Aircraft Carrier Dismantlement and Disposal: Options Warrant Additional Oversight and Raise Regulatory Questions
Released: 2018-08-02T00:00:00


Highlights: section_title: Why GAO Did This Study
paragraphs: The Navy is planning to dismantle and dispose of CVN 65 after 51 years of service. In 2013, the estimated cost to complete the CVN 65 work as originally planned increased to well over $1 billion, leading the Navy to consider different dismantlement and disposal options.

The Senate Report accompanying a bill for the National Defense Authorization Act for Fiscal Year 2018 included a provision for GAO to review the Navy's plans for CVN 65. This report addresses (1) dismantlement and disposal options under consideration; (2) nuclear regulatory authority considerations; and (3) funding and reporting practices.

GAO reviewed budget, cost, and schedule documentation, as well as applicable laws, regulations, executive orders, policies, and guidance. GAO interviewed officials from the Navy and commercial companies about the dismantlement and disposal options, and NRC and state agencies about regulatory considerations.

section_title: What GAO Found
paragraphs: The Navy is assessing two options to dismantle and dispose of its first nuclear-powered aircraft carrier—ex-USS Enterprise (also known as CVN 65). CVN 65 dismantlement and disposal will set precedents for processes and oversight that may inform future aircraft carrier dismantlement decisions.

Characteristics of the Navy's Potential CVN 65 Dismantlement and Disposal Options

Source: GAO analysis of Navy and Nuclear Regulatory Commission information. | GAO-18-523

The Navy could rely on its extensive regulatory experience for the naval shipyard option. However, the Navy's ability to effectively evaluate the full commercial option is hampered by a disagreement with the Nuclear Regulatory Commission (NRC), which oversees the commercial nuclear industry. Naval Reactors officials assert that NRC's regulatory authority should apply to the full commercial option. NRC disagrees with this position. Coordination between the two agencies to identify the applicable regulatory authority and craft a regulatory plan would help ensure accountability, solidify cost estimates, and facilitate a CVN 65 decision.

The budget documentation and reporting that the Navy typically uses for ship dismantlement and disposal projects will not enable adequate oversight of CVN 65—a multi-year project with a cost that may exceed $1 billion. The documents that support Navy budget requests for dismantlement and disposal funding do not provide data that decision makers can readily use to track dismantlement costs against an established baseline or to evaluate funding plans for future years. Further, the Navy has no reporting requirements to support accountability for CVN 65 activities. Large defense acquisition programs generally are required to submit more detailed budget information and report on cost, schedule, and performance. These practices could be adapted for CVN 65 to provide information that will facilitate oversight commensurate with the scale of the effort.

section_title: What GAO Recommends
paragraphs: Congress should consider requiring Naval Reactors to coordinate with NRC to identify the applicable regulatory authority for a CVN 65 commercial dismantlement and disposal. GAO is also making four recommendations, including that the Navy take action to provide additional budget information and reporting to facilitate improved transparency and accountability for the CVN 65 cost, schedule, and risks. The Department of Defense agreed with all four recommendations.

section_title: Letter
paragraphs: After 51 years of service, ex-USS Enterprise (also known as CVN 65)— the Navy’s first nuclear-powered aircraft carrier—is being prepared for  dismantlement and disposal. At approximately 76,000 tons, CVN 65 will  require an unprecedented level of work to dismantle and dispose of as  compared to previous ships. The Navy originally intended to dismantle  the entire CVN 65, both nuclear and non-nuclear components, at Puget  Sound Naval Shipyard and Intermediate Maintenance Facility (hereafter  referred to as Puget Sound Naval Shipyard), which is its usual facility for  this type of activity. However, in 2013, the Navy’s cost estimate for the  shipyard to perform all CVN 65 dismantlement and disposal activities  increased—from a range of $500 million to $750 million—to well over $1  billion. This led the Navy to consider alternatives. In 2016, the Navy  issued a request for proposals to have a commercial company recycle the  non-nuclear portions of the ship. The Navy also sought information from  industry at that time on the potential for a commercial company to  dismantle and dispose of the entire ship. In February 2017, the Navy  announced it canceled its request for proposals on commercial recycling  of non-nuclear portions of the ship and continued assessing its options.

As part of this assessment, the Navy determined it will not dismantle the  entire ship at Puget Sound Naval Shipyard. Instead, it is focused on two  potential options. One involves Puget Sound Naval Shipyard dismantling  and disposing of a section of the ship that contains the nuclear material— referred to as the propulsion space section—with disposal at the  Department of Energy’s Hanford low-level radioactive waste disposal site  in the state of Washington. The other entails the Navy awarding a  contract for commercial industry to fully dismantle and dispose of the  nuclear and non-nuclear materials for the entire ship. For the purposes of  this report, we refer to these two options as (1) the naval shipyard option  and (2) the full commercial option, respectively.

Regardless of the approach the Navy chooses, CVN 65 will set  precedents for the processes, costs, and oversight that may be used to  dismantle and dispose of nuclear-powered aircraft carriers in the future,  such as the Nimitz-class carriers which the Navy will begin to retire in the  mid-2020s. Senate Report 115-125 accompanying a bill for the National  Defense Authorization Act for Fiscal Year 2018 included a provision for  GAO to review the Navy’s plans for CVN 65 dismantlement and disposal.

This report (1) describes the differences between the dismantlement and  disposal options under consideration, including cost and schedule as well  as workload and facilities; (2) evaluates the Navy’s funding and reporting  practices for dismantlement and disposal activities; and (3) assesses the  effect that nuclear regulatory authority considerations have on  dismantlement and disposal options for CVN 65.

To conduct our work, we reviewed documentation on prior, ongoing, and  future Navy ship dismantlement and disposal plans and activities, as well  as information specific to the different CVN 65 options the Navy has  considered or is considering. We used this information to evaluate the  Navy’s history with ship dismantlement and disposal, how its plans for  CVN 65 have evolved, and what is currently known about the different  options the Navy is considering for the ship. We also reviewed the Navy’s  preliminary cost and schedule information and assessed naval shipyard  workload and facility data. This included workload data for fiscal years  2006 through 2025 and facility data for fiscal years 2018 through 2035.  To assess the reliability of these data, we interviewed knowledgeable  officials and reviewed documentation to verify the controls and measures  used to validate and maintain the data. We determined these data to be  reliable for our purposes of discussing the existing and planned workload  at Puget Sound Naval Shipyard. We also reviewed documentation on the  Navy’s funding and reporting practices, as well as regulatory authorities  and processes for nuclear materials that may apply to CVN 65  dismantlement and disposal. This included a review of applicable laws,  regulations, executive orders, policies, and guidance. Further, we  assessed the typical budget information and reporting requirements for  dismantlement and disposal in relation to federal internal control  standards. Additionally, we reviewed past GAO reports that addressed  operation and maintenance activities at naval shipyards, and the  processes, facilities, and requirements for nuclear materials. We also  reviewed federal and Department of Defense (DOD) budget, financial,  and acquisition policies and guidance, as well as relevant reports from  DOD and other nuclear energy-related organizations, such as the  Organisation for Economic Co-operation and Development’s Nuclear  Energy Agency.

In addition to reviewing documentation that addresses these areas, we  interviewed officials from the Naval Sea Systems Command—which  includes Naval Reactors—Puget Sound Naval Shipyard, and the Nuclear  Regulatory Commission (NRC). We also interviewed officials from health  and environmental agencies for the states of Texas and Washington.  Ship dismantlement activities have occurred in these states and both  have nuclear waste disposal sites. Additionally, we interviewed officials  and reviewed documentation from commercial companies involved in  shipbreaking or nuclear-related industries. These companies include  Atkins Global; EnergySolutions; Huntington Ingalls Industries (HII –  Nuclear); International Shipbreaking Limited; NorthStar Group Services;  and Waste Control Specialists. For more information on our scope and  methodology, see appendix I.

We conducted this performance audit from August 2017 to August 2018  in accordance with generally accepted government auditing standards.  Those standards require that we plan and perform the audit to obtain  sufficient, appropriate evidence to provide a reasonable basis for our  findings and conclusions based on our audit objectives. We believe that  the evidence obtained provides a reasonable basis for our findings and  conclusions based on our audit objectives.
subsections: section_title: Background
paragraphs: In 1961, the Navy commissioned the first and only Enterprise-class  aircraft carrier, CVN 65, which was the world’s first nuclear-powered  aircraft carrier. CVN 65 served the Navy’s needs for 51 years, deploying  25 times and sailing more than 1 million miles during that time. The  carrier, which was powered by eight nuclear reactors, was the  predecessor of the two-reactor Nimitz-class aircraft carriers that followed it into service. The Navy plans to begin retiring the Nimitz-class carriers in  the next decade.

Following the retirement of CVN 65 in 2012, the Navy began preparing  the ship for dismantlement and disposal in a process called inactivation.  These inactivation activities—which Navy officials stated cost $863 million  to complete—included removing the nuclear fuel from the ship’s reactors  and taking off equipment and other materials in preparation for  dismantlement of the ship. The Navy’s next steps include planning efforts  to meet the environmental requirements associated with dismantling and  disposing of a nuclear-powered ship, such as handling of radioactive and  other hazardous materials. The final step for CVN 65 will be  dismantlement, including the recycling of non-nuclear portions of the ship  and safe disposal of nuclear and other hazardous materials. Figure 1  provides a timeline of CVN 65 events.

CVN 65 is the largest nuclear-powered ship that has been retired by the  Navy. Figure 2 compares the size of CVN 65 to previous and future Navy  vessels requiring dismantlement and disposal, as well as other relatable  structures.
subsections: section_title: Puget Sound Naval Shipyard Dismantlement and Disposal Activities
paragraphs: In 1990, the Navy authorized a program to recycle decommissioned  submarines at Puget Sound Naval Shipyard in Bremerton, Washington.  According to Navy officials, the Department of Energy’s low-level waste  site in Hanford, Washington, was the only practical site at the time for  disposal of the defueled submarine reactor compartments, which included  low-level radioactive waste. Puget Sound Naval Shipyard is the largest  shipyard on the U.S. West Coast, and while it is equipped and staffed to  work on all classes of Navy vessels, it primarily conducts maintenance on  nuclear-powered aircraft carriers and submarines, which the Navy  considers a priority. This shipyard has the only dry dock on the West  Coast capable of servicing an aircraft carrier and is the Navy’s only site  for dismantlement and disposal of nuclear-powered ships.

Since 1990, the Navy has inactivated over 130 nuclear-powered vessels.  Inactivation is the process used to prepare a ship for disposing of the  compartments that house the reactors and recycling the hull or for safe  storage pending dismantlement and disposal at a later date. Inactivation  includes draining hydraulic systems and tanks, and removing hazardous  and expendable materials, tools, spare parts, and furnishings from the  ship. The removal of the spent fuel from a ship’s nuclear reactor(s),  referred to as defueling, usually happens as part of inactivation.  Historically, when a ship is dismantled at Puget Sound Naval Shipyard,  the reactor compartments are removed and packaged for transport to the  Hanford low-level radioactive waste disposal site. Figure 3 shows the  typical path followed for dismantlement and disposal at the shipyard.

section_title: Dismantlement and Disposal by Commercial Industry
paragraphs: The Navy often uses commercial industry to dismantle and recycle its  non-nuclear ships, including aircraft carriers, such as ex-USS  Constellation and ex-USS Ranger completed in 2017. Navy officials noted  that the cost to the government in recycling recent ships has been  minimal—ranging from 1¢ to $6 million—because of the resale value of  their scrap metal.

Commercial companies have decommissioned 32 civilian nuclear reactor  plants—work that the Navy has noted is comparable to nuclear-powered  ship dismantlement and disposal. Commercial industry uses a  component-based process for commercial nuclear plant  decommissioning. This process breaks the reactor down into smaller  components for transport and disposal, and separates nuclear waste from  non-nuclear waste as much as possible to reduce disposal costs.

section_title: Requirements Related to Dismantlement and Disposal of Nuclear- Powered Ships
paragraphs: Several laws and an executive order have established the regulatory  authority and requirements underlying the dismantlement and disposal of  nuclear-powered Navy vessels. The Atomic Energy Commission  exercised control of nuclear technology primarily for military purposes  until 1954, when the Atomic Energy Act was amended. These  amendments allowed for the possibility of a privatized nuclear energy  industry. Twenty years later, the Atomic Energy Commission was  abolished and split into the Nuclear Regulatory Commission (NRC) and  the Energy Research and Development Administration—which was later  absorbed into the Department of Energy.

Under this structure, NRC is responsible for overseeing commercial  nuclear reactor safety, licensing reactors, and establishing regulations  and guidelines for radioactive waste disposal for the commercial nuclear  industry. The National Nuclear Security Administration, a separately  organized agency within the Department of Energy, is responsible for the  management and security of the nation’s nuclear weapons, as well as  nonproliferation programs. The Naval Nuclear Propulsion Program—also  known as Naval Reactors—is a joint program of the Department of  Energy and DOD that has cradle-to-grave responsibility for all naval  nuclear propulsion matters. Figure 4 provides a brief description of laws  and orders related to nuclear materials.

In addition to the nuclear-specific requirements guiding the dismantlement  and disposal process, the Navy must comply with the National  Environmental Policy Act. Specifically, this act requires federal agencies  to evaluate the likely environmental effects of projects they are proposing,  generally by preparing either an environmental assessment or a more  detailed environmental impact statement. An environmental impact  statement must, among other things, (1) describe the environment that  will be affected, (2) identify alternatives to the proposed action and  identify the agency’s preferred alternative, (3) present the environmental  impacts of the proposed action and alternatives, and (4) identify any  adverse environmental impacts that cannot be avoided should the  proposed action be implemented. The Act’s requirements are invoked for  major federal actions, such as the construction of buildings or highways,  or the dismantlement and disposal of reactor compartments from nuclear- powered vessels.

Since 1996, nuclear-related dismantlement and disposal activities  performed by Puget Sound Naval Shipyard have been based on the  same environmental impact statement—which addresses the effects of  disposing of submarine and cruiser reactor compartments. In 2012, the  Navy produced an environmental assessment analyzing the effects of  removing and preparing the reactor compartments of CVN 65 for disposal  at Puget Sound Naval Shipyard and transporting the compartment  packages to the Hanford site for disposal. It found that these activities  would have no significant impact on the environment beyond existing  activity. Naval Reactors subsequently decided, however, that a new  environmental impact statement is required for CVN 65 because the  alternatives identified for dismantling and disposing of the ship could  potentially have significant impacts on the environment that are not  captured by the existing environmental assessment. As part of the new  statement for CVN 65, Navy officials said environmental factors that  account for the naval shipyard and full commercial options will be  reviewed, as well as indefinite waterborne storage of the ship pending  dismantlement and disposal at a later date.

section_title: Naval Shipyard Option for CVN 65 Is More Defined than Full Commercial Option but May Pose Challenges for Meeting Navy Priorities
paragraphs: The Navy is weighing a number of considerations before making a  decision for CVN 65 dismantlement and disposal. The naval shipyard  option offers well-established processes for dismantlement and disposal  of the ship’s nuclear material and better understood cost and schedule  estimates than the full commercial option. Our analysis of available data,  however, found that the naval shipyard option would contribute to existing  workload backlogs and exacerbate facility challenges at the shipyard that  could affect its work maintaining the active fleet—a Navy priority. While  the Navy has not defined its requirements for the full commercial option,  industry does not expect to face workload or facility challenges. Navy  officials also believe that the full commercial option potentially could  shorten the timeline for completing the work and reduce the total cost.
subsections: section_title: Naval Shipyard Option Is Based on a Well- Established Process, While Navy Has Yet to Characterize Full Commercial Option
paragraphs: Although CVN 65 is the first nuclear-powered aircraft carrier requiring  dismantlement and disposal, the Navy has well-established processes for  dismantling and disposing of nuclear-powered submarines and cruisers.  Navy officials explained that the shipyard’s extensive dismantlement and  disposal experience with these vessels has resulted in a strong  understanding of how to accomplish the work. Further, the Navy has been  working on plans to address the ship-specific needs of CVN 65 for many  years. If the Navy chooses the naval shipyard option for CVN 65, it  expects to adapt and use these well-established processes to dismantle  the 28,000-ton nuclear propulsion space section at Puget Sound Naval  Shipyard. This section would contain the 8 defueled reactors and all other  nuclear-related material that remains on the ship. To separate the  propulsion space from the ship, a commercial company would perform  “ship-shaping” to create a dedicated ship section for all of the nuclear- related work. This activity would minimize the portion of the ship  transported to the naval shipyard for dismantlement and disposal. The  remaining ship sections would be commercially recycled. The shipyard is  evaluating two designs for reactor compartment packages that could be  used for transport and disposal of the ship’s nuclear material. One  design—based on a package previously used for cruiser reactors—would  involve the shipyard preparing 8 single reactor packages. The other  includes a new design that would enclose 2 reactors in dual reactor  packages. Figure 5 shows how the Navy anticipates the ship would be  divided into sections through this process.

In contrast, the Navy formally began considering the potential for a full  commercial option for CVN 65 within the past 4 years. According to Navy  officials, although information received through previous requests for  information and hosting discussions with commercial industry helped  shape their understanding of the potential for a commercial ship  dismantlement, they ultimately have had relatively limited interaction with  commercial companies to determine their potential plans and processes  for CVN 65 dismantlement and disposal. Naval Reactors officials stated  they are waiting for the environmental impact statement process to  officially begin before further engaging with prospective commercial  companies and the public.

Many of the details for a full commercial option will depend upon Navy  requirements, such as standards, technology, or specific procedures  required to do the work; data and analysis in the environmental impact  statement; and preferred work practices and facilities of prospective  companies. Officials we interviewed from companies with potential  interest in the work stated that because the Navy has not communicated  its CVN 65 requirements for a full commercial option, any commercial  approach described for the work would be hypothetical at this point,  relying on their extensive prior experience with nuclear materials  handling, packaging, shipping, and disposal—including nuclear ship  maintenance and decommissioning of commercial reactors—or ship  recycling. Commercial company officials noted that despite the lack of  definitive information available, they would anticipate employing typical  practices used for commercial nuclear reactor decommissioning, ship  dismantlement, and control of nuclear materials to complete CVN 65  work. In terms of locations for the work, Naval Reactors officials noted  that many coastal sites in the United States could potentially  accommodate CVN 65 dismantlement activities, and the location of the  work site would affect the proposed disposal site or sites. Table 1  provides characteristics of the two options that the Navy is considering for  CVN 65 dismantlement and disposal.

section_title: Estimates for Both Dismantlement Options Require Further Development
paragraphs: Cost and schedule estimates for both CVN 65 options have yet to be  formally established by the Navy. Puget Sound Naval Shipyard has been  refining CVN 65 plans and estimates over many years. However, its most  recent estimates for cost and schedule still may not fully account for  uncertainties in completing the work because it represents a first-of-its- kind project with an unprecedented scale. The Navy’s notional estimates  for the commercial option are a first step in establishing expectations and  will evolve as requirements for the work are better understood. The Navy  awarded a contract in July 2018 to the Center for Naval Analyses—a  federally funded research and development center serving the Navy and  other defense agencies—to complete a cost analysis for the full  commercial option. This effort is expected to provide the Navy with a cost  estimate for CVN 65 in October 2018, followed by a model through which  the Navy can develop cost estimates for future Nimitz-class  dismantlement and disposal efforts. The findings from the CVN 65  environmental impact statement may contribute to the final cost and  schedule estimates for either option.

Better Fidelity in Existing Naval Shipyard Option Estimates  Puget Sound Naval Shipyard officials explained that as their planning has  progressed, they have refined their cost and schedule estimates for CVN  65 dismantlement and disposal. Overall, the Navy’s cost estimates have  increased significantly from initial estimates but have been relatively  stable since 2016. The schedule went through similar fluctuations but has  steadied. Table 2 outlines changes in the shipyard’s plans and how they  affected cost and schedule.

The schedule for starting the work at the naval shipyard also changed.  Navy officials stated that as a result of the Navy’s decision in early 2017  to reassess its options for CVN 65, it delayed the expected start date for  the naval shipyard option from 2019 to 2034 based on analysis of the  workload at the naval shipyard, which we discuss below.

Although Puget Sound Naval Shipyard officials noted their cost estimate  includes some margin to account for CVN 65 being the first project of its  kind, it may not adequately account for the extent of unknown facts or  circumstances that could affect cost. For example, unrecognized  hazardous materials may exist in inaccessible areas of the CVN 65  propulsion space section that will only be discovered once the work is  underway, which could affect cost and schedule. Execution of the work in  support of a new dual reactor compartment package design also could  lead to unanticipated challenges that cause deviations from estimates.

No Formal Estimates for Full Commercial Option  The Navy has notionally estimated cost and schedule for a full  commercial option to be $750 million to $1.4 billion and about 5 years to  complete. These estimates suggest that the commercial option could cost  less and take less time to complete than the naval shipyard option. Navy  officials stated that the notional cost estimate is derived from data  reported by nuclear power plant operators, with differences in size and  scope for the nuclear reactors incorporated. They also said that the  notional estimate will be updated once it receives additional information  from industry during the planning process.

Navy officials told us they expect the cost per reactor for CVN 65 would  be significantly less than the NRC decommissioning average for a  commercial facility because CVN 65 reactor compartments are smaller,  the reactors are more compact, and they have already been through the  costly defueling activity. A 2016 international study on the cost of  decommissioning nuclear power plants identified several high-level  categories and their contribution to total costs for reactors  decommissioned in the United States, such as project management, site  restoration, and waste packaging, transportation, and disposal.  According to this study, about 25 percent of decommissioning costs can  be attributed to reactor decontamination and dismantling. Using this  percentage and the average cost to decommission a commercial nuclear  reactor, we estimate the cost to dismantle the eight CVN 65 defueled  reactors to range from $1.2 billion to 1.3 billion, which is at the higher end  of the Navy’s notional estimated range for the full commercial option.

In addition to the potential cost, the Navy initially projected about a 5-year  period of performance for the full commercial option based on limited  industry input. Navy officials told us the full commercial option start date,  beginning no earlier than 2024, is contingent on the finalization of the  environmental impact statement and a record of decision that chooses  this option as the Navy’s path forward. The Navy’s intent would be to  award a contract shortly after the environmental impact statement is  completed if the Navy decides to pursue the full commercial option.  Commercial officials told us they do not anticipate a need for significant  lead time before starting work, though the need will be better understood  once the Navy outlines requirements for the work.

Finally, the cost for a full commercial option could be influenced by the  contract type selected by the Navy. Contract type selection is a key factor  in determining how cost risk is shared between the Navy and the  contractor. Firm-fixed-price contracts are suitable for situations where the  risk involved is minimal or can be predicted with an acceptable degree of  certainty. Conversely, cost-type contracts are used when either  requirements are not sufficiently defined or uncertainties with contract  performance do not permit costs to be sufficiently estimated to use a  fixed-price contract. Although no decision has been made, Navy officials  told us they are interested in using a firm-fixed-price contract—a contract  type that has been used for commercial reactor decommissioning. Under  a firm-fixed-price contract, the contractor agrees to perform the work for a  price that is not subject to change based on the contractor’s cost  experience in performing the contract, placing full responsibility for all  costs and resulting profit on the contractor. Navy officials stated that  because CVN 65 is the first nuclear-powered aircraft carrier to be  disposed of, the scope of the effort will need to be better defined before  they could reliably conclude that firm-fixed-price contracting would be  appropriate. Specifically, insufficiently understood risks may make  potential contractors unwilling to accept the risks associated with a firm- fixed-price contract.

section_title: The Navy’s Priorities for Puget Sound Naval Shipyard Present Challenges Not Expected for Full Commercial Option
paragraphs: The Navy has stated its priority for Puget Sound Naval Shipyard is the  work associated with maintaining nuclear-powered aircraft carriers and  submarines currently in the fleet. However, as we reported in 2017, Puget  Sound Naval Shipyard has had significant fleet maintenance delays since  fiscal year 2000. These delays resulted in 4,720 lost operational days  for nuclear-powered aircraft carriers and submarines. The addition of  CVN 65 would contribute to challenges in the naval shipyard’s ability to  meet workload demands and further constrain its available facilities. In  comparison, despite the lack of detail about the Navy’s requirements,  commercial company officials we interviewed stated they currently do not  anticipate any major workload challenges or conflicts with other ongoing  or future work in completing the work on CVN 65 based on their existing  workforce and potential facilities for performing the work.

Puget Sound Naval Shipyard Workload and Facility Challenges  Based on our analysis of workload and resources data from Puget Sound  Naval Shipyard, we found that the shipyard consistently operates at its  maximum annual workload level and this likely will continue regardless of  the Navy’s decision for CVN 65. A Naval Reactors analysis of the  shipyard’s workload data also shows the workload meeting or exceeding  capacity for the foreseeable future. The shipyard’s workload projections  that we reviewed show it will be working at or near capacity through fiscal  year 2025—the last year for which data were available. Adding the work  associated with dismantlement and disposal of CVN 65 would put the  shipyard over current workload capacity.

Shipyard officials explained that historically, the workload projection for a  given year matures as that year approaches, and the dips that sometimes  are depicted in future-year workload projections generally vanish.  Workload maturity or growth can be attributed to changes in the Navy’s  maintenance plans, deferred maintenance, growth from the previous  year, and overall shipyard productivity. The condition of a ship when it  arrives for maintenance can also contribute to growth if inspections of  systems or components reveal a need for unplanned repairs. To account  for historical variability and improve projections of overall workload, in  2015 shipyard officials began including 10 percent in unallocated  workload to projections.

In reviewing the shipyard workload and resources data, we also found  that the shipyard regularly underestimates workload for future years— especially 5 years or more out—with workload growth for future years  consistently exceeding 15 percent. Even without the CVN 65 work at the  naval shipyard, projections show its workload with average notional  growth will meet or exceed the workforce available to complete the work,  as shown in figure 6.

According to the Navy, it is typical for naval shipyards to continually shift  resources across projects to align worker-specific trade skills to the type  of work executed on any hull in the shipyard, at any particular time. To  achieve a level and sustainable workforce across the fiscal years, the  number of full-time employees required to support planned work is sized  as part of the total workforce. The shipyard mitigates peaks in workload  (above the available workforce) through the use of additional overtime,  loans from other naval shipyards, and contracting. When that cannot  occur, the shipyard will defer workload until it can be executed.

The CVN 65 dismantlement and disposal work could affect the shipyard’s  ability to complete active fleet maintenance. We found that the addition of  the CVN 65 dismantlement and disposal would add almost a year’s worth  of work across the estimated 10-year dismantlement and disposal period  to an already busy shipyard that has demonstrated difficulties in  accurately projecting its future work. The Navy prioritizes maintenance of  the active fleet, but the scale of the CVN 65 work would reduce the  shipyard’s ability to delay or reprioritize dismantlement and disposal.  Shipyard officials noted that the Navy often defers planned dismantlement  and disposal to address higher-priority active fleet maintenance. For  example, smaller submarines prepared for dismantlement can instead be  stored at the shipyard until workforce and space are available to complete  the work. However, an aircraft carrier—even when reduced to a  propulsion space section as proposed for CVN 65—would not offer the  same level of flexibility to defer work. CVN 65 would involve a more  extensive resource commitment because of its increased size relative to  past ship dismantlement projects and would occupy limited facilities at the  shipyard. Specifically, current plans require 3 years pier side to prepare  the propulsion space section for dismantlement and reactor compartment  disposal and about 5 years in a dry dock for the actual dismantlement.

Further, the shipyard expects a significant increase in its submarine  inactivation and reactor compartment disposal and hull recycling workload  due to the end of service for an additional class of submarines— specifically, the Ohio-class submarines starting in 2027. The estimated  increase in inactivation and reactor recycling workload would overlap with  the planned start for CVN 65 dismantlement and disposal in 2034, if the  Navy elects to pursue this option. In addition, the shipyard already has a  backlog of 10 submarines and the ex-USS Long Beach cruiser in storage  awaiting disposal and recycling at its long-term storage facility for  defueled, decommissioned, and inactivated nuclear-powered ships.  Another 3 submarines are pier-side at Puget Sound Naval Shipyard. This  backlog is not expected to subside as submarines continue to be retired,  and each vessel represents thousands of workdays that the shipyard has  to commit to its dismantlement and disposal.

Navy and Industry Expect Full Commercial Option to Face Fewer  Challenges  While the Navy has not established specific requirements for the full  commercial option, Navy officials maintain that it does not present the  same workload and facility challenges that exist for the naval shipyard  option. Commercial companies have flexibility in selecting a location for  CVN 65 dismantlement activities based on facility and workforce  availability considerations. Some company officials we spoke with also  noted they have existing worksites—which are audited and approved by  Naval Reactors—where they process, package, and transport low-level  radioactive waste or operate low-level radioactive waste disposal sites  licensed by NRC. These include facilities for radioactive waste processing  and decontamination of materials for recycling. Additionally, company  officials said they anticipate that a substantial amount of the work could  be performed with the ship in the water—similar to the traditional  approach used to dismantle non-nuclear vessels for recycling—and  existing contractor facilities likely would not require major upgrades or  improvements other than to provide for the radiological-based waste  handling and packaging considerations.

Commercial company officials told us that they would not expect  significant additional hiring needs based on their limited understanding of  the potential CVN 65 work and their existing workforce capacity. They  added that the nuclear dismantlement and disposal industry has an  available, qualified workforce that could easily be employed if additional  workforce were needed. Given the early stage of the Navy’s planning for  CVN 65 and the Navy’s lack of formal engagement with commercial  companies at the time of our review, we did not assess the current or  future commercial workforce capacity. Any details on potential CVN 65  facility and workforce plans from commercial companies will be  hypothetical until the Navy formally begins efforts to seek input from  commercial companies and communicate requirements.

section_title: Budget Documentation and Reporting Does Not Include Sufficient Information to Facilitate Transparency and Oversight for CVN 65
paragraphs: The Navy’s approach typically used to budget for and report on ship  dismantlement and disposal does not provide sufficient information to  support decision makers’ oversight of CVN 65—a multi-year project that  may require more than $1 billion to complete. We found the Navy is not  required to provide detailed budget information or report dismantlement  and disposal cost, schedule, and programmatic information to decision  makers. Providing additional information through budget requests and  reporting would help ensure that decision makers have sufficient  information to oversee CVN 65 dismantlement and disposal activities and  to support future decisions.
subsections: section_title: Budget Exhibits for Dismantlement and Disposal Lack Ship- Specific Details
paragraphs: The Navy uses budget exhibits to provide congressional decision makers  information about dismantlement and disposal efforts. If no changes are  made to the information provided within the Operation and Maintenance,  Navy (OMN) budget exhibits, the CVN 65 dismantlement and disposal  budget request will include limited details for planned work, funding  needs, and total estimated costs. The bulk of the Navy’s past  dismantlement and disposal work is comprised of comparatively low-cost  projects—particularly submarines—with limited resource demands  compared to a nuclear-powered aircraft carrier like CVN 65, a multi-year  project with a cost that will potentially exceed $1 billion. For example,  nuclear-powered submarines have an average dismantlement and  disposal cost of about $26 million and average about 50,000 workdays.  Federal internal control standards recommend that agency management  communicate with external stakeholders the necessary quality  information—such as complete cost and schedule information for CVN 65  dismantlement and disposal—to achieve objectives. Budget exhibits are  a primary source of information about all programs and other activities  during budget planning and congressional appropriation decisions. Well- prepared budget exhibits help provide a rationale for the amount and  timing of funding requests. Given that this multi-year, large-scale project  is the first of its kind, more detailed information would facilitate greater  transparency and oversight of cost, schedule, and performance.

Limited Budget Information Provided for Dismantlement and  Disposal  The Navy uses the OMN appropriation account to fund dismantlement  and disposal activities. The Navy’s Financial Management Policy  Manual provides overall summary guidance on OMN budget formulation,  but it does not provide specific guidance on reporting criteria for  dismantlement and disposal of Navy ships. Budget exhibits are  prepared to justify appropriation requests and are key documents that can  be used to support congressional oversight. DOD acquisition training  materials state that well prepared budget exhibits make programs more  defensible. However, in assessing the OMN budget exhibits associated  with dismantlement activities for fiscal years 2007-2018, we found they  provide little ship-specific detail that could be used to monitor a significant  project such as the planned effort for CVN 65 dismantlement and  disposal, which may begin requesting funding as soon as fiscal year  2023.

Specifically, we reviewed the dismantlement and disposal funding  requests from the past several years, which reside within the Navy’s OMN  budget exhibits under the Ship Activations/Inactivations sub-activity group  of the Mobilization budget activity. In doing so, we found these exhibits  generally contain high-level information with a summary of funding  changes for the current fiscal year and the requested funding estimate for  the budget year. We could not definitively identify or track dismantlement  and disposal of specific ships because  key work activities are not described by ship,  cost and schedule for individual ships are not presented, and prior year costs and cost to complete a specific ship’s dismantlement  and disposal are not provided.

In reviewing programmatic documentation other than the budget  requests, such as Puget Sound Naval Shipyard dismantlement planning  documents and the Navy’s long-range shipbuilding plans, we found  instances of submarine inactivation costs significantly exceeding  estimates and notable delays to the start dates for work activities. We  found that, although not required, this information was not reflected in the  budget exhibit documents we reviewed. As another example we  previously noted, Navy officials stated that CVN 65 inactivation—already  completed in December 2017—cost $863 million. We could not track this  cost from the budget exhibits because of their limited detail. As a  consequence of the general lack of detail in the budget exhibits, decision  makers cannot readily identify if cost growth occurred or if a specific ship  was dismantled when planned, hindering oversight of dismantlement and  disposal projects.

The Navy’s OMN annual appropriations fund work activities on a year-by- year basis, which does not necessarily allow for tracking of the full  resource commitment of a project over time or enable monitoring of cost  growth to determine if additional funds are needed. Navy officials stated  that they fully fund dismantlement and disposal efforts that span multiple  fiscal years. They added that for CVN 65, the Navy may divide the work  into multiple discrete phases that are separately funded due to the  lengthy projected schedule. This approach could require the Navy to seek  OMN appropriations in several non-consecutive years. Such an approach  could make tracking CVN 65 dismantlement and disposal funding  challenging, as the total cost and any changes would be obscured among  the multiple funded activities that collectively compose the total  dismantlement and disposal effort. Navy officials acknowledged that they  could provide further information, such as total project cost and an overall  schedule for CVN 65, in the OMN budget exhibits. However, without  direction from DOD leadership or Congress, Navy officials stated that  they have no plans to deviate from providing the traditional OMN budget  exhibit information. Providing additional information in the CVN 65 budget  exhibit could enable decision makers to track total cost, any cost  changes, schedule progress, and general performance for the CVN 65  dismantlement and disposal.

Navy Could Provide More Budget Details for CVN 65  While the Navy funds ship dismantlement and disposal from the OMN  account, budget exhibits for other accounts—such as the Shipbuilding  and Conversion, Navy (SCN) account typically used for major investment  items—offer examples of how to provide decision makers with more  detailed information. Budget exhibits for SCN appropriations are  structured to identify major elements of cost and track those costs over  time, consistent with DOD Financial Management Regulations. For  example, the SCN budget exhibits typically contain specific information  for each ship being procured with a distinct funding line for major cost  categories such as basic construction, propulsion, and electronics.  Additionally, these budget exhibits describe the program with specific  plans for the upcoming budget year and estimate across 5 fiscal years  (known as DOD’s Future Years Defense Program), including the total  cost to complete the program. While some of the SCN budget exhibit  elements are not applicable to dismantlement and disposal, others could  be adapted and used in an OMN budget exhibit for CVN 65 to provide  information that would enable better oversight, such as work activities planned and performed by fiscal year; prior years’ funding data;  future years’ funding plans;  cost to complete dismantlement;  schedule of key events; and  information on the contractor(s), contract type, and contract award  and completion dates.

Navy officials said they typically would not provide the level of detail found  in SCN budget exhibits or the exhibits for other DOD acquisition programs  because OMN exhibits are not designed to support the same level of  oversight. Unlike DOD acquisition programs, DOD projects completed  with operation and maintenance funds typically are not investment  programs and generally do not require the same level of oversight.  However, as we previously indicated, Navy officials noted that if DOD  leadership or Congress provided clear direction on what additional details  related to CVN 65 dismantlement and disposal should be included in  OMN budget exhibits, it could provide that additional information to  support oversight. Navy officials stated that given the considerable  funding needs and congressional interest with CVN 65, they were assessing options for providing specific detail in the OMN budget exhibit  for its dismantlement and disposal activities. They added that no specific  decisions had been made on what additional information, if any, would be  included for CVN 65.

section_title: Lack of Reporting Requirements Limits Opportunities for Insight into CVN 65 Dismantlement and Disposal Cost, Schedule, and Performance
paragraphs: Despite being a part of the final phase in the program’s life cycle, we  found no specific reporting requirement related to the cost, schedule, risk  management, and general performance of dismantlement and disposal  activities in DOD or Navy policy that would support oversight by DOD or  Congress. Officials from Naval Reactors and the Naval Sea Systems  Command confirmed that there is no reporting requirement for  performance of dismantlement and disposal of Navy ships. Navy officials  noted that dismantlement and disposal activities are included in their  annual briefings to Congress that support the Navy’s budget requests, but  acknowledged that the typical comparatively low-cost ship dismantlement  and disposal activities are generally of less interest when combined with a  briefing on shipbuilding and other high-dollar acquisition investments.  This approach may be appropriate for submarine dismantlement and  disposal activities that have lower costs, shorter periods of performance,  and a well-established history. However, the magnitude of CVN 65’s  anticipated cost of dismantlement and disposal is comparable to that of  large DOD acquisition programs. Such programs generally are expected  to provide more information to decision makers within DOD and Congress  through formal reporting on plans, activities, and performance to support  accountability than what has traditionally been provided with respect to  Navy dismantlement and disposal activities.

The precedent-setting nature of the CVN 65 dismantlement and disposal  adds a level of risk and heightens the importance of having sufficient  accountability measures to facilitate oversight. There is greater potential  for unexpected challenges to arise because a nuclear-powered aircraft  carrier has not been dismantled and disposed of before. Additionally,  CVN 65 provides an opportunity to establish a foundation for  management and oversight of future aircraft carrier dismantlement and  disposal efforts, with the first of 10 Nimitz-class carriers expected to reach  the end of its service life in the next decade. Standards for internal control  in federal government state that in order to identify and mitigate risk,  program objectives such as a baseline for cost and schedule, should be  clearly defined in measurable terms so performance in attempting to  achieve those objectives can be assessed. Doing so would also provide  the Navy with the ability to collect important historical cost data that could  be used to inform cost estimates for future aircraft carrier dismantlement  and disposal efforts.

DOD acquisition programs could serve as a model to identify appropriate  cost and schedule objectives for the CVN 65 dismantlement and disposal,  even though it is not an acquisition program and not subject to these  requirements. DOD acquisition programs with significant resource  commitments comparable to that expected of CVN 65 are generally  subject to structured oversight and have reporting requirements to  support performance transparency and accountability. As discussed  earlier, preliminary cost estimates for CVN 65 dismantlement and  disposal may exceed $1 billion, regardless of the option the Navy  ultimately selects. While many requirements for DOD acquisition  programs are not relevant to dismantlement and disposal, even when  costs may reach similar levels, we found elements of the reporting  requirements associated with larger DOD acquisition category (ACAT)  programs that the Navy could leverage to facilitate oversight of CVN 65  dismantlement and disposal. For example, ACAT II programs—which  have estimated costs comparable to CVN 65 dismantlement and disposal  cost expectations—are required by DOD policy to establish a program  cost and schedule baseline prior to program start and report any  significant deviations from the established baseline. They also are  required by statute to provide information on risk management. Table 3  highlights some DOD acquisition program reporting elements that could  support oversight of CVN 65 dismantlement and disposal.

For example, once a cost baseline is established, comparison to an  independent cost estimate or assessment could provide greater  assurance that the risks associated with performing CVN 65’s large-scale,  first-of-a-kind dismantlement activities were adequately considered and  appropriately estimated. GAO’s Cost Estimating and Assessment Guide  states an independent review of a program’s cost estimate is crucial to  establishing confidence in the estimate. It provides an unbiased test of  whether the program cost estimate is reasonable and can be used to  identify risks related to budget shortfalls or excesses. The Naval Center  for Cost Analysis is responsible for developing independent cost  assessments for ACAT II Navy programs, while the Office of the  Secretary of Defense’s Office of Cost Assessment and Program  Evaluation develops independent cost estimates for major defense  programs.

As noted earlier, the Navy continues to refine its cost estimate of the  naval shipyard option and expects to receive an estimate for the full  commercial option from the Center for Naval Analyses in October 2018.  The Navy stated it considers the anticipated cost estimate and model  from the Center for Naval Analyses to be the independent cost estimate  for the full commercial option. We view this estimate as a valuable step in  establishing cost expectations for the full commercial option, but believe it  is inadequate because it will determine the Navy’s cost expectations as  opposed to validating an existing estimate—the intent of having an  independent assessment. For the naval shipyard option, the Navy  suggested no plans for an independent cost estimate as it continues to  refine the current cost estimate prior to a decision for CVN 65.  Completing an independent cost estimate for both CVN 65 options prior  to a Navy decision on its dismantlement and disposal approach would  provide additional information to inform a decision that could have  repercussions for carrier dismantlement and disposal activities for years  to come. Adapting certain acquisition program requirements to the CVN  65 effort, as described above, would help the Navy establish baselines  that can be tracked by decision makers to assess cost and schedule, and  help identify deviations, if any. These types of reporting requirements  would provide decision makers with greater information to support their  oversight and hold the Navy accountable for meeting CVN 65  dismantlement and disposal expectations.

section_title: The Navy’s Evaluation of CVN 65 Dismantlement and Disposal Options Is Hampered by a Regulatory Authority Disagreement
paragraphs: The regulatory authority determines the rules, procedures, and oversight  that will guide the dismantlement and disposal process for CVN 65. The  Navy is considering three regulatory authority scenarios related to the  naval shipyard or full commercial options, as discussed in table 4.
subsections: section_title: The Navy Has Regulatory Precedent for the Naval Shipyard Option
paragraphs: If the Navy chooses the naval shipyard option, it can rely on Naval  Reactors’ extensive experience serving as the regulatory authority for  dismantlement activities conducted at Puget Sound Naval Shipyard.  Naval Reactors has overseen the dismantlement and disposal of roughly  130 reactors from submarines and cruisers by the naval shipyard. Many  shipyard oversight organizations and activities, as well as on-site Naval  Reactors personnel, help control environmental and human health  exposures. For example, the Radiological Controls Office is responsible  for monitoring radiation exposure to the workforce and ensuring  radioactivity is confined to controlled work areas. The Nuclear Quality  Division employs nuclear auditors who review performance, processes,  and instructions for all nuclear work at the shipyard.

Although the scale and design of CVN 65 creates some unique  dismantlement and disposal considerations as compared to the  submarine and cruiser activities, Navy officials stated they plan to use the  same organizations located at the shipyard and practices to oversee  performance if they decide to complete the CVN 65 work at the shipyard.  The environmental impact statement planned for CVN 65 is expected to  outline the different needs that the aircraft carrier presents for the  dismantlement process and disposal path, such as changes related to the  transportation of CVN 65 reactor packages required if the Navy chooses  to use four larger dual reactor compartment disposal packages instead of  eight single packages to dispose of the carrier’s reactors. While the Navy  can rely on familiar regulatory practices to support the naval shipyard  option, as discussed earlier, this option includes potential workload and  schedule disadvantages.

section_title: Disagreement Persists about the Appropriate Regulatory Authority for the Full Commercial Option
paragraphs: Agreement State Program  The Atomic Energy Act gives the Nuclear  Regulatory Commission (NRC) authority over  domestic industrial, medical, and research  uses of radioactive materials. The act also  authorizes NRC to enter into agreements with  states (called agreement states) so they  assume, and NRC relinquishes, regulatory  authority over specified radioactive materials.  Specifically, NRC is authorized to enter into  agreements to allow states to assume  regulatory authority over source, byproduct,  and special nuclear materials in quantities  insufficient to form a critical mass. NRC must  find a state program adequate to protect  public health and safety and compatible with  NRC’s program for regulating such materials  before entering into these agreements. The  mechanism for the transfer of NRC's authority  to a state is an agreement signed by the  governor of the state and the chair of the  Commission.

Naval Reactors’ position is that a commercial company could dismantle  and dispose of CVN 65 under the regulatory authority of NRC or an  agreement state. According to Naval Reactors officials, the full  commercial option would represent a continuation of Naval Reactors’ long  history of nuclear-related activities with vendors licensed and regulated by  NRC or agreement states. For example, Naval Reactors officials noted  they commonly have used facilities licensed by NRC or agreement states   for a range of manufacturing, processing, and disposal activities available  for naval nuclear materials. Naval Reactor officials specifically assert that,  as CVN 65 has already been defueled, such a facility should be able to  process the byproduct material on the ship. However, NRC stated its  disagreement that it or an agreement state is able to serve as the  regulatory authority for CVN 65, emphasizing that regulatory responsibility  for the safe processing and disposal of Navy ships falls to Naval Reactors  under its Department of Energy authority. NRC officials also noted that  Naval Reactors has been regulating nuclear-powered ship dismantlement  and disposal activities exclusively at Puget Sound Navy Shipyard for  decades.

Coordination between Naval Reactors and NRC to identify the applicable  regulatory authority and establish a regulatory plan for the CVN 65 full  commercial option would help ensure accountability for safe  dismantlement and disposal of CVN 65 under the full commercial option.  It would also enable the Navy and commercial companies to effectively  estimate costs. Without a resolution, the Navy could face challenges in  estimating the cost and completing a comprehensive business case  analysis of costs, benefits, and risks for the full commercial option if it is  unsure of which regulatory authority will be responsible for enforcement.  Furthermore, companies with potential interest in the CVN 65 work may  not be able to effectively estimate the workload and associated cost  without a clearly identified regulatory authority. Resolution of this  disagreement also has relevance for other future ship dismantlement and  disposal activities, such as with the Surface Ship Support Barge in the  near term and the Nimitz-class aircraft carriers in the long term.

Navy Surface Ship Support Barge  The Surface Ship Support Barge is a  dockside refueling facility constructed from a  converted Navy tanker vessel used to  disassemble spent nuclear fuel for shipment  within a water pool. Naval Reactors noted this  facility is now obsolete, with no further use  planned, and the Navy is interested in  dismantling and disposing of it commercially.    According to Naval Reactors officials, the  barge contains very low radioactivity in the  water pool and fluid systems, which requires  appropriate dismantlement and disposal  measures.   The Navy halted its pursuit of a contract  award to dismantle and dispose of the barge  in early 2017 based on NRC formally stating  it has no regulatory authority over the  dismantlement and disposal of naval vessels.  A Naval Reactors official stated a request for  information may be issued in 2018 to solicit  input from commercial companies for  dismantlement and disposal of this barge, but  plans remain unsettled.

Naval Reactors could use its own authority to regulate a full commercial  dismantlement of CVN 65. Naval Reactors officials stated, however, that  NRC or agreement states—which regulate industrial, medical, and  research uses of radioactive materials—also have authority to regulate  commercial dismantlement and disposal of CVN 65, and the Navy would  benefit from leveraging their regulatory experience and structure. In  particular, Naval Reactors officials stated that for the full commercial  option, their responsibility to provide for processing and disposal of the  byproduct material—which Naval Reactors indicated is what remains on  CVN 65—can be best met by contracting with commercial companies  licensed by NRC or an agreement state.

According to Naval Reactors officials, even if NRC maintains that it  cannot regulate material from CVN 65, some states may do so under their  own authority. Specifically, Naval Reactors’ position is that states that had  agreements with the old Atomic Energy Commission prior to its  abolishment and the creation of NRC in 1974 were granted—and  continue to maintain—authority to process naval nuclear propulsion  waste. Accordingly, Naval Reactors officials stated that these states could  serve as the sole regulatory authority over commercially-performed CVN  65 dismantlement and disposal.

Naval Reactors officials also asserted specific potential advantages of  having NRC or an agreement state regulate commercial dismantlement  and disposal of CVN 65. First, they said the regulatory structure that NRC  and agreement states apply to commercial nuclear-related activities  includes an enforcement process to impose fines for violations, which  Naval Reactors does not have.

Additionally, Naval Reactors officials noted the Navy’s contract strategy  options could be improved if NRC or an agreement state serves as the  regulatory authority for CVN 65. Specifically, they stated that a reason for  the Navy’s interest in using NRC or agreement state authority is the  possibility of emulating the firm-fixed-price contract currently being used  to decommission a commercial nuclear power plant. In this example, the  operating license was transferred from the utility that owns the plant and  site to a dismantlement contractor to more quickly complete the  decommissioning. This effectively gave a dismantlement and disposal  company the power plant owner’s responsibility for the safe  dismantlement and disposal of the power plant, with NRC continuing to  act as the regulatory authority. According to Naval Reactors, the firm- fixed-price contract used in this case was viable because the  dismantlement contractor had total responsibility independent of the plant  owner to perform the work in accordance with the regulations and  requirements of NRC. Naval Reactors officials stated that the firm-fixed- price contract created an incentive for the company to thoroughly  understand what the work entailed and perform the work efficiently to  maximize its profit.

Naval Reactors officials stated that a total separation of the owner from  regulatory decisions and interpretations, like the one currently being used  for the commercial nuclear power plant, is the Navy’s best means to  facilitate the potential use of a firm-fixed-price dismantlement contract for  CVN 65. They further stated that an approach wherein Naval Reactors  retained regulatory authority could undercut the prospect of a firm-fixed- price contract by eliminating the clear division between regulator and  owner. In taking this position, Naval Reactors officials suggest that a  conflict of interest exists in being both the owner who wants to establish a  fixed price for the work as well as the regulator with the potential to affect  costs. Naval Reactors officials also noted that if Naval Reactors were the  regulator, with no experience in regulating this type of work, commercial  companies could have difficulty pricing such regulatory risk. In contrast,  they stated that in NRC-regulated commercial plant dismantlement, as  well as agreement state-regulated, large-scale radioactive waste  processing work, commercial companies have demonstrated that they are  willing to accept this regulatory risk, agreeing to contracts on a fixed-price  basis.

Nuclear Regulatory Commission’s Position  In February 2017, NRC formally stated its position in a letter responding  to a congressional inquiry that it has no regulatory authority for Navy  ships, such as CVN 65. NRC said that under the Atomic Energy Act it is  the responsibility of the Department of Energy, and accordingly Naval  Reactors, to provide for processing and disposal of naval nuclear  propulsion waste. NRC stated that agreement states also lack  jurisdiction because their authority derives from NRC’s authority. NRC  officials we interviewed also disputed Naval Reactors’ position that states  have independent authority to process naval nuclear propulsion waste for  two reasons. First, they stated that regulation of reactor dismantlement is  not an activity that can be relinquished to the states. Second, they  pointed out that the authorities that can be relinquished to the states  under the Atomic Energy Act are licensing activities conducted under  specific provisions of the act, and that the responsibility to safely process  and dispose of naval nuclear propulsion waste is conducted under a  different set of provisions which are not subject to licensing.

NRC officials acknowledged that naval nuclear propulsion waste has  been processed at facilities licensed by NRC or an agreement state, but  distinguished such examples from CVN 65. Specifically, they noted that  no additional regulatory oversight was required to process incidental  amounts of such waste at facilities licensed to process commercial waste,  but CVN 65 is not licensed by NRC or an agreement state and would  involve only naval nuclear propulsion waste. NRC officials emphasized  that the additional work that would be required to regulate the  dismantlement of CVN 65—an unlicensed facility—puts it beyond NRC’s  jurisdiction. Additionally, NRC stated that while such work could be  carried out by a contractor, including a contractor with an NRC or  agreement state license, the work would not be covered by that license,  as NRC and agreement states do not have authority to regulate such  activity. Essentially, NRC’s position is that while Naval Reactors can  contract to have the dismantlement and disposal performed by a  commercial entity, Naval Reactors would retain its own regulatory  responsibility for enforcing that contract.

NRC stated that if Naval Reactors desired technical support in regulating  a commercial dismantlement, NRC or an agreement state could provide  such services through a contract. This approach, according to NRC  officials, would offer Naval Reactors a regulatory consultant familiar with  commercial dismantlement while maintaining Naval Reactors as the  regulatory enforcement authority. In such an arrangement, NRC or an  agreement state could identify regulatory concerns, but Naval Reactors  would be responsible for determining what corrective action is taken to  address those concerns. Naval Reactors officials stated they are in  ongoing discussions with NRC about this potential approach. They also  asserted that this potential approach is not optimal because, as  previously discussed, it could create regulatory uncertainty for  commercial companies by preventing a clear separation of the regulator  and owner.

section_title: Naval Reactors Lacks Regulatory Experience and Structure for Commercial Dismantlement and Disposal
paragraphs: Since Naval Reactors has its own authority as part of the Department of  Energy, it could choose to regulate a CVN 65 commercial dismantlement.  However, with Puget Sound Naval Shipyard having performed the  dismantlement and disposal work for previous nuclear-powered vessels,  Naval Reactors lacks experience to draw upon for a full commercial  option. It also cannot rely on the organizational structure and practices in  place at Puget Sound Naval Shipyard to support a commercial CVN 65  dismantlement that will be conducted at an offsite facility. If Naval  Reactors serves as the regulatory authority for a full commercial  dismantlement, it will have to determine what mechanisms are needed to  provide sufficient monitoring of the work and how they will fulfill the roles  and responsibilities typically filled by the naval shipyard’s support. These  mechanisms may include elements similar to those used by the naval  shipyard as well as new ones unique to the dismantlement practices used  by commercial companies.

A significant consideration for Naval Reactors when working to establish  an approach to monitor commercial dismantlement and disposal is the  component-based dismantlement process that companies may use. This  process, which is commonly used to dismantle commercial nuclear power  reactors, involves segmenting reactor components (i.e., cutting to reduce  in size) so the pieces can be put in standardized containers for transport  and disposal. This process is a contrast to the traditional dismantlement  approach that Nuclear Reactors uses at Puget Sound Naval Shipyard— an approach that would leave CVN 65’s reactors largely intact by  encasing them in packages for disposal. As noted by Naval Reactors  officials, commercial dismantlement practices potentially could require the  Navy to decide whether to adjust its standard radiological work practices  to better align with different dismantlement and disposal activities or use  the same practices it uses for work performed at Puget Sound Naval  Shipyard. Using the same practices could affect cost expectations for the  Navy and commercial companies by changing the way the work is  performed. As an example, applying the Navy’s standard practices for  total containment of radionuclides to a dismantlement process that  involves increased cutting could require additional measures to control  the work environment.

section_title: Conclusions
paragraphs: Over 50 years ago, CVN 65 set a precedent as the Navy’s first nuclear- powered aircraft carrier. The Navy’s plans and decisions for this aircraft  carrier’s dismantlement and disposal represent an opportunity to create a  standard that the Navy may use for decades to come as the Nimitz-class  carriers enter retirement. As the Navy considers how to proceed, it will be  critical to ensure that there is sufficient oversight and accountability for  what likely will be an effort greater than $1 billion that lasts the better part  of a decade. Since budget exhibits are a primary tool to aid Congress in  making well-informed funding decisions, without additional details,  transparency and the ability to assess CVN 65 progress could be limited.  In particular, a more robust budget exhibit for CVN 65 that includes cost  and schedule information across the Future Years Defense Program, as  well as the status of activities—including any contract awards and a  tracking of high level changes in cost and schedule—could help increase  transparency for oversight.

Reporting requirements for DOD acquisition programs, which are not  required or currently planned for CVN 65 dismantlement and disposal,  provide examples of the types of information that decision makers can  use to ensure that resource-intensive programs are meeting expectations  or make changes as necessary. Without establishing a cost and schedule  baseline that has been validated by an independent cost estimate or  assessment, it will be difficult for decision makers to track cost and  schedule performance or have confidence in CVN 65 costs. The Navy  has indicated it is receptive to providing additional information to support  oversight that is commensurate with other Navy programs of a similar  funding level. However, the Navy also stated that it requires clear  direction from DOD leadership or Congress on what additional  accountability measures are desired before it would make any changes to  current budget exhibits and reporting.

Naval Reactors is charged with cradle-to-grave responsibility for our  nation’s naval nuclear propulsion material. The disagreement between  Naval Reactors and NRC about the regulatory authority for commercial  dismantlement and disposal of Navy nuclear ships persists. Coordination  between the two agencies to identify the applicable regulatory authority  for a full commercial dismantlement and disposal of CVN 65 and to  develop a regulatory plan would help establish which practices and  standards will apply to uphold nuclear safety and security. It would also  help ensure the Navy’s selection of a dismantlement and disposal plan for  CVN 65 is informed by well understood regulatory expectations and cost  and schedule estimates that reflect those expectations.

section_title: Matter for Congressional Consideration
paragraphs: We are making one matter for congressional consideration.

Congress should consider requiring Naval Reactors to coordinate with the  Nuclear Regulatory Commission for any CVN 65 dismantlement and  disposal performed commercially to identify the applicable regulatory  authority. In the event that an entity other than Naval Reactors will serve  as the regulatory authority, Naval Reactors should submit to Congress a  plan that identifies the regulatory authority for CVN 65 activities, and  includes acknowledgement from that regulatory entity of its agreement  with Naval Reactors and the legal basis for its authority. If the regulatory  entity is an agreement state, such acknowledgment should be  coordinated with the Nuclear Regulatory Commission. (Matter 1)

section_title: Recommendations for Executive Action
paragraphs: We are making the following four recommendations to DOD.

The Secretary of Defense should ensure that the Navy provides  additional information in the annual President’s budget exhibits  associated with CVN 65 dismantlement and disposal to facilitate  improved transparency and accountability. Additions should, at a  minimum, include the CVN 65 funding estimate across the Future Years  Defense Program, activities planned or performed for applicable fiscal  years, tracking of total cost and high level changes in cost and schedule  from the prior year with explanations for changes, and if applicable,  contract type, awardee, award value, and award and completion date  estimates. (Recommendation 1)

The Secretary of Defense should require the Navy to obtain an  independent cost estimate, performed by DOD’s Office of Cost Analysis  and Program Evaluation or the Naval Center for Cost Analysis, for both  the naval shipyard and full commercial options before choosing a  dismantlement and disposal approach for CVN 65. (Recommendation 2)

The Secretary of Defense should require the Navy to complete a risk  management plan prior to beginning the CVN 65 dismantlement and  disposal. (Recommendation 3)

The Secretary of Defense should require the Navy to approve a cost and  schedule baseline prior to beginning the CVN 65 dismantlement and  disposal. (Recommendation 4)

section_title: Agency Comments
paragraphs: We provided a draft of this report to DOD and NRC for comment. Both  DOD and NRC agreed with the draft report and its findings, and DOD  concurred with the four recommendations we directed to the department.  DOD and NRC provided written comments, which have been reproduced  in appendix II and appendix III, respectively. DOD and NRC also provided  technical comments, which we incorporated as appropriate.

We are sending copies of this report to the appropriate congressional  committees; the Secretary of Defense, the Secretary of the Navy, the  Nuclear Regulatory Commission, and other interested parties. This report  will also be available at no charge on GAO’s website at  http://www.gao.gov.

If you or your staff members have any questions regarding this report,  please contact me at (202) 512-4841 or oakleys@gao.gov. Contact points  for our Offices of Congressional Relations and Public Affairs may be  found on the last page of this report. GAO staff who made key  contributions to the report are listed in appendix IV.

section_title: Appendix I – Objectives, Scope, and Methodology
paragraphs: This report (1) describes the differences between the dismantlement and  disposal options under consideration, including cost and schedule as well  as workload and facilities; (2) evaluates the Navy’s funding and reporting  practices for dismantlement and disposal activities; and (3) assesses the  effect that nuclear regulatory authority considerations have on  dismantlement and disposal options for CVN 65.

To identify the differences between the potential CVN 65 dismantlement  and disposal options, we reviewed Navy documentation on prior, ongoing,  and future dismantlement and disposal activities, as well as information  related to the different options the Navy has considered or is considering  for CVN 65. We interviewed Navy officials and reviewed documentation  from the Naval Sea Systems Command, which includes Naval Reactors,  and Puget Sound Naval Shipyard and Intermediate Maintenance Facility  (hereafter referred to as Puget Sound Naval Shipyard). To obtain an  understanding of the full commercial dismantlement and disposal  approach, including work practices and potential work sites, we  interviewed officials and reviewed documentation from commercial  companies that the Navy identified as having involvement in shipbreaking  or nuclear-related industries and potential interest in CVN 65. These  companies include Atkins Global; EnergySolutions; Huntington Ingalls  Industries (HII – Nuclear); International Shipbreaking Limited; NorthStar  Group Services; and Waste Control Specialists.

For CVN 65 cost and schedule estimates, the Navy considers all  estimates to still be preliminary because the Navy has yet to formally  begin the environmental impact statement process and remains years  away from a decision on its dismantlement and disposal approach. As a  result, we did not formally evaluate the reasonableness of any cost or  schedule estimates. However, we did review the initial estimates to gain  insight on historical and current cost expectations. To assess the Navy’s  preliminary cost estimates for the naval shipyard option, we reviewed  Navy data on the basis for the cost estimates, particularly estimates since  2011. This included reviewing the cost factors that contributed to each  estimate to understand how the shipyard’s increasing knowledge of CVN  65’s ship characteristics and changes to the planned dismantlement  approach fed into the different estimates. For the Navy’s notional cost  estimate of the CVN 65 full commercial option, we reviewed the data and  approach used by the Navy to develop initial cost information. This  included commercial decommissioning data, which the Navy used to  establish a rough order of magnitude cost estimate based on the limited  information available that is comparable to CVN 65 dismantlement and  disposal.

We used the same data to generate our own notional estimated cost  range based on a Nuclear Regulatory Commission (NRC) cost formula,  as well as published data from the Organisation for Economic Co- operation and Development’s Nuclear Energy Agency. This included  analysis of costs reported by operating power reactor licensees in NRC’s  2015 decommissioning funding status report to comply with  decommissioning financial assurance reporting requirements. Our review  of historical data from the Nuclear Energy Agency and a 2011 report on  nuclear decommissioning by an independent panel established by the  California Public Utilities Commission helped us identify cost drivers and  categories of costs attributed to specific activities that occur when  decommissioning commercial power plants.

To assess workload and facility considerations related to CVN 65, we  analyzed Puget Sound Naval Shipyard workload and resource  requirements data for fiscal years 2006 through 2025, and facility data for  fiscal years 2018 through 2035. To assess the reliability of these data, we  interviewed knowledgeable officials and reviewed documentation to verify  the controls and measures used to validate and maintain the data. We  determined these data to be reliable for our purposes of discussing the  existing and planned workload at Puget Sound Naval Shipyard. We  compared projections to actual workload when available to identify  differences and compared the average amount of annual projected  workload to the average amount of annual projected workforce available.  We also reviewed a 2018 report on the Navy’s strategic plan for  addressing the infrastructure deficiencies at the public naval shipyards as  well as the Navy’s long-range shipbuilding plans for fiscal years 2011,  2016, and 2019. Additionally, we reviewed past GAO reports that  addressed operation and maintenance activities at naval shipyards, and  the related workload demands and facilities’ requirements.

To identify the Navy’s funding and reporting practices for dismantlement  and disposal activities, we reviewed Navy documentation on prior,  ongoing, and future ship dismantlement and disposal activities, as well as  Navy procurement and operation and maintenance budget exhibits— fiscal years 2016 and 2017 for procurement exhibits and fiscal years 2007  through 2017 for operation and maintenance budget exhibits. We also  reviewed Federal Acquisition Regulations, Office of Management and  Budget guidance on budget information, and the Department of Defense  and Navy acquisition regulations. We interviewed officials from Naval  Reactors and the Program Executive Office for Aircraft Carriers. Based  on these efforts, we evaluated the Navy’s historical approach for funding,  conducting oversight, and reporting on dismantlement and disposal  activities. We assessed the Navy’s approach against federal standards  for internal control. Additionally, we assessed how funding and typical  reporting requirements for Department of Defense acquisition programs  align with the potential need to facilitate oversight for CVN 65  dismantlement and disposal.

To determine the effect that nuclear regulatory authority considerations  have on dismantlement and disposal for CVN 65, we examined applicable  laws, regulations, executive orders, policies, and guidance documents  related to nuclear-powered ships. We also reviewed past GAO reports  related to environmental and nuclear requirements. We reviewed Navy  documentation on prior, ongoing, and future ship dismantlement and  disposal activities. We also interviewed officials and reviewed  documentation from Naval Reactors; the Assistant Secretary of the Navy  for Energy, Installations, and Environment; the Chief of Naval Operations  Environmental Readiness Division; the Program Executive Office for  Aircraft Carriers; Puget Sound Naval Shipyard; and the Nuclear  Regulatory Commission. Additionally, we interviewed officials from the  Washington State Departments of Health and Ecology, the Texas  Commission on Environmental Quality, and the Texas Department of  State Health Services—two states in which ship dismantlement activities  have recently occurred and that have nuclear waste disposal sites.

We conducted this performance audit from August 2017 to August 2018  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 – Comments from the Department of Defense

section_title: Appendix III – Comments from the Nuclear Regulatory Commission

section_title: Appendix IV – GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
paragraphs: Shelby S. Oakley, (202) 512-4841 or oakleys@gao.gov.

section_title: Staff Acknowledgments
paragraphs: In addition to the contact named above, key contributors to this report  were Diana Moldafsky, Assistant Director; Antoinette Capaccio; Kurt  Gurka; Stephanie Gustafson; Kristine Hassinger; Jean Lee; Sean Merrill;  LeAnna Parkey; Karen Richey; and Roxanna Sun.

Fast facts: Dismantling and disposing of the ex-USS Enterprise nuclear aircraft carrier may cost the Navy more than $1 billion.

We found that typical budget and reporting on dismantlement and disposal does not give enough information to support oversight for a project of this size and cost. We recommended the Navy provide additional budget information and reporting for the project.

We also found that using commercial industry to dismantle and dispose of the aircraft carrier may offer many benefits to the Navy. At present, a regulatory disagreement between agencies hampers this possibility. We suggested that Congress consider action to resolve this.

Question-summary annotations: questions: question: How does the Navy coordinate the naval shipyard option?
answer: The Navy could rely on its extensive regulatory experience for the naval shipyard option.
child_questions: question: What are the shortcomings in the Navy's ability to do so?
answer: However, the Navy's ability to effectively evaluate the full commercial option is hampered by a disagreement with the Nuclear Regulatory Commission (NRC), which oversees the commercial nuclear industry.

question: What is the position of Naval Reactors officials?
answer: Naval Reactors officials assert that NRC's regulatory authority should apply to the full commercial option.

question: What is NRC's response to this position?
answer: NRC disagrees with this position.

question: What would be the benefit of coordination between the two agencies?
answer: Coordination between the two agencies to identify the applicable regulatory authority and craft a regulatory plan would help ensure accountability, solidify cost estimates, and facilitate a CVN 65 decision.

questions: question: What oversight of CVN 65 is possible by the Navy?
answer: The budget documentation and reporting that the Navy typically uses for ship dismantlement and disposal projects will not enable adequate oversight of CVN 65—a multi-year project with a cost that may exceed $1 billion.
child_questions: question: Why is this budget documentation and reporting system inadequate?
answer: The documents that support Navy budget requests for dismantlement and disposal funding do not provide data that decision makers can readily use to track dismantlement costs against an established baseline or to evaluate funding plans for future years.

question: What other factors suggest this inadequacy?
answer: Further, the Navy has no reporting requirements to support accountability for CVN 65 activities.

question: What budget requirements typically exist for large defense acquisition programs?
answer: Large defense acquisition programs generally are required to submit more detailed budget information and report on cost, schedule, and performance.
child_questions: question: How could these inform CVN 65?
answer: These practices could be adapted for CVN 65 to provide information that will facilitate oversight commensurate with the scale of the effort.

questions: question: What is the recommended role of Congress in the relationship between Naval Reactors and NRC?
answer: Congress should consider requiring Naval Reactors to coordinate with NRC to identify the applicable regulatory authority for a CVN 65 commercial dismantlement and disposal.

question: What are GAO's other recommendations for the Navy?
answer: GAO is also making four recommendations, including that the Navy take action to provide additional budget information and reporting to facilitate improved transparency and accountability for the CVN 65 cost, schedule, and risks.
child_questions: question: How did the Department of Defense respond to these recommendations?
answer: The Department of Defense agreed with all four recommendations.