with presidential guidance and Office  of Management and Budget objectives that advocate presenting a budget by  product rather than by process.  In commenting on our report, NNSA stated  that DOE’s chief financial officer had no basis for making any assertions  about whether NNSA should break out the multiple system funding by  weapon system.  However, the chief financial officer has responsibility for  ensuring the effective management and financial integrity of DOE’s  programs.
More broadly, because NNSA provided the Congress with a table by  weapon system in a budget annex and in Nuclear Weapon Acquisition  Reports, the agency questioned the need for further identification of the  Stockpile Life Extension Program in the fiscal year 2003 budget.  Agency  officials, including the Deputy Administrator for Defense Programs, told us  that NNSA was reluctant to budget by weapon system because it would like  to retain the “flexibility” the current budget structure affords the agency in  responding to unanticipated demands and shifting priorities in the  Stockpile Stewardship Program.  Officials expressed concern that  dissemination of more detailed Stockpile Life Extension Program  information would encourage the Congress to cut the most expensive  weapon system or systems.  Furthermore, they asserted that eliminating a  weapon system would not save all of the funds associated with that  weapon system, because a certain portion would be fixed costs that would  have to be transferred to the remaining users.
During the course of our work, however, NNSA has begun to take action to  produce a more comprehensive budget for the Stockpile Life Extension  Program.  Specifically, NNSA decided, after forming a task force to study  the issue, to begin budgeting and managing by weapon system in the fiscal  year 2004 budget.  Starting with that budget, the agency supplied to the  Congress a classified annex that allocated more of the costs that were in  the multiple system line item to individual weapon systems.  In addition,  NNSA officials said that more than $100 million that had been included in  the Readiness in Technical Base and Facilities activity was moved to the  Directed Stockpile Work activity.  However, for fiscal year 2004, no  refurbishment-related work in the Campaigns activity has been moved.   NNSA officials said that during the fiscal year 2005 budget cycle the agency  will review the Readiness Campaigns activity to determine which portion  of that activity could also be attributed to weapon systems.  NNSA officials  indicated the agency decided not to implement all budget changes in fiscal  year 2004 in order to ensure that classification concerns are resolved,  contractors have time to modify their accounting systems as needed, and  NNSA has time to fully understand the costs and characteristics of  managing, budgeting, and reporting by weapon system.
section_title: NNSA Plans to Resume Activities to Validate Program Budget Estimates
paragraphs: NNSA’s budget requests for fiscal years 2003 and 2004 were not reliable  because the data used to develop the budgets have not been formally  reviewed—through a process known as validation—as required by DOE  directive.  Instead, NNSA has relied on a review that has become more  informal and less consistent.
Specifically, DOE Order 130.1, on budget formulation, requires budget  requests to be based on estimates that have been thoroughly reviewed and  deemed reasonable by the cognizant field office and headquarters program  organization.  The order further requires field offices to conduct validation  reviews and submit documentation and to report any findings and actions  to headquarters.  A proper validation, as described by DOE’s Budget  Formulation Handbook, requires the field office to review budget data  submissions in detail, sampling 20 percent of the submissions every year  such that 100 percent would be evaluated every 5 years.
NNSA officials indicated that no formal validation has been done with  respect to refurbishment research and development funding.  With respect  to refurbishment production funding, NNSA officials described their  validation review as a “reasonableness” test regarding the budget’s support  of a program’s needs based on a historical understanding of appropriate  labor, materials, and overhead pricing estimates.  NNSA officials  acknowledged that, in recent years, the agency has not fulfilled the budget  validation requirement as specified in DOE Order 130.1, and that the  validation review that has been used has become increasingly less formal  and less consistent.  Prior to this reduction in the quality of the review  process, the DOE Albuquerque Operations Office performed formal  validation reviews at production plant locations through fiscal year 1996.   Since then, the Albuquerque office has relied on a pilot project by which  the four contractors directly under its jurisdiction—Sandia National  Laboratories, Los Alamos National Laboratory, Kansas City plant, and the  Pantex plant—submitted self-assessments for Albuquerque’s review.  For  the fiscal year 2003 and 2004 budgets, however, NNSA officials said  headquarters no longer requested field validation as the agency  commenced implementation of a new planning, programming, budgeting,  and evaluation process.
One NNSA field office, we found, still chose to perform validation reviews  of the contractors under its jurisdiction.  Specifically, the Oakland office  performed a validation review of the Lawrence Livermore National  Laboratory.  However, other locations, such as the Kansas City plant, the   Y-12 plant, and the Savannah River site did not have their budgets reviewed  by any NNSA field office.  We also were informed by NNSA officials that  NNSA headquarters staff did not review the validation reports that were  done, as required by DOE Order 130.1, before transmitting the fiscal year  2003 and 2004 budgets to DOE’s budget office, which then submitted them  to the Office of Management and Budget.
NNSA’s director of the Office of Planning, Programming, Budgeting, and  Evaluation said that her office plans to introduce a formal validation  process for the fiscal year 2005 budget cycle, adding that such a process  was not used for the fiscal year 2004 budget cycle because of time  constraints.  NNSA documentation regarding the validation process to be  used specifies that validation teams will be led by field federal staff  elements working with headquarters program managers; the Office of  Planning, Programming, Budgeting, and Evaluation staff; and others.   However, NNSA documentation is silent on how the validation process will  be conducted.  Therefore, it is unclear if the validation process will be  performed thoroughly and consistently across the weapons complex and if  the process will be formally documented, as required by DOE Order 130.1.
section_title: NNSA Does Not Have a System for Tracking Refurbishment Costs by Weapon System
paragraphs: Once a budget is established, having reliable information on the cost of  federal programs is crucial to the effective management of government  operations.  Such information is important to the Congress and to federal  managers as they make decisions about allocating federal resources,  authorizing and modifying programs, and evaluating program performance.   The Statement of Federal Financial Accounting Standards (SFFAS)  Number 4, “Managerial Cost Accounting Standards,” establishes the  framework under which such cost information is gathered.  In particular,  the standard states that federal agencies should accumulate and report the  costs of their activities on a regular basis for management information  purposes.  The standard sees measuring costs as an integral part of  measuring the agency’s performance in terms of efficiency and cost- effectiveness.  The standard suggests that such management information  can be collected through the agency’s cost accounting system or through  specialized approaches—known as cost-finding techniques.  Regardless of  the approach used, SFFAS Number 4 states that agencies should report the  full costs of the outputs they produce.  However, under Federal Acquisition  Regulations and SFFAS Number 4, NNSA’s contractors do have the  flexibility to develop the managerial cost accounting methods that are best  suited to their operating environments.
NNSA does not have a system for accumulating and tracking stockpile life  extension program costs.   Similar to its approach in the budget arena,  NNSA currently does not collect cost information for the stockpile life  extension program through the agency’s accounting system.  This is  because NNSA has defined its programs and activities, and thus the cost  information it collects, at a higher level than the stockpile life extension  program.  Specifically, DOE collects cost information to support its  Defense mission area.  The Defense mission area includes the types of  broad activities mentioned earlier, such as Campaigns, Directed Stockpile  Work, and Readiness in Technical Base and Facilities.  Moreover, DOE’s  current accounting system does not provide an adequate link between cost  and performance measures.  Officials in DOE’s Office of the Chief Financial  Officer recognize these shortcomings and are considering replacing the  agency’s existing system with a system that can provide managers with cost  information that is better aligned with performance measures.
Moreover, NNSA does not accumulate life extension program cost  information in the agency’s accounting system because NNSA does not  require its contractors to collect information on the full cost of each life  extension by weapon system.  Full costs include the costs directly  associated with the production of the item in question—known as direct  costs—as well as other costs—known as indirect costs, such as  overhead—that are only indirectly associated with production.  SFFAS  Number 4 states that entities should report the full cost of outputs in its  general-purpose financial reports.  General-purpose financial reports are  reports intended to meet the common needs of diverse users who typically  do not have the ability to specify the basis, form, and content of the reports  they receive.
Direct costs are captured within NNSA’s Directed Stockpile Work activity  and include such things as research and development or maintenance.   However, NNSA’s Directed Stockpile Work activity also includes indirect  costs that benefit more than one weapon system or life extension.   Examples of indirect costs within Directed Stockpile Work include  evaluation and production support costs.  Indirect costs are also found  within Campaigns and Readiness in Technical Base and Facilities activities.   Specifically, as noted earlier, NNSA’s budget justification identifies certain  Campaign activities, which represent an indirect cost, that support  individual life extensions.  A portion of both of these sources of indirect  costs could be allocated to individual weapon systems; however, NNSA  does not currently require such an allocation by its contractors.
It is important to recognize that under SFFAS Number 4, NNSA’s  contractors do have the flexibility to develop the cost accounting  methodologies that are best suited to their operating environments.  The  contractors involved in the life extension program are structured  differently and have different functions.  For example, Lawrence Livermore  National Laboratory is run by the University of California and conducts  mostly research that may or may not produce a tangible product.  In  contrast, the production plants are run by private corporations which  produce parts, as is the case at the Kansas City or Y-12 plants, or assemble  the parts into a completed weapon, as is done at the Pantex plant.  As a  result, even if NNSA required contractors to report the full cost of  individual refurbishments, some differences in the data, which reflects the  contractor’s different organizations and operations, would still exist.
While the agency’s accounting system does not accumulate and report  costs for the Stockpile Life Extension Program or its individual  refurbishments, NNSA has developed several mechanisms to assist the  Congress and program managers who oversee the life extension effort.  Specifically:  In previous years, NNSA has requested that its contractors provide  supplemental data on actual costs by weapon system.  These data have  been used to respond to congressional information requests.  However,  similar to the way NNSA addresses its budget request, NNSA has not  required its contractors to allocate the supplemental cost information in  the multiple system category to individual refurbishments.  In addition,  also similar to the way it approached its budget presentation, NNSA has  not required its contractors to include the costs for supporting activities,  such as Campaigns and Readiness in Technical Base and Facilities in the  reports.
Some life extension program managers require their contractors to  provide them with status reports on the individual refurbishments they  are overseeing.  However, these reports are prepared inconsistently or  are incomplete.  For example, while the W-76 program manager requires  monthly reports, the B-61 program manager requires only quarterly  reports.  In contrast, the W-80 and W-87 program managers do not  require any routine cost reporting.  NNSA is trying to develop a  consistent method for its life extension program managers to request  cost information; however, NNSA officials have stated that NNSA has to  first define what its needs are.  Similar to the supplemental cost data  described above, these status reports do not contain all of the costs for  supporting activities, such as Campaigns and Readiness in Technical  Base and Facilities.
Finally, as part of the production process, NNSA’s contractors prepare a  report known as the Bill of Materials.  The Bill of Materials accumulates  the materials, labor, and manufacturing costs of the production of a  weapon, starting with an individual part and culminating in the final  assembly of a complete weapon.  NNSA uses the resulting Master Bill of  Materials to record—capitalize—the production costs of each weapon  system in its accounting system.  However, the costs accumulated by the  Bill of Materials include only production costs and do not include costs  such as related research and development costs or costs associated with  Campaigns and Readiness in Technical Base and Facilities.
Finally, despite the importance of reliable and timely cost information for  both the Congress and program managers, similar to the situation we found  with the budget, life extension program costs are not independently  validated either as a whole or by individual weapon system.  Specifically,  neither the DOE Inspector General nor DOE’s external auditors specifically  audit the costs of the life extension program.  While both parties have  reviewed parts of the life extension program—for example, the Inspector  General recently reviewed the adequacy of the design and implementation  of the cost and schedule controls over the W-80 refurbishment—their work  has not been specifically intended to provide assurance that all life  extension program costs are appropriately identified and attributed to the  life extension program as a whole or to the individual refurbishments.
section_title: Management Problems Remain Despite NNSA Improvements
paragraphs: The management of critical programs and projects has been a long- standing problem for DOE and NNSA’s Office of Defense Programs.   According to NNSA’s fiscal year 2001 report to the Congress on  construction project accomplishments, management costs on DOE  projects are nearly double those of other organizations, and DOE projects  take approximately 3 years longer to accomplish than similar projects  performed elsewhere.  As a result, NNSA has repeatedly attempted to  improve program and project management.  For instance, in September  2000, the Office of Defense Programs initiated an improvement campaign  to develop solutions to its project management problems and to enact  procedural and structural changes to the Defense Programs’ project  management system.  Later, in August 2002, the Office of Defense Programs  established a project/program management reengineering team.  As the  basis for assembling that team, its charter noted that NNSA does not  manage all projects and programs effectively and efficiently.  However,  despite these NNSA attempts at improvement, management problems  associated with the stockpile life extension program persist.
subsections: section_title: NNSA Does Not Have an Adequate Planning Process to Guide the Individual Life Extensions and the Overall Program
paragraphs: Front-end planning is, in many ways, the most critical phase of an activity  and the one that often gets least attention.  The front-end planning process  defines the activity.  The decisions made in this phase constrain and  support all the actions downstream and often determine the ultimate  success or failure of the activity.  NNSA, we found, does not have an  adequate planning process to guide the individual life extensions and the  overall program.  Specifically, NNSA has not (1) established the relative  priority of the Stockpile Life Extension Program against other defense  program priorities, (2) consistently established the relative priority among  the individual refurbishments, (3) developed a formalized list of resource  and schedule conflicts between the individual refurbishments in order to  systematically resolve those conflicts, and (4) finalized the individual  refurbishment project plans on a timely basis.
Priority ranking is an important decision-making tool at DOE.  It is the  principal means for establishing total organizational funding and for  making tradeoffs between organizations.  DOE uses such a ranking at the  corporate level to make departmental budget decisions.  To perform that  ranking, DOE formally requires each of its organizational elements to  annually submit to the DOE Office of Budget reports that provide a budget  year priority ranking and a ranking rationale narrative.  In discussing this  matter with an NNSA budget official, we found that NNSA had not  submitted these priority-ranking reports for fiscal years 2002, 2003, and  2004, and this official was also unable to explain why. NNSA officials, in  commenting on our report, indicated that NNSA is not required to follow  the DOE requirement regarding priority budget ranking; however, these  officials could not provide us with any policy letter supporting their  position that NNSA has been officially exempted from this requirement.
Prioritization is also an important part of NNSA’s strategic planning  process.  According to that process, priorities must be identified in an  integrated plan developed by each major NNSA office.  This integrated plan  links sub-office program plans, such as the plan for refurbishing the B-61,  to NNSA’s strategic plan.  With respect to the Office of Defense Programs,  however, we found that this office has not finalized an integrated plan.   According to an NNSA official, Defense Programs developed a draft plan in  January 2002 but has not completed that plan and has instead devoted itself  to working on the sub-office program plans.  Absent a finalized integrated  plan, it is unclear how sub-office program plans could be developed and  properly linked to NNSA’s strategic plan.
According to the director of Defense Programs’ Office of Planning, Budget,  and Integration, prioritizing Defense Programs activities is essential.  This  is because the priorities of Defense Programs, its contractors, and the  Department of Defense, which is Defense Programs’ customer for life  extension refurbishments, may not necessarily be the same.  In this  official’s view, the issue of setting priorities needs to be addressed.  This  official indicated that the Office of Defense Programs developed a draft list  of activities in August 2001, but did not prioritize those activities.  Included  among those activities were efforts to continue stockpile surveillance  activities and to complete planned refurbishments on schedule.  For fiscal  years 2003 and 2004, according to this official, Defense Programs published  budget-related guidance regarding priorities, but he did not believe the  guidance was specific enough.  This official added that, for fiscal year 2005,  the guidance would have sufficient detail.
While prioritizing work among Office of Defense Programs activities such  as stockpile surveillance and refurbishment is important, it is also  important to prioritize work within those activities.  In the competition for  budget funds, the Office of Defense Programs must continually ask which  of the three refurbishments undergoing research and development work is  a higher priority and should be given funding preference.  However, NNSA  has not taken a consistent position on prioritizing the life extensions.  For  instance, in October 2002, NNSA indicated by memorandum that, because  of the continuing resolution for fiscal year 2003, the priority order for the  three refurbishments would be the W-76, followed by the B-61, followed by  the W-80.  In November 2002, however, NNSA indicated by memorandum  that the three refurbishments had the same priority.  In neither  memorandum did NNSA identify the criteria or reasons for these two  contradictory decisions.  According to NNSA officials, no priority criteria  have been developed, and each of the three refurbishments is equal in  priority.
This lack of a definitive decision on the priority of the three refurbishments  has caused confusion.  For example, the Los Alamos National Laboratory  decided in early calendar year 2002 to unilaterally transfer funds from the  W-76 refurbishment to the B-61 because Los Alamos believed that the B-61  work was more important.  As a result of that decision, the W-76 had to slip  a research reactor test from fiscal year 2002 to fiscal year 2003.  Although  this test was not on the critical path for completing the W-76 refurbishment,  NNSA had identified the reactor test as a fiscal year 2002 metric for  measuring the refurbishment’s progress.  In February 2002, NNSA  questioned Los Alamos regarding its decision.  In its March 2002 reply, Los  Alamos indicated that it had found a mechanism to fully fund the W-76  refurbishment.  However, because the reactor test had been cancelled, Los  Alamos indicated that it was no longer possible to complete the test in  fiscal year 2002, as planned.  Therefore, Los Alamos stated that its goal was  to begin this test in the first part of fiscal year 2003.  In another case, the  Y-12 plant decided to suspend or not initiate four projects at the beginning  of fiscal year 2003 in support of the W-76 refurbishment because Y-12  believed that these projects were a lower priority than other work to be  conducted.  In a November 2002 memorandum, NNSA questioned this  decision.  NNSA indicated that these projects were integrated with another  project, which was needed to ensure a complete special material  manufacturing process capability in time to support the W-76  refurbishment.  Accordingly, NNSA stated that it was providing $2.9 million  in unallocated funds so that work on the projects could resume as soon as  possible to support the refurbishment schedule.
While these examples represent only two documented funding conflicts,  according to each of the refurbishment program managers, additional  resource and schedule conflicts exist among the three refurbishments.   Specifically, the refurbishment program managers agreed that conflicts, or  areas of competition, existed on many fronts, including budget resources,  facilities, and testing.  For example, the three refurbishments compete for  certain testing facilities at Los Alamos National Laboratory and at the  Sandia National Laboratories, and for the use of certain hardware at the  Y-12 plant.  Additional conflicts are also present that may affect only two of  the three refurbishments.  Those identified included such activities as  campaign support, research, and development at the Los Alamos National  Laboratory, and use of hardware production at the Y-12 plant.  The Deputy  Assistant Administrator for Military Application and Stockpile Operations  confirmed that the areas of competition identified by the individual  refurbishment program managers represented a fair portrayal of the  conflicts that exist between the refurbishments.  He indicated that while no  formalized list of resource and schedule conflicts exist, the subject of  refurbishment conflicts is routinely discussed at each refurbishment  program review meeting.  These meetings are held monthly to discuss one  of the refurbishments on a rotating basis.
Finally, fundamental to the success of any project is documented planning  in the form of a project execution plan.  With regard to the Stockpile Life  Extension Program, NNSA has had difficulty preparing project plans on a  timely basis.  In its report on the lessons learned from the W-87  refurbishment, NNSA noted that one cause of the W-87’s problems was that  the project plan was prepared too late in the development cycle and was  not used as a tool to identify problems and take appropriate actions.  As to  the W-76, W-80, and B-61 refurbishments, we found that NNSA had not  completed a project plan on time and with sufficient details, as stipulated  in NNSA guidance for properly managing the reburbishments.
According to NNSA’s June 2001 Life Extension Program Management Plan,  a final project plan is to be completed at the end of Phase 6.2A activities  (design definition and cost study).  The Life Extension Program  Management Plan offers numerous guidelines detailing the elements that  should be included in the project plan.  Those elements include, among  others, team structure and the roles of each team and individual members;  an integrated program schedule identifying all tasks to be accomplished for  the success of the project; life cycle costs; and a documentation of the  facility requirements needed to support all portions of the refurbishment.   This management plan was issued as guidance, rather than as a formally  approved requirements document, pending the resolution of role and  responsibility issues within NNSA.
Of the three refurbishments, only the B-61 has completed its project plan  on schedule.  According to NNSA documentation, the B-61 reached the end  of phase 6.2A in October 2002.  We confirmed that a project plan had been  completed at that time, but the project plan did not include all life cycle  costs, such as Campaign costs and Readiness in Technical Base and  Facilities costs.  In this regard, DOE’s project management manual defines  life cycle costs as being the sum total of the direct, indirect, recurring,  nonrecurring, and other related costs incurred or estimated to be incurred  in the design, development, production, operation, maintenance, support,  and final disposition of a project.
Conversely, an assessment of the W-76 refurbishment indicates that the  project plan for that refurbishment is 3 years late and also does not include  all life cycle costs.  According to NNSA documentation, the W-76 reached  the end of phase 6.2A in March 2000.  As of July 2003, a final project plan  had not yet been completed.  The W-76 project manager told us that he has  been using a working draft of a project plan dated August 2001.  He  indicated that he did not finalize the project plan because the Life  Extension Program Management Plan published in June 2001 had yet to be  issued as a formal requirement.  With the reissuance of the management  plan as a requirement in January 2003, an NNSA official said that a finalized  project plan should be completed by the end of fiscal year 2003.
Likewise, an assessment of the W-80 refurbishment indicates that the  project plan for that refurbishment is more than 2 years late and also does  not include all life cycle costs.  According to NNSA documentation, the   W-80 reached the end of phase 6.2A in October 2000.  As of July 2003, a  complete project plan had not been prepared.  According to the W-80  program manager, the refurbishment does not yet have an integrated  project schedule as described in the Life Extension Program Management  Plan.  The W-80 program manager said that a finalized project plan with this  integrated schedule, which shows all tasks associated with the  refurbishment as well as all linkages, should be completed by mid-to-late  summer 2003.  The W-80 program manager added that this integrated  schedule was not completed earlier because of personnel changes on this  refurbishment.
section_title: NNSA Does Not Yet Have an Adequate Management Structure that Fixes Roles, Responsibilities, and Authority for Each Life Extension
paragraphs: DOE’s portfolio of projects demands a sophisticated and adaptive  management structure that can manage project risks systematically;  control cost, schedule, and scope baselines; develop personnel and other  resources; and transfer new technologies and practices efficiently from one  project to another, even across program lines.  With respect to the  Stockpile Life Extension Program, NNSA does not have an adequate  management structure which ensures rigor and discipline, fixes roles,  responsibilities, and authority for each life extension, or develops key  personnel.  Specifically, NNSA has not (1) defined the life extensions as  projects and managed them accordingly, (2) clearly defined the roles and  responsibilities of those officials associated with the Stockpile Life  Extension Program, (3) provided program managers with sufficient  authority to carry out the refurbishments, or (4) given program and deputy  program managers proper project/program management training.
DOE projects commonly overrun their budgets and schedules, leading to  pressures for cutbacks that have resulted in facilities that do not function  as intended, projects that are abandoned before they are completed, or  facilities that have been delayed so long that, upon completion, they no  longer serve any purpose.  The fundamental deficiency for these problems  has been a DOE organization and culture that has failed to embrace the  principles of good project management.  The same can be said for NNSA’s  view of the individual life extension refurbishments.  Specifically, NNSA  has not established that the individual refurbishments are projects and  managed them accordingly.
According to the DOE directive, a project is a unique effort that, among  other things, supports a program mission and has defined start and end  points.  Examples of projects given in the DOE directive include planning  and execution of construction, renovation, and modification;  environmental restoration; decontamination and decommissioning efforts;  information technology; and large capital equipment or technology  development activities.  To the extent that an effort is a project, the DOE  directive dictates that the project must follow a structured acquisition  process that employs a cascaded set of requirements, direction, guidance,  and practices.  This information helps ensure that the project is completed  on schedule, within budget, and is fully capable of meeting mission  performance and environmental, safety, and health standards.
According to the Deputy Assistant Administrator for Military Application  and Stockpile Operations, the individual life extension refurbishments are  projects but have not been officially declared so.  This official indicated  that the primary reason for the lack of such a declaration is an  organizational culture, including those working at NNSA laboratories,  which often does not grasp the benefits of good project management.  This  official also said that the organization is moving in the direction of  embracing project management but is doing so at an extremely slow pace.
If NNSA declared the individual life extension refurbishments to be  projects, many useful project management tools would become available to  the NNSA program mangers who are overseeing the refurbishments.  Those  tools include, for example, conducting an independent cost estimate,  which is a “bottom-up” documented, independent cost estimate that has  the express purpose of serving as an analytical tool to validate, cross- check, or analyze cost estimates developed by the sponsors of the project.   Another tool is the use of earned value reporting, which is a method for  measuring project performance.  Earned value compares the amount of  work that was planned at a particular cost with what was actually  accomplished within that cost to determine if the project will be completed  within cost and schedule estimates.  A further tool is the reporting of  project status on all projects costing over $20 million to senior DOE and  NNSA management using DOE’s Project Analysis Reporting System.  NNSA  refurbishment program managers with whom we spoke indicated that  management of the refurbishments would be improved if tools such as  independent cost estimates and earned value reporting were used.
With respect to roles and responsibilities, clearly defining a project’s  organizational structure up front is critical to the project’s success.  In a  traditional project management environment, the project manager is the  key player in getting the project completed successfully.  But other  members of the organization also play important roles, and those roles  must be clearly understood to avoid redundancy, miscommunication, and  disharmony.  With respect to the Stockpile Life Extension Program, NNSA  has yet to clearly define the roles and responsibilities of all parties  associated with the program.
NNSA’s Life Extension Program Management Plan dated June 2001 was the  controlling document for defining refurbishment roles and responsibilities  from its issuance through calendar year 2002.  Our review of that plan,  however, found a lack of clarity regarding who should be doing what.  For  instance, the plan is unclear on which NNSA office is responsible for each  phase of the 6.X process.  Illustrating that point, refurbishment program  managers with whom we spoke generally said there is confusion as to  which NNSA office—either the Office of Research, Development, and  Simulation or the Office of Military Application and Stockpile Operations— has the primary responsibility when the refurbishment moves to phase 6.3  (development engineering) of the 6.X process.  In addition, according to the  plan, the program manager and deputy program manager have identical  responsibilities.  The plan states that the program manager and deputy  program manager shall discuss significant aspects of the refurbishment  with each other and should reach consensus concerning important aspects  of the scope, schedule, and cost.  The plan further states that absent  consensus on an issue, the program manager may decide; however, any  unresolved conflicts between the two can be addressed to senior  management for resolution.  Further, the plan is silent on the roles and  responsibilities of the NNSA program and deputy program managers versus  the project manager at a laboratory or at a production plant site.  What  actions the laboratory or plant project managers can take on their own,  without NNSA review and concurrence, are not specified in the plan.   Instead, the plan simply states that laboratory and plant project managers  provide overall management of life extension refurbishment activities at  their facilities.
In January 2003, NNSA reissued the Life Extension Program Management  plan after making only minor changes to the document.  The reissued  management plan indicates that the program manager’s role will transition  from the NNSA Office of Research, Development, and Simulation to the  NNSA Office of Military Application and Stockpile Operations during phase  6.3.  However, the reissued plan does not specify when, during phase 6.3,  this transition will occur.  In addition, the reissued plan does not further  clarify the roles and responsibilities between the program and deputy  program managers and the project manager at a laboratory or at a  production plant site.
In addition to clear roles and responsibilities, project managers must have  the authority to see the project through.  Regarding project management,  authority is defined as the power given to a person in an organization to use  resources to reach an objective and to exercise discipline.  NNSA’s lessons  learned report on the W-87 refurbishment noted that there was an air of  confusion in resolving issues at the Kansas City plant because project  leaders were not formally assigned and provided with the tools (authority,  visibility, and ownership) necessary to properly manage the effort.  Our  report on the W-87 refurbishment prepared in calendar year 2000 found  similar problems regarding the lack of authority.  With respect to the  Stockpile Life Extension Program, NNSA has still not yet given the program  managers the authority to properly manage the refurbishments.
Five of the six program or deputy program managers associated with the   B-61, W-76, and W-80 refurbishments believed they had not been given the  authority to properly carry out the refurbishments.  For instance, one  program manager said he has neither the control nor the authority  associated with his refurbishment.  He added that the program managers  ought to be given the authority so that the laboratories report directly to  them.  As the situation currently stands, the laboratories will go over the  heads of the program manager to senior NNSA management to get things  done the laboratories’ way.  According to a deputy program manager on  another refurbishment, the program managers do not have enough  authority and should have control of the refurbishments’ budgets.  He  elaborated by explaining how one laboratory unilaterally decided to take  funds away from one refurbishment and give it to another without  consulting with any of the program managers.  In this deputy program  manager’s view, if funds need to be transferred from one refurbishment to  another, then the laboratories should be required to get the concurrence of  NNSA management.  A program manager on another refurbishment stated  that he does not have sufficient authority because he lacks control of the  budget.  He indicated that funds for his refurbishment are allocated to the  various laboratory and plant sites, but he is not included in the review and  concurrence loop if the sites want to transfer funds from one activity to  another.
The Assistant Deputy Administrator for Military Application and Stockpile  Operations said he recognized the program manager’s concerns and has  advocated giving the program managers greater authority.  He also  indicated that greater authority might eventually be granted.  However, he  explained that at the moment, the Office of Defense Programs is focused  on a recently completed NNSA reorganization.  After that matter is  sufficiently addressed, greater authority for the program managers may  result.
Turning to the issue of training, competent project management  professionals are essential to successful projects.  Other federal agencies  and the private sector realized long ago that project management is a  professional discipline that must be learned and practiced.  To ensure that  projects are well planned and properly executed, DOE created in 1995 a  competency standard for project management personnel.  According to  this standard, it is applicable to all DOE project management personnel  who are required to plan and execute projects in accordance with  departmental directives regarding project management.  The standard  identifies four categories of competencies that all project management  personnel must attain and states that attainment must be documented.  The  categories are (1) general technical, such as a knowledge of mechanical,  electrical, and civil engineering theories, principles, and techniques; (2)  regulatory, such as a knowledge of applicable DOE orders used to  implement the department’s project management system; (3)  administrative, such as a knowledge of the project reporting and  assessment system as outlined in DOE orders; and (4) management,  assessment, and oversight, such as a knowledge of DOE’s project  management system management roles, responsibilities, authorities, and  organizational options.
Of the six program and deputy program managers assigned to the W-76,   B-61, and W-80 refurbishments, NNSA records indicate that only one of the  six (the program manager for the W-76) has achieved 100 percent  attainment of the aforementioned standards.  Regarding the other five,  NNSA records indicate that the deputy program manager for the B-61 has  achieved 30 percent attainment of the required competencies contained in  the standard, while the remaining four are not enrolled under the  qualification standards program.  According to one of the three program  managers with whom we spoke, the problems with the W-87 refurbishment  were caused, in part, because the assigned program manager was not  qualified to perform all required tasks.  NNSA records confirm that that  particular W-87 program manager was also not enrolled in the project  management qualification program.
Whereas NNSA program managers are required to meet qualifications  standards to discharge their assigned responsibilities, contractor project  management personnel we contacted are not required to meet any project  management standards.  According to W-76, B-61, and W-80 refurbishment  project managers at the Sandia National Laboratories, Lawrence Livermore  National Laboratory, and Los Alamos National Laboratory, their respective  laboratories have no requirements that must be met before a person  becomes a project manager, and none of the managers had attained project  management certification through their previous work assignments and  experiences.  NNSA officials also acknowledge that neither DOE nor NNSA  orders require contractor project management personnel to be properly  trained and certified.
section_title: NNSA Does Not Have an Adequate Process for Overseeing Life Extension Program Costs and Schedules
paragraphs: Effective oversight of project performance is dependent on the systematic  and realistic reporting of project performance data.  Senior management  need such data to be able to detect potentially adverse trends in project  progress and to decide when intervention is necessary.  With respect to the  Stockpile Life Extension Program, NNSA does not have an adequate  process for reporting life extension changes and progress, despite the fact  that cost growth and schedule slippage are occurring.
In July 2002, the Office of Defense Programs issued program review  guidance to enable advance planning, provide consistency, set clearer  expectations, and establish a baseline process on which to improve life  extension, program reviews.  Various review meeting formats were  articulated including a full program review of each refurbishment to be  conducted monthly on a rotating basis.  The goals and objectives of the full  program review were to inform management of project status, convince  management that the refurbishment is well managed, gain management’s  assistance in resolving issues that require its involvement, and identify  management decision points and obtain authority to execute risk  mitigation plans.
Our review of the most recent program review reports prepared on the  individual refurbishments showed that they contained limited information  regarding cost growth and schedule changes against established baselines.   These reports, which are prepared for senior NNSA management, show  whether the respective refurbishment is on track to spend all fiscal year  funding, but not whether the actual work completed has cost more or less  than planned.  For example:  According to W-76 program review reports presented in November 2002  and February 2003, the refurbishment was on track to spend all funding  allocated for fiscal year 2003.  In addition, the refurbishment was  slightly behind schedule but manageable and within budget.  On the  other hand, the presentations gave no specifics on how much the  refurbishment is behind schedule or how well the refurbishment was  progressing against a life cycle cost baseline.  Specifically, costs  associated with certain procurements, Campaign costs, Readiness in  Technical Base and Facilities costs, construction costs, and  transportation costs which make up the life cycle costs of the  refurbishment were not included.  The presentations also showed that  the refurbishment had not met at least two commitments during fiscal  year 2002.
According to the W-80 program review report presented in December  2002, the refurbishment was on track to spend all funding allocated for  fiscal year 2003.  In addition, the refurbishment was within cost and  within scope, but behind schedule.  On the other hand, the report gave  no specifics on how much the refurbishment was behind schedule or  how well the refurbishment was progressing against a life cycle cost  baseline.  The presentation further mentioned that the refurbishment  had high risks because, for instance, the Air Force was currently not  funding certain work that must be performed in order to meet the  established first production unit date of February 2006.
As opposed to the above reports, the B-61 program review reports  presented in January and March 2003 made no summary statements  regarding the refurbishment’s cost and schedule status against  established baselines.  The presentations also indicated that the  refurbishment is on schedule to spend all funding allocated for fiscal  year 2003.  On the other hand, the presentations showed that the  refurbishment has already not met several commitments for fiscal year  2003, suggesting that the refurbishment may be behind schedule.
Absent the periodic reporting of specific cost growth and schedule  information to senior NNSA management, we interviewed cognizant NNSA  officials to document any cost growth and schedule changes associated  with the individual refurbishments.  These officials recognized that certain  cost growth and schedule changes had occurred for each of the  refurbishments.  These officials added that cost growth and schedule  changes are routinely discussed during meetings on the refurbishments.
According to the W-76 program manager, this refurbishment is slightly  behind schedule.  In particular, the W-76 did not conduct certain activities  on schedule, such as deciding whether to reuse or remanufacture certain  components, conduct a certain reactor test at Los Alamos National  Laboratory, and construct certain facilities at the Y-12 plant.  The reasons  why these activities were late varied.  For instance, the decision to reuse or  remanufacture certain components did not occur on schedule, according to  the W-76 program manager, primarily because the NNSA person assigned to  do the necessary calculations neglected to perform that task.  Conversely,  the reactor test at the Los Alamos National Laboratory did not occur on  schedule because the laboratory unilaterally transferred funds from the   W-76 refurbishment to the B-61.  As to cost growth, the W-76 will need  about $10.75 million in additional funding in fiscal year 2004.  The funding  is necessary to purchase certain commercial off-the-shelf parts that were  previously not authorized or budgeted for.
According to NNSA field and Sandia National Laboratory officials, it is  unlikely that the W-80 will meet its scheduled first production unit delivery  date.  Echoing those sentiments, according to the NNSA program manager,  the W-80 was scheduled to enter phase 6.4 (production engineering) on  October 1, 2002.  Now, however, it is hoped that phase 6.4 will commence in  2003.  The NNSA program manager indicated that the W-80 has been  impacted by a lack of funding for the refurbishment from the Air Force.   This lack of funding, the NNSA program manager said, has occurred  because of a disconnect in planning between the 6.X process and the  Department of Defense budget cycle.  The Air Force had made no plans to  allocate money for the W-80 in either its fiscal year 2001 or 2002 budgets.   Therefore, several important joint NNSA and Air Force documents have  not been completed.  Certain ground and flight tests also lack funding and  have been delayed.  In addition, the W-80 will need an additional $8 million  to $9 million in fiscal year 2003 to buy certain commercial off-the-shelf  parts that had been planned but not budgeted for.  According to the Air  Force’s Lead Program Officer on the W-80, the Air Force, because of an  oversight, had no money for the W-80 in its fiscal years 2001 and 2002  budgets.  As a result, he anticipated that the first production unit delivery  date will need to be slipped.  He also indicated that he was working on a  lessons learned report due in early 2003 to document the situation with the  W-80 and help ensure that a similar funding problem does not occur with  future refurbishments.  This Air Force official added that in December 2002  the Air Force finally received the funding necessary to support the W-80  refurbishment.  According to the NNSA director of the nuclear weapons  stockpile, the W-80 will need to slip its first production unit date from  February 2006 to April 2007.  As a result, NNSA was rebaselining the W-80  refurbishment.  As of July 2003, cost data submitted to NNSA headquarters  from contractor laboratory and production site locations indicate that the  cost to refurbish the W-80 may increase by about $288 million. NNSA  officials were in the process of determining whether this cost increase was  due to schedule slippage or other factors, such as the sites underestimating  costs in the past.
Finally, certain schedule slippage has already occurred for the B-61.   According to NNSA’s June 2001 Life Extension Program Management Plan,  the original first production unit delivery date was September 2004.  Now,  according to the B-61 program manager, the new delivery date is June 2006.   The program manager indicated that this change was made because NNSA  determined that the September 2004 date was not attainable.  As it is, the   B-61 program manager said, the June 2006 date represents an acceleration  of the phase 6.X process where activities within phases 6.3 (design  definition and cost study) and 6.4 (development engineering) will be  conducted concurrently.  Because of that, certain risks are involved.  For  instance, some design development will not be fully completed before  production must be initiated to keep the refurbishment on schedule.  The  B-61 program manager indicated that the commencement date for phase  6.3 has already changed from August 2002 to December 2002 because of the  Air Force’s lack of timely action in reviewing certain documentation.  As to  cost changes, a decision needs to be made regarding the production of a  particular material.  Two NNSA locations, which differ in cost, are being  considered.  If the location with the higher cost is selected, then an  additional $10 million will be needed in fiscal year 2004 and beyond.
To gauge the progress of the refurbishments within the Stockpile Life  Extension Program, NNSA, like all federal agencies, uses performance  measures.  Performance measures, which are required by the Government  Performance and Results Act of 1993, are helpful to senior agency  management, the Congress, and the public.  Performance measures inform  senior agency management as to whether progress is being made toward  accomplishing agency goals and objectives.  They are also used by the  Congress to allocate resources and determine appropriation levels.   Performance measures are further used by American taxpayers as a means  for deciding whether their tax funds are being well spent.  Unfortunately,  NNSA has not developed performance measures with sufficient specificity  to determine the progress of the three refurbishments that we reviewed.   As mentioned earlier, the agency’s current accounting system does not  provide an adequate link between cost and performance measures.
NNSA identifies performance measures for the W-80, B-61, and W-76 in  three separate and distinct documents.  One document is the narrative  associated with NNSA’s fiscal year 2004 budget request for the Directed  Stockpile Work account.  Another is the combined program and  implementation plans for the stockpile maintenance program for fiscal  years 2002 through 2008.  A third is the Future Years Nuclear Security Plan.   Performance measures used in these documents do not identify variance  from cost baselines as a basis for evaluating performance.
Performance measures identified in NNSA’s fiscal year 2004 budget request  are general in nature and provide no details regarding cost performance.   According to that budget request, for instance, a performance measure  listed for the B-61, W-76, and W-80 is to complete 100 percent of the major  milestones scheduled for fiscal year 2004 to support the refurbishments’  first production unit date.  None of the performance measures listed in the  budget request mention adherence to cost baselines.
Performance measures identified in the combined program and  implementation plans for the Directed Stockpile Work maintenance  program dated September 3, 2002, are equally minimal, vague, and  nonspecific regarding refurbishment work.  These plans identify  performance measures at three levels—level 1, the Defense Program level,  which is the highest level of actions/milestones/deliverables; level 2, which  is the supporting level of actions/milestones/deliverables on the path  toward achieving level 1 measures; and level 3, which is the site level of  actions/milestones/deliverables on the site path toward achieving level 2  measures.  According to these plans, there are no level 1 performance  measures associated with the three refurbishments.  For levels 2 and 3, the  plans specify that the three refurbishments should meet all deliverables as  identified in other NNSA documents.  These plans, we noted, do not  discuss adherence to cost baselines as a deliverable.
Performance measures identified in the Future Years Nuclear Security Plan  are also vague and nonspecific.  This plan describes performance targets  that NNSA hopes to achieve in fiscal years 2003 through 2007, but the plan  does not associate funding levels with those targets.  Some of the  performance targets apply to the Stockpile Life Extension Program in  general or to particular refurbishments.  Regarding the latter, for example,  in fiscal year 2003, NNSA intends to commence production engineering  work (phase 6.4) for the B-61, W-76, and W-80 refurbishments, and to  eliminate W-76, W-80, and W-87 surveillance backlogs.  The plan, however,  does not associate funding estimates with these performance targets.
According to the Assistant Deputy Administrator for Military Application  and Stockpile Operations, the refurbishment performance measures  contained in the three aforementioned documents are admittedly not very  good.  He indicated that the Office of Defense Programs is moving toward  linking key performance measures to appropriate NNSA goals, strategies,  and strategic indicators.  The Assistant Deputy Administrator stated that he  hoped that the performance measures for fiscal year 2005 would provide a  better basis for evaluating the refurbishments’ progress in adhering to cost  baselines.
section_title: NNSA Has Various Actions Underway to Fix Its Management Problems
paragraphs: While NNSA management problems are many and long-standing, so too  have been NNSA attempts to effect improvement.  NNSA has repeatedly  studied and analyzed ways to ensure that mistakes made in the past  regarding the safety of nuclear weapons, the security of nuclear facilities,  and the protection of nuclear secrets are not repeated in the future.   Accordingly, NNSA has various actions underway to fix its management  problems.
Foremost of those actions has been the December 2002 completion of a  reorganizational transformation campaign.  In announcing this  reorganization, the NNSA administrator said the reorganization follows the  principles outlined in the President’s Management Agenda, which strives to  improve government through performance and results.  The new  reorganization will reportedly streamline NNSA by eliminating one layer of  management at the field office level.  It will also improve organizational  discipline and efficiency by requiring that each element of the NNSA  workforce will become ISO 9001 certified by December 31, 2004.  ISO 9001  is a quality management standard that has been recognized around the  world.  The standard applies to all aspects necessary to create a quality  work environment, including establishing a quality system, providing  quality personnel, and monitoring and measuring quality.
In concert with NNSA’s overall reorganization has been the creation of a  program integration office in August 2002.  This new office will be working  to create better coordination and cooperation between NNSA Office of  Defense Program elements.  The new office is composed of three divisions:  one that will be performing strategic planning and studies; one that will be  looking at the strategic infrastructure; and one that will be doing planning,  budgeting, and integration work.  The implementation plan for this new  office, as of July 2003, had not yet been approved and disseminated  because of a major personnel downsizing that is underway.
Nonetheless, this new office has already embarked on various initiatives.   One initiative is to decide on a cost baseline for the Stockpile Life  Extension Program.  According to the Director of Defense Programs’ Office  of Planning, Budgeting and Integration, a completion date for this work has  not yet been set.  A second initiative is to develop an integrated master  schedule for the Stockpile Life Extension Program that will help identify  and resolve schedule and resource conflicts.  The director indicated that  such a schedule should be available at the end of calendar year 2003.  A  third initiative is to develop consistent criteria for reporting schedule  activities and critical milestones.  The director indicated that without such  criteria there is no assurance that consistent information is being reported  on the individual refurbishments.  The director indicated that these criteria  would be developed during the summer of 2003.
Of no less importance to the organizational changes, NNSA has  implemented an overall planning, programming, budgeting, and evaluation  process.  The goal of this process is to obtain and provide the best mix of  resources needed to meet national nuclear security objectives within fiscal  restraints.  Through planning, the process will examine alternative  strategies, analyze changing conditions and trends, identify risk scenarios,  assess plausible future states, define strategic requirements, and gain an  understanding of the long-term implications of current choices.  Through  programming, the process will evaluate competing priorities and mission  needs, analyze alternatives and trade-offs, and allocate the resources  needed to execute the strategies.  Through budgeting, the process will  convert program decisions on dollars into multiyear budgets that further  refine the cost of the approved 5-year program.  Through evaluation, the  process will apply resources to achieve program objectives and adjust  requirements, based on feedback.  This process was partially rolled out for  the fiscal year 2004 budget cycle, with full implementation scheduled for  fiscal year 2005.
A separate effort has been the establishment of a project/program  management reengineering team in August 2002.  According to the team’s  charter, NNSA does not manage all its programs effectively and efficiently.   Therefore, the mission of this team was to develop a program management  system, including policies, guides, procedures, roles, responsibilities, and  definitions that would enable NNSA to achieve excellence in program  management.  The observations of the team, as of September 2002, were  that the state of health of the NNSA program management processes is very  poor, and this condition significantly affects the ability of NNSA to achieve  its missions effectively and efficiently.  In the words of the team, many  essential elements of an effective program management system do not  exist.  Examples given included no documented roles and responsibilities  and no documented overarching process for program management.   According to the team leader, an implementation plan to improve NNSA  program management was submitted to the administrator for approval in  October 2002.  As of July 2003, the implementation plan had not been  approved.  According to the Director of Defense Programs’ Office of  Program Integration, no action has been taken on this implementation plan  while NNSA has been addressing its recent reorganization.  It is now hoped,  according to this official, that project/program improvement actions can be  identified and implemented by the start of fiscal year 2004.
section_title: Conclusions
paragraphs: Extending the life of the weapons in our nation’s nuclear stockpile  represents one of the major challenges facing NNSA.  It will demand a  budget of hundreds of millions of dollars annually for the next decade.   Considerable coordination between the design laboratories and the  production facilities will be necessary as the four life extensions compete  for scarce resources.  Where conflicts occur, trade-offs will be required— trade-offs that must be made by federal managers, contractors, and,  ultimately, the Congress.  All of these things cannot occur without sound  budgeting.  Likewise, all parties involved in the oversight of the Stockpile  Life Extension Program must be able to determine the true cost to  complete the life extensions throughout the refurbishment process,  identify cost overruns as they develop, and decide when intervention in  those cost overruns is necessary.  This cannot occur without sound cost  accounting.  Finally, the life extensions must be properly managed because  the consequences of less than proper management are too great.  Those  consequences, as seen on the W-87 life extension, include potential cost  overruns in the hundreds of millions of dollars and refurbishment  completion occurring beyond the dates required for national security  purposes.  To avoid these consequences, the life extensions must have  adequate planning; a clear leadership structure which fixes roles,  responsibilities, and authority for each life extension; and an adequate  oversight process.  While NNSA has begun to put in place some improved  budgeting and management processes, additional action is necessary if it is  to achieve the goal of a safe and reliable stockpile that is refurbished on  cost and on schedule.
section_title: Recommendations for Executive Action
paragraphs: To improve the budgeting associated with the Stockpile Life Extension  Program, we recommend that the Secretary of Energy direct the NNSA  Administrator to  include NNSA’s stockpile life extension effort as a formal and distinct  program in its budget submission and present, as part of its budget  request, a clear picture of the full costs associated with this program and  its individual refurbishments by including the refurbishment-related  costs from Campaigns, Readiness in Technical Base and Facilities, and  multiple system work, and  validate the budget request in accordance with DOE directives.
To improve cost accounting associated with the Stockpile Life Extension  Program, we recommend that the Secretary of Energy direct the NNSA  Administrator to  establish a managerial cost accounting process that accumulates,  tracks, and reports the full costs associated with each individual  refurbishment, including the refurbishment-related costs from  Campaigns, Readiness in Technical Base and Facilities, and multiple  system work.
To improve the management of the Stockpile Life Extension Program, we  recommend that the Secretary of Energy direct the NNSA Administrator to:  finalize the Office of Defense Programs’ integrated program plan and,  within that plan, rank the Stockpile Life Extension Program against  all other defense program priorities, establish the relative priority  among the individual life extension refurbishments, and disseminate  the ranking across the nuclear weapons complex so that those within  that complex know the priority of the refurbishment work;  develop a formalized process for identifying resource and schedule  conflicts between the individual life extension efforts and resolve  those conflicts in a timely and systematic manner; and  finalize individual refurbishment project plans.
With respect to management structure  establish the individual refurbishments as projects and manage them  according to DOE project management requirements;  clearly define the roles and responsibilities of all parties associated  with the Stockpile Life Extension Program;  provide the life extension program managers with the authority and  visibility within the NNSA organization to properly manage the  refurbishments; and  require that life extension program managers and others involved in  management activities receive proper project/program management  training and qualification.
With respect to oversight of cost and schedule  institute a formal process for periodically tracking and reporting  individual refurbishment cost, schedule, and scope changes against  established baselines, and  develop performance measures with sufficient specificity to  determine program progress.
section_title: Agency Comments
paragraphs: We provided NNSA with a draft of this report for review and comment.   Overall, NNSA stated that it recognized the need to change the way the  Stockpile Life Extension Program was managed and that it generally  agreed with the report’s recommendations.  For instance, NNSA stated that  it had independently identified many of the same concerns, and, over the  past 12 months, had made significant progress in implementing plans,  programs, and processes to improve program management. NNSA  indicated that full implementation of our management and budgeting  recommendations will take several years; however, NNSA is committed to  meeting these objectives.  NNSA also provided some technical comments  which it believed pointed out factual inaccuracies.  We have modified our  report, where appropriate, to reflect NNSA’s comments.  NNSA’s comments  on our draft report are presented in appendix I.
section_title: Scope and Methodology
paragraphs: We performed our work at DOE’s and NNSA’s headquarters and Sandia  National Laboratories, Los Alamos National Laboratory, and the Kansas  City plant from July 2002 through July 2003 in accordance with generally  accepted government auditing standards.  To determine the extent to which  the Stockpile Life Extension Program’s budget requests for fiscal years  2003 and 2004 were comprehensive and reliable, we reviewed those  requests as well as NNSA supporting documentation, such as guidance  issued to develop those requests, information related to NNSA’s planning,  programming, budgeting, and evaluation process, and budget validation  reports.  We also discussed those budget requests with DOE and NNSA  budget officials and an official with the Office of Management and Budget.   To determine the extent to which NNSA has a system for accumulating,  tracking, and reporting program costs, we identified how cost data is  tracked in DOE’s information systems and in selected contractors’ systems  by interviewing key DOE, NNSA, and contractor officials responsible for  the overall Stockpile Life Extension Program and the individual  refurbishments and by reviewing pertinent documents.  We also identified  how DOE and NNSA ensure the quality and comparability of cost and  performance data received from contractors by interviewing DOE and  NNSA officials, DOE Office of Inspector General officials, and selected  contractors’ internal auditors, and by reviewing pertinent documents  including previously issued GAO and DOE Office of Inspector General  reports.  To determine the extent to which other management problems  related to the Stockpile Life Extension Program exist at NNSA, we  reviewed pertinent NNSA documentation, such as NNSA’s Strategic Plan,  the Office of Defense Programs’ draft integrated plan, the Life Extension  Program Management Plan, and project plans and variance reports  required by the Life Extension Program Management Plan for the B-61,   W-76, and W-80 refurbishments.  We also interviewed key DOE, NNSA, and  contractor officials involved with the Stockpile Life Extension Program,  and, in particular, the program and deputy program managers of the B-61,  W-76, and W-80 refurbishments.  Finally, we attended the NNSA quarterly  program review meetings on each of the refurbishments.
As arranged with your office, unless you publicly announce its contents  earlier, we plan no further distribution of this report until 10 days after the  date of this letter.  At that time, we will send copies of the report to the  Secretary of Energy, the Administrator of NNSA, the Director of the Office  of Management and Budget, and appropriate congressional committees. We  will make copies available to others on request.  In addition, the report will  also be available at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have any questions about this report, please call me at   (202) 512-3841.  Major contributors to this report are listed in appendix II.
section_title: Comments from the National Nuclear Security Administration
section_title: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Acknowledgments
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