Summary

The 177 underground storage tanks at the Department of Energy's (DOE) Hanford, Washington, site hold highly radioactive waste and other materials that pose a significant threat to the environment and surrounding communities. DOE recently revealed that waste leaking from some of the tanks had reached the groundwater and threatened the nearby Columbia River. DOE decided in 1996 to buy waste treatment services through competitively awarded, fixed-price contracts to demonstrate treatment technologies and treat at least six percent of the waste. Under these contracts, competing firms would build and operate temporary waste-processing facilities and be paid on a per-unit basis if they successfully immobilized the waste for storage. But in August 1998, DOE signed a contract with only one company--a subsidiary of British Nuclear Fuels, plc.--to build and operate permanent facilities to treat about 10 percent of the waste in Hanford's tanks. In view of the billions of dollars that the government will spend to treat this waste, this report assesses the implications of DOE's revised approach. GAO discusses (1) how DOE's current approach has changed from its original privatization strategy; (2) how this change has affected the project's schedule, cost, and estimated savings over conventional DOE approaches; (3) the risks involved in changing the approach; and (4) the steps DOE is taking to oversee the project. GAO summarized this report in testimony before Congress; see: Nuclear Waste: Schedule, Cost, and Management Issues at DOE's Hanford Tank Waste Project, by Ms. Gary L. Jones, Associate Director for Energy, Resources, and Science Issues, before the Subcommittee on Oversight and Investigations, House Committee on Commerce. GAO/T-RCED-99-21, Oct. 8 (18 pages).

GAO noted that: (1) the project as currently envisioned is substantially different from DOE's 1996 initial privatization strategy; (2) although the project award was made on the basis of a fixed-price contract, further competition between contractors and short-term demonstration facilities has been eliminated in favor of more permanent facilities that could operate for 30 years or more and, therefore, would be available to treat additional tank waste; (3) the design phase as well as the date when DOE and BNFL are to reach agreement on final contract price have been extended by 2 years to August 2000; (4) BNFL's specific project financing arrangements, which were to be established in May 1998, have been deferred until August 2000; (5) to ensure that BNFL can obtain affordable private financing, DOE has agreed to repay much of the project debt if BNFL defaults on its loans and DOE terminates the contract; (6) this is an unusual feature of a fixed-price contract because the government normally does not agree to pay a contractor's debt as an allowable cost; (7) the revised approach extends the completion date for processing the first portion of the waste from 2007 to 2017, and total costs rise from $4.3 billion to $8.9 billion; (8) the increased costs are mainly the result of DOE's decision to build permanent facilities that will take longer and cost more to design and build, and the higher financing costs and contractor profits involved in operating these facilities over a longer period of time; (9) DOE estimated that this approach would save 26 to 36 percent over contracting approaches it has used in the past; (10) because of questions about DOE's methodology for estimating savings, considerable caution is needed in assuming how much the revised approach will save; (11) the contract now calls for DOE to pay BNFL for most of the debt incurred in building and operating the facility if BNFL should default on its loans; (12) thus, DOE faces a financial risk not initially contemplated on the project that could be in the billions of dollars; (13) DOE agreed to assume this risk because it did not think BNFL would be able to obtain affordable financing unless the government provided some assurance that the loans would be repaid; (14) given that the project still has a number of technical uncertainties, DOE's financial risks are significant; (15) DOE has identified additional expertise it needs and has developed several management tools to strengthen its oversight of the project; and (16) the success of the project will depend on how well DOE implements these plans.