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Budgeting, Cost Accounting, and Management Associated with the 
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2003.

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Report to Congressional Requesters:

July 2003:

NUCLEAR WEAPONS:

Opportunities Exist to Improve the Budgeting, Cost Accounting, and 
Management Associated with the Stockpile Life Extension Program:

GAO-03-583:

GAO Highlights:

Highlights of GAO-03-583, a report to Congressional Requesters 

Why GAO Did This Study:

As a separately organized agency within the Department of Energy 
(DOE), the National Nuclear Security Administration (NNSA) administers 
the Stockpile Life Extension Program, whose purpose is to extend, 
through refurbishment, the operational lives of the weapons in the 
nuclear stockpile. NNSA encountered significant management problems 
with its first refurbishment. NNSA has begun three additional life 
extensions. This study was undertaken to determine the extent to which 
budgetary, cost accounting, and other management issues that 
contributed to problems with the first refurbishment have been 
adequately addressed.

What GAO Found:

GAO found that NNSA’s budget for the Stockpile Life Extension Program 
has not been comprehensive or reliable. For instance, the fiscal year 
2003 budget for this program was not comprehensive because it did not 
include all activities necessary to successfully complete each of the 
refurbishments. As a result, neither NNSA nor the Congress was in a 
position to properly evaluate the budgetary tradeoffs among the 
refurbishments in the program.

NNSA does not have a system for tracking the full costs associated 
with the individual refurbishments. Instead, NNSA has several 
mechanisms that track a portion of the refurbishment costs, but these 
mechanisms are used for different purposes, include different types of 
costs, and cannot be reconciled with one another. As a result, NNSA 
lacks information regarding the full cost of the refurbishment work 
that can help identify cost problems as they develop or when 
management intervention in those cost problems may be necessary.

Finally, NNSA does not have an adequate planning, organization, and 
cost and schedule oversight process. With respect to planning, NNSA 
has not, for instance, consistently developed a formalized list of 
resource and schedule conflicts between the individual refurbishments 
in order to systematically resolve those conflicts. Regarding 
organization, NNSA has not, for example, clearly defined the roles and 
responsibilities of those officials associated with the refurbishments 
or given the refurbishments’ managers proper project/program 
management training required by DOE standards. Finally, NNSA has not 
developed an adequate process for reporting cost and schedule changes 
or developed performance measures with sufficient specificity to 
determine the progress of the three refurbishments that GAO reviewed. 
As a result, NNSA lacks the means to help ensure that the 
refurbishments will not experience cost overruns potentially amounting 
to hundreds of millions of dollars or encounter significant schedule 
delays.

What GAO Recommends: 
 
GAO recommends that NNSA undertake a number of actions to improve the 
budgeting, cost accounting, and management associated with the 
Stockpile Life Extension Program. Those actions are, among other 
things (1) including the Stockpile Life Extension Program as a formal 
program in NNSA’s annual budget; (2) establishing a cost accounting 
process that accumulates, tracks, and reports the full costs of each 
refurbishment; and (3) implementing a series of management actions 
related to improving planning, organization, and oversight of cost and 
schedule. NNSA recognized the need to change how the program is 
managed and agreed with GAO’s recommendations.

[End of section]

Contents:

Letter:

Results in Brief:

Background:

NNSA Has Not Provided Congress with a Clear Picture of the Stockpile 
Life Extension Program Budget or Reliable Budget Figures:

NNSA Does Not Have a System for Tracking Refurbishment Costs by Weapon 
System:

Management Problems Remain Despite NNSA Improvements:

NNSA Has Various Actions Underway to Fix Its Management Problems:

Conclusions:

Recommendations for Executive Action:

Agency Comments:

Scope and Methodology:

Appendixes:

Appendix I: Comments from the National Nuclear Security 
Administration: 

Appendix II: GAO Contact and Staff Acknowledgments:

GAO Contact:

Acknowledgments:

Abbreviations:

DOE: Department of Energy:

GAO: General Accounting Office:

NNSA: National Nuclear Security Administration:

SFFAS: Statement of Federal Financial Accounting Standards:

Letter July 28, 2003:

Congressional Requesters:

Nuclear weapons have been and continue to be an essential part of the 
nation's defense strategy. However, the end of the Cold War has caused 
a dramatic shift in how the nation maintains its planning and support 
for such weapons. Instead of designing, testing, and producing new 
nuclear weapons, the strategy has shifted to maintaining the existing 
nuclear weapons stockpile indefinitely. To accomplish this goal, in 
January 1996, the Department of Energy (DOE) created the Stockpile Life 
Extension Program. Now administered by the National Nuclear Security 
Administration (NNSA), which was created in October 1999 as a 
separately organized agency within DOE, this program intends to use a 
standardized approach for planning and conducting nuclear weapons 
refurbishment activities to extend the weapons' operational 
lives.[Footnote 1] While complete cost data on the Stockpile Life 
Extension Program does not exist, NNSA requested $476 million in fiscal 
year 2004 for life extension program activities.

Within NNSA, the Office of Defense Programs is responsible for 
administering the Stockpile Life Extension Program. For those nuclear 
weapons that are refurbished, this office must (1) determine which 
components, such as the high explosives package, will need 
refurbishment to extend each weapon's life; (2) design and produce the 
necessary components; (3) install the components in the weapons; and 
(4) certify that the changes do not adversely affect the safety and 
reliability of the weapons. Because research and development is needed 
to refurbish the nuclear weapons, this program requires a coordinated 
effort among the design laboratories and production facilities that 
comprise the nation's nuclear weapons complex.

As of May 1, 2003, according to NNSA officials, three nuclear weapons 
were undergoing research and development activities prior to the 
commencement of refurbishment production--the W-80 warhead, the B-61 
bomb, and the W-76 warhead. The W-80 warhead is designed to be carried 
on a cruise missile launched from an attack submarine or a B-52 bomber 
and its first unit is scheduled for refurbishment production beginning 
in February 2006. The B-61 bomb is designed to be carried on the B-52 
or B-2 bomber. Its first unit is scheduled for refurbishment production 
beginning in June 2006. The B-61 also has a nonstrategic variation for 
use on the F-15 and F-16 aircraft. The W-76 warhead is designed to be 
carried on the Trident II missile. Its first unit is scheduled for 
refurbishment production beginning in September 2007.

One nuclear weapon already has begun refurbishment production--the W-87 
strategic warhead, which is designed to be carried on the land-based 
Peacekeeper missile. In December 2000, we reported that the W-87 had 
experienced significant design and production problems that increased 
its refurbishment costs by over $300 million and caused schedule delays 
of about 2 years.[Footnote 2] At the heart of many of the problems that 
contributed to this outcome were an inadequate Office of Defense 
Programs management process and unclear leadership, which prevented the 
Office from adequately anticipating and mitigating the problems that 
arose. We reported that, for the W-87 refurbishment, there was no 
overall program plan, cost and schedule baseline, or system to 
effectively oversee design and production changes. Moreover, no one 
person was expressly accountable for the W-87, and leadership appeared 
to move around from one NNSA office to another. As a result, we made a 
series of recommendations to improve NNSA management, including that 
NNSA assign a manager who is responsible and accountable for each life 
extension. In response to our recommendations, NNSA took some actions 
to improve its management of the Stockpile Life Extension Program 
including designating a program manager for each life extension.

You asked us to determine the extent to which (1) the program's budget 
requests for fiscal years 2003 and 2004 were comprehensive and 
reliable; (2) NNSA has a system for accumulating, tracking, and 
reporting program costs; and (3) other program management problems 
exist at NNSA.

Results in Brief:

While NNSA's fiscal year 2003 congressional budget request did not 
provide a clear picture of all activity necessary to complete the 
Stockpile Life Extension Program, NNSA has begun to take action to 
produce a more comprehensive and reliable picture of the program for 
fiscal year 2004 and beyond. With respect to fiscal year 2003, NNSA did 
not, for example, include activities for high explosives work that is 
needed to support three life extension efforts in an unclassified 
budget annex that provided data for the program. NNSA developed its 
budget by broad function--such as research and development--rather than 
by individual weapon system or program activity such as the Stockpile 
Life Extension Program. In addition, NNSA officials expressed concern 
that dissemination of more detailed program budget information would 
encourage the Congress to cut the most expensive weapon system or 
systems. Moreover, the numbers in NNSA's budget request for the program 
had not been validated--as required by DOE directive. NNSA did not 
validate its fiscal year 2003 budget because, according to a NNSA 
official, the agency was implementing a new planning, programming, 
budgeting, and evaluation process. For fiscal year 2004, a larger 
portion, but not all life extension-related work, within NNSA's budget 
request has been attributed to the life extension program, resulting in 
a more comprehensive request. NNSA officials indicated the agency 
decided not to implement further budget changes in fiscal year 2004 in 
order to ensure, for instance, that classification concerns are 
resolved and contractors have time to modify their accounting systems. 
NNSA officials also stated that a formal budget validation process 
would be reintroduced for the fiscal year 2005 budget cycle. Our report 
recommends that the NNSA Administrator further improve the budgeting 
associated with the Stockpile Life Extension Program by including this 
program as a formal and distinct part of NNSA's budget submission.

NNSA does not have a system for accumulating and tracking refurbishment 
costs that comports with federal accounting standards. Specifically, 
according to the Statement of Federal Financial Accounting Standards 
Number 4, "Managerial Cost Accounting," federal agencies should 
accumulate and track the cost of their activities on a regular basis 
for management information purposes. Such information is important to 
the Congress and federal managers as they make decisions about 
allocating federal resources, authorizing and modifying programs, and 
evaluating program performance. To date, NNSA has not developed a 
managerial cost accounting system that aligns with the program and its 
activities and provides the full cost of the refurbishments. NNSA has 
several mechanisms to track various portions of the refurbishment 
costs, but these mechanisms are used for different purposes, include 
different types of costs, and cannot be reconciled with one another. 
This report recommends that the NNSA Administrator take steps to 
improve cost accounting associated with the Stockpile Life Extension 
Program.

Finally, despite NNSA's efforts at improvement, other program 
management problems remain in the areas of planning, organization, and 
oversight of cost and schedule for the Stockpile Life Extension 
Program. For instance, NNSA does not yet have an adequate planning 
process to guide and fully integrate the individual life extensions for 
each warhead into an overall program. In this regard, NNSA has yet to 
establish the relative ranking of the Stockpile Life Extension Program 
among the Office of Defense Programs' priorities or to establish a 
consistent priority among the individual life extension efforts. Absent 
a prioritization scheme that had been disseminated and understood 
throughout the weapons complex, we identified cases where NNSA field 
contractors unilaterally decided to transfer funds from one 
refurbishment to another only to be formally questioned by NNSA 
regarding those decisions. The contractor decisions impacted NNSA's 
ability to complete refurbishment work on schedule. With respect to 
organization, despite a December 2002 overall reorganization, NNSA 
still has not adequately fixed accountability and responsibility for 
each life extension. In particular, the roles and responsibilities 
between the individual life extension program and deputy program 
managers and the site contractor project managers have not yet been 
clearly defined. Finally, with respect to oversight of cost and 
schedule, NNSA does not have an adequate process for reporting cost and 
schedule changes against established baselines. Such a process would 
help NNSA provide more comprehensive information to the Congress 
regarding the program's performance goals and accomplishments. Each of 
the three ongoing refurbishments, we determined, has already 
experienced some cost growth and schedule changes. For instance, the W-
76 refurbishment is slightly behind schedule because of various missed 
commitments such as deciding whether to reuse or remanufacture certain 
components. This reuse or remanufacture decision did not occur on 
schedule, according to the W-76 program manager, primarily because NNSA 
personnel neglected to perform certain calculations as directed. The W-
76 refurbishment will also need an additional $10.75 million in fiscal 
year 2004 to purchase certain parts that were previously not authorized 
or budgeted for. NNSA has recently completed or is in the process of 
completing various management improvement actions, such as the 
implementation of an overall planning, programming, budgeting, and 
evaluation process. While those actions should help improve management 
to some degree, they will not address all outstanding stockpile life 
extension program management issues, such as clarifying the roles and 
responsibilities of those officials associated with the program. 
Consequently, this report recommends that the NNSA Administrator 
improve certain specific management-related activities associated with 
the Stockpile Life Extension Program, such as clarifying roles and 
responsibilities and providing the program managers with the authority 
to properly manage the refurbishments.

We provided NNSA with a draft of this report for review and comment. 
Overall, NNSA stated that it recognized the need to change the way the 
Stockpile Life Extension Program was managed and that it generally 
agreed with the report's recommendations. For instance, NNSA stated 
that it had independently identified many of the same concerns, and, 
over the past 12 months, it had made significant progress in 
implementing plans, programs, and processes to improve program 
management. NNSA indicated that while full implementation of our 
management and budgeting recommendations will take several years, NNSA 
is committed to meeting these objectives. NNSA also provided some 
technical comments which it believed pointed out factual inaccuracies. 
We have modified our report, where appropriate, to reflect NNSA's 
comments.

Background:

The nation's nuclear weapons stockpile remains a cornerstone of U.S. 
national security policy. As a result of changes in arms control, arms 
reduction, and nonproliferation policies, the President and the 
Congress in 1993 directed that a science-based Stockpile Stewardship 
Program be developed to maintain the stockpile without nuclear testing. 
After the establishment of that program, DOE, in January 1996, created 
the Stockpile Life Extension Program. The purpose of this program is to 
develop a standardized approach for planning nuclear weapons 
refurbishment activities to enable the nuclear weapons complex to 
extend the operational lives of the weapons in the stockpile well 
beyond their original design lives.

Within NNSA, the Office of Defense Programs is responsible for the 
stockpile. This responsibility encompasses many different tasks, 
including the manufacturing, maintenance, refurbishment, surveillance, 
and dismantlement of weapons in the stockpile; activities associated 
with the research, design, development, simulation, modeling, and 
nonnuclear testing of nuclear weapons; and the planning, assessment, 
and certification of the weapons' safety and reliability. A national 
complex of nuclear weapons design laboratories and production 
facilities supports the Office of Defense Programs' mission. This 
complex consists of three national laboratories that design nuclear 
weapons: Lawrence Livermore National Laboratory in California, Los 
Alamos National Laboratory in New Mexico, and Sandia National 
Laboratories in New Mexico and California. The complex also includes 
the Nevada test site and four production sites: the Pantex plant in 
Texas, the Y-12 plant in Tennessee, the Kansas City plant in Missouri, 
and the Savannah River site in South Carolina.

NNSA refurbishes nuclear weapons according to a process called Phase 
6.X, which was jointly developed with the Department of Defense. This 
process consists of the following elements:

* Phase 6.1, concept assessment. This phase consists of studies to 
provide planning guidance and to develop information so that a decision 
can be made on whether or not to proceed to a phase 6.2.

* Phase 6.2, feasibility study. This phase consists of developing 
design options and studying their feasibility.

* Phase 6.2A, design definition and cost study. This phase consists of 
completing definition of selected design option(s) from phase 6.2 
through cost analysis.

* Phase 6.3, development engineering. This phase consists of conducting 
experiments, tests, and analyses to validate the design option and 
assess its potential for production.

* Phase 6.4, production engineering. This phase consists of making a 
strong commitment of resources to the production facilities to prepare 
for stockpile production.

* Phase 6.5, first production. This phase consists of producing a 
limited number of refurbished weapons and then disassembling and 
examining some of them for final qualification of the production 
process.

* Phase 6.6, full-scale production. This phase consists of ramping up 
to full-production rates at required levels.

As of May 1, 2003, according to NNSA officials, four nuclear weapons 
were undergoing phase 6.X refurbishment activities. The W-80 warhead, 
the B-61 bomb, and the W-76 warhead are all in phase 6.3, development 
engineering, while the W-87 warhead is in phase 6.6, full-scale 
production.[Footnote 3]

Prior to its budget submission for fiscal year 2001, the Office of 
Defense Programs divided the operating portion of the Weapons 
Activities account into two broad program activities--stockpile 
stewardship and stockpile management. Stockpile stewardship was defined 
as the set of activities needed to provide the physical and 
intellectual infrastructure required to meet the scientific and 
technical requirements of the (overall) Stockpile Stewardship Program. 
Stockpile management activities included DOE's historical 
responsibilities for surveillance, maintenance, refurbishment, and 
dismantlement of the enduring stockpile. However, each category was 
dominated by a single large activity known as core stewardship and core 
management, which made it difficult to determine precisely where funds 
were being spent. For example, in the Office of Defense Programs' 
budget submission for fiscal year 2000, core stewardship accounted for 
48 percent of the stockpile stewardship activity's budget request, 
while core management accounted for 73 percent of the stockpile 
management activity's budget request. The lack of clarity associated 
with this broad structure caused concern both at DOE and in the 
Congress.

In February 1999, the Deputy Assistant Secretary for Research, 
Development, and Simulation, who manages the stockpile stewardship 
activity, began to develop a new program activity structure to improve 
the planning process for his program and more closely integrate the 
program with the needs of the stockpile. The new structure was built 
around three new program activities--Campaigns, Directed Stockpile 
Work, and Readiness in Technical Base and Facilities.

* Campaigns are technically challenging, multiyear, multifunctional 
efforts conducted across the Office of Defense Programs' laboratories, 
production plants, and the Nevada test site. They are designed to 
develop and maintain the critical capabilities needed to enable 
continued certification of the stockpile into the foreseeable future, 
without underground testing. Campaigns have milestones and specific 
end-dates or goals, effectively focusing research and development 
activities on clearly defined deliverables.

* Directed Stockpile Work includes the activities that directly support 
specific weapons in the stockpile. These activities include the current 
maintenance and day-to-day care of the stockpile, as well as planned 
life extensions.

* Readiness in Technical Base and Facilities includes the physical 
infrastructure and operational readiness required to conduct Campaign 
and Directed Stockpile Work activities at the production plants, 
laboratories, and the Nevada test site. This includes ensuring that the 
infrastructure and facilities are operational, safe, secure, compliant, 
and ready to operate.

Within each of these three activities is a set of more detailed 
subactivities. For example, within the Campaigns activity are 
individual campaigns to study, among other things, the primary[Footnote 
4] in a nuclear weapon or to develop a new capability to produce 
nuclear weapons pits.[Footnote 5] Similarly, the Directed Stockpile 
Work activity includes subactivities to conduct surveillance or produce 
components that need regular replacement within nuclear weapons. 
Finally, the Readiness in Technical Base and Facilities activity 
includes subactivities to capture the costs for the operation of its 
facilities. In submitting its new program activity structure to the 
Office of the Chief Financial Officer for review and approval for use 
in the budget submission for fiscal year 2001, the Office of Defense 
Programs believed that the new structure would, among other things, 
better reflect its current and future missions; focus budget 
justification on major program thrusts; and improve the linkage between 
planning, budgeting, and performance evaluation. Budget requests 
developed since fiscal year 2001 have been presented using the 
Campaigns, Directed Stockpile Work, and Readiness in Technical Base and 
Facilities activity structure.

Within the Office of Defense Programs, two organizations share the 
responsibility for overall weapons refurbishment management. Those 
organizations are the Office of the Assistant Deputy Administrator for 
Research, Development, and Simulation and the Office of the Assistant 
Deputy Administrator for Military Application and Stockpile Operations. 
The first office directs funding to the laboratories for research and 
development, while the second office directs funding for engineering 
development and production to the laboratories and production sites. 
According to NNSA's Life Extension Program Management Plan, both 
organizations also share responsibilities. Both oversee life extension 
program execution; ensure that the life extension program baseline, if 
successfully accomplished, will meet customer requirements; and provide 
life extension program information to higher levels for review. The 
management plan also stipulates that each life extension shall have one 
program manager and one deputy program manager, with one being assigned 
from each of the two aforementioned organizations, and that these two 
individuals will share program management responsibilities.

NNSA Has Not Provided Congress with a Clear Picture of the Stockpile 
Life Extension Program Budget or Reliable Budget Figures:

While NNSA's fiscal year 2003 budget request did not provide a clear 
picture of all activity necessary to complete the Stockpile Life 
Extension Program, NNSA has begun to take action to produce a more 
comprehensive and reliable picture of the program for fiscal year 2004 
and beyond. With respect to fiscal year 2003, NNSA did not develop a 
comprehensive Stockpile Life Extension Program budget because 
historically it has developed its budget by broad function--such as 
research and development--rather than by individual weapon system or 
program activity such as the Stockpile Life Extension Program. NNSA 
provided the Congress with supplementary information in its fiscal year 
2003 budget request that attempted to capture the budget for the 
Stockpile Life Extension Program; however, this information was not 
comprehensive because it did not include the budget for activities 
necessary to successfully complete the life extension efforts. For 
example, the budget for high explosives work needed to support three 
life extension efforts was shown in a different portion of NNSA's 
budget request. Recently NNSA has decided, after forming a task force 
to study the issue, to budget and manage by weapon system beginning 
with its fiscal year 2004 budget request, with this transition 
officially taking place with congressional approval of the fiscal year 
2005 budget request. As a result, NNSA's fiscal year 2004 budget 
request was more comprehensive because it attributed a larger portion 
of the Defense Programs' budget to the life extension program. NNSA's 
fiscal year 2003 and 2004 budget requests were also not reliable 
because the data used to develop them had not been formally reviewed--
through a process known as validation--as required by DOE directive. 
Instead, NNSA relied on more informal and less consistent analyses. 
NNSA officials have stated that a formal budget validation process 
would be reintroduced for the fiscal year 2005 budget cycle.

NNSA Developed Its Budget Requests by Broad Function Rather Than by 
Individual Weapon System:

NNSA's congressional budget request for fiscal year 2003 did not 
contain a comprehensive, reliable budget for the Stockpile Life 
Extension Program or the individual weapon systems undergoing 
refurbishment. NNSA developed its budget by broad function--such as 
Campaigns, Directed Stockpile Work, and Readiness in Technical Base and 
Facilities--rather than by individual weapon system or program activity 
such as the Stockpile Life Extension Program.

While the Congress has accepted previous NNSA budget submissions as 
structured, it also has requested detailed information on NNSA's 
stockpile life extension efforts. Specifically, the fiscal year 2002 
Energy and Water Development Appropriations Act conference report 
directed NNSA to include detailed information by weapon system in the 
budget justification documents for its fiscal year 2003 and subsequent 
presidential budget requests to Congress. The conference report also 
indicated that the budget should clearly show the unique and the fully 
loaded cost of each weapon activity, including the costs associated 
with refurbishments, conceptual study, and/or the development of new 
weapons.

NNSA responded to the congressional requirement by providing an 
unclassified table in an annex to its fiscal year 2003 budget that 
contained data on the budget request for the four individual life 
extensions. This data, however, did not contain budget funding for work 
outside the Directed Stockpile Work program activity that is required 
to carry out the life extensions. For example:

* The narrative associated with the High Explosives Manufacturing and 
Weapons Assembly/Disassembly Readiness Campaign indicates that $5.4 
million, or an 80 percent funding increase, was needed in fiscal year 
2003 to support the B-61, W-76, and W-80 refurbishments. The narrative 
did not provide a breakdown by individual refurbishment. However, 
NNSA's implementation plan for this campaign indicated that nearly $50 
million would be needed to support the three refurbishments over fiscal 
years 2002 through 2006.

* The narrative associated with an expansion project at the Kansas City 
plant within the Readiness in Technical Base and Facilities program 
activity indicated that $2.3 million was needed in fiscal year 2003 and 
$27.9 million was needed in the outyears to support the B-61, W-76, and 
W-87 refurbishments. The narrative also indicated that this expansion 
was required in order to meet first production unit schedules 
associated with the refurbishments.

In addition, a significant portion of the funding in the annex table 
was not assigned to any specific refurbishment but rather was included 
under a budget line item termed "multiple system." NNSA officials told 
us they did not ask field locations to break down the multiple system 
funding by individual refurbishment because this funding was for 
"general capability" activities that would continue to be required even 
if a weapon system were cut. Further, they said that there was 
currently no good allocation scheme, so a breakdown by weapon system 
would be inaccurate and, therefore, serve no useful purpose. However, 
NNSA officials provided us no information indicating that NNSA had ever 
studied possible allocation schemes or showing that allocation was not 
feasible. Moreover, according to the DOE's chief financial officer, 
NNSA can and should break out the multiple system funding by weapon 
system. This official indicated that doing so would put the budget in 
line with presidential guidance and Office of Management and Budget 
objectives that advocate presenting a budget by product rather than by 
process. In commenting on our report, NNSA stated that DOE's chief 
financial officer had no basis for making any assertions about whether 
NNSA should break out the multiple system funding by weapon system. 
However, the chief financial officer has responsibility for ensuring 
the effective management and financial integrity of DOE's programs.

More broadly, because NNSA provided the Congress with a table by weapon 
system in a budget annex and in Nuclear Weapon Acquisition Reports, the 
agency questioned the need for further identification of the Stockpile 
Life Extension Program in the fiscal year 2003 budget.[Footnote 6] 
Agency officials, including the Deputy Administrator for Defense 
Programs, told us that NNSA was reluctant to budget by weapon system 
because it would like to retain the "flexibility" the current budget 
structure affords the agency in responding to unanticipated demands and 
shifting priorities in the Stockpile Stewardship Program. Officials 
expressed concern that dissemination of more detailed Stockpile Life 
Extension Program information would encourage the Congress to cut the 
most expensive weapon system or systems. Furthermore, they asserted 
that eliminating a weapon system would not save all of the funds 
associated with that weapon system, because a certain portion would be 
fixed costs that would have to be transferred to the remaining users.

During the course of our work, however, NNSA has begun to take action 
to produce a more comprehensive budget for the Stockpile Life Extension 
Program. Specifically, NNSA decided, after forming a task force to 
study the issue, to begin budgeting and managing by weapon system in 
the fiscal year 2004 budget. Starting with that budget, the agency 
supplied to the Congress a classified annex that allocated more of the 
costs that were in the multiple system line item to individual weapon 
systems. In addition, NNSA officials said that more than $100 million 
that had been included in the Readiness in Technical Base and 
Facilities activity was moved to the Directed Stockpile Work activity. 
However, for fiscal year 2004, no refurbishment-related work in the 
Campaigns activity has been moved. NNSA officials said that during the 
fiscal year 2005 budget cycle the agency will review the Readiness 
Campaigns activity to determine which portion of that activity could 
also be attributed to weapon systems. NNSA officials indicated the 
agency decided not to implement all budget changes in fiscal year 2004 
in order to ensure that classification concerns are resolved, 
contractors have time to modify their accounting systems as needed, and 
NNSA has time to fully understand the costs and characteristics of 
managing, budgeting, and reporting by weapon system.

NNSA Plans to Resume Activities to Validate Program Budget Estimates:

NNSA's budget requests for fiscal years 2003 and 2004 were not reliable 
because the data used to develop the budgets have not been formally 
reviewed--through a process known as validation--as required by DOE 
directive. Instead, NNSA has relied on a review that has become more 
informal and less consistent.

Specifically, DOE Order 130.1, on budget formulation, requires budget 
requests to be based on estimates that have been thoroughly reviewed 
and deemed reasonable by the cognizant field office and headquarters 
program organization. The order further requires field offices to 
conduct validation reviews and submit documentation and to report any 
findings and actions to headquarters. A proper validation, as described 
by DOE's Budget Formulation Handbook, requires the field office to 
review budget data submissions in detail, sampling 20 percent of the 
submissions every year such that 100 percent would be evaluated every 5 
years.

NNSA officials indicated that no formal validation has been done with 
respect to refurbishment research and development funding. With respect 
to refurbishment production funding, NNSA officials described their 
validation review as a "reasonableness" test regarding the budget's 
support of a program's needs based on a historical understanding of 
appropriate labor, materials, and overhead pricing estimates. NNSA 
officials acknowledged that, in recent years, the agency has not 
fulfilled the budget validation requirement as specified in DOE Order 
130.1, and that the validation review that has been used has become 
increasingly less formal and less consistent. Prior to this reduction 
in the quality of the review process, the DOE Albuquerque Operations 
Office performed formal validation reviews at production plant 
locations through fiscal year 1996. Since then, the Albuquerque office 
has relied on a pilot project by which the four contractors directly 
under its jurisdiction--Sandia National Laboratories, Los Alamos 
National Laboratory, Kansas City plant, and the Pantex plant--submitted 
self-assessments for Albuquerque's review. For the fiscal year 2003 and 
2004 budgets, however, NNSA officials said headquarters no longer 
requested field validation as the agency commenced implementation of a 
new planning, programming, budgeting, and evaluation process.

One NNSA field office, we found, still chose to perform validation 
reviews of the contractors under its jurisdiction. Specifically, the 
Oakland office performed a validation review of the Lawrence Livermore 
National Laboratory. However, other locations, such as the Kansas City 
plant, the Y-12 plant, and the Savannah River site did not have their 
budgets reviewed by any NNSA field office. We also were informed by 
NNSA officials that NNSA headquarters staff did not review the 
validation reports that were done, as required by DOE Order 130.1, 
before transmitting the fiscal year 2003 and 2004 budgets to DOE's 
budget office, which then submitted them to the Office of Management 
and Budget.

NNSA's director of the Office of Planning, Programming, Budgeting, and 
Evaluation said that her office plans to introduce a formal validation 
process for the fiscal year 2005 budget cycle, adding that such a 
process was not used for the fiscal year 2004 budget cycle because of 
time constraints. NNSA documentation regarding the validation process 
to be used specifies that validation teams will be led by field federal 
staff elements working with headquarters program managers; the Office 
of Planning, Programming, Budgeting, and Evaluation staff; and others. 
However, NNSA documentation is silent on how the validation process 
will be conducted. Therefore, it is unclear if the validation process 
will be performed thoroughly and consistently across the weapons 
complex and if the process will be formally documented, as required by 
DOE Order 130.1.

NNSA Does Not Have a System for Tracking Refurbishment Costs by Weapon 
System:

Once a budget is established, having reliable information on the cost 
of federal programs is crucial to the effective management of 
government operations. Such information is important to the Congress 
and to federal managers as they make decisions about allocating federal 
resources, authorizing and modifying programs, and evaluating program 
performance. The Statement of Federal Financial Accounting Standards 
(SFFAS) Number 4, "Managerial Cost Accounting Standards," establishes 
the framework under which such cost information is gathered. In 
particular, the standard states that federal agencies should accumulate 
and report the costs of their activities on a regular basis for 
management information purposes. The standard sees measuring costs as 
an integral part of measuring the agency's performance in terms of 
efficiency and cost-effectiveness. The standard suggests that such 
management information can be collected through the agency's cost 
accounting system or through specialized approaches--known as cost-
finding techniques. Regardless of the approach used, SFFAS Number 4 
states that agencies should report the full costs of the outputs they 
produce. However, under Federal Acquisition Regulations and SFFAS 
Number 4, NNSA's contractors do have the flexibility to develop the 
managerial cost accounting methods that are best suited to their 
operating environments.

NNSA does not have a system for accumulating and tracking stockpile 
life extension program costs. Similar to its approach in the budget 
arena, NNSA currently does not collect cost information for the 
stockpile life extension program through the agency's accounting 
system. This is because NNSA has defined its programs and activities, 
and thus the cost information it collects, at a higher level than the 
stockpile life extension program. Specifically, DOE collects cost 
information to support its Defense mission area.[Footnote 7] The 
Defense mission area includes the types of broad activities mentioned 
earlier, such as Campaigns, Directed Stockpile Work, and Readiness in 
Technical Base and Facilities. Moreover, DOE's current accounting 
system does not provide an adequate link between cost and performance 
measures. Officials in DOE's Office of the Chief Financial Officer 
recognize these shortcomings and are considering replacing the agency's 
existing system with a system that can provide managers with cost 
information that is better aligned with performance measures.

Moreover, NNSA does not accumulate life extension program cost 
information in the agency's accounting system because NNSA does not 
require its contractors to collect information on the full cost of each 
life extension by weapon system. Full costs include the costs directly 
associated with the production of the item in question--known as direct 
costs--as well as other costs--known as indirect costs, such as 
overhead--that are only indirectly associated with production. SFFAS 
Number 4 states that entities should report the full cost of outputs in 
its general-purpose financial reports. General-purpose financial 
reports are reports intended to meet the common needs of diverse users 
who typically do not have the ability to specify the basis, form, and 
content of the reports they receive.

Direct costs are captured within NNSA's Directed Stockpile Work 
activity and include such things as research and development or 
maintenance. However, NNSA's Directed Stockpile Work activity also 
includes indirect costs that benefit more than one weapon system or 
life extension. Examples of indirect costs within Directed Stockpile 
Work include evaluation and production support costs. Indirect costs 
are also found within Campaigns and Readiness in Technical Base and 
Facilities activities. Specifically, as noted earlier, NNSA's budget 
justification identifies certain Campaign activities, which represent 
an indirect cost, that support individual life extensions. A portion of 
both of these sources of indirect costs could be allocated to 
individual weapon systems; however, NNSA does not currently require 
such an allocation by its contractors.

It is important to recognize that under SFFAS Number 4, NNSA's 
contractors do have the flexibility to develop the cost accounting 
methodologies that are best suited to their operating environments. The 
contractors involved in the life extension program are structured 
differently and have different functions. For example, Lawrence 
Livermore National Laboratory is run by the University of California 
and conducts mostly research that may or may not produce a tangible 
product. In contrast, the production plants are run by private 
corporations which produce parts, as is the case at the Kansas City or 
Y-12 plants, or assemble the parts into a completed weapon, as is done 
at the Pantex plant. As a result, even if NNSA required contractors to 
report the full cost of individual refurbishments, some differences in 
the data, which reflects the contractor's different organizations and 
operations, would still exist.

While the agency's accounting system does not accumulate and report 
costs for the Stockpile Life Extension Program or its individual 
refurbishments, NNSA has developed several mechanisms to assist the 
Congress and program managers who oversee the life extension effort. 
Specifically:

* In previous years, NNSA has requested that its contractors provide 
supplemental data on actual costs by weapon system. These data have 
been used to respond to congressional information requests. However, 
similar to the way NNSA addresses its budget request, NNSA has not 
required its contractors to allocate the supplemental cost information 
in the multiple system category to individual refurbishments. In 
addition, also similar to the way it approached its budget 
presentation, NNSA has not required its contractors to include the 
costs for supporting activities, such as Campaigns and Readiness in 
Technical Base and Facilities in the reports.

* Some life extension program managers require their contractors to 
provide them with status reports on the individual refurbishments they 
are overseeing. However, these reports are prepared inconsistently or 
are incomplete. For example, while the W-76 program manager requires 
monthly reports, the B-61 program manager requires only quarterly 
reports. In contrast, the W-80 and W-87 program managers do not require 
any routine cost reporting. NNSA is trying to develop a consistent 
method for its life extension program managers to request cost 
information; however, NNSA officials have stated that NNSA has to first 
define what its needs are. Similar to the supplemental cost data 
described above, these status reports do not contain all of the costs 
for supporting activities, such as Campaigns and Readiness in Technical 
Base and Facilities.

* Finally, as part of the production process, NNSA's contractors 
prepare a report known as the Bill of Materials. The Bill of Materials 
accumulates the materials, labor, and manufacturing costs of the 
production of a weapon, starting with an individual part and 
culminating in the final assembly of a complete weapon. NNSA uses the 
resulting Master Bill of Materials to record--capitalize--the 
production costs of each weapon system in its accounting system. 
However, the costs accumulated by the Bill of Materials include only 
production costs and do not include costs such as related research and 
development costs or costs associated with Campaigns and Readiness in 
Technical Base and Facilities.

Finally, despite the importance of reliable and timely cost information 
for both the Congress and program managers, similar to the situation we 
found with the budget, life extension program costs are not 
independently validated either as a whole or by individual weapon 
system. Specifically, neither the DOE Inspector General nor DOE's 
external auditors specifically audit the costs of the life extension 
program. While both parties have reviewed parts of the life extension 
program--for example, the Inspector General recently reviewed the 
adequacy of the design and implementation of the cost and schedule 
controls over the W-80 refurbishment--their work has not been 
specifically intended to provide assurance that all life extension 
program costs are appropriately identified and attributed to the life 
extension program as a whole or to the individual refurbishments.

Management Problems Remain Despite NNSA Improvements:

The management of critical programs and projects has been a long-
standing problem for DOE and NNSA's Office of Defense Programs. 
According to NNSA's fiscal year 2001 report to the Congress on 
construction project accomplishments, management costs on DOE projects 
are nearly double those of other organizations, and DOE projects take 
approximately 3 years longer to accomplish than similar projects 
performed elsewhere. As a result, NNSA has repeatedly attempted to 
improve program and project management. For instance, in September 
2000, the Office of Defense Programs initiated an improvement campaign 
to develop solutions to its project management problems and to enact 
procedural and structural changes to the Defense Programs' project 
management system. Later, in August 2002, the Office of Defense 
Programs established a project/program management reengineering team. 
As the basis for assembling that team, its charter noted that NNSA does 
not manage all projects and programs effectively and efficiently. 
However, despite these NNSA attempts at improvement, management 
problems associated with the stockpile life extension program persist.

NNSA Does Not Have an Adequate Planning Process to Guide the Individual 
Life Extensions and the Overall Program:

Front-end planning is, in many ways, the most critical phase of an 
activity and the one that often gets least attention. The front-end 
planning process defines the activity. The decisions made in this phase 
constrain and support all the actions downstream and often determine 
the ultimate success or failure of the activity. NNSA, we found, does 
not have an adequate planning process to guide the individual life 
extensions and the overall program. Specifically, NNSA has not (1) 
established the relative priority of the Stockpile Life Extension 
Program against other defense program priorities, (2) consistently 
established the relative priority among the individual refurbishments, 
(3) developed a formalized list of resource and schedule conflicts 
between the individual refurbishments in order to systematically 
resolve those conflicts, and (4) finalized the individual refurbishment 
project plans on a timely basis.

Priority ranking is an important decision-making tool at DOE. It is the 
principal means for establishing total organizational funding and for 
making tradeoffs between organizations. DOE uses such a ranking at the 
corporate level to make departmental budget decisions. To perform that 
ranking, DOE formally requires each of its organizational elements to 
annually submit to the DOE Office of Budget reports that provide a 
budget year priority ranking and a ranking rationale narrative. In 
discussing this matter with an NNSA budget official, we found that NNSA 
had not submitted these priority-ranking reports for fiscal years 2002, 
2003, and 2004, and this official was also unable to explain why. NNSA 
officials, in commenting on our report, indicated that NNSA is not 
required to follow the DOE requirement regarding priority budget 
ranking; however, these officials could not provide us with any policy 
letter supporting their position that NNSA has been officially exempted 
from this requirement.

Prioritization is also an important part of NNSA's strategic planning 
process. According to that process, priorities must be identified in an 
integrated plan developed by each major NNSA office. This integrated 
plan links sub-office program plans, such as the plan for refurbishing 
the B-61, to NNSA's strategic plan. With respect to the Office of 
Defense Programs, however, we found that this office has not finalized 
an integrated plan. According to an NNSA official, Defense Programs 
developed a draft plan in January 2002 but has not completed that plan 
and has instead devoted itself to working on the sub-office program 
plans. Absent a finalized integrated plan, it is unclear how sub-office 
program plans could be developed and properly linked to NNSA's 
strategic plan.

According to the director of Defense Programs' Office of Planning, 
Budget, and Integration, prioritizing Defense Programs activities is 
essential. This is because the priorities of Defense Programs, its 
contractors, and the Department of Defense, which is Defense Programs' 
customer for life extension refurbishments, may not necessarily be the 
same. In this official's view, the issue of setting priorities needs to 
be addressed. This official indicated that the Office of Defense 
Programs developed a draft list of activities in August 2001, but did 
not prioritize those activities. Included among those activities were 
efforts to continue stockpile surveillance activities and to complete 
planned refurbishments on schedule. For fiscal years 2003 and 2004, 
according to this official, Defense Programs published budget-related 
guidance regarding priorities, but he did not believe the guidance was 
specific enough. This official added that, for fiscal year 2005, the 
guidance would have sufficient detail.

While prioritizing work among Office of Defense Programs activities 
such as stockpile surveillance and refurbishment is important, it is 
also important to prioritize work within those activities. In the 
competition for budget funds, the Office of Defense Programs must 
continually ask which of the three refurbishments undergoing research 
and development work is a higher priority and should be given funding 
preference. However, NNSA has not taken a consistent position on 
prioritizing the life extensions. For instance, in October 2002, NNSA 
indicated by memorandum that, because of the continuing resolution for 
fiscal year 2003, the priority order for the three refurbishments would 
be the W-76, followed by the B-61, followed by the W-80. In November 
2002, however, NNSA indicated by memorandum that the three 
refurbishments had the same priority. In neither memorandum did NNSA 
identify the criteria or reasons for these two contradictory decisions. 
According to NNSA officials, no priority criteria have been developed, 
and each of the three refurbishments is equal in priority.

This lack of a definitive decision on the priority of the three 
refurbishments has caused confusion. For example, the Los Alamos 
National Laboratory decided in early calendar year 2002 to unilaterally 
transfer funds from the W-76 refurbishment to the B-61 because Los 
Alamos believed that the B-61 work was more important. As a result of 
that decision, the W-76 had to slip a research reactor test from fiscal 
year 2002 to fiscal year 2003. Although this test was not on the 
critical path for completing the W-76 refurbishment, NNSA had 
identified the reactor test as a fiscal year 2002 metric for measuring 
the refurbishment's progress. In February 2002, NNSA questioned Los 
Alamos regarding its decision. In its March 2002 reply, Los Alamos 
indicated that it had found a mechanism to fully fund the W-76 
refurbishment. However, because the reactor test had been cancelled, 
Los Alamos indicated that it was no longer possible to complete the 
test in fiscal year 2002, as planned. Therefore, Los Alamos stated that 
its goal was to begin this test in the first part of fiscal year 2003. 
In another case, the Y-12 plant decided to suspend or not initiate four 
projects at the beginning of fiscal year 2003 in support of the W-76 
refurbishment because Y-12 believed that these projects were a lower 
priority than other work to be conducted. In a November 2002 
memorandum, NNSA questioned this decision. NNSA indicated that these 
projects were integrated with another project, which was needed to 
ensure a complete special material manufacturing process capability in 
time to support the W-76 refurbishment. Accordingly, NNSA stated that 
it was providing $2.9 million in unallocated funds so that work on the 
projects could resume as soon as possible to support the refurbishment 
schedule.

While these examples represent only two documented funding conflicts, 
according to each of the refurbishment program managers, additional 
resource and schedule conflicts exist among the three refurbishments. 
Specifically, the refurbishment program managers agreed that conflicts, 
or areas of competition, existed on many fronts, including budget 
resources, facilities, and testing. For example, the three 
refurbishments compete for certain testing facilities at Los Alamos 
National Laboratory and at the Sandia National Laboratories, and for 
the use of certain hardware at the Y-12 plant. Additional conflicts are 
also present that may affect only two of the three refurbishments. 
Those identified included such activities as campaign support, 
research, and development at the Los Alamos National Laboratory, and 
use of hardware production at the Y-12 plant. The Deputy Assistant 
Administrator for Military Application and Stockpile Operations 
confirmed that the areas of competition identified by the individual 
refurbishment program managers represented a fair portrayal of the 
conflicts that exist between the refurbishments. He indicated that 
while no formalized list of resource and schedule conflicts exist, the 
subject of refurbishment conflicts is routinely discussed at each 
refurbishment program review meeting. These meetings are held monthly 
to discuss one of the refurbishments on a rotating basis.

Finally, fundamental to the success of any project is documented 
planning in the form of a project execution plan. With regard to the 
Stockpile Life Extension Program, NNSA has had difficulty preparing 
project plans on a timely basis. In its report on the lessons learned 
from the W-87 refurbishment, NNSA noted that one cause of the W-87's 
problems was that the project plan was prepared too late in the 
development cycle and was not used as a tool to identify problems and 
take appropriate actions.[Footnote 8] As to the W-76, W-80, and B-61 
refurbishments, we found that NNSA had not completed a project plan on 
time and with sufficient details, as stipulated in NNSA guidance for 
properly managing the reburbishments.

According to NNSA's June 2001 Life Extension Program Management Plan, a 
final project plan is to be completed at the end of Phase 6.2A 
activities (design definition and cost study). The Life Extension 
Program Management Plan offers numerous guidelines detailing the 
elements that should be included in the project plan. Those elements 
include, among others, team structure and the roles of each team and 
individual members; an integrated program schedule identifying all 
tasks to be accomplished for the success of the project; life cycle 
costs; and a documentation of the facility requirements needed to 
support all portions of the refurbishment. This management plan was 
issued as guidance, rather than as a formally approved requirements 
document, pending the resolution of role and responsibility issues 
within NNSA.

Of the three refurbishments, only the B-61 has completed its project 
plan on schedule. According to NNSA documentation, the B-61 reached the 
end of phase 6.2A in October 2002. We confirmed that a project plan had 
been completed at that time, but the project plan did not include all 
life cycle costs, such as Campaign costs and Readiness in Technical 
Base and Facilities costs. In this regard, DOE's project management 
manual defines life cycle costs as being the sum total of the direct, 
indirect, recurring, nonrecurring, and other related costs incurred or 
estimated to be incurred in the design, development, production, 
operation, maintenance, support, and final disposition of a project.

Conversely, an assessment of the W-76 refurbishment indicates that the 
project plan for that refurbishment is 3 years late and also does not 
include all life cycle costs. According to NNSA documentation, the W-76 
reached the end of phase 6.2A in March 2000. As of July 2003, a final 
project plan had not yet been completed. The W-76 project manager told 
us that he has been using a working draft of a project plan dated 
August 2001. He indicated that he did not finalize the project plan 
because the Life Extension Program Management Plan published in June 
2001 had yet to be issued as a formal requirement. With the reissuance 
of the management plan as a requirement in January 2003, an NNSA 
official said that a finalized project plan should be completed by the 
end of fiscal year 2003.

Likewise, an assessment of the W-80 refurbishment indicates that the 
project plan for that refurbishment is more than 2 years late and also 
does not include all life cycle costs. According to NNSA documentation, 
the W-80 reached the end of phase 6.2A in October 2000. As of July 
2003, a complete project plan had not been prepared. According to the 
W-80 program manager, the refurbishment does not yet have an integrated 
project schedule as described in the Life Extension Program Management 
Plan. The W-80 program manager said that a finalized project plan with 
this integrated schedule, which shows all tasks associated with the 
refurbishment as well as all linkages, should be completed by mid-to-
late summer 2003. The W-80 program manager added that this integrated 
schedule was not completed earlier because of personnel changes on this 
refurbishment.

NNSA Does Not Yet Have an Adequate Management Structure that Fixes 
Roles, Responsibilities, and Authority for Each Life Extension:

DOE's portfolio of projects demands a sophisticated and adaptive 
management structure that can manage project risks systematically; 
control cost, schedule, and scope baselines; develop personnel and 
other resources; and transfer new technologies and practices 
efficiently from one project to another, even across program lines. 
With respect to the Stockpile Life Extension Program, NNSA does not 
have an adequate management structure which ensures rigor and 
discipline, fixes roles, responsibilities, and authority for each life 
extension, or develops key personnel. Specifically, NNSA has not (1) 
defined the life extensions as projects and managed them accordingly, 
(2) clearly defined the roles and responsibilities of those officials 
associated with the Stockpile Life Extension Program, (3) provided 
program managers with sufficient authority to carry out the 
refurbishments, or (4) given program and deputy program managers proper 
project/program management training.

DOE projects commonly overrun their budgets and schedules, leading to 
pressures for cutbacks that have resulted in facilities that do not 
function as intended, projects that are abandoned before they are 
completed, or facilities that have been delayed so long that, upon 
completion, they no longer serve any purpose.[Footnote 9] The 
fundamental deficiency for these problems has been a DOE organization 
and culture that has failed to embrace the principles of good project 
management. The same can be said for NNSA's view of the individual life 
extension refurbishments. Specifically, NNSA has not established that 
the individual refurbishments are projects and managed them 
accordingly.

According to the DOE directive, a project is a unique effort that, 
among other things, supports a program mission and has defined start 
and end points. Examples of projects given in the DOE directive include 
planning and execution of construction, renovation, and modification; 
environmental restoration; decontamination and decommissioning 
efforts; information technology; and large capital equipment or 
technology development activities. To the extent that an effort is a 
project, the DOE directive dictates that the project must follow a 
structured acquisition process that employs a cascaded set of 
requirements, direction, guidance, and practices. This information 
helps ensure that the project is completed on schedule, within budget, 
and is fully capable of meeting mission performance and environmental, 
safety, and health standards.

According to the Deputy Assistant Administrator for Military 
Application and Stockpile Operations, the individual life extension 
refurbishments are projects but have not been officially declared so. 
This official indicated that the primary reason for the lack of such a 
declaration is an organizational culture, including those working at 
NNSA laboratories, which often does not grasp the benefits of good 
project management. This official also said that the organization is 
moving in the direction of embracing project management but is doing so 
at an extremely slow pace.

If NNSA declared the individual life extension refurbishments to be 
projects, many useful project management tools would become available 
to the NNSA program mangers who are overseeing the refurbishments. 
Those tools include, for example, conducting an independent cost 
estimate, which is a "bottom-up" documented, independent cost estimate 
that has the express purpose of serving as an analytical tool to 
validate, cross-check, or analyze cost estimates developed by the 
sponsors of the project. Another tool is the use of earned value 
reporting, which is a method for measuring project performance. Earned 
value compares the amount of work that was planned at a particular cost 
with what was actually accomplished within that cost to determine if 
the project will be completed within cost and schedule estimates. A 
further tool is the reporting of project status on all projects costing 
over $20 million to senior DOE and NNSA management using DOE's Project 
Analysis Reporting System. NNSA refurbishment program managers with 
whom we spoke indicated that management of the refurbishments would be 
improved if tools such as independent cost estimates and earned value 
reporting were used.

With respect to roles and responsibilities, clearly defining a 
project's organizational structure up front is critical to the 
project's success. In a traditional project management environment, the 
project manager is the key player in getting the project completed 
successfully. But other members of the organization also play important 
roles, and those roles must be clearly understood to avoid redundancy, 
miscommunication, and disharmony. With respect to the Stockpile Life 
Extension Program, NNSA has yet to clearly define the roles and 
responsibilities of all parties associated with the program.

NNSA's Life Extension Program Management Plan dated June 2001 was the 
controlling document for defining refurbishment roles and 
responsibilities from its issuance through calendar year 2002. Our 
review of that plan, however, found a lack of clarity regarding who 
should be doing what. For instance, the plan is unclear on which NNSA 
office is responsible for each phase of the 6.X process. Illustrating 
that point, refurbishment program managers with whom we spoke generally 
said there is confusion as to which NNSA office--either the Office of 
Research, Development, and Simulation or the Office of Military 
Application and Stockpile Operations--has the primary responsibility 
when the refurbishment moves to phase 6.3 (development engineering) of 
the 6.X process. In addition, according to the plan, the program 
manager and deputy program manager have identical responsibilities. The 
plan states that the program manager and deputy program manager shall 
discuss significant aspects of the refurbishment with each other and 
should reach consensus concerning important aspects of the scope, 
schedule, and cost. The plan further states that absent consensus on an 
issue, the program manager may decide; however, any unresolved 
conflicts between the two can be addressed to senior management for 
resolution. Further, the plan is silent on the roles and 
responsibilities of the NNSA program and deputy program managers versus 
the project manager at a laboratory or at a production plant site. What 
actions the laboratory or plant project managers can take on their own, 
without NNSA review and concurrence, are not specified in the plan. 
Instead, the plan simply states that laboratory and plant project 
managers provide overall management of life extension refurbishment 
activities at their facilities.

In January 2003, NNSA reissued the Life Extension Program Management 
plan after making only minor changes to the document. The reissued 
management plan indicates that the program manager's role will 
transition from the NNSA Office of Research, Development, and 
Simulation to the NNSA Office of Military Application and Stockpile 
Operations during phase 6.3. However, the reissued plan does not 
specify when, during phase 6.3, this transition will occur. In 
addition, the reissued plan does not further clarify the roles and 
responsibilities between the program and deputy program managers and 
the project manager at a laboratory or at a production plant site.

In addition to clear roles and responsibilities, project managers must 
have the authority to see the project through. Regarding project 
management, authority is defined as the power given to a person in an 
organization to use resources to reach an objective and to exercise 
discipline. NNSA's lessons learned report on the W-87 refurbishment 
noted that there was an air of confusion in resolving issues at the 
Kansas City plant because project leaders were not formally assigned 
and provided with the tools (authority, visibility, and ownership) 
necessary to properly manage the effort.[Footnote 10] Our report on the 
W-87 refurbishment prepared in calendar year 2000 found similar 
problems regarding the lack of authority.[Footnote 11] With respect to 
the Stockpile Life Extension Program, NNSA has still not yet given the 
program managers the authority to properly manage the refurbishments.

Five of the six program or deputy program managers associated with the 
B-61, W-76, and W-80 refurbishments believed they had not been given 
the authority to properly carry out the refurbishments.[Footnote 12] 
For instance, one program manager said he has neither the control nor 
the authority associated with his refurbishment. He added that the 
program managers ought to be given the authority so that the 
laboratories report directly to them. As the situation currently 
stands, the laboratories will go over the heads of the program manager 
to senior NNSA management to get things done the laboratories' way. 
According to a deputy program manager on another refurbishment, the 
program managers do not have enough authority and should have control 
of the refurbishments' budgets. He elaborated by explaining how one 
laboratory unilaterally decided to take funds away from one 
refurbishment and give it to another without consulting with any of the 
program managers. In this deputy program manager's view, if funds need 
to be transferred from one refurbishment to another, then the 
laboratories should be required to get the concurrence of NNSA 
management. A program manager on another refurbishment stated that he 
does not have sufficient authority because he lacks control of the 
budget. He indicated that funds for his refurbishment are allocated to 
the various laboratory and plant sites, but he is not included in the 
review and concurrence loop if the sites want to transfer funds from 
one activity to another.

The Assistant Deputy Administrator for Military Application and 
Stockpile Operations said he recognized the program manager's concerns 
and has advocated giving the program managers greater authority. He 
also indicated that greater authority might eventually be granted. 
However, he explained that at the moment, the Office of Defense 
Programs is focused on a recently completed NNSA reorganization. After 
that matter is sufficiently addressed, greater authority for the 
program managers may result.

Turning to the issue of training, competent project management 
professionals are essential to successful projects. Other federal 
agencies and the private sector realized long ago that project 
management is a professional discipline that must be learned and 
practiced. To ensure that projects are well planned and properly 
executed, DOE created in 1995 a competency standard for project 
management personnel. According to this standard, it is applicable to 
all DOE project management personnel who are required to plan and 
execute projects in accordance with departmental directives regarding 
project management. The standard identifies four categories of 
competencies that all project management personnel must attain and 
states that attainment must be documented. The categories are (1) 
general technical, such as a knowledge of mechanical, electrical, and 
civil engineering theories, principles, and techniques; (2) regulatory, 
such as a knowledge of applicable DOE orders used to implement the 
department's project management system; (3) administrative, such as a 
knowledge of the project reporting and assessment system as outlined in 
DOE orders; and (4) management, assessment, and oversight, such as a 
knowledge of DOE's project management system management roles, 
responsibilities, authorities, and organizational options.

Of the six program and deputy program managers assigned to the W-76, B-
61, and W-80 refurbishments, NNSA records indicate that only one of the 
six (the program manager for the W-76) has achieved 100 percent 
attainment of the aforementioned standards. Regarding the other five, 
NNSA records indicate that the deputy program manager for the B-61 has 
achieved 30 percent attainment of the required competencies contained 
in the standard, while the remaining four are not enrolled under the 
qualification standards program. According to one of the three program 
managers with whom we spoke, the problems with the W-87 refurbishment 
were caused, in part, because the assigned program manager was not 
qualified to perform all required tasks. NNSA records confirm that that 
particular W-87 program manager was also not enrolled in the project 
management qualification program.

Whereas NNSA program managers are required to meet qualifications 
standards to discharge their assigned responsibilities, contractor 
project management personnel we contacted are not required to meet any 
project management standards. According to W-76, B-61, and W-80 
refurbishment project managers at the Sandia National Laboratories, 
Lawrence Livermore National Laboratory, and Los Alamos National 
Laboratory, their respective laboratories have no requirements that 
must be met before a person becomes a project manager, and none of the 
managers had attained project management certification through their 
previous work assignments and experiences. NNSA officials also 
acknowledge that neither DOE nor NNSA orders require contractor project 
management personnel to be properly trained and certified.

NNSA Does Not Have an Adequate Process for Overseeing Life Extension 
Program Costs and Schedules:

Effective oversight of project performance is dependent on the 
systematic and realistic reporting of project performance data. Senior 
management need such data to be able to detect potentially adverse 
trends in project progress and to decide when intervention is 
necessary. With respect to the Stockpile Life Extension Program, NNSA 
does not have an adequate process for reporting life extension changes 
and progress, despite the fact that cost growth and schedule slippage 
are occurring.

In July 2002, the Office of Defense Programs issued program review 
guidance to enable advance planning, provide consistency, set clearer 
expectations, and establish a baseline process on which to improve life 
extension, program reviews. Various review meeting formats were 
articulated including a full program review of each refurbishment to be 
conducted monthly on a rotating basis. The goals and objectives of the 
full program review were to inform management of project status, 
convince management that the refurbishment is well managed, gain 
management's assistance in resolving issues that require its 
involvement, and identify management decision points and obtain 
authority to execute risk mitigation plans.

Our review of the most recent program review reports prepared on the 
individual refurbishments showed that they contained limited 
information regarding cost growth and schedule changes against 
established baselines. These reports, which are prepared for senior 
NNSA management, show whether the respective refurbishment is on track 
to spend all fiscal year funding, but not whether the actual work 
completed has cost more or less than planned. For example:

* According to W-76 program review reports presented in November 2002 
and February 2003, the refurbishment was on track to spend all funding 
allocated for fiscal year 2003. In addition, the refurbishment was 
slightly behind schedule but manageable and within budget. On the other 
hand, the presentations gave no specifics on how much the refurbishment 
is behind schedule or how well the refurbishment was progressing 
against a life cycle cost baseline. Specifically, costs associated with 
certain procurements, Campaign costs, Readiness in Technical Base and 
Facilities costs, construction costs, and transportation costs which 
make up the life cycle costs of the refurbishment were not included. 
The presentations also showed that the refurbishment had not met at 
least two commitments during fiscal year 2002.

* According to the W-80 program review report presented in December 
2002, the refurbishment was on track to spend all funding allocated for 
fiscal year 2003. In addition, the refurbishment was within cost and 
within scope, but behind schedule. On the other hand, the report gave 
no specifics on how much the refurbishment was behind schedule or how 
well the refurbishment was progressing against a life cycle cost 
baseline. The presentation further mentioned that the refurbishment had 
high risks because, for instance, the Air Force was currently not 
funding certain work that must be performed in order to meet the 
established first production unit date of February 2006.

* As opposed to the above reports, the B-61 program review reports 
presented in January and March 2003 made no summary statements 
regarding the refurbishment's cost and schedule status against 
established baselines. The presentations also indicated that the 
refurbishment is on schedule to spend all funding allocated for fiscal 
year 2003. On the other hand, the presentations showed that the 
refurbishment has already not met several commitments for fiscal year 
2003, suggesting that the refurbishment may be behind schedule.

Absent the periodic reporting of specific cost growth and schedule 
information to senior NNSA management, we interviewed cognizant NNSA 
officials to document any cost growth and schedule changes associated 
with the individual refurbishments. These officials recognized that 
certain cost growth and schedule changes had occurred for each of the 
refurbishments. These officials added that cost growth and schedule 
changes are routinely discussed during meetings on the refurbishments.

According to the W-76 program manager, this refurbishment is slightly 
behind schedule. In particular, the W-76 did not conduct certain 
activities on schedule, such as deciding whether to reuse or 
remanufacture certain components, conduct a certain reactor test at Los 
Alamos National Laboratory, and construct certain facilities at the Y-
12 plant. The reasons why these activities were late varied. For 
instance, the decision to reuse or remanufacture certain components did 
not occur on schedule, according to the W-76 program manager, primarily 
because the NNSA person assigned to do the necessary calculations 
neglected to perform that task. Conversely, the reactor test at the Los 
Alamos National Laboratory did not occur on schedule because the 
laboratory unilaterally transferred funds from the W-76 refurbishment 
to the B-61. As to cost growth, the W-76 will need about $10.75 million 
in additional funding in fiscal year 2004. The funding is necessary to 
purchase certain commercial off-the-shelf parts that were previously 
not authorized or budgeted for.

According to NNSA field and Sandia National Laboratory officials, it is 
unlikely that the W-80 will meet its scheduled first production unit 
delivery date. Echoing those sentiments, according to the NNSA program 
manager, the W-80 was scheduled to enter phase 6.4 (production 
engineering) on October 1, 2002. Now, however, it is hoped that phase 
6.4 will commence in 2003. The NNSA program manager indicated that the 
W-80 has been impacted by a lack of funding for the refurbishment from 
the Air Force. This lack of funding, the NNSA program manager said, has 
occurred because of a disconnect in planning between the 6.X process 
and the Department of Defense budget cycle. The Air Force had made no 
plans to allocate money for the W-80 in either its fiscal year 2001 or 
2002 budgets. Therefore, several important joint NNSA and Air Force 
documents have not been completed. Certain ground and flight tests also 
lack funding and have been delayed. In addition, the W-80 will need an 
additional $8 million to $9 million in fiscal year 2003 to buy certain 
commercial off-the-shelf parts that had been planned but not budgeted 
for. According to the Air Force's Lead Program Officer on the W-80, the 
Air Force, because of an oversight, had no money for the W-80 in its 
fiscal years 2001 and 2002 budgets. As a result, he anticipated that 
the first production unit delivery date will need to be slipped. He 
also indicated that he was working on a lessons learned report due in 
early 2003 to document the situation with the W-80 and help ensure that 
a similar funding problem does not occur with future refurbishments. 
This Air Force official added that in December 2002 the Air Force 
finally received the funding necessary to support the W-80 
refurbishment. According to the NNSA director of the nuclear weapons 
stockpile, the W-80 will need to slip its first production unit date 
from February 2006 to April 2007. As a result, NNSA was rebaselining 
the W-80 refurbishment. As of July 2003, cost data submitted to NNSA 
headquarters from contractor laboratory and production site locations 
indicate that the cost to refurbish the W-80 may increase by about $288 
million. NNSA officials were in the process of determining whether this 
cost increase was due to schedule slippage or other factors, such as 
the sites underestimating costs in the past.

Finally, certain schedule slippage has already occurred for the B-61. 
According to NNSA's June 2001 Life Extension Program Management Plan, 
the original first production unit delivery date was September 2004. 
Now, according to the B-61 program manager, the new delivery date is 
June 2006. The program manager indicated that this change was made 
because NNSA determined that the September 2004 date was not 
attainable. As it is, the B-61 program manager said, the June 2006 date 
represents an acceleration of the phase 6.X process where activities 
within phases 6.3 (design definition and cost study) and 6.4 
(development engineering) will be conducted concurrently. Because of 
that, certain risks are involved. For instance, some design development 
will not be fully completed before production must be initiated to keep 
the refurbishment on schedule. The B-61 program manager indicated that 
the commencement date for phase 6.3 has already changed from August 
2002 to December 2002 because of the Air Force's lack of timely action 
in reviewing certain documentation. As to cost changes, a decision 
needs to be made regarding the production of a particular material. Two 
NNSA locations, which differ in cost, are being considered. If the 
location with the higher cost is selected, then an additional $10 
million will be needed in fiscal year 2004 and beyond.

To gauge the progress of the refurbishments within the Stockpile Life 
Extension Program, NNSA, like all federal agencies, uses performance 
measures. Performance measures, which are required by the Government 
Performance and Results Act of 1993, are helpful to senior agency 
management, the Congress, and the public. Performance measures inform 
senior agency management as to whether progress is being made toward 
accomplishing agency goals and objectives. They are also used by the 
Congress to allocate resources and determine appropriation levels. 
Performance measures are further used by American taxpayers as a means 
for deciding whether their tax funds are being well spent. 
Unfortunately, NNSA has not developed performance measures with 
sufficient specificity to determine the progress of the three 
refurbishments that we reviewed. As mentioned earlier, the agency's 
current accounting system does not provide an adequate link between 
cost and performance measures.

NNSA identifies performance measures for the W-80, B-61, and W-76 in 
three separate and distinct documents.[Footnote 13] One document is the 
narrative associated with NNSA's fiscal year 2004 budget request for 
the Directed Stockpile Work account. Another is the combined program 
and implementation plans for the stockpile maintenance program for 
fiscal years 2002 through 2008. A third is the Future Years Nuclear 
Security Plan. Performance measures used in these documents do not 
identify variance from cost baselines as a basis for evaluating 
performance.

Performance measures identified in NNSA's fiscal year 2004 budget 
request are general in nature and provide no details regarding cost 
performance. According to that budget request, for instance, a 
performance measure listed for the B-61, W-76, and W-80 is to complete 
100 percent of the major milestones scheduled for fiscal year 2004 to 
support the refurbishments' first production unit date. None of the 
performance measures listed in the budget request mention adherence to 
cost baselines.

Performance measures identified in the combined program and 
implementation plans for the Directed Stockpile Work maintenance 
program dated September 3, 2002, are equally minimal, vague, and 
nonspecific regarding refurbishment work. These plans identify 
performance measures at three levels--level 1, the Defense Program 
level, which is the highest level of actions/milestones/deliverables; 
level 2, which is the supporting level of actions/milestones/
deliverables on the path toward achieving level 1 measures; and level 
3, which is the site level of actions/milestones/deliverables on the 
site path toward achieving level 2 measures. According to these plans, 
there are no level 1 performance measures associated with the three 
refurbishments. For levels 2 and 3, the plans specify that the three 
refurbishments should meet all deliverables as identified in other NNSA 
documents. These plans, we noted, do not discuss adherence to cost 
baselines as a deliverable.

Performance measures identified in the Future Years Nuclear Security 
Plan are also vague and nonspecific. This plan describes performance 
targets that NNSA hopes to achieve in fiscal years 2003 through 2007, 
but the plan does not associate funding levels with those targets. Some 
of the performance targets apply to the Stockpile Life Extension 
Program in general or to particular refurbishments. Regarding the 
latter, for example, in fiscal year 2003, NNSA intends to commence 
production engineering work (phase 6.4) for the B-61, W-76, and W-80 
refurbishments, and to eliminate W-76, W-80, and W-87 surveillance 
backlogs. The plan, however, does not associate funding estimates with 
these performance targets.

According to the Assistant Deputy Administrator for Military 
Application and Stockpile Operations, the refurbishment performance 
measures contained in the three aforementioned documents are admittedly 
not very good. He indicated that the Office of Defense Programs is 
moving toward linking key performance measures to appropriate NNSA 
goals, strategies, and strategic indicators. The Assistant Deputy 
Administrator stated that he hoped that the performance measures for 
fiscal year 2005 would provide a better basis for evaluating the 
refurbishments' progress in adhering to cost baselines.

NNSA Has Various Actions Underway to Fix Its Management Problems:

While NNSA management problems are many and long-standing, so too have 
been NNSA attempts to effect improvement. NNSA has repeatedly studied 
and analyzed ways to ensure that mistakes made in the past regarding 
the safety of nuclear weapons, the security of nuclear facilities, and 
the protection of nuclear secrets are not repeated in the future. 
Accordingly, NNSA has various actions underway to fix its management 
problems.

Foremost of those actions has been the December 2002 completion of a 
reorganizational transformation campaign. In announcing this 
reorganization, the NNSA administrator said the reorganization follows 
the principles outlined in the President's Management Agenda, which 
strives to improve government through performance and results. The new 
reorganization will reportedly streamline NNSA by eliminating one layer 
of management at the field office level. It will also improve 
organizational discipline and efficiency by requiring that each element 
of the NNSA workforce will become ISO 9001 certified by December 31, 
2004. ISO 9001 is a quality management standard that has been 
recognized around the world. The standard applies to all aspects 
necessary to create a quality work environment, including establishing 
a quality system, providing quality personnel, and monitoring and 
measuring quality.

In concert with NNSA's overall reorganization has been the creation of 
a program integration office in August 2002. This new office will be 
working to create better coordination and cooperation between NNSA 
Office of Defense Program elements. The new office is composed of three 
divisions: one that will be performing strategic planning and studies; 
one that will be looking at the strategic infrastructure; and one that 
will be doing planning, budgeting, and integration work. The 
implementation plan for this new office, as of July 2003, had not yet 
been approved and disseminated because of a major personnel downsizing 
that is underway.

Nonetheless, this new office has already embarked on various 
initiatives. One initiative is to decide on a cost baseline for the 
Stockpile Life Extension Program. According to the Director of Defense 
Programs' Office of Planning, Budgeting and Integration, a completion 
date for this work has not yet been set. A second initiative is to 
develop an integrated master schedule for the Stockpile Life Extension 
Program that will help identify and resolve schedule and resource 
conflicts. The director indicated that such a schedule should be 
available at the end of calendar year 2003. A third initiative is to 
develop consistent criteria for reporting schedule activities and 
critical milestones. The director indicated that without such criteria 
there is no assurance that consistent information is being reported on 
the individual refurbishments. The director indicated that these 
criteria would be developed during the summer of 2003.

Of no less importance to the organizational changes, NNSA has 
implemented an overall planning, programming, budgeting, and evaluation 
process. The goal of this process is to obtain and provide the best mix 
of resources needed to meet national nuclear security objectives within 
fiscal restraints. Through planning, the process will examine 
alternative strategies, analyze changing conditions and trends, 
identify risk scenarios, assess plausible future states, define 
strategic requirements, and gain an understanding of the long-term 
implications of current choices. Through programming, the process will 
evaluate competing priorities and mission needs, analyze alternatives 
and trade-offs, and allocate the resources needed to execute the 
strategies. Through budgeting, the process will convert program 
decisions on dollars into multiyear budgets that further refine the 
cost of the approved 5-year program. Through evaluation, the process 
will apply resources to achieve program objectives and adjust 
requirements, based on feedback. This process was partially rolled out 
for the fiscal year 2004 budget cycle, with full implementation 
scheduled for fiscal year 2005.

A separate effort has been the establishment of a project/program 
management reengineering team in August 2002. According to the team's 
charter, NNSA does not manage all its programs effectively and 
efficiently. Therefore, the mission of this team was to develop a 
program management system, including policies, guides, procedures, 
roles, responsibilities, and definitions that would enable NNSA to 
achieve excellence in program management. The observations of the team, 
as of September 2002, were that the state of health of the NNSA program 
management processes is very poor, and this condition significantly 
affects the ability of NNSA to achieve its missions effectively and 
efficiently. In the words of the team, many essential elements of an 
effective program management system do not exist. Examples given 
included no documented roles and responsibilities and no documented 
overarching process for program management. According to the team 
leader, an implementation plan to improve NNSA program management was 
submitted to the administrator for approval in October 2002. As of July 
2003, the implementation plan had not been approved. According to the 
Director of Defense Programs' Office of Program Integration, no action 
has been taken on this implementation plan while NNSA has been 
addressing its recent reorganization. It is now hoped, according to 
this official, that project/program improvement actions can be 
identified and implemented by the start of fiscal year 2004.

Conclusions:

Extending the life of the weapons in our nation's nuclear stockpile 
represents one of the major challenges facing NNSA. It will demand a 
budget of hundreds of millions of dollars annually for the next decade. 
Considerable coordination between the design laboratories and the 
production facilities will be necessary as the four life extensions 
compete for scarce resources. Where conflicts occur, trade-offs will be 
required--trade-offs that must be made by federal managers, 
contractors, and, ultimately, the Congress. All of these things cannot 
occur without sound budgeting. Likewise, all parties involved in the 
oversight of the Stockpile Life Extension Program must be able to 
determine the true cost to complete the life extensions throughout the 
refurbishment process, identify cost overruns as they develop, and 
decide when intervention in those cost overruns is necessary. This 
cannot occur without sound cost accounting. Finally, the life 
extensions must be properly managed because the consequences of less 
than proper management are too great. Those consequences, as seen on 
the W-87 life extension, include potential cost overruns in the 
hundreds of millions of dollars and refurbishment completion occurring 
beyond the dates required for national security purposes. To avoid 
these consequences, the life extensions must have adequate planning; a 
clear leadership structure which fixes roles, responsibilities, and 
authority for each life extension; and an adequate oversight process. 
While NNSA has begun to put in place some improved budgeting and 
management processes, additional action is necessary if it is to 
achieve the goal of a safe and reliable stockpile that is refurbished 
on cost and on schedule.

Recommendations for Executive Action:

To improve the budgeting associated with the Stockpile Life Extension 
Program, we recommend that the Secretary of Energy direct the NNSA 
Administrator to:

* include NNSA's stockpile life extension effort as a formal and 
distinct program in its budget submission and present, as part of its 
budget request, a clear picture of the full costs associated with this 
program and its individual refurbishments by including the 
refurbishment-related costs from Campaigns, Readiness in Technical Base 
and Facilities, and multiple system work, and:

* validate the budget request in accordance with DOE directives.

To improve cost accounting associated with the Stockpile Life Extension 
Program, we recommend that the Secretary of Energy direct the NNSA 
Administrator to:

* establish a managerial cost accounting process that accumulates, 
tracks, and reports the full costs associated with each individual 
refurbishment, including the refurbishment-related costs from 
Campaigns, Readiness in Technical Base and Facilities, and multiple 
system work.

To improve the management of the Stockpile Life Extension Program, we 
recommend that the Secretary of Energy direct the NNSA Administrator 
to:

With respect to planning:

* finalize the Office of Defense Programs' integrated program plan and, 
within that plan, rank the Stockpile Life Extension Program against all 
other defense program priorities, establish the relative priority among 
the individual life extension refurbishments, and disseminate the 
ranking across the nuclear weapons complex so that those within that 
complex know the priority of the refurbishment work;

* develop a formalized process for identifying resource and schedule 
conflicts between the individual life extension efforts and resolve 
those conflicts in a timely and systematic manner; and:

* finalize individual refurbishment project plans.

With respect to management structure:

* establish the individual refurbishments as projects and manage them 
according to DOE project management requirements;

* clearly define the roles and responsibilities of all parties 
associated with the Stockpile Life Extension Program;

* provide the life extension program managers with the authority and 
visibility within the NNSA organization to properly manage the 
refurbishments; and:

* require that life extension program managers and others involved in 
management activities receive proper project/program management 
training and qualification.

With respect to oversight of cost and schedule:

* institute a formal process for periodically tracking and reporting 
individual refurbishment cost, schedule, and scope changes against 
established baselines, and:

* develop performance measures with sufficient specificity to determine 
program progress.

Agency Comments:

We provided NNSA with a draft of this report for review and comment. 
Overall, NNSA stated that it recognized the need to change the way the 
Stockpile Life Extension Program was managed and that it generally 
agreed with the report's recommendations. For instance, NNSA stated 
that it had independently identified many of the same concerns, and, 
over the past 12 months, had made significant progress in implementing 
plans, programs, and processes to improve program management. NNSA 
indicated that full implementation of our management and budgeting 
recommendations will take several years; however, NNSA is committed to 
meeting these objectives. NNSA also provided some technical comments 
which it believed pointed out factual inaccuracies. We have modified 
our report, where appropriate, to reflect NNSA's comments. NNSA's 
comments on our draft report are presented in appendix I.

Scope and Methodology:

We performed our work at DOE's and NNSA's headquarters and Sandia 
National Laboratories, Los Alamos National Laboratory, and the Kansas 
City plant from July 2002 through July 2003 in accordance with 
generally accepted government auditing standards. To determine the 
extent to which the Stockpile Life Extension Program's budget requests 
for fiscal years 2003 and 2004 were comprehensive and reliable, we 
reviewed those requests as well as NNSA supporting documentation, such 
as guidance issued to develop those requests, information related to 
NNSA's planning, programming, budgeting, and evaluation process, and 
budget validation reports. We also discussed those budget requests with 
DOE and NNSA budget officials and an official with the Office of 
Management and Budget. To determine the extent to which NNSA has a 
system for accumulating, tracking, and reporting program costs, we 
identified how cost data is tracked in DOE's information systems and in 
selected contractors' systems by interviewing key DOE, NNSA, and 
contractor officials responsible for the overall Stockpile Life 
Extension Program and the individual refurbishments and by reviewing 
pertinent documents. We also identified how DOE and NNSA ensure the 
quality and comparability of cost and performance data received from 
contractors by interviewing DOE and NNSA officials, DOE Office of 
Inspector General officials, and selected contractors' internal 
auditors, and by reviewing pertinent documents including previously 
issued GAO and DOE Office of Inspector General reports. To determine 
the extent to which other management problems related to the Stockpile 
Life Extension Program exist at NNSA, we reviewed pertinent NNSA 
documentation, such as NNSA's Strategic Plan, the Office of Defense 
Programs' draft integrated plan, the Life Extension Program Management 
Plan, and project plans and variance reports required by the Life 
Extension Program Management Plan for the B-61, W-76, and W-80 
refurbishments. We also interviewed key DOE, NNSA, and contractor 
officials involved with the Stockpile Life Extension Program, and, in 
particular, the program and deputy program managers of the B-61, W-76, 
and W-80 refurbishments. Finally, we attended the NNSA quarterly 
program review meetings on each of the refurbishments.

Signed by:

As arranged with your office, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 10 days 
after the date of this letter. At that time, we will send copies of the 
report to the Secretary of Energy, 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.

Robin M. Nazzaro 
Director, Natural Resources and Environment:

Signed by Robin M. Nazzaro: 

List of Congressional Requesters:

The Honorable David L. Hobson 
Chairman, 
Energy and Water Development Subcommittee 
House Committee on Appropriations:

The Honorable Peter J. Visclosky 
Ranking Minority Member, 
Energy and Water Development Subcommittee 
House Committee on Appropriations:

The Honorable Terry Everett 
Chairman, 
Subcommittee on Strategic Forces 
House Committee on Armed Services:

The Honorable Silvestre Reyes 
Ranking Minority Member, 
Subcommittee on Strategic Forces 
House Committee on Armed Services:

[End of section]

Appendixes:

Appendix I: Comments from the National Nuclear Security 
Administration:

National Nuclear Security Administration:

Department of Energy:

National Nuclear Security Administration Washington, DC 20585:

JUL 17 2003:

Ms. Robin M. Nazzaro Director, Natural Resources and Environment:

U.S. General Accounting Office Washington, D.C. 20548:

Dear Ms. Nazzaro:

The General Accounting Office's (GAO) draft report GAO-02-583, "NUCLEAR 
WEAPONS: Opportunities Exist to Improve the Budgeting, Cost Accounting, 
and Management Associated with the Stockpile Life Extension Program," 
has been reviewed by the National Nuclear Security Administration 
(NNSA). We understand that the Armed Services and Appropriations 
Committees of the House asked the GAO to determine (1) how well NNSA's 
budget identifies Life Extension Program costs; and, (2) the mechanisms 
in place to both manage and accumulate costs for the Life Extension 
Program.

NNSA has recognized the need to change the way the Life Extension 
Program is managed, and we generally agree with the report's 
recommendations. NNSA had independently identified many of the same 
concerns, and over the past 12 months the agency has made significant 
progress in implementing plans, programs and processes to improve 
program management. The improvements suggested by the GAO in management 
of the weapon refurbishment activities are already underway; for 
example, NNSA is re-engineering in Headquarters and the field elements, 
by formalizing the roles and responsibilities and training of all NNSA 
program managers, and by implementation of PPBE as the core operating 
concept for NNSA. The PPBE requirements for Planning, Programming, 
Budgeting and Evaluation encompass essentially all of the GAO's 
recommendations.

The improvements in budgeting will begin in FY 2005 by: restructuring 
the Directed Stockpile Work activities to a system-by-system 
orientation; re-evaluating the content of the Campaigns to realign 
direct weapons work if necessary; and by implementing a budget and 
reporting (B&R) structure for accounting based on individual weapon 
systems. Also, Life cycle costs are now formalized through Selected 
Acquisition Reports, modeled after the DOD Selected Acquisition Report, 
subject to change control, annual review, and validation. Full 
implementation of GAO's management and budgeting recommendations will 
take several years but NNSA is committed to meeting these objectives.

I have enclosed technical comments to this letter which point out some 
factual inaccuracies, erroneous conclusions, and provide additional 
general comments. Should you have any questions, please contact Richard 
Speidel, Director, Policy and Internal Controls Management, at 202-586-
5009.

Sincerely,

Michael C. Kane:

Associate Administrator for Management and Administration:

Signed by Michael C. Kane:

Enclosure:

[End of section]

Appendix II: GAO Contact and Staff Acknowledgments:

GAO Contact:

James Noel (202) 512-3591:

Acknowledgments:

In addition to the individual named above, Sally Thompson, Mark 
Connelly, Mike LaForge, Tram Le, Barbara House, and Stephanie Chen from 
our Financial Management and Assurance mission team and Robert Baney, 
Josephine Ballenger, and Delores Parrett from our Natural Resources and 
Environment mission team were key contributors to this report.

(360195):

FOOTNOTES

[1] Though NNSA is a separately organized agency within DOE, NNSA 
Policy Letter NAP-1, dated May 21, 2002, stipulates that DOE directives 
are applicable to NNSA unless or until a NNSA policy letter is 
provided.

[2] Nuclear Weapons: Improved Management Needed to Implement Stockpile 
Stewardship Program Effectively, GAO-01-48 (Washington, D.C.: Dec. 14, 
2000).

[3] Currently, the U.S. nuclear weapons stockpile consists of nine 
types of bombs and missile warheads, numbering several thousand 
devices, which are either stored at strategic military locations or 
deployed on military aircraft, missiles, or submarines.

[4] The primary is the fission stage of a nuclear weapon. Detonation of 
the primary produces the extremely high temperatures and pressures 
required to produce fusion in the weapon's secondary.

[5] A pit is the initial, subcritical assembly of fissile material in a 
nuclear weapon. In such an assembly, a fission chain reaction can be 
sustained only by the addition of neutrons from an independent source.

[6] Nuclear Weapon Acquisition Reports are intended to provide a 
comprehensive look at program progress by providing information on past 
performance, anticipated changes, and variances from planned cost, 
schedule, and performance estimates from program inception to 
completion, regardless of the program's stage of development. In our 
report, NNSA: Nuclear Weapon Reports Need to Be More Detailed and 
Comprehensive, GAO-02-889R (Washington, D.C.: July 3, 2002), we 
commented on the adequacy of these reports.

[7] DOE has defined its goals according to four mission areas, which 
are Energy, Defense, Science, and Management.

[8] Preliminary Lessons Learned Report for the W-87 Life Extension 
Program, Sept. 23, 2001.

[9] Improving Project Management in the Department of Energy, National 
Research Council, 1999.

[10] Preliminary Lessons Learned Report for the W-87 Life Extension 
Program, Sept. 23, 2001.

[11] Nuclear Weapons: Improved Management Needed to Implement Stockpile 
Stewardship Program Effectively, GAO-01-48 (Washington, D.C.: Dec. 14, 
2000).

[12] The sixth individual, a deputy program manager on one of the 
refurbishments, was not available to us for discussions due to an 
illness.

[13] NNSA also prepares a Selected Acquisition Report on an annual 
basis on each of the refurbishments, but these reports do not contain 
performance measures.

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General Accounting Office, 441 G Street NW, Room 7149 Washington, D.C.

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