NNSA carries out its nuclear weapons research missions at research laboratories located in two states—California and New Mexico. NNSA and DOE have traditionally relied on contractors to carry out the department’s missions. However, the department’s history of inadequate management and oversight and failure to hold its contractors accountable for results led GAO in 1990 to designate DOE contract management as a high-risk area vulnerable to fraud, waste, abuse, and mismanagement. As of February 2004, this high-risk designation was still in effect. At the Los Alamos and Lawrence Livermore laboratories, about 200 NNSA personnel at laboratory site offices are responsible for oversight of the work performed under contract by over 16,000 employees of the University of California. The contracts with the University provide for reimbursement of all allowable costs plus a fee that is in addition to the allowable costs. The total fee available to the University includes a base or fixed amount that is guaranteed and an “at-risk” amount that is tied to performance measures in the contract. (See table 1.) For more than a decade, GAO and others have reported on problems with the mission support activities at the two laboratories, including project management, nuclear safety management, and facilities management. The problems have included cost and schedule overruns on major projects such as the Dual-Axis Radiographic Hydrodynamic Test Facility at Los Alamos; lack of adequate safety documentation for nuclear facilities; and a deferred maintenance backlog of about $318 million at Lawrence Livermore and $564 million at Los Alamos. In addition, in the early 1990s, we reported on poor controls over business operations such as procurement and property management at the Lawrence Livermore laboratory. For several years, NNSA has chosen to address these performance problems using contract mechanisms. For example, when DOE extended the Los Alamos contract in October 1997, it included a special provision in the contract that would allow DOE to terminate the contract if the University failed to make improvements in several mission support areas— ensuring that workers, the public, and the environment are protected; cleaning up radioactive and hazardous wastes; and maintaining a good relationship with the local community. The department subsequently decided to continue the contract after the Los Alamos laboratory made improvements in these three areas. However, when NNSA extended the contracts for both of the laboratories in January 2001, it included additional requirements to improve project management, facilities management, and nuclear safety management. Oversight of the laboratories occurs at several different levels. NNSA provides direct oversight of the two laboratories through its site offices. In addition, NNSA headquarters staff offices, such as the Offices of Defense Programs and Nonproliferation, provide funding and program direction to the site offices. DOE’s Offices of Independent Oversight and Performance Assurance and Price-Anderson Enforcement also oversee laboratory activities. Finally, the Defense Nuclear Facilities Safety Board, an independent oversight organization created by the Congress in 1988, provides advice and recommendations to the Secretary of Energy to ensure adequate protection of public health and safety at all of the department’s defense nuclear facilities, including the Los Alamos and Lawrence Livermore laboratories. NNSA and the University have taken a number of steps to address the major mission support problems that were known when NNSA extended the University’s contracts in 2001, but all actions will not be complete until mid-2005. When NNSA decided to extend the contracts for the two laboratories, concerns had emerged in three areas: project management, facilities management, and nuclear safety. For its part, NNSA incorporated into the two contracts new agencywide requirements related to each area, developed performance measures focusing on these activities, and changed its overall structure and approach for overseeing the actions taken at the laboratory level. In response, the University has implemented many of NNSA’s requirements at the two laboratories, particularly in project and facilities management, but progress has been slower for nuclear safety. The University also has taken steps to improve its oversight of the two laboratories and to foster coordination and collaboration between them. One step NNSA took to improve laboratory performance in mission support activities was to incorporate into the contracts new agencywide requirements related to all three of the identified problem areas. In general, these new requirements call for the laboratories to be more disciplined and businesslike in carrying out their management responsibilities. Project Management. In October 2000, DOE approved Order 413.3, which set agency wide standards for managing projects, including NNSA projects. The order is intended to help ensure that projects are delivered on schedule and within budget and are fully capable of meeting mission requirements as well as environmental, safety, and health standards. It requires that all projects costing more than $5 million go through five decision checkpoints, such as approving mission need and approving the start of operations. At each checkpoint, NNSA must make a formal determination to allow the project to proceed. Facilities Management. Many of the facilities at NNSA sites are decades old and in poor condition. For fiscal year 2003, NNSA required each nuclear weapons site to develop a 10-year comprehensive site plan for facilities management that incorporated NNSA’s strategic goals. The main objective of the plans is to restore, rebuild, and revitalize the physical infrastructure of the nuclear weapons complex. Two of NNSA’s specific goals are to stabilize the deferred maintenance backlog by the end of fiscal year 2005 and to reduce the amount of deferred maintenance to within industry standards by the end of fiscal year 2009. Nuclear Safety. DOE has always required that the contractors responsible for a nuclear facility analyze the facility, the work to be performed, and the associated hazards. Contractors use this information to identify the conditions, safe boundaries, and hazard controls necessary to protect workers, the public, and the environment from adverse consequences. Finally, the contractors document the safety requirements and operating procedures for each facility, referred to as the safety basis. Although DOE included these steps in an order for contractors to follow, the laboratories had not consistently done a thorough and quality analysis of their nuclear facilities. In January 2001, DOE finalized a revised nuclear safety rule, requiring that contractors responsible for nuclear facilities establish and maintain a safety basis. Contractors may be subject to civil penalties for failing to comply with this requirement. This revised rule strengthened NNSA’s ability to hold contractors accountable for the safety of nuclear facilities In addition to incorporating new agencywide requirements into the two contracts, NNSA established new contract mechanisms and performance measures to help ensure that the laboratories put in place management improvements for mission support activities. These measurements have changed over time. Initially, NNSA added a number of specific improvement initiatives in a new appendix (appendix O) to the contract, established to address known problems areas and provide a framework for improved results. For the first 2 years of the contract, the laboratories had to meet all of the requirements in appendix O on a pass/fail basis in order to qualify for performance incentive fees. NNSA phased out appendix O at the end of fiscal year 2002 after determining that the laboratories had met all of the provisions and requirements. Starting in fiscal year 2003, NNSA shifted to assessing a “critical few” broadly defined performance objectives. In prior fiscal years, the two laboratory contracts contained dozens of individual performance objectives, and poor performance in one of these individual objectives would have minimal impact on NNSA’s evaluation of overall contractor performance or the amount of fee that could be earned by the contractor. In fiscal year 2003, NNSA narrowed the number of performance objectives in the two contracts to nine objectives that define the mission of the laboratories, including two objectives that cover mission support activities—achieving successful completion of projects and maintaining secure, safe, environmentally sound, effective, and efficient operations and infrastructure in support of mission objectives. In fiscal year 2004, NNSA added a third mission support objective—improving or maintaining effective business systems and practices that safeguard public assets and support mission objectives. The third main step NNSA took was to revise its approach to overseeing the laboratories. NNSA moved additional oversight staff, which had previously been in operations offices located in distant cities, to the laboratories themselves to bring more oversight staff closer to the laboratory’s day-to- day operations. NNSA also began regular meetings with senior managers at the University and the two laboratories to identify and resolve emerging issues or areas that need improvement. Finally, NNSA designated the senior on-site NNSA representative—the site office manager—as the contracting officer for the laboratory. The contracting officer is the main point of contact and the single point of accountability for the contract. Before this change, the contracting officer was located in the procurement division at the operations office and did not report to the NNSA site office manager. NNSA believed this organizational change would clarify roles and responsibilities, eliminate a layer of management, and provide more effective federal oversight. The University made several changes designed to strengthen management of mission support activities. The first was to redefine the relationship between the two laboratories, making their efforts at managing mission support more collaborative and interactive. Previously, the laboratories had operated more autonomously and competitively—an approach the University fostered as the best means for achieving world-class science. The recent onset of mission support problems convinced University officials that increased coordination in mission support activities would be beneficial. According to University officials, they wanted to create an environment in which the laboratories would identify problems, share solutions, create best practices, and be more consistent in their approaches to laboratory management. Specific steps the University took to develop a more collaborative relationship between the two laboratories included creating a position of vice president of laboratory management, loaning staff between the two laboratories and from the University as needed, and creating standardized policies. For example, after the Lawrence Livermore laboratory developed a model for a risk-based approach to facilities management, the Lawrence Livermore staff visited Los Alamos to help that laboratory apply the approach to its facilities management.