Nuclear Weapons: National Nuclear Security Administration Needs to Better Manage Risks Associated with Modernization of Its Kansas City Plant
Published: 2009-10-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Built in 1943, the Kansas City Plant (KCP)--the National Nuclear Security Administration's (NNSA) primary production plant for manufacturing nonnuclear components of nuclear warheads and bombs--is to be modernized because of its age and the high cost of maintenance and operation. Among other changes, NNSA plans to relocate KCP to a new facility and increase components obtained from external suppliers from about 54 to 70 percent. KCP's continued supply of these components is essential for maintaining a reliable nuclear weapons stockpile. GAO was asked to determine (1) how KCP developed plans for modernization, (2) actions KCP has taken to ensure uninterrupted production of components, and (3) actions KCP has taken to address the risks of outsourcing. GAO reviewed planning documents and met with officials from NNSA, KCP, and Sandia National Laboratories, which designs many of the components produced at KCP.
section_title: What GAO Found
paragraphs: KCP evaluated several alternatives on behalf of NNSA to modernize its facility based on whether the alternative (1) was consistent with NNSA's goals for maintaining a smaller facility for producing nuclear weapons and one that could quickly adapt to change, (2) met NNSA's commitments to Congress to operate a new facility by 2012, and (3) minimized costs and implementation risks. Based on KCP's analyses of alternatives, NNSA chose to have a private developer build a new building in Kansas City 8 miles from the current facility, which NNSA would then lease through the General Services Administration (GSA) for a period of 20 years. However, in evaluating a financing method, KCP compared alternatives using cost estimates limited to 20 years. Twenty years is far shorter than the useful life of a production facility that is properly maintained; the current facility has operated for more than 60 years. NNSA and KCP officials acknowledge that while leasing a facility through GSA under a 20-year scenario is less costly than purchasing, it can be more costly over the longer term. Because KCP's analysis did not consider costs beyond 20 years, NNSA cannot be certain if other alternatives, such as purchasing the facility, might have offered lower costs over the longer term. KCP officials developed extensive plans to ensure that the production of components is not interrupted because of the transition to the new facility. However, its schedule--which is critical to ensuring that the move does not disrupt production--does not fully adhere to best practices GAO identified for schedule development and related DOE scheduling guidance. In February 2009, GAO assessed KCP's schedule and found that, among other things, KCP had not adequately sequenced all activities in its schedule in the order in which they are to be carried out. GAO followed up in July 2009 and found that although KCP officials have made progress in addressing several of these problems, the schedule still has some shortcomings. KCP has taken steps to mitigate some risks of increased outsourcing, but NNSA has not provided adequate oversight or clear and up-to-date export control guidance tailored for NNSA production and laboratory sites to effectively manage associated nuclear weapons proliferation risks. As such, KCP has not implemented a formal, risk-based approach to identify specific components and technologies that may be used by potential adversaries to develop or advance their nuclear capabilities. Lacking effective NNSA-specific guidance and a risk-based approach, KCP instead treats all components as if they pose equal proliferation risks. As such, items such as a common, commercially available screw are considered to be at the same level of proliferation risk as a complex mechanism designed to arm nuclear weapons. Further, KCP's primary means of addressing this issue rests on its suppliers' self-enforced compliance with a contract clause that outlines the suppliers' responsibility to abide by applicable export control laws. Under this broadly applied approach to managing export control--where all components are treated as equal risks--NNSA may be missing opportunities at KCP to systematically identify and more effectively mitigate those risks that pose the greatest threats.

section_title: Letter
paragraphs: Built in 1943, the Kansas City Plant (KCP)—the National Nuclear Security  Administration’s (NNSA) primary production plant for manufacturing  nonnuclear components of nuclear warheads and bombs—is being  modernized because of its age and the high cost of maintenance and  operation. KCP produces or procures more than 100,000 parts annually— ranging from nuts and bolts to complex radars—comprising about 85  percent of the components that go into a typical nuclear weapon. NNSA, a  separately organized agency within the Department of Energy (DOE),  owns the building, equipment, and components produced at KCP, and  NNSA’s Kansas City Site Office provides local oversight of all activity.  Honeywell Federal Manufacturing and Technologies (Honeywell) manages  and operates the KCP facility for NNSA. In response to a July 2005 report  of the Secretary of Energy Advisory Board’s infrastructure task force, and  NNSA’s 2006 strategic plan on infrastructure, which proposed ways to  transform the nuclear weapons complex, NNSA directed KCP to develop  plans for modernizing its production facilities based on its goals of  developing a smaller, more responsive production infrastructure––one  that will ultimately support a smaller nuclear weapons stockpile––while  continuing to maintain and refurbish the weapons currently in the  stockpile. KCP outlined three key avenues for achieving NNSA’s goals,  including (1) purchasing more components from external suppliers;   (2) implementing a more commercial-like business process; and   (3) building a smaller, modern, state-of-the-art, and more flexible  manufacturing facility by 2012. KCP’s current plans are expected to result  in an 18-month relocation to a new facility, an increase in outsourcing of  components from 54 to 70 percent, and a reduction in KCP’s  manufacturing footprint from about 3 million to 1 million square feet. KCP  estimates that these measures will save about $100 million annually.
Because KCP produces or procures components that are used to maintain  the nation’s nuclear weapons stockpile, any disruptions in production at  KCP could negatively affect the nuclear weapons stockpile. Another  important consideration—particularly as KCP increases purchases of  components from external suppliers, or outsourcing—is ensuring that  NNSA protects components and technologies, including weapons-related  design drawings, unique production processes, and information that,  although mostly unclassified, could be used by potential adversaries to  develop or advance their nuclear capabilities. Recent GAO testimonies and  a grand jury indictment have described events where foreign entities  sought dual-use items—items that can be used for both commercial and  military applications. In fact, we covertly purchased two such items—a  triggered spark gap and an accelerometer—and shipped dummy copies  overseas to demonstrate the ease with which real, illegal shipments could  be affected. These events also demonstrate potential nuclear proliferation  risks and gaps in the nation’s system for controlling the export of these  items. KCP regularly outsources the production of these types of dual-use  items—which may have been designed at the nuclear weapons  laboratories with unique weapons design characteristics, such as very high  tolerances to extreme environments—raising questions as to whether  these items may be more vulnerable to export.
In this context, you asked us to determine (1) how KCP developed plans  for modernizing the facility, (2) actions KCP has taken to ensure  uninterrupted production of components needed to support the weapons  stockpile during and after the transition to the new facility, and (3) actions  KCP has taken to address the risks and potential consequences of  increased outsourcing of nonnuclear components.
To determine how KCP developed plans for modernizing the current  facility, we reviewed NNSA and Honeywell documents describing the  project’s goals, approach, and rationale for key decisions on what actions  to take, where to locate the facility, and how to finance it. We also  interviewed officials at NNSA’s Kansas City Site Office, Honeywell, and  relevant subcontractors. Under our long-standing policy of not addressing  issues in ongoing litigation, we did not evaluate KCP’s analysis of location  alternatives because a lawsuit was filed in October 2008 that among other  things challenged the extent and adequacy of DOE’s consideration of  alternatives to its plans for replacing the KCP facility. To determine the  actions KCP has taken to ensure uninterrupted production of components,  we reviewed agency and contractor documents describing transition plans  and talked to officials at Sandia National Laboratories (Sandia) in New  Mexico, which designs many of the nonnuclear components that are  produced at KCP. We also evaluated the reliability of KCP’s relocation  schedule using GAO-identified best practices for effective scheduling,  many of which are also identified by DOE in its guidance on establishing  performance baselines. To determine the actions KCP has taken to  address the risks associated with outsourcing, we reviewed agency and  contractor documents, including KCP’s outsourcing strategy and export  control process and relevant export control laws and regulations, and  interviewed key KCP, Sandia, and NNSA officials responsible for  overseeing nuclear nonproliferation activities.
We conducted this performance audit from November 2008 through  October 2009 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives. Appendix I contains a  detailed description of our scope and methodology.
subsections: section_title: Background and Overview of Plans for Modernizing NNSA’s KCP Facility
paragraphs: The KCP facility, NNSA’s primary site for producing or procuring  nonnuclear components, is the first site within the nuclear weapons  complex scheduled for significant modernization. KCP does not possess  weapons-grade nuclear materials, but it supplies approximately 85 percent  of the nonnuclear components that compose a typical nuclear weapon— ranging from simple items like nuts and bolts to more complex  components, such as radars, arming and firing mechanisms, and critical  nuclear safety devices meant to prevent accidental detonation. The facility  has a footprint of nearly 3 million square feet and costs about $400 million  per year to operate. Currently, about 127,000 square feet of this space is  devoted to stored inventory, including production equipment, tooling,  gauges, and testers.
subsections: section_title: Modernizing the KCP Facility
paragraphs: The production infrastructure of the nuclear weapons complex is aging  and becoming increasingly outdated. A 2001 Department of Defense  (DOD) review of the nation’s nuclear policy found that the nuclear  weapons production infrastructure needed to be repaired and made more  flexible so that it could adapt to the changing needs of the nuclear  weapons stockpile. Subsequently, NNSA developed the strategic Complex  Transformation Plan, which seeks to develop a smaller, more responsive  production infrastructure—one that will ultimately support a smaller  nuclear weapons stockpile—while continuing to maintain and refurbish  the weapons currently in the stockpile.
As part of its Complex Transformation Plan, in 2006 NNSA directed KCP  to develop plans for modernizing its production facilities. In its plans, KCP  identified three key avenues for achieving NNSA’s goals:  Increasing outsourcing. KCP is increasing the percentage of nonnuclear  components purchased from external suppliers from about 54 to 70  percent. At the same time, it is consolidating and reducing its external  suppliers from about 412 in May 2008 to 320 in September 2009 to reduce  the costs of working with and certifying multiple suppliers. As more  components are acquired from external suppliers, KCP expects the  equipment and infrastructure necessary for the production of many of  those components to be eliminated, reducing the need for the large size  and associated operating costs of the facility. KCP currently uses  domestic-based suppliers, with the exception of those components that  are acquired from Malaysia and Mexico. Nearly all of the components and  processes that KCP outsources are unclassified; KCP officials told us that  they have only certified one supplier that is approved for classified  processing, production, and storage.
Transforming its business processes. Honeywell, the contractor that  manages KCP, is implementing more commercial-like business practices.  In particular, KCP officials note that they have recently been granted relief  from some DOE and NNSA oversight, such as NNSA nuclear security  orders, because it does not possess weapons-grade nuclear material and  because commercial standards are being used. KCP officials believe that  these changes will lead to more streamlined business processes with lower  administrative costs. According to KCP officials, an independent review  estimated that these lower costs will amount to $37 million each year— more than one-third of the $100 million annual cost savings KCP projects  will result from its modernization plans.
Building a modern, more flexible facility. NNSA plans to have a new KCP  facility built on an undeveloped site in Kansas City, Missouri. KCP’s new  facility is designed to be smaller and more adaptable than the current  facility, allowing quick and economical changes to the capability and  capacity of the facility, such as using more open manufacturing space and  modular utility systems so that it can be quickly and inexpensively  reconfigured to adapt to changing production needs. NNSA committed to  Congress that the new KCP facility would be operating by 2012 but now  expects a delay of about 1 year.
Financing the New Facility  To construct this new facility, NNSA identified three financing options.
The traditional approach for financing construction projects is to request  funding from Congress using a budget line item in the President’s annual  request for appropriations. If the requested funds are appropriated, a  federal manager directly controls the scope, cost, and schedule of the  design and construction of the facility. These projects usually require  significant funding up front when the facility is being designed and  constructed. However, as we have reported, large amounts of funding have  become more difficult to obtain, and agencies are increasingly interested  in financing alternatives that distribute costs over longer periods of time.  One alternative is to acquire facilities using the General Services  Administration’s (GSA) leasing authority, which allows GSA to lease space  from a private developer on behalf of many government agencies. For a  lease on privately owned land, the process culminates with a lease  agreement of up to 20 years. Another alternative, according to KCP  officials, allows NNSA to secure financing directly through private  developers for the construction of facilities, but this alternative allows  only for a maximum 5-year lease term.
We have considered federal leasing, in general, to be a challenge for  almost 20 years. In January 2003 we designated federal real property as a  high-risk area, citing the government’s overreliance on costly, long-term  leasing as one of the major reasons. Our work has also shown that  building ownership often costs less than operating leases, especially for  long-term space needs. Based on this work, we made recommendations  in 2008 that agencies develop strategies to reduce reliance on leased space  for long-term needs when ownership would be less costly.
section_title: Avoiding Interruptions in the Supply of Components
paragraphs: Another important consideration in KCP’s modernization plans is avoiding  interruptions in the supply of components it produces. Such interruptions  could negatively affect the nuclear weapons stockpile and weaken  national security. For example, as nuclear weapons components age, they  may need to be replaced to avoid undermining the reliability and  performance of the weapon that they occupy. KCP produces or procures  these replacement components. Much of KCP’s current workload supports  the life extension program for the W76 warhead—carried on the Navy’s  Trident II submarine-launched ballistic missile—which is a significant part  of the U.S. nuclear weapons stockpile. Life extensions lengthen weapons’  operational life for an additional 20 to 30 years and allow NNSA to certify  that the weapons continue to meet military performance requirements  without underground nuclear testing. In addition, KCP currently produces  or procures nonnuclear components needed to maintain the W88  submarine-launched ballistic missile warheads, the W78 and W87  intercontinental ballistic missile warheads, the W80 cruise missile  warhead, and the B61 and B83 nuclear bombs.
section_title: Managing Outsourced Technologies
paragraphs: Another important consideration in KCP’s modernization plans,  particularly as it begins to increase outsourcing, is that KCP manages  components and technologies that might be attractive to terrorists or other  potential adversaries. Passing components and technologies to external  suppliers may put them at greater risk of being obtained and used by  potential adversaries to develop or advance their own nuclear capabilities.  Recently, the Department of Justice (DOJ) reported that on a daily basis,  foreign states as well as criminal and terrorist groups seek arms,  technology, and other material to advance their technological capacity,  and the United States is a primary target because it produces advanced  technologies. For fiscal year 2008, DOJ reported that more than 145  defendants faced criminal charges for attempting to illegally transfer these  items and technologies, with roughly 43 percent of these defendants  charged with attempting to transfer them to Iran or China.
Some of the components KCP produces or procures, as well as  technologies that can be developed from obtaining weapons-related design  drawings and unique production processes, among other things, may be  subject to laws and regulations controlling their export. Export control is  primarily managed by the Departments of Commerce and State. The  Department of Commerce, through the Export Administration  Regulations, controls exports of most dual-use items and technologies.  The Department of Commerce maintains the Commerce Control List,  which describes the characteristics and capabilities of dual-use items that  may require export licenses. The list is divided into 10 general categories  of controlled technologies, such as sensors or electronics, which could  include components that KCP produces or outsources. The Department of  State, under the authority of the Arms Export Control Act and the  International Traffic in Arms Regulations, controls exports of munitions  items and technologies—those designed, developed, configured, adapted,  or modified solely for military applications. These items are identified on  the U.S. Munitions List, requiring most to be licensed for export. While  these two departments are responsible for limiting the possibility of  export-controlled items and technologies falling into the wrong hands,  NNSA asserts that it is also generally responsible for the management and  security of the nation’s nuclear weapons, including ensuring that nuclear  weapons components or related information about these technologies are  not used to advance the nuclear capabilities of potential adversaries.
section_title: Collaborating with NNSA’s National Laboratories
paragraphs: Many of the actions needed to successfully relocate the KCP facility  require the ongoing cooperation of and collaboration with other NNSA  laboratory sites. Design engineers at Lawrence Livermore, Los Alamos,  and Sandia National Laboratories design the nonnuclear components  produced or procured by KCP and determine whether the designs are  classified, among other things. KCP produces or procures the components  according to laboratory design specifications, but quality and production  engineers from KCP continue to periodically collaborate with laboratory  design engineers to oversee production, mitigate production risks, and  integrate competing priorities, such as cost, schedule, design  requirements, and quality. Before KCP begins full procurement or  production of some components, laboratory design engineers must  formulate a plan to qualify the component and assist in executing the  qualification plan, which involves testing a sample of components to  ensure that they meet quality, safety, and security standards. Such tests  may include visual, environmental, mechanical, and electric tests, among  others. In addition, if KCP decides to make major production changes or  move the production process, components may have to be requalified to  ensure that they still meet quality, safety, and security standards.  Requalification can take from 1 month to more than 1 year, depending on  the significance or complexity of the part and the extent of the planned  production change. Requalification may also be required when a product is  outsourced or moved from one supplier to another. As such, many  components will have to be requalified before they can be produced at  KCP’s new facility or by an external supplier. KCP is NNSA’s primary site  within the nuclear weapons complex for producing nonnuclear  components of nuclear warheads and bombs. Figure 1 illustrates how sites  in the nuclear weapons complex interact with each other to design,  produce, procure, and assemble nonnuclear components.
section_title: KCP Evaluated Several Alternatives for Modernizing Its Facility but Did Not Fully Analyze the Long-Term Impact of Some Financing Options
paragraphs: KCP officials told us that they evaluated several locations and financing  alternatives based on their potential for satisfying NNSA’s key goals  outlined in its strategic plans for modernizing the overall infrastructure of  the nuclear weapons complex. Based on analyses conducted by KCP,  NNSA chose to lease a new facility for 20 years. However, KCP compared  financing alternatives using cost estimates limited to 20 years rather than  the full expected life of the proposed facility; therefore, NNSA cannot be  certain whether other financing alternatives might have offered lower  costs over the longer term.
subsections: section_title: KCP Evaluated Several Alternatives for Modernizing the Facility
paragraphs: KCP evaluated several alternatives on behalf of NNSA for modernizing its  facility based on each alternative’s potential to satisfy key goals outlined in  NNSA’s strategic plans for modernizing the nuclear weapons complex,  among other things. Specifically, KCP officials told us that they sought an  option that (1) was consistent with NNSA’s goals for maintaining a smaller  facility for producing nuclear weapons and that could quickly adapt to  change; (2) met schedule commitments to Congress; (3) minimized costs  of constructing and annually operating and maintaining the facility; and,  (4) maximized chances of completing the relocation within the established  scope, cost, and schedule. Although KCP conducted the analyses of  alternatives for modernizing its facility under the direction of NNSA,  NNSA ultimately made its final decisions on how best to proceed using  these analyses.
To determine how to proceed with the modernization of its facility, KCP  officials stated that they considered (1) taking no action—essentially  continuing operations at the current KCP location; (2) renovating adjacent  GSA facilities; (3) purchasing or leasing other facilities that were already  available in the Kansas City area; or (4) building a new facility on the  existing KCP site, on other vacant land within Kansas City, or at another  location. KCP officials explained that several of these options proved  undesirable for a variety of reasons.
Taking no action. KCP determined that taking no action did not align with  NNSA’s overall Complex Transformation goals or commitments that  NNSA’s Deputy Administrator made to Congress to modernize the facility.  According to KCP officials, taking no action would also result in annual  operating costs that are about $100 million higher than necessary beyond  fiscal year 2013, over half of which would be related to facility  maintenance.
Renovating adjacent GSA facilities. KCP determined that renovating  adjacent GSA facilities was feasible and the least costly alternative in  terms of construction costs, but it posed several problems. For example,  renovating the 70-year-old facility would require extensive modification of  electrical, heating, and cooling systems, which would require moving,  penetrating, or bypassing concrete walls, floors, and ceilings. KCP officials  stated that this would be difficult and time-consuming, and the  considerable expense would be of questionable worth for such an old  facility. Also, the adjacent facility is located in an area susceptible to  flooding. Further, KCP officials stated that this option presented schedule  risks. For example, multiple tenants in the GSA facility would need to  relocate, and any delays in their relocations could cascade to the  renovation process.
Purchasing or leasing other available facilities in the Kansas City area.
KCP officials stated that they could not identify any other facilities in the  region that were adequate for the KCP mission.
In light of these constraints, NNSA officials determined that building a new  facility was the best option.
To identify a specific location for the new facility, KCP officials also told  us that they considered nearby sites as well as sites outside of the Kansas  City area. In particular, NNSA’s Office of Transformation asked Science  Applications International Corporation—a support contactor—to prepare  an independent assessment of moving the nonnuclear production facilities  from KCP to another site in the nuclear weapons complex. In examining  seven other active NNSA sites in the nuclear weapons complex, the study  determined that Albuquerque, New Mexico, presented the highest  potential for cost savings because Sandia—the primary design laboratory  for nonnuclear components––has a location there. However, the study  concluded that constructing the new facility in Albuquerque would not  allow NNSA to recover the cost of moving the operation—reaching a  “break even” point—by the end of the period considered in the study— about 20 years. The study also determined that relocating operations away  from Kansas City would be expensive because staff would have to  relocate, new staff would have to be trained, and critical expertise would  be lost. Ultimately, based on KCP’s analysis, NNSA decided to build its  new facility on an available site in Kansas City about 8 miles from the  existing facility that is not on a flood plain.
section_title: KCP’s Cost Evaluation Did Not Consider the Full Life Cycle Costs of the Proposed Facility
paragraphs: To determine how to finance the construction of the new facility, KCP  analyzed options to determine which best met NNSA’s goals and presented  acceptably low risks. According to KCP officials, these options included  (1) using congressional line item capital project funding, which is DOE’s  traditional approach; (2) using a DOE lease process, which secures  financing directly through private developers for the construction of  facilities, but allows for a maximum 5-year lease term; and (3) using GSA’s  leasing process. According to KCP officials, GSA’s leasing process was the  best available financing alternative because it was the only financing  option that could meet the NNSA Administrator’s commitment to  Congress to operate the facility by 2012. GSA’s leasing process also led to  the lowest overall total cost over a 20-year period and eliminated the need  for large up-front capital outlays that Office of Management and Budget  officials said would likely not be available for modernizing KCP. According  to KCP officials, a 20-year lease through GSA would cost less annually  than a lease undertaken through DOE’s lease process, which allows only a  maximum 5-year lease.
The GSA lease process defines, among other things, (1) facility  requirements; (2) how the facility should be built, such as security during  construction; and (3) developer responsibilities for providing facility  maintenance services over the life of the lease. For a lease on privately  owned land, the process results in an operating lease agreement of up to  20 years—a legal and binding contract between GSA and a developer, with  ownership remaining with the developer. KCP estimated that the GSA  lease option would cost about $4.762 billion, which includes estimated  annual operating costs, onetime relocation costs, capital equipment, and  annual lease payments of about $43 million beginning in fiscal year 2011  and continuing through fiscal year 2030. In contrast, KCP’s total estimated  cost for constructing the facility using congressional line item capital  project funding is about $4.875 billion, which includes the same types of  costs plus construction costs, but excludes annual lease payments because  NNSA would own the facility. KCP determined that DOE third-party  financing was not viable because the process was new and unproven and  offered only a short-term lease of 5 years, which KCP officials believed  would likely result in higher annual lease costs because potential  developers would have difficulty obtaining financing for such a short-term  lease at a reasonable cost. As a result, KCP did not develop a total  estimated cost based on a 5-year lease using DOE’s process of obtaining  third-party financing. Table 1 shows KCP’s comparison of the two KCP  options it determined would pose the lowest risk to implement—the GSA  lease and DOE line-item project—revealing that the GSA lease is less  costly than line-item funding by over $100 million.
However, KCP did not compare alternatives using the total costs over the  expected life of the proposed KCP facility—the full life cycle costs;  therefore, NNSA cannot be certain whether other alternatives might result  in lower longer-term costs. KCP limited its analysis of future costs to 20  years after lease payments begin, consistent with the longest lease term  allowed under the GSA option and the longest period for which NNSA was  willing to commit to under its current KCP relocation approach. However,  20 years is far shorter than the useful life of a production facility that is  properly maintained; the current KCP facility has operated for more than  60 years. In addition, although requirements may change in the future,  current nuclear weapons production requirements justify the need for KCP  manufacturing capabilities for at least another 32 years. Although leasing a  facility for 20 years through GSA is less costly than leasing over shorter- term periods, leasing is usually more costly over the long term than  constructing and owning a facility. NNSA and KCP officials acknowledged  that while leasing a facility through GSA under a 20-year scenario is less  costly than a line item project, it can be more costly over a longer-term  scenario—possibly even beginning at about 22 years into the lease.
In early 2009, DOE’s Office of Cost Analysis reviewed KCP’s relocation  project. Although ultimately supporting NNSA’s decision to lease a new  facility, DOE’s review found KCP’s cost analysis to be biased toward the  leasing option. DOE’s review noted that while leasing is more affordable  up front, it is more costly over time, particularly since the government  tends to occupy facilities for long periods of time and must pay relocation  costs when the lease terms expire or negotiate new leases and continue  making lease payments. KCP’s cost analysis, being limited to 20 years,  precludes including either of these costs, whereas a full life cycle cost  analysis would have included both relocation and continuing lease costs.
KCP officials stated that limiting their analyses to 20 years is appropriate  and is consistent with NNSA’s overall approach for KCP’s transformation.  As part of its goals to develop a more adaptable nuclear infrastructure,  NNSA determined that 20 years is the longest period for which it would be  willing to commit under the current KCP relocation approach. NNSA  officials stated that it is conceivable that the nation’s entire nuclear  stockpile, its nuclear strategy, or both could be obsolete by 2030 and a  new strategy would apply. However, NNSA’s weapons program manager  for the W76 and W88 told us that current nuclear weapons production  requirements for these two warhead types justify the need for KCP  manufacturing capabilities until at least 2042. He added that since some  threat to the United States will always exist, a new project will likely  replace the W76 and W88 if they are ever taken out of service, thus  justifying the need for KCP’s manufacturing capabilities even beyond 2042.
section_title: KCP Is Taking Steps to Ensure Uninterrupted Production, Including Efforts to Address Scheduling Problems We Identified
paragraphs: KCP is initiating several key actions to help ensure that components are  produced without delay or interruption, such as producing components  before the move to compensate for periods of time when production will  be halted and coordinating with design laboratories that will help to  requalify equipment after the move. However, KCP’s relocation schedule— which is critical to ensuring that the move does not disrupt production— did not initially adhere to all of GAO’s best practices for schedule  development. While KCP officials have taken steps to address some of  these problems, the schedule still has some shortcomings.
subsections: section_title: KCP Is Initiating Several Key Actions to Help Ensure That Components Are Produced without Delay or Interruption
paragraphs: In preparation for KCP’s 18-month move to its new facility, KCP officials  have developed plans to ensure that it can continue to provide  components for the nuclear weapons stockpile as scheduled. In 2007, KCP  hired a professional moving company to develop a high-level strategy to  minimize the duration, costs, and disruptions associated with the move.  This strategy included major milestones and estimated time frames for  moving each department within KCP. Based on these estimates, KCP has  begun to produce components that it will store or deliver before and  during the move to ensure that it can meet delivery requirements when  production is halted to move, set up, and requalify equipment at the new  facility. KCP officials conducted long-range planning to determine the  demand for components through 2016, which helped officials estimate the  number of components to produce in advance. As of June 2009, KCP  officials stated that they are largely on schedule for producing these  additional components.
Moreover, KCP has established a formal program to capture and preserve  information about certain production processes and ensure that  production capabilities are not lost. While KCP does not plan to record  information about all processes, officials developed more than 60 step-by- step videos, overview videos, and notes from subject matter experts. This  knowledge preservation program focuses on processes that are difficult to  develop or involve key personnel who are retiring or otherwise leaving  through other forms of attrition, as well as processes that KCP uses  infrequently or plans to outsource. These efforts are designed to allow  KCP to transfer knowledge and resume internal production of outsourced  components, if necessary. Our March 2009 report on NNSA’s stockpile life  extension program illustrates the importance of maintaining such  information. Specifically, at another NNSA site, we found that officials no  longer knew how to manufacture a key material needed to refurbish the  W76 warhead because the site had kept few records of the process when  the material was made in the 1980s, and almost all staff with expertise on  its production had retired or left the agency. NNSA’s efforts to address this  information gap resulted in $69 million in cost overruns and a schedule  delay of at least 1 year that presented significant logistical challenges for  the Navy. KCP’s knowledge preservation program should help avoid  similar problems.
In addition, KCP has developed a strategy to estimate the cost and time  needed to requalify production and testing equipment after the move,  which will help to ensure that the equipment continues to produce  components of the same quality as before the move. In particular, KCP  officials have identified all equipment that they believe will need to be  requalified and determined how the move will affect this equipment, which  in turn will affect how extensive requalification efforts will need to be. For  example, officials assessed how the production process will change as a  result of KCP purchasing new equipment or outsourcing production.  Changes in environment, such as temperature and humidity levels, could  also affect equipment and production. KCP officials also estimated how  long requalification will likely take, based on previous requalification  efforts, and have been meeting with design laboratories since July 2006 to  plan and budget requalification efforts and to communicate overall plans  for KCP’s transition.
However, officials at Sandia stated that they are concerned that they may  not have sufficient funds to assist with requalification activities within  KCP’s scheduled time frames. KCP officials estimate that requalification  activities will cost KCP about $20 million, while Sandia estimates that their  support of requalification activities will cost Sandia an additional   $40 million for fiscal years 2008 through 2013. In fiscal year 2009, the  design laboratories’ budgets did not include funding for requalification at  KCP; the laboratories have requested funding for fiscal year 2010. KCP  officials acknowledge that if funding is not available, requalification  efforts will be delayed, which will significantly delay its production  schedule. Nevertheless, KCP believes that NNSA is committed to the KCP  transition and will provide adequate funding to the design laboratories to  support requalification. Accordingly, KCP is continuing to coordinate with  the laboratories to estimate requalification needs.
KCP officials have also made plans to provide additional capability and  capacity at the new facility to produce components that implement new  technology or to reestablish the production of outsourced components if  necessary. Specifically, KCP designed the facility so that it can add second  and third work shifts, which may allow it to increase production of some  components if needed. KCP has also dedicated about 10 percent of the  facility’s total square footage—about 100,000 square feet out of the  facility’s 1 million total square feet—to unused space that can be quickly  and cost effectively converted for new capabilities or expansion of  existing ones. KCP officials stated that they designed the new facility with  a more open manufacturing space and modular utility systems so that it  can be quickly and inexpensively reconfigured to adapt to changing  production needs. In contrast, reconfiguring KCP’s current facility would  require extensive modification of electrical, heating, and cooling systems,  including moving, penetrating, or bypassing concrete walls, floors, and  ceilings. KCP has also retained the capability to produce certain  components that it currently outsources, which will allow it to reverse the  decision to outsource those components and more quickly resume  production internally if necessary. For other components, however, KCP  officials have determined that there are many private suppliers with  similar production capabilities. As a result, KCP will not retain the ability  to produce these components or execute such processes.
KCP plans to reduce the size of its available stored inventory space from  nearly 300,000 square feet to 60,000 square feet—a total reduction of about  240,000 square feet, or about 80 percent. This will be accomplished by  higher-density storage and disposition of obsolete and surplus inventory.  KCP officials are currently in the process of identifying surplus inventory,  which they define as items that have not been used in the last 2 years or  have no demand anticipated in the next 10 years. As of February 2009,  KCP had identified from 8,000 to 9,000 parts as surplus inventory. Sandia  design engineers are concerned that KCP may discard critical equipment  that could be expensive and difficult to re-create if it were needed again in  the future. However, according to KCP officials, most equipment stored at  KCP is so outdated that it would cost more to repair the equipment than  the equipment is worth. Moreover, KCP officials said that they have  consulted periodically with design engineers as part of the review process  and that before disposal of items is authorized, NNSA will distribute a list  of excess items to all nuclear weapons complex sites to confirm that KCP  does not need to retain these items. KCP officials said that they plan to  continue to coordinate with the design laboratories as they reduce  inventory.
section_title: KCP Has Begun Taking Steps to Address Some Scheduling Problems We Identified
paragraphs: As part of KCP’s plans to ensure a smooth transition to its new facility,  KCP officials are working to develop a comprehensive project schedule  that details when relocation activities will occur, how long they will take,  and how they are interrelated. The schedule provides a road map for the  move and a means for gauging progress and identifying potential  problems. KCP officials stated that they have not established a formal  baseline of the schedule because the construction portion of the schedule  is not firm. We assessed KCP’s initial schedule in February 2009 and  found that KCP did not fully adhere to GAO-identified best practices for  schedule development. We assessed its revised schedule in July 2009 and  found that KCP officials have taken steps to address some of the problems  identified in our initial review, but that the schedule still has some  shortcomings.
We assessed KCP’s relocation schedule based on the nine best practices  we have identified for effective schedule estimating: (1) capturing key  activities, (2) sequencing key activities, (3) assigning resources to key  activities, (4) establishing the duration of key activities, (5) integrating key  activities horizontally and vertically, (6) establishing the critical path for  key activities, (7) identifying “float time”—the time that activities can slip  before the delay affects the completion date, (8) performing a risk analysis  of the schedule, and (9) updating the schedule using logic and durations to  determine dates. Most of these practices are also identified by DOE in  recent guidance on establishing performance baselines. Appendix II  contains more details on GAO’s best practices for scheduling and a  description of our assessments.
Our assessment of KCP’s February 2009 schedule revealed that KCP did  not meet three of these best practices and only partially met five. For  example, we found that KCP’s schedule did not reflect resources—such as  labor, material, or overhead—required to complete each activity, which is  important to determine the feasibility of the schedule based on available  resources. Further, KCP officials told us that they did not intend to  conduct a risk analysis of the schedule, which, according to best practices,  is important to predict the level of confidence in meeting a program’s  completion date and to identify high-priority risks. In addition, our  assessment revealed that KCP established excessively long time frames for  some very broad activities—275 activities had time frames of over 200  days in length. According to best practices, activity durations should be as  short as possible.
In April 2009, we provided KCP and NNSA officials with our assessment of  the February schedule. Although KCP officials provided additional context  about their particular schedule situation, they acknowledged that the pre- baselined schedule was not yet complete and expressed an intention to  work toward ensuring that the relocation schedule better conforms to  GAO-identified best scheduling practices. For example, KCP officials  acknowledged that they did not assign resources to activities in the  schedule as suggested by GAO best practices, but explained that they  planned to assign resources to certain activities in the schedule as well as  track resources using other management systems as they complete a more  detailed relocation plan in fiscal year 2011. KCP officials also explained  that scheduling is time-intensive, and that the schedule is updated and  improved daily. For example, KCP officials told us that they are in the  process of reducing the number of activities with excessively long  durations by, among other things, splitting longer duration activities into  more detailed and shorter tasks as more information becomes available.  KCP officials further explained that most of the activities with long  durations are well into the future and cannot be accurately broken into  smaller segments until some near-term activities are completed. In  addition, KCP officials explained that although they have not performed a  formal risk analysis on the schedule, they use alternative methods to  identify and reduce scheduling risks. For example, KCP officials told us  that scheduling officials consult subject matter experts to provide  estimates for the duration of activities, which they believe will be  successfully executed within those time frames. Further, KCP officials  asserted that they are monitoring schedule risks at the project and  program levels through a separate database.
In our review of KCP’s revised schedule in July, we found that KCP had  taken steps to address some of the problems we identified; however, the  schedule still does not fully adhere to GAO’s best practices. Specifically,  KCP improved the schedule in several areas. For example, KCP’s February  schedule did not fully resolve some key activities on the critical path—the  path of work that must be completed as planned if the projected  completion date is to be met. To correct this, KCP’s July schedule included  additional information on the lease award and other activities in the  critical path that more realistically depicts KCP’s overall expected  completion date for relocation—October 2013, about a 1-year delay from  NNSA’s original commitment to Congress. However, a few practices that  KCP’s initial schedule either did not meet or only partially met did not  significantly improve. For example, although KCP officials monitor  schedule risks in a separate database, they do not plan to conduct a risk  analysis using statistical analysis techniques as suggested by GAO- identified best practices. Table 2 summarizes the progress KCP made from  February through July 2009.
The timely implementation of KCP’s relocation schedule is critical to  ensure that the relocation occurs on time and does not risk disruption of  component production. In particular, the relocation is scheduled to occur  during a large production run for the W76 life extension program, which  began 2 years ago and is scheduled to last at least 10 more years. An NNSA  W76 program manager stated that the relocation was planned without  substantial input from him and that KCP may have missed opportunities to  reduce risks associated with the relocation. For example, if officials had  delayed the relocation by 2 years as he would have recommended, KCP  could have reduced potential disruptions to the life extension program for  the W76 nuclear warhead. Moreover, the program manager stated that any  schedule delays during the relocation will likely cascade to an already  tight production and delivery schedule.
section_title: KCP Has Begun Taking Steps to Mitigate Some Outsourcing Risks but Could Better Safeguard Technologies That Pose Nuclear Proliferation Risks
paragraphs: KCP has begun taking steps to address outsourcing risks, such as potential  interruptions to supply sources; unanticipated price increases; and quality  assurance problems, including counterfeiting and sabotage. However, KCP  lacks a formal, risk-based approach to identifying and mitigating risks  posed by components and technologies, including weapons-related design  drawings; unique production processes; and information that although  mostly unclassified, could be used by adversaries to develop or advance  their nuclear capabilities.
subsections: section_title: KCP Has Begun Taking Steps to Mitigate Many Risks of Outsourcing
paragraphs: Sandia design engineers that we interviewed identified several general  risks of outsourcing that could jeopardize the quality or safety of nuclear  weapons or affect KCP’s schedule or costs, and KCP has begun taking  steps that seek to mitigate many of those risks. Specifically:    Loss of a supplier. Sandia officials stated that relying on one supplier to  produce a particular component can be risky because if a supplier can no  longer produce components for KCP because of business failures, loss of  interest in working with KCP, a natural disaster, or other reasons,  production may be delayed while KCP identifies an alternative supplier or  reestablishes production capabilities on-site. To mitigate this risk, KCP is  developing a pool of capable suppliers for outsourced components so that  it can quickly move production to another qualified supplier, if necessary.  For example, when KCP officials decided to outsource a plating process— the process of coating electrical and mechanical products to improve their  mechanical properties and protect against corrosion—they identified 1  primary supplier and 4 backup suppliers out of a potential pool of more  than 2,000 suppliers that could be called upon if the primary supplier could  no longer meet KCP’s needs. KCP officials told us that they also review  potential suppliers’ financial stability and eliminate those companies with  financial concerns from consideration.
Price increases. According to Sandia officials, suppliers could increase  their prices, which could cause an unanticipated increase in KCP’s  manufacturing costs. To mitigate this risk, KCP officials told us that they  include cost thresholds in their long-term purchase agreements and  validate the reasonableness of the component price by comparing it with  those of direct competition.
Quality assurance problems—including counterfeiting and sabotage.  Sandia officials stated that KCP is likely to have less direct control over  outsourced production processes, which could lead to quality assurance  problems, including an increased risk of counterfeiting and sabotage. KCP  has, on occasion, experienced poor quality results from suppliers, which  has required rework or changes in suppliers. Sandia officials also stated  that they are increasingly concerned about the potential for KCP to  unintentionally purchase counterfeit parts. For example, an expansive  black market exists for some microelectronics, particularly in Southeast  Asia. Sandia officials stated that counterfeit parts are becoming  increasingly more sophisticated, thereby requiring more expertise to  detect. Sandia officials also stated that suppliers may sabotage a  component to undermine the reliability of a nuclear weapon. To mitigate  these risks, KCP officials, sometimes accompanied by design engineers,  have conducted periodic quality reviews, including scheduled and  unannounced visits to some suppliers’ production sites. According to KCP  officials, the frequency and type of these reviews depends on, among other  things, the components’ degree of customization and the ease of  inspection—in some cases, components must be destroyed while  undergoing inspection, which is known as destructive testing. KCP  officials have reportedly observed some suppliers’ production processes  and overall quality of operations to verify that suppliers adhere to industry  standards and follow proper production techniques, such as using  appropriate levels of electrical voltage when manufacturing certain  components. KCP officials also have tested components for problems with  quality, including counterfeiting and sabotage. However, Sandia officials  stated that testing might not always effectively reveal counterfeit parts or  attempted sabotage. Although KCP officials said they do not outsource  components that have the potential for sabotage that their tests cannot  detect, KCP’s efforts to restrict outsourcing of these components is not  infallible. Although KCP’s outsourcing process considers the security of a  component and there is no evidence that sabotage has occurred in any  components KCP has procured, KCP’s outsourcing process lacks criteria  and steps for determining and mitigating the risk of a component being  counterfeited or sabotaged—a crucial feature of an effective risk-based  approach. KCP officials have previously outsourced highly customized and  preassembled components that cannot be easily inspected, potentially  increasing the chance of counterfeited or sabotaged components going  undetected.
section_title: KCP Has Not Conducted a Systematic Review to Identify Outsourced Technologies That Pose Nuclear Proliferation Risks
paragraphs: KCP has not implemented a systematic review process to identify specific  components, technologies, and information that although not considered  to be classified national security information, are subject to export  controls and could be used to advance the nuclear capabilities of  adversaries. Although DOE guidance states that KCP should conduct a  review to identify the components, technology, and information that could  potentially advance the nuclear capabilities of potential adversaries, KCP  and NNSA’s site office have not conducted such a review. KCP and NNSA  officials stated that they have not conducted such a review because  NNSA’s current interpretation of export control regulations is that all  components used in nuclear weapons should be considered subject to the  regulations. If this were not the case, the officials stated that it would be  both difficult and time-consuming to make individual export control  determinations for each of the many components produced or outsourced  at KCP given the officials’ perception of the lack of clarity in the  regulations and would add little value to their current approach.  Specifically, DOE issued guidance in 1999 to help DOE and its contractors  to implement a consistent policy regarding transfers of unclassified  equipment, materials, and technology that could adversely affect U.S.  security or lead to the proliferation of weapons of mass destruction. This  guidance specifies the need for an export control review to identify such  equipment, materials, and technology, among other things, that could pose  proliferation risks. NNSA officials stated that although these guidelines  are not requirements, they would be appropriate for KCP to use in its  outsourcing decisions. Furthermore, the DOE guidance states that the  NNSA site office manager at KCP is responsible for ensuring that KCP  performs export control reviews.
As outsourcing increases and additional individuals gain access to nuclear  weapons design and production information, potential adversaries could  gain access to information that could be used to advance their own  nuclear capabilities. KCP officials estimate that about 10 percent of the  components KCP produces or procures would likely be considered high  risk if a program of review existed, and acknowledged that they have not  conducted a review to systematically evaluate the level of risk for each  component. Instead, KCP officials stated that they treat each component  and the associated design information as if they pose equal proliferation  risks and are subject to International Traffic in Arms Regulations—the  regulations controlling the exports of munitions items and technologies.  As such, items that pose little apparent risk of contributing to potential  adversaries’ development of nuclear weapons, such as a commercially  available screw, are considered to be the same level of risk as complex  components, such as a mechanism designed to arm nuclear weapons.
As a precautionary measure, KCP officials stated that they produce and  assemble most of the more complex and higher-level components in- house, reserving outsourcing for components that are more commercially  available, less complex, and at lower stages of assembly. Nevertheless, we  observed that KCP officials currently outsource the production and  assembly of several components that they determined to be of higher  complexity and assumed the components were subject to export control  requirements but did not conduct a systematic assessment of the  components’ actual proliferation risk. Without a systematic review process  to identify which components and technologies—including weapons- related design drawings, unique production processes, and other  information—pose greater threats, KCP may be missing opportunities to  restrict certain outsourcing activities and mitigate the risk associated with  sharing critical information that could be used use to develop or enhance  an adversary’s nuclear weapon capabilities.
Furthermore, KCP’s primary export control measure rests on its suppliers’  compliance with a contract clause outlining their responsibility to abide by  export control laws and safeguard nuclear weapon component production  and design information. The contract clause informs external suppliers of  the potential applicability of export regulations and notifies suppliers that  they must report any information that may require an export license or  other forms of approval. For example, KCP outlines expectations for its  suppliers, including to (1) disclose their intent to export a component or  hire foreign nationals that might be exposed to the component or its  design-related information and (2) fully comply with all export control  laws and regulations. In some instances, self- reporting has allowed KCP  to identify and mitigate a risk. For example, when one of KCP’s domestic  suppliers moved its operations to Mexico, KCP officials were faced with  the decision whether to switch suppliers or retain the now foreign-based  supplier. To mitigate concerns about working with a foreign-based  company, KCP officials told us that they reevaluated the design of the  component and decided to continue purchasing less-sensitive parts of the  component—such as a type of connector—from that supplier, but found  another domestic-based supplier to produce other more sensitive parts of  the component—such as a particular type of cable. KCP officials told us  that they took these actions after the supplier reported its relocation plans  to KCP, as required in its contract. However, according to Sandia officials,  supplier self-reporting has not always been a reliable approach. In another  recent case, Sandia learned that a supplier was foreign owned only after it  had already procured parts from that supplier, which led to additional  costs, schedule delays, and other problems that eventually forced Sandia  to produce the component in-house.
DOE and NNSA lack clear and up-to-date export control guidance. As a  result, NNSA has not clearly communicated to KCP its expectations of  what a systematic and consistent export control review process should  include, or ensured that the specific components, technologies, and  information that could be used to advance the nuclear capabilities of  potential adversaries are identified. For example, NNSA officials that we  spoke with noted that DOE’s 1999 export control guidance is outdated. In  2005, NNSA officials determined that DOE’s guidance needed to be  updated, but the guidance revision was never completed. In addition,  because the export control guidance is not tailored for NNSA production  and laboratory sites, NNSA lacks firm criteria for conducting oversight of  export control activities. KCP officials further explained that DOE’s  guidance is not helpful in interpreting the Commerce Control List, which is  made up of broad categories that are not always specific to nuclear  weapons technologies. For example, the Commerce Control List identifies  sensors as a controlled technology; however, according to KCP officials,  several items may fit that category, including items that could be used by  potential adversaries to advance their own nuclear weapon capabilities as  well as those that would not pose such a threat, such as a simple  thermometer or rain gauge. Further, KCP officials stated that DOE’s  guidance does not clearly define laboratories’ and production sites’  responsibilities or provide a clear determination of who is responsible for  identifying the components that are subject to export control. In  particular, both KCP officials and design engineers told us that it is unclear  whether KCP or the laboratories should determine the level of risk and  how that risk should be communicated, such as how each design drawing  should be labeled. KCP officials suggested that if design engineers  identified the portions of the design drawing that may require more careful  export control consideration, it would help them determine effective  export risk mitigation steps. One KCP official stated that there is also  considerable risk in asserting that a component is not subject to  International Traffic in Arms Regulations, especially given the sensitivity  and risk-averse nature of the nuclear weapons community. As a result,  KCP has defaulted to treating all components as being of equal risk and  subject to these regulations and has taken no specific actions to identify  and mitigate the greatest risks.
section_title: Conclusions
paragraphs: KCP has made substantial progress toward achieving NNSA’s overall goals  to modernize its nonnuclear production facility and ensure continued  production of quality components essential to maintaining the U.S. nuclear  weapons stockpile. However, shortcomings in NNSA’s oversight of KCP’s  relocation may offer lessons for future modernization efforts at its nuclear  weapons facilities. In particular, NNSA allowed KCP to limit its cost  analysis to a 20-year life cycle that has no relationship with known  requirements of the nuclear weapons stockpile or the useful life of a  production facility that is properly maintained, and did not require that  KCP consider the full useful life of the facility in its analysis. As a result,  NNSA’s financing decisions were not as fully informed and transparent as  they could have been. If KCP had quantified potential cost savings to be  realized over the longer useful life of the facility, NNSA may have made a  different decision. Further, because NNSA has not ensured that KCP’s  relocation schedule fully complies with DOE schedule development  guidance and GAO-identified scheduling best practices, there is a potential  for delays. A delay in KCP’s relocation could affect the timely delivery of  replacement components needed to maintain a reliable nuclear weapons  stockpile, which, in turn, could have a detrimental effect on national  security. Moreover, DOE and NNSA lack clear and up-to-date export  control guidance that articulates NNSA’s expectations of what a  systematic and consistent export control review process should include.  Because of this, KCP is not required to take—and therefore has not  taken—proactive steps to identify specific components, technologies, and  information that could be used to advance the nuclear capabilities of  potential adversaries. Furthermore, without export control requirements  that are designed specifically to meet NNSA production and nuclear  weapons design laboratory needs, and an effective mechanism for  ensuring enforcement of these requirements within NNSA, NNSA site  offices are less able to   (1) mitigate the risks associated with outsourcing components and   (2) exercise effective oversight.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Secretary of Energy take the following five  actions to strengthen NNSA’s oversight practices and current and future  facility modernization efforts.
To improve the transparency and usefulness of cost analyses prepared for  future NNSA nuclear facilities modernization projects, we recommend that  the Secretary of Energy direct the Administrator of NNSA to ensure that  life cycle cost analyses include a thorough and balanced evaluation of  short- and long-term construction and financing alternatives. Such  analyses should consider the full useful life of the facility rather than the  20-year requirement for GSA leases or any predetermined length of time  that might produce results that favor one option over another.
To better manage the KCP relocation schedule, we recommend that the  Secretary of Energy direct the Administrator of NNSA to ensure that KCP’s  operating contractor revise the KCP relocation schedule so that it is  consistent with DOE schedule development guidance and GAO-identified  scheduling best practices, as outlined in appendix II.
Because of the importance of mitigating the risks of outsourcing nuclear  weapons components and other information that if exported, might allow  potential adversaries to develop or advance their nuclear capabilities, we  also recommend that the Secretary of Energy direct the Administrator of  NNSA to take immediate action to:    Assess the effectiveness of NNSA’s oversight of KCP’s current export  control and nonproliferation practices and, if appropriate, initiate  corrective actions to strengthen that oversight.
In collaboration with the Departments of State and Commerce, replace or  supplement DOE’s July 1999 Guidelines on Export Control and  Nonproliferation with guidelines, or another form of directive as deemed  appropriate by the agencies, that (1) clarify expectations for export  control reviews to specifically meet NNSA production and nuclear weapon  design laboratory needs and (2) contain an effective mechanism for  ensuring enforcement of these export control guidelines within NNSA.
Direct the KCP operating contractor to develop and implement a formal  risk-based review process in cooperation with the nuclear weapons design  laboratories that (1) identifies specific components, technologies,  production processes, and related information that if exported, might  allow potential adversaries to develop or advance their nuclear  capabilities and (2) includes steps for mitigating these risks, particularly  for considering whether or how to outsource these items.
section_title: Agency Comments and Our Evaluation
paragraphs: We provided NNSA with a draft of this report for its review and comment.  In its written comments, NNSA states that our review was thorough and  that we appropriately recognized NNSA’s progress toward achieving the  overall goals to modernize its production facility. NNSA also provided  additional information on its overall approach for modernizing the KCP  facility. NNSA generally agreed with our five recommendations and  outlined some initial actions that it expects to take to address each of  them.
NNSA provided its most substantive comments on our findings and  recommendations concerning export control. Specifically, although  agreeing with our three export control recommendations, NNSA stated  that it will delay action on them until an export control working group that  it created in July 2009 completes its analysis of export licensing and other  related issues. While we believe NNSA’s formation of a working group to  study these export control issues is a positive first step toward improving  its export control practices, it is important that NNSA not unduly delay  taking action to mitigate nuclear proliferation risks associated with  outsourcing nuclear weapons components and information.
Regarding our finding that KCP lacks a formal, risk-based approach to  safeguard components and technology that could be used by potential  adversaries, NNSA commented that KCP officials do not feel that  additional outsourcing increases risk or that a more rigorous review would  necessarily lead to different outsourcing decisions. However, as our draft  report noted, without knowing which components pose the greatest risks,  NNSA cannot be certain that it is focusing its efforts to safeguard the  highest-risk components and technologies in the most effective manner.
With regard to our recommendation that NNSA assess the effectiveness of  its oversight of KCP’s current export control and nonproliferation  practices, NNSA responded that the correct export control requirements  are being applied through its management and operating contract for KCP.  Specifically, the management and operating contractor (Honeywell) uses  standard export compliance clauses in supplier purchasing agreements to  put suppliers on notice as to the requirements applicable to them.  However, in our view, simply relying on the use of such clauses is not  oversight. Because NNSA has the primary responsibility of preventing the  proliferation of nuclear weapons, it is important that NNSA consider  adopting a risk-based approach that could enhance existing export control  requirements.
NNSA’s comments are reprinted in appendix III.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the appropriate  congressional committees; the Secretaries of Energy, State, and  Commerce; the Administrator of NNSA; and the Director, Office of  Management and Budget. The report also will be available at no charge on  the GAO Web site at http://www.gao.gov.
If you or your staffs have any questions about this report, please contact  me at (202) 512-3841 or aloisee@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix IV.
section_title: Appendix I: Objectives, Scope, and Methodology
paragraphs: Our objectives were to determine (1) how the Kansas City Plant (KCP)  developed plans for modernizing its facility, (2) actions KCP has taken  actions to ensure uninterrupted production of components needed to  support the nuclear weapons stockpile during and after the transition to  the new facility, and (3) actions KCP has taken to address the risks and  potential consequences of increased outsourcing of nonnuclear  components.
To determine how KCP developed plans for modernizing the facility, we  reviewed documents from the National Nuclear Security Administration  (NNSA) and Honeywell Federal Manufacturing and Technologies  (Honeywell), which manages and operates the KCP facility for NNSA, that  describe the project’s goals, approach, and rationale for key decisions on  relocating and outsourcing the production of nonnuclear components. We  also interviewed officials at NNSA’s Kansas City Site Office, Honeywell,  relevant subcontractors, and component design laboratories about KCP’s  relocation plans, approach, and time frames, including how the relocation  might affect continued production of high-quality components and the  risks posed by the current approach. Under our long-standing policy of not  addressing issues in ongoing litigation, we did not evaluate KCP’s analysis  of relocation alternatives because a lawsuit was filed in October 2008 that,  among other things, challenged the extent and adequacy of the  Department of Energy’s (DOE) consideration of alternatives to its plans  for replacing the KCP facility.
To determine the actions KCP has taken to ensure uninterrupted  production of components needed to support the nuclear weapons  stockpile during and after the transition to the new facility, we reviewed  agency and contractor documents describing transition plans. We talked  to officials at Sandia National Laboratories (Sandia) in New Mexico— which designs the nonnuclear components that are produced at KCP— about the impact of KCP’s plans on the quality, reliability, and future  support of the nuclear weapons stockpile. We evaluated the reliability of  KCP’s relocation schedule to determine the extent to which it captures key  activities, is correctly sequenced, establishes the duration of key activities,  is integrated, and has an established reliable critical path, among other  things. We conducted an initial assessment in February 2009, and  conducted a second assessment in July 2009 to evaluate the extent to  which the schedule improved over time. We based our assessment on  GAO-identified best practices associated with effective schedule  estimating, many of which are also identified by DOE in its guidance on  establishing performance baselines. To assess KCP’s schedule, we  consulted with a scheduling expert and interviewed key program officials  responsible for developing this schedule.
To determine the actions KCP has taken to address the risks and potential  consequences of increased outsourcing of nonnuclear components, we  reviewed agency and contractor documents, including KCP’s outsourcing  strategy and export control process. We also reviewed DOE’s Export  Control and Nonproliferation Guidelines, as well as relevant export  control laws and regulations. In addition, we interviewed key KCP and  Sandia officials to understand potential risks associated with outsourcing  and KCP’s approach for mitigating these risks, including nuclear  proliferation risks. We met with NNSA site office officials responsible for  overseeing KCP nuclear nonproliferation activities, and headquarters  officials that provide guidance and nonproliferation expertise to site  offices across NNSA.
We conducted this performance audit from November 2008 through  October 2009 in accordance with generally accepted government auditing  standards. Those standards require that we plan and perform the audit to  obtain sufficient, appropriate evidence to provide a reasonable basis for  our findings and conclusions based on our audit objectives. We believe  that the evidence obtained provides a reasonable basis for our findings  and conclusions based on our audit objectives.
section_title: Appendix II: GAO Assessment of KCP’s Relocation Schedule
subsections: section_title: Explanation
paragraphs: The schedule should reflect all  activities as defined in the program’s  work breakdown structure, to include  activities to be performed by both the  government and its contractors.
Criteria not evaluated: The  schedule appears to contain  most necessary activities;  however, we were unable to  verify whether all activities were  included because of incomplete  data and the need to clarify  details on the data we received.
Criteria partially met: The  schedule appears to contain  most necessary activities;  however, a supplemental  dictionary that defines activities  did not include sufficient detail  for us to conclude that the  schedule includes all the  activities to be performed. The  July schedule has a total of  5,592 activities.
Sequencing all activities  The schedule should be planned so  that it can meet critical program dates.  To meet this objective, key activities  need to be logically sequenced in the  order that they are to be carried out. In  particular, activities that must finish  before the start of other activities (i.e.,  predecessor activities) as well as  activities that cannot begin until other  activities are completed (i.e.,  successor activities) should be  identified. By doing so,  interdependencies among activities  that collectively lead to the  accomplishment of events or  milestones can be established and  used as a basis for guiding work and  Sequencing all activities  measuring progress.
Criteria partially met: KCP’s  use of constrained tasks has  been reduced but not  eliminated. Specifically, we  found that since February 2009  KCP reduced the extent to  which the following tasks were  constrained:  the number of tasks with  early start constraints was  reduced from 212 in  February to 144 in the July  schedule;  212 tasks with early start  constraints—that is, a “start  no earlier than” date;  the number of tasks with  no successors was  reduced from 2,121 in  February to 200;  2,121 activities with no  successor activities;  352 activities with no  predecessor activities;  the number of tasks with  no predecessor activities  was reduced from 352 in  February to 21;  102 lags—which are the  duration between activities  that delay successor  activities; and  the number of lags was  reduced from 102 in  February to 21, although  some lags are still  excessively long—from  240 to 422 days; and  850 negative lags––which  allow the start or finish of a  successor activity to occur  earlier than the start or  finish of a predecessor  activity. the number of tasks with  negative lags was reduced  from 850 in February to  20.
The schedule should reflect what  resources (i.e., labor, material, and  overhead) are needed to do the work,  whether all required resources will be  available when they are needed, and  whether any funding or time  constraints exist.
Criteria not met: The schedule  did not include resources;  therefore, it is not clear that this  schedule is feasible.
Criteria not met: KCP’s July  schedule still does not include  resources. Although the  agency asserted that it has  other systems to track resource  use and to determine future  resource needs, according to  scheduling best practices,  resources should be included  in the schedule.
The schedule should realistically  reflect how long each activity will take  to execute. In determining the duration  of each activity, the same rationale,  data, and assumptions used for cost  estimating should be used. Further,  these durations should be as short as  possible and they should have specific  start and end dates. Excessively long  periods needed to execute an activity  should prompt further decomposition of  the activity so that shorter execution  durations will result.
Criteria partially met: The  schedule included 138 activities  with over 260 days’ duration,  which is approximately 1 year  given a 5-day calendar. In  addition, we found that KCP  included 275 activities over 200  days in length. It is difficult to  manage activities of this length  and to know if these are realistic  durations or how they were  determined. According to best  scheduling practices, durations  should be as short as possible.
Criteria mostly met: Activity  durations have been reduced,  although some still remain  long. For example, KCP has  since reduced the number of  activities with over 260 days  duration from 138 in February  to 57 activities in its July  schedule. In addition, KCP has  reduced the number of  activities over 200 days in  length from 275 in February to  204 in its July schedule.  According to KCP officials,  most of the long duration  activities are well into the future  and cannot be accurately  decomposed until some near- term planning activities are  completed.
The schedule should be horizontally  integrated, meaning that it should link  the products and outcomes associated  with already sequenced activities.  These links are commonly referred to  as handoffs and serve to verify that  activities are arranged in the right  order to achieve aggregated products  or outcomes. The schedule should  also be vertically integrated, meaning  that traceability exists among varying  levels of activities and supporting tasks  and subtasks. Such mapping or  alignment among levels enables  different groups to work to the same  master schedule.
Criteria partially met: The  schedule is not horizontally  integrated. There are excessive  instances of incomplete logic  where activities have no  successors. In addition, there is  no evidence that the schedule is  vertically traceable to other  levels of activities, supporting  tasks, or subtasks.
Criteria mostly met: KCP has  made significant progress;  however, because of the  continued use of constraints,  lags, and incomplete logic, the  schedule is still not fully  horizontally integrated. KCP  has demonstrated that the  schedule is vertically integrated  with supporting tasks and  subtasks through an external  document.
Using scheduling software, the critical  path—the longest duration path  through the sequenced list of key  activities—should be identified. The  establishment of a program’s critical  path is necessary for examining the  effects of any activity slipping along  this path. Potential problems that may  occur on or near the critical path  should also be identified and reflected  in the scheduling of the time for high- risk activities.
Criteria partially met: The  critical path appears to be  logical; however, with all of the  other incomplete logic, as well  as a large float value—the time  that a predecessor activity can  slip before the delay affects  successor activities—the critical  path is not reliable. In addition,  in the February schedule, the  critical path extended to  September 27, 2010, and the  lease award task was not on the  critical path.
Criteria mostly met: KCP has  made progress on the critical  path. In KCP’s July schedule,  the critical path was extended  to October 5, 2013, and the  lease award task was added,  as appropriate. However, the  continued incomplete logic and  large float value continue to  affect the validity of the critical  path.
The schedule should identify float, so  that schedule flexibility can be  determined. As a general rule,  activities along the critical path  typically have the least amount of float.
Criteria partially met: The  schedule calculates total float  values––the time that activities  can slip before the delay affects  the end date––automatically.  However, there are more than  4,800 activities with total float  over 200 days. In addition, in the  February schedule, there were  390 activities with over 1,000  days of total float. These values  do not seem reasonable for a  project schedule and probably  are due to the excessive use of  constraints and incomplete logic.
Criteria partially met:  Progress has been made on  reducing total float values,  although they remain higher  than expected. For example,  KCP reduced the number of  activities with over 200 days of  total float from 4,800 in  February to 2,964 in the July  schedule. In addition, KCP has  since reduced the number of  activities with over 1,000 days  of total float from 390 to 147.
A schedule risk analysis should be  performed using a good critical path  method schedule and data about  project schedule risks, as well as  statistical analysis techniques (such as  Monte Carlo) to predict the level of  confidence in meeting a program’s  completion date. This analysis focuses  not only on critical path activities but  also on activities near the critical path,  since they can potentially affect  program status.
Criteria not met: KCP has not  performed a schedule risk  analysis using statistical  techniques. KCP officials  reported that they have no plans  to address this issue.
Criteria not met: KCP’s  schedule has not been  subjected to a statistical risk  analysis. KCP’s scheduling  team also indicated that it does  not have plans to conduct  statistical analyses on the  schedule. Although KCP  officials stated that they have  conducted an analysis on a  separate spreadsheet, it does  not provide sufficient  confidence in meeting a  program’s completion date.
The schedule should use logic and  durations in order to reflect realistic  start and completion dates for program  activities. The schedule should be  continually monitored to determine  when forecasted completion dates  differ from the planned dates, which  can be used to determine whether  schedule variances will affect  downstream work. Maintaining the  integrity of the schedule logic is not  only necessary to reflect true status,  but is also required before conducting  a schedule risk analysis.
Criteria partially met: The  schedule appears to have been  updated recently; however,  because of the incomplete logic  and reliance on lags, the dates  for future activities are not  reliable. Because the dates are  not all calculated automatically,  the schedule cannot be used to  monitor changes in forecasted  completion. Therefore, we could  not determine with confidence  whether schedule variances will  affect downstream work.
Criteria mostly met: There are  still 14 instances of incomplete  logic—where successor  activities start before  predecessor activities have  been completed.
section_title: Appendix III: Comments from the National Nuclear Security Administration
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Acknowledgments
paragraphs: In addition to the contact named above, Ryan T. Coles, Assistant Director;  Antoinette Capaccio; Tisha Derricotte; Terry Dorn; David T. Hulett; Sandra  Kerr; Amanda Krause; Alison O’Neill; Christopher Pacheco; Tim Persons;  Jeff Phillips; and John Smale made key contributions to this report.