NNSA, a separately organized agency within DOE, is responsible for the management and security of the nation's nuclear weapons, nonproliferation, and naval reactor programs. To conduct these activities, NNSA's fiscal year 2005 request is about $9 billion, with about $6.6 billion targeted for nuclear weapons programs managed by NNSA's Office of Defense Programs. For many years, various external studies have found problems with the organization of NNSA's principal activity--the Office of Defense Programs. For example, one such study found a dysfunctional management structure with convoluted, confusing, and often contradictory reporting channels, while another study cited ambiguities and overlaps in the roles of headquarters and the Albuquerque Operations Office as a primary source of inefficiencies and conflict within the program. In December 2000, we reported organizational problems at three levels--within the Office of Defense Program's headquarters functions, between headquarters and the field offices, and between contractor-operated sites and their federal overseers. These problems resulted in overlapping roles and responsibilities for the federal workforce overseeing the nuclear weapons program and confusion and duplication of effort for the contractors implementing the program at sites within the nuclear weapons complex. In December 2002, NNSA formally announced the beginning of an overall reorganization and workforce reduction intended to enhance its operational efficiency and programmatic effectiveness. Prior to its December 2002 reorganization, NNSA's organization consisted of multiple layers. In particular, under the Office of Defense Programs--NNSA's largest program--seven area offices reported to three operations offices that in turn reported to the Deputy Administrator for Defense Programs. The Deputy Administrator then reported to the Administrator. Figure 1 shows NNSA's prior organization. To remove a layer of management, NNSA closed the Albuquerque, Oakland, and Nevada operations offices. The new organization consists of eight site offices located at each of NNSA's major contractors, one service center located in Albuquerque, New Mexico, and headquarters program offices that all report directly to the Administrator. NNSA headquarters sets requirements, defines policies, and provides high-level guidance. Site office managers are the designated contracting officers responsible for delivering federal direction to the contractor at each site and for ensuring the site's safe and secure operation. The site office managers also manage each NNSA site office. Under the realignment, a single service center has been established in Albuquerque, New Mexico, to provide business and technical support services to the eight site offices and headquarters programs. Prior to the reorganization, about 200 staff provided these services in the Oakland and Nevada operations offices and in offices in Germantown, Maryland, and Washington, D.C. These services are now being consolidated in the new service center, resulting in the reassignment of the 200 staff to the Albuquerque service center. Figure 2 shows NNSA's new organization structure. NNSA plans to staff the service center with 475 employees, down from 678 in December 2002. As part of its reorganization, NNSA decided to reduce the size of its federal staff. Originally, NNSA set an overall staff reduction target of 20 percent. However, in August 2003, NNSA reduced the target to 17 percent. The current target includes a 26 percent reduction at headquarters and a 30 percent reduction at the service center. Three site offices--Kansas City, Nevada, and Savannah River--are experiencing reductions, although overall staff size at all eight site offices will increase by 16 employees. NNSA is relying on a combination of buyouts, directed reassignments, and attrition to achieve these targets by its September 30, 2004, deadline. Standards that we have developed require federal agencies to establish and maintain an effective system of internal controls over their operations. Such a system is a first line of defense in safeguarding assets and preventing and detecting errors. Under our standards, managers should, among other things, ensure that their staffs have the required skills to meet organizational objectives, that the organizational structure clearly defines key areas of authority and responsibility, that progress be effectively measured, and that operations be effectively monitored. In addition to these internal control standards, in January 2001, and again in January 2003, we identified strategic human capital management as a governmentwide, high-risk area after finding that the lack of attention to strategic human capital planning had created a risk to the federal government's ability to perform its missions economically, efficiently, and effectively. In that context, we have stated that strategic workforce planning is needed to address two critical needs: (1) aligning an organization's human capital program with its current and emerging mission and programmatic goals and (2) developing long-term strategies for acquiring, developing, and retaining staff to achieve programmatic goals. There are five key principles that strategic workforce planning should address irrespective of the context in which the planning is done. It should involve top management, employees, and other stakeholders in developing, communicating, and implementing the strategic workforce plan; determine the critical skills and competencies that will be needed to achieve current and future programmatic results; develop strategies that are tailored to address gaps in number, deployment, and alignment of human capital approaches for enabling and sustaining the contributions of all critical skills and competencies; build the capability needed to address administrative, educational, and other requirements important to support workforce planning strategies; and monitor and evaluate the agency's progress toward its human capital goals and the contribution that human capital results have made toward achieving programmatic results. In light of shortcomings in strategic human capital management reported by us, the President's Management Agenda identified strategic management of human capital as a governmentwide initiative. Established in August 2001, the President's Management Agenda identified a strategy for improving the management and performance of the federal government. The agenda included five governmentwide initiatives: the strategic management of human capital, competitive sourcing, improved financial performance, expanded electronic government, and budget and performance integration. Regarding strategic management of human capital, two principals are considered central to its success. One, people are assets whose value can be enhanced through investment. As with any investment, the goal is to maximize value while managing risk. Two, an organization's human capital approach should be designed, implemented, and assessed by the standards of how well they help the organization achieve results and pursue its mission. Effective strategic workforce planning is considered an essential element of strategic human capital management. Also called human capital planning, it focuses on developing long-term strategies for acquiring, developing, and retaining an organization's total workforce (including full- and part-time federal staff and contractors) to meet the needs of the future. NNSA's reorganization has resulted in some progress in delineating lines of authority between NNSA headquarters and its field offices, thus addressing some past problems; however, at the working level, NNSA has not formalized a program management structure that identifies its program managers or what their responsibilities and qualifications should be, particularly regarding their role in directing and overseeing contractor activity under its new organization. Furthermore, the reorganization has created gaps in the responsibility for important safety oversight that need to be addressed. Without first clarifying such key management issues, NNSA cannot, among other things, ensure the improved discipline and accountability it seeks in managing its programs. By delineating lines of authority between NNSA headquarters and its field offices, NNSA's reorganization has addressed past problems, such as communications problems resulting from overlapping roles and responsibilities of the federal workforce overseeing the nuclear weapons program. For example, according to NNSA site office managers, the streamlined structure has improved vertical communication because communication channels between headquarters and the field are more direct and do not involve an extra layer of management in the operations offices. Site office managers also state that by now reporting directly to the NNSA Administrator's office, the time required to make decisions has been reduced. In addition, the realignment provides NNSA site office managers with additional authority to manage contractors and assigns them responsibility for the day-to-day security and safety of contractor operations. As a result, it has strengthened the hand of local NNSA site office managers who now have the authority to shut down operations at the sites, if necessary, due to security or safety concerns. Despite this progress NNSA's reorganization still suffers from two shortcomings. First, the reorganization plan does not yet fully delineate the authority and responsibility of program managers, who are responsible for ensuring that program goals and requirements are met, or reconcile these responsibilities with the mutual responsibilities of contracting officers and their designated representatives who manage the contract. Specifically, under the new reorganization, the contracting officer is responsible for appointing contracting officer representatives to carry out specific functions, such as monitoring, inspection, and other functions of a technical nature not involving a change in the scope, cost, or terms and conditions of the contract. These contracting officer representatives then assist in directing and overseeing the contractor for the programs that they represent. NNSA is attempting to improve program management accountability and discipline by requiring program managers to direct all work to the contractors through a contracting officer or a designated contracting officer representative instead of through the now defunct operations offices or by bypassing the formal contract administrators and informally directing the contractor, as was done in the past. NNSA's policy on program management, however, is still being developed. NNSA's Assistant Deputy Administrator for the Office of Program Integration told us that the exact number of program managers within the Office of Defense Programs has yet to be determined because disagreement exists within the program about who currently is or is not a program manager. Furthermore, NNSA has not yet articulated its qualification standards for program managers. These standards are important to program success. As we noted in our report on NNSA's Stockpile Life Extension Program, problems with the W-87 refurbishment were caused, in part, because the assigned program manager was not qualified to perform all required tasks and was not enrolled in DOE's project management qualification program. Senior NNSA officials in headquarters expect NNSA's policy to be issued by May 2004, and implementation plans for this policy to be developed by summer 2004. NNSA officials told us that even after the policy is issued, its implementation is expected to take some time because it will likely require a change in the behavior and culture of program managers and the manner in which they operate. NNSA's delay in issuing program management policy and appointing program managers is currently creating confusion. According to NNSA's existing policy concerning the appointment of contracting officer representatives, headquarters-based program officials must first be designated as program managers before they can be designated as contracting officer representatives for a site. As a result, any uncertainty surrounding the number of program managers and their responsibilities has the potential to disrupt the appointment of contracting officer representatives. However, despite the present uncertainty surrounding the designation of program managers, site offices are appointing contracting officer representatives. For example, the Sandia Site Office appointed 25 of its 36 contracting officer representatives using available NNSA headquarters staff, as of June 2003. However, NNSA provided us with a list of its designated program managers as of December 2003 (the latest date for which data were available) that did not officially recognize 21 of the 25 headquarters-based contracting officer representatives that had been formally appointed by the Sandia Site Office. Until NNSA fully implements its policies to delineate program management authority and responsibility, it remains unclear under the new reorganization and management structure how program management authorities and responsibilities will be exercised in the day-to-day management of contractors and site operations and NNSA cannot ensure that the full discipline and accountability it seeks through its reorganization is fully achieved or that its long-standing organizational structure problems are corrected. The second outstanding problem with NNSA's reorganization is that it has created gaps in the responsibility for safety oversight that need to be addressed. For example, managers at NNSA's Pantex Site Office, which oversees the contractor operating the Pantex Plant--an assembly/disassembly plant for nuclear weapons in Amarillo, Texas-- stated that authority and responsibility for certain safety-related oversight is unclear. Specifically, according to the Pantex Site Office manager, when the realignment abolished the Albuquerque Operations Office, it left a void regarding who would take over certain nuclear explosive safety oversight activities previously performed by that office. Among other things, nuclear explosives safety oversight includes activities such as evaluating the adequacy of controls associated with tooling, testers, and operational processes to prevent and/or minimize the consequences of an accident involving nuclear explosives. While NNSA's Assistant Deputy Administrator for Military Application and Stockpile Operations--an NNSA program--assumed overall responsibility for nuclear explosive safety, NNSA has not resolved exactly who is to provide the day-to-day oversight previously conducted by the Albuquerque Operations Office. In this regard, the Pantex Site Office manager stated that there is no clear procedure for conducting oversight to ensure the prevention of deliberate, unauthorized use of a nuclear weapon--an important goal of NNSA. The Pantex Site Office manager--the risk acceptance official for the site-- stated that he would therefore not authorize the continuation of certain work related to one current weapon system requiring use of a particular safety process. Furthermore, in October 2003, NNSA issued its safety- oriented "Functions, Responsibilities, and Authorities Manual" intended to clarify issues concerning delineation of authority. However, according to the Assistant Manager for Nuclear Engineering at the Pantex Site Office, the manual still does not clarify the authority and responsibility of nuclear explosives safety oversight. Senior NNSA headquarters officials stated that they are aware of problems concerning nuclear explosive safety oversight and that corrective action plans have been recently developed and are scheduled to be implemented through 2006. The Defense Nuclear Facilities Safety Board recently expressed broader concerns in a December 8, 2003, letter to NNSA's Administrator that many orders, directives, standards, supplemental directives, and site office procedures, which had been issued to help ensure the safe operation of NNSA's defense nuclear facilities, have not been modified to reflect current roles and responsibilities within NNSA. The board further stated that in some cases, particularly those involving supplemental directives that the now-defunct Albuquerque Operations Office had issued, the documents may no longer have a clear owner within the NNSA organization, and deviations from the processes that these directives prescribed are now becoming more frequent within NNSA. NNSA's reorganization is not likely to ensure that it has sufficient staff with the right skills in the right places because NNSA chose to downsize its federal workforce without first determining what critical skills and capabilities it needed to meet its mission and program goals. Consequently, NNSA will not know the composition of its workforce until it completes the 17 percent workforce reduction on September 30, 2004-- the deadline specified in the reorganization plan--and then determines the knowledge, skills, and capabilities of its remaining employees. Without a functional long-term workforce plan, NNSA runs the risk of facing further, more serious staff shortages or skill imbalances, thereby affecting its ability to adequately oversee its contractors. In December 2001, in addressing NNSA's use of its excepted service authority, we reported that NNSA did not have the coherent human capital and workforce planning strategies it needed to develop and maintain a well-managed workforce over the long run. As a result, we recommended that NNSA not allocate any additional excepted service positions until it developed comprehensive human capital and workforce planning strategies. Subsequently, in February 2002, we testified that NNSA's lack of a long-term strategic approach to ensure a well-managed workforce precluded it from identifying its current and future human capital needs, including the size of the workforce, its deployment across the organization, and the knowledge, skills, and abilities needed to fulfill its mission. Despite these earlier recommendations to develop thorough human capital and workforce planning strategies, NNSA embarked on a major initiative, expected to span nearly 2 years, not only to reorganize, but also to reduce the size of its workforce. NNSA's December 2002 reorganization plan called for a reduction in its federal workforce from 1,695 to 1,356 staff, or a reduction of about 20 percent, by September 30, 2004. The planned 20 percent reduction involved a 29 percent reduction in headquarters staff, a 26 percent reduction in administrative support staff through the closure of the three operations offices and the consolidation of administrative support staff in a new Service Center, and a 6 percent reduction in Site Office staff. A senior NNSA official stated that "getting things done" was a primary factor in deciding to quickly implement the reorganization and workforce reduction. As such, NNSA officials stated that the staff reduction targets were based more on judgment than a rigorous workload analysis. A senior NNSA official explained that NNSA managers knew that there was work overlap and redundancy in the organization, but were concerned that a more formal, rigorous analysis of requirements or workload could hamper what they believed was an urgent need to achieve organizational realignment and workforce reduction results. The official also said that NNSA management had decided that if and when staffing changes became necessary, such adjustments would then be made. The NNSA Administrator implemented what it termed a managed staffing process soon after the workforce reduction target was announced in an effort to focus on its short-term staff reduction targets and deadline. He asked NNSA headquarters, service center, and site office managers to report their organization's existing functions and staff in 2003, their anticipated changes to functions and associated staff requirements by the end of fiscal year 2004, and any staff surplus or deficit. Based on regular updates of this information, the NNSA Administrator has adjusted the total staff reduction target twice since December 2002, once in April 2003 and a second time in August 2003, to its current 17 percent target--primarily to accommodate an increase of 38 positions. This new target is to be accomplished by an increase of 23 positions in headquarters and 40 positions in the site offices, respectively, and a decrease of 25 positions at the Albuquerque Service Center. A February 2004 status report stated that NNSA created and staffed the 38 new positions to perform functions not previously identified, or for which original staffing targets were not adequate for mission accomplishment. NNSA is progressing towards its staff reduction targets and deadline primarily through buyouts, directed reassignments, and attrition combined with a freeze on hiring and promotions, although exceptions can be allowed to fill critical positions. A total of 174 staff have thus far taken the buyout, which could be as high as $25,000 per person depending on such factors as length of federal service and grade level. NNSA human capital managers report that 99 of the 200 administrative support staff in Oakland, Las Vegas, Germantown, and Washington, D.C., offices have formally stated that they would relocate to the Albuquerque Service Center. However, officials are not sure how many staff will actually relocate because, for example, they believe that some staff do not really want to relocate and are seeking alternative employment. As of March 6, 2004, NNSA is 13 staff short of achieving its 17 percent staffing reduction target. NNSA has also begun a number of specific workload reduction initiatives intended to accomplish its mission with fewer federal personnel. However, the outcome of these initiatives may not be known for some time so their affect on NNSA's workforce capabilities both in the short-term and long- term cannot be predicted. For example, in the area of safety, NNSA reduced the number of Site Office Facility Representatives from 68 in December 2002 to 53 in December 2003. Site Office Facility Representatives are typically responsible for day-to-day oversight of contractor operations to ensure that the contractor's work practices and performance are being completed in a safe and environmentally responsible manner. NNSA is pursuing changes to the Facilities Representative Program, among other things, to allow for greater coverage in areas of higher risk to the public, such as nuclear safety, and reduced coverage of standard industrial hazard facilities. NNSA is also considering shifting federal responsibility for employee safety to the contractor. While continuing to pursue its short-term workforce reduction goals, NNSA began to develop a framework to determine its long-term human capital needs. In December 2003, NNSA issued a workforce plan designed to comprehensively meet the requirements of DOE's Human Capital Management Improvement Program and the strategic workforce planning aspect of the President's Management Agenda. The framework specifically identified strategic workforce planning as a means to mitigate the impact of losing a large percentage of the NNSA workforce and as the process for ensuring that the right people with the right skills are in the right place at the right time. The workforce planning model for the longer term-- Workforce Plan 2004--called for the analysis of present workforce competencies, the identification of competencies needed in the future, a comparison of future needs with the present workforce in order to identify competency gaps and surpluses, the preparation of plans for building the workforce needed in the future, and an evaluation process to ensure that the workforce planning model remains valid and that mission objectives are being met. Despite this effort, NNSA's workforce plan is of limited usefulness because it depends on workforce data that are either already obsolete or not yet available. For example, the number, skill, position, and location of employees are a moving target and subject to continuous change until the downsizing effort is completed in September 2004. Furthermore, several NNSA site office managers acknowledged that their workforce focus has been on their short-term downsizing objective. A senior NNSA official agreed that the agency's workforce planning needed to be more long-term, but added that under the circumstances of NNSA's organizational downsizing, management primarily focused on meeting short-term needs. NNSA human capital officials also told us that NNSA's decreased reliance on DOE for practically all human capital management, resulting from NNSA's creation as a separately organized agency under DOE in 2000, required the building of a human resource structure, staff, and operation, which has taken some time to get up and running. NNSA plans to update information in its workforce plan, including its workforce composition and skills, as well as determine workforce needs for the long-term. With this information, NNSA can then conduct a skill gap analysis that is necessary to target recruitment, hiring, and training programs long-term. As we have found in other government agencies, by carrying out downsizing without sufficient consideration of the strategic consequences, NNSA runs the risk of not having the right skills in the right place at the right time, thereby affecting its ability to adequately oversee its contractors and ensure the safety and security of its various facilities in the future. The situation may be further exacerbated by the fact that, according to NNSA estimates, 35 percent of NNSA employees will be eligible to retire in the next 5 years. The lack of adequate strategic and workforce planning in the course of downsizing efforts can negatively affect the agency's ability to provide quality service and lead to such negative effects as the loss of institutional memory and an increase in work backlogs. The impact of gaps in the numbers and skills of staff used to carry out its contractor oversight mission is already becoming apparent. For example, NNSA site offices are 39 staff short of their targets and some site offices, namely Pantex, Y-12, and Los Alamos, are having some difficulty filling critical skills in safety and security. At the Albuquerque Service Center, significant skill gaps exist for accountants and contract specialists. For example, the service center has only 26 of 54 contract specialist positions filled. NNSA's preoccupation with more short-term downsizing objectives and staffing strategy without the benefit of a strategic human capital plan may have contributed to the workforce imbalances it now is experiencing. NNSA's implementation of its proposed risk-based approach to rely more on contractors' assurances and self-assessments and less on NNSA's direct oversight may be premature because NNSA's reorganization has not yet established a program management structure or long-term workforce plan for ensuring that it has sufficient staff with the right skills in the right places. Others and we have reported on a number of problems over the years related to NNSA's performance of effective federal oversight of its contractors. Against this backdrop, NNSA has begun taking steps to accommodate implementation of the new contractor oversight approach in parallel with its reorganization. Under this new approach, contractors will develop comprehensive contractor assurance systems, or systems of management controls, and NNSA will primarily rely upon these systems and controls to ensure that contractors properly execute their missions and activities. Although the overall concept of a risk-based approach to federal oversight has merit, the unresolved issues stemming from NNSA's major ongoing reorganization may compromise its ability to effectively carry out this approach while successfully meeting its responsibility for safe and secure operations. NNSA's reliance on contractors to operate its facilities and carry out its missions makes effective oversight of contractor activities critical to its success. Over the years, we have reported on problems related to NNSA's performance of effective federal oversight of its contractors. For example: In May 2003, we reported on problems with NNSA's oversight, particularly regarding assessing contractors' security activities. We noted that, without a stable and effective management structure and with ongoing confusion about security roles and responsibilities, inconsistencies had emerged among NNSA sites on how they assessed contractors' security activities. Consequently, we stated that NNSA could not be assured that all facilities are subject to the comprehensive annual assessments that DOE policy requires. Weaknesses in NNSA oversight also occurred at the Lawrence Livermore National Laboratory. Specifically, in our May 2003 report on a new waste treatment facility at the laboratory, we concluded that a delay in initiating storage and treatment operations at the new facility occurred because NNSA managers did not carry out their oversight responsibilities to provide clear requirements and ensure contractor compliance with these requirements. In July 2003, we reported on problems with NNSA's oversight, particularly with regard to cost and schedule, of the Stockpile Life Extension Program. In particular, we found that Life Extension Program managers used reports that contained only limited information on cost growth and schedule changes against established baselines. We also found that program managers believed that they had not been given adequate authority to properly carry out the life extensions. In February 2004, we reported on problems with NNSA's oversight with regard to business operations at the Los Alamos National Laboratory. Beginning in the summer of 2002, a series of problems with business operations surfaced at the Los Alamos National Laboratory, raising questions about the effectiveness of controls over government purchase cards and property. Among the questions raised were allegations of fraudulent use of government purchase cards and purchase orders, concerns about the adequacy of property controls over items such as computers, and disputed rationales for the laboratory's firing of two investigators. DOE and NNSA identified multiple causes for these business operations problems, one of which was that NNSA's oversight was too narrowly focused on specific performance measures in the contract rather than on overall effectiveness. In addition to these concerns, DOE 's Office of Inspector General has raised broader concerns about the adequacy of oversight. For example, in November 2003, DOE's Office of Inspector General released its annual report on management challenges, including oversight of contracts and project management as two of three internal control challenges facing the department. Against this backdrop and in the midst of a major reorganization and staff reduction effort, NNSA is proposing to change its contractor oversight approach. NNSA's August 2003 draft Line Oversight and Contractors' Assurance System policy would rely more on contractor self-assessment and reporting, among other methods, and less on NNSA's direct oversight. The proposal would require a comprehensive contractor assurance system, or system of management controls, to be in place and would primarily rely upon these systems and controls to ensure that its missions and activities are properly executed in an effective, efficient, and safe manner. NNSA would use a risk-based, graded approach to its oversight and tailor the extent of federal oversight to the quality and completeness of the contractors' assurance systems and to evidence of acceptable contractor performance. NNSA's oversight functions would include review and analysis of contractor performance data, direct observations of contractor work activities in nuclear and other facilities, annual assessments of overall performance under the contract, and certifications by the contractor or independent reviewers that the major elements of risk associated with the work performed are being adequately controlled. NNSA stated in its draft policy and in public meetings before the Defense Nuclear Facilities Safety Board that the department plans to phase in this new oversight approach over the next few years. NNSA has already begun taking steps to accommodate implementation of the new contractor oversight approach in parallel with its reorganization. For example, the new contract effective October 1, 2003, between Sandia Corporation and NNSA's Sandia Site Office describes 10 key attributes for its assurance system, such as having rigorous, risk-based, and credible self-assessments, feedback, and improvement activities, and using nationally recognized experts and other independent reviewers to assess and improve its work process and to carry out independent risk and vulnerability studies. Sandia's contractor plans to implement "assurance systems" beginning with its low-risk activities in fiscal year 2004, and medium- and high-risk activities in fiscal year 2005. Once satisfied that the contractor's assurance system is effective and results in an improvement in the contractor's performance in key functional areas, NNSA will consider conducting oversight at the assurance systems level rather than at the level of individual transactions. At the time of our review, NNSA officials at the Sandia Site Office did not know how they would assess or validate the contractor assurance system or what level of assurance they would require before they would shift from "transactional" oversight to "systems level" oversight. Although the overall concept of a risk-based approach seems reasonable, we are concerned about NNSA's ability to effectively carry it out. For example, considerable effort is needed at the Los Alamos and Lawrence Livermore National Laboratories to successfully implement a risk-based approach to laboratory oversight. According to the Associate Director for Operations at the Los Alamos National Laboratory, the laboratory's ability to manage risk is at a beginning level of maturity. Other officials at the Los Alamos laboratory, including officials from the Performance Surety Division and the Quality Improvement Office, said that the laboratory and NNSA have different perceptions of risks at the laboratory and how to manage those risks. In our February 2004 report, we expressed concerns about NNSA's oversight approach and warned that such autonomy for the laboratories was inadvisable this soon into the process of recovery from a string of embarrassing revelations. We recommended that NNSA needs to maintain sufficient oversight of mission support activities to fulfill its responsibilities independently until the laboratories have demonstrated the maturity and effectiveness of contractor assurance systems and the adequacy of the contractor's oversight have been validated. NNSA disagreed with our view of its proposal to rely more on a contractor's system of management controls and less on NNSA's own independent oversight, but acknowledged that there have been problems with oversight in the past. NNSA officials remained convinced that the proposed risk- based approach will be successfully implemented, resulting in improved contractor oversight. We continue to be concerned about whether NNSA is ready to move to its proposed system. For example, during this review, officials from NNSA's Nevada Site Office expressed concerns about the performance of the management and operating contractor for the Nevada Test Site, citing repeated problems with contractor's compliance with basic procedures. For example, officials from NNSA's Nevada Site Office expressed concern that there were repeated incidents where the contractor did not follow lock-out/tag-out procedures, resulting in, for example, the contractor drilling holes into wires that would cause power systems to shut down. Furthermore, the Defense Nuclear Facilities Safety Board, in recent public meetings, has expressed concerns about nuclear safety under the proposed NNSA contractor assurance policy and said that NNSA should not delegate responsibility for such an inherently high-risk area of operations. Finally, because NNSA has not fully determined (1) who will give program direction to its contractors and (2) through a comprehensive workforce plan, that it has sufficient staff with the right skills in the right places, NNSA's proposed approach to rely more on contractors' assurances and self-assessments and less on NNSA's direct oversight may be premature. NNSA is concurrently making significant and fundamental changes to its organization, workforce composition, and contractor oversight approach that require careful management forethought, strategy, and analysis. Preliminary indications are that some of these changes have had a positive effect on certain aspects of NNSA, but the final impact of these changes will not be apparent for several years. Specifically, NNSA's reorganization has resulted in some progress in delineating authority and improving communication between headquarters and the field. However, the reorganization has not resolved confusion regarding authority over program management. In addition, by downsizing its federal workforce without first determining what critical skills and capabilities it needed, NNSA's workforce reduction targets were more arbitrary than data-driven, contributing to short-term skill imbalances and making data-driven workforce planning for the longer term more difficult. Specifically, NNSA cannot begin to conduct a formal, substantive skill gap analysis to plan for the long term until it completes the current workforce reduction and collects critical workforce data on knowledge, skills, and competencies, among other things. Finally, because important program management and workforce issues still need to be resolved, NNSA's implementation of its proposal to rely more on contractors' assurances and self-assessments and less on NNSA's direct oversight appears to be premature. In order to increase the likelihood that NNSA's reorganization will achieve NNSA's goal of increased management discipline and accountability in program management and contractor oversight, we are making three recommendations to the NNSA Administrator and the Secretary of Energy: establish a formal program management structure, policy, and implementation guidance for directing the work of its contractors, especially concerning how program managers will interact with contracting officers at site offices to help direct and oversee contractor activity; complete and implement data-driven workforce planning for the longer term that (1) determines the critical skills and competencies that will be needed to achieve current and future programmatic results, including contractor oversight; (2) develops strategies tailored to address gaps in number, skills and competencies, and deployment of the workforce; and (3) monitors and evaluates the agency's progress toward its human capital goals and the contribution that human capital results have made toward achieving programmatic results, and postpone any decrease in the level of NNSA's direct federal oversight of contractors until NNSA has a program management structure in place and has completed its long-term workforce plan. We provided NNSA with a draft of this report for review and comment. NNSA agreed in principle with our recommendations; however, it felt that it already had efforts underway to address them. Specifically, with respect to our recommendation about program management, NNSA stated that it has established a formal process for using appropriately designated officials to direct contractor activity and that its formal program management policy was nearly established. We recognize in our report NNSA's effort to develop processes and formalize its program management policy; however, we believe that NNSA needs not only a policy, but also a structure and implementation guidance so that the managers providing direction to NNSA's contractors are clearly identified and can be held accountable. With respect to our recommendation on workforce planning, NNSA agreed with our recommendation, but it disagreed that its current plan was based on short-term or arbitrary management judgments. In this respect, our conclusions were based on discussions with knowledgeable senior agency officials at NNSA headquarters and site offices as well as a review of NNSA management council minutes. More importantly, we continue to believe in, and NNSA does not dispute, the need for a long-term data driven workforce plan that will ensure that NNSA meets its long-term goals. Finally, regarding our last recommendation on federal oversight of contractors, NNSA stated that it had no intention of further decreasing direct oversight of contractors, was hiring staff to fill vacant positions at site offices, and that its proposed contractor assurance systems would only be implemented after a site manager/contracting officer was convinced that the contractor's system would be at least as effective as the current system. While we are pleased that NNSA has stated that it will not decrease its direct oversight, our recommendation is intended to ensure that NNSA has the critical systems it needs in place to perform its function--effective, direct federal oversight. As arranged with your office, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this report. At that time, we will send copies to the Secretary of Energy and the Administrator of NNSA, the Director of the Office of Management and Budget, and appropriate congressional committees. We will make copies available to others on request. In addition, the report will also be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have any questions about this report, please call me at (202) 512-3841. Major contributors to this report are listed in appendix II. In addition to the individual named above, Arturo Holguin, Robert Kigerl, Jonathan McMurray, Christopher Pacheco, Anthony Padilla, Judy Pagano, and Ellen Rubin made key contributions to this report.

Summary:
The National Nuclear Security Administration (NNSA), a separately organized agency within the Department of Energy (DOE), is responsible for the management and security of the nation's nuclear weapons, nonproliferation, and naval reactor programs. NNSA oversees contractors that operate its facilities to ensure that activities are effective and in line with departmental policy. In December 2002, NNSA began implementing a major reorganization aimed at solving important long-standing organizational issues. GAO reviewed NNSA's overall reorganization efforts to assess (1) the extent to which it is addressing in practice the past problems concerning the unclear delineation of authority and responsibility, (2) workforce planning, and (3) its impact on federal oversight of contractor activities. NNSA's reorganization has addressed some past problems by better delineating lines of authority and improving communication; however, NNSA has not formalized a program management structure that identifies program managers or details their responsibilities and qualifications as they relate to the direction and oversight of contractor activity under the new organization. Without first resolving such key management issues, NNSA cannot, among other things, ensure the improved discipline and accountability it seeks in managing its programs. NNSA's reorganization is not likely to ensure that the agency has sufficient staff with the right skills in the right places because NNSA downsized its federal workforce without first determining the critical skills and capabilities needed to meet its mission and program goals. Consequently, NNSA will not know the composition of its workforce until it completes the 17 percent workforce reduction on September 30, 2004--the deadline specified in the reorganization plan--and then determines the knowledge, skills, and capabilities of its remaining employees. Without a functional long-term workforce plan, NNSA runs the risk of facing further, more serious staff shortages or skill imbalances, thereby diminishing its ability to adequately oversee its contractors. NNSA's implementation of a proposed risk-based approach to rely more on contractors' assurances and self-assessments and less on NNSA's direct oversight may be premature because it has not yet established a program management structure or long-term workforce plan for ensuring sufficient staff with the right skills in the right places. Under this proposal, contractors will develop comprehensive assurance systems, or systems of management controls, and NNSA will primarily rely upon these contractor systems and controls to ensure that contractors properly execute their work. Although the overall concept of a risk-based approach to federal oversight has merit, NNSA's proposed transition to conduct less direct federal oversight could be compromised by outstanding reorganization issues.