2

DOE's Construction Program and Procedures

BACKGROUND

Funding for large scale, complex construction projects has historically been a major element of DOE's budget. In 1942, President Roosevelt authorized an initial expenditure of $500 million for the construction of plants to produce the materials necessary to manufacture an atomic bomb. By the end of World War II, the U.S. Army Corps of Engineers Manhattan District had spent approximately $2.2 billion on facilities associated with the development of the bomb. The enormous buildup of facilities involved with the research, development, and deployment of nuclear weapons continued throughout the Cold War. In response to urgent needs that could only be met by unproven technology, projects were approved with little regard for scope or expense.

DOE, which was established in 1977, fostered scientific discovery and required extensive facilities to fulfill the various objectives of its mission. With its core mission of developing and producing nuclear weapons, supplemented by objectives of research and development in energy-related science, the agency received overwhelming support for its programs and for the construction of associated facilities. The agency's mission has continued to expand into technically complex areas, such as the civilian and military uses of nuclear energy and the environmental remediation of the weapons complex.

NATIONAL LABORATORIES

A cornerstone of DOE's research and development programs has been the national laboratory system. The laboratories originally focused exclusively on the development of nuclear weapons, but as the need for these complex weapon systems has waned, they have increasingly branched out to other activities related to environmental remediation, commercial energy, and other research. The national laboratories, with varying management organizations and cultures, have traditionally operated in an independent and decentralized manner. This is largely due to security concerns and the demands placed upon them to deliver extremely complex systems for highly specific functions within definitive time frames. Cost was seldom a major constraint for their projects; and this philosophy has endured despite significant changes in the world.



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OCR for page 11
About this PDF file: This new digital representation of the original work has been recomposed from XML files created from the original paper book, not from the original typesetting files. Page breaks are true to the original; line lengths, word breaks, heading styles, and other typesetting-specific formatting, however, cannot be retained, and some typographic errors may have been accidentally inserted. Please DOE'S CONSTRUCTION PROGRAM AND PROCEDURES 11 2 DOE's Construction Program and Procedures BACKGROUND Funding for large scale, complex construction projects has historically been a major element of DOE's budget. In 1942, President Roosevelt authorized an initial expenditure of $500 million for the construction of plants to produce the materials necessary to manufacture an atomic bomb. By the end of World War II, the U.S. Army Corps of Engineers Manhattan District had spent approximately $2.2 billion on facilities associated with the development of the bomb. The enormous buildup of facilities involved with the research, development, and deployment of nuclear weapons continued throughout the Cold War. In response to urgent needs that could only be met by unproven technology, projects were approved with little regard for scope or expense. DOE, which was established in 1977, fostered scientific discovery and required extensive facilities to fulfill the various objectives of its mission. With its core mission of developing and producing nuclear weapons, supplemented by objectives of research and development in energy-related science, the agency received overwhelming support for its programs and for the construction of associated facilities. The agency's mission has continued to expand into technically complex areas, such as the civilian and military uses of nuclear energy and the environmental remediation of the weapons complex. NATIONAL LABORATORIES A cornerstone of DOE's research and development programs has been the national laboratory system. The laboratories originally focused exclusively on the development of nuclear weapons, but as the need for these complex weapon systems has waned, they have increasingly branched out to other activities related to environmental remediation, commercial energy, and other research. The national laboratories, with varying management organizations and cultures, have traditionally operated in an independent and decentralized manner. This is largely due to security concerns and the demands placed upon them to deliver extremely complex systems for highly specific functions within definitive time frames. Cost was seldom a major constraint for their use the print version of this publication as the authoritative version for attribution. projects; and this philosophy has endured despite significant changes in the world.

OCR for page 11
About this PDF file: This new digital representation of the original work has been recomposed from XML files created from the original paper book, not from the original typesetting files. Page breaks are true to the original; line lengths, word breaks, heading styles, and other typesetting-specific formatting, however, cannot be retained, and some typographic errors may have been accidentally inserted. Please DOE'S CONSTRUCTION PROGRAM AND PROCEDURES 12 The laboratories, through DOE, continue to design and construct facilities that are world class and essentially one-of-a-kind. DOE science programs in high energy physics, for example, require specialized facilities that carry with them a considerable amount of risk that the facility may not actually function as intended and designed. Projects such as the Continuous Electron Beam Accelerator Facility (at a cost of more than $500 million) and the Advanced Photon Source Project (at a cost of more than $800 million) are typical research facilities that appear as line items in the DOE budget. The overall complexity of these facilities makes them difficult to plan, design, and construct. CONTRACTING PRACTICES Because of DOE's heavy reliance on management and operating (M&O) contractors to operate government facilities, DOE manages its capital acquisition and operational program somewhat differently from other federal agencies. The precedent of using M&O contractors was established by the Manhattan Project during World War II and continued by the Atomic Energy Commission, and the practice continues today. Even the national laboratories are operated under the M&O concept although a university, as opposed to a private firm, may be the prime contractor. Until recently, these contracts were largely cost reimbursable, and the same contractor was often used for an extended period of time. Although this system may have provided advantages for producing weapons in wartime, it may not be the most cost effective method for the delivery of constructed facilities today. In many cases, the responsibilities of DOE personnel and the M&O contractor have become intertwined and blurred over time. This problem has been compounded by the relatively small number of DOE personnel available to manage large contractor operations. Although the DOE/contractor relationship and the propriety of its organization are not within the scope of this study, M&O contractors (and their subcontractors) have largely been responsible for developing the budgetary data for DOE construction. DOE personnel serve mainly in an oversight capacity. This raises a serious question about whether the present acquisition system provides DOE managers with sufficient management and review capability and accountability to ensure that budget requests are realistic in terms of scope, costs, and schedules. PROJECT ACQUISITION For the purposes of this discussion, DOE projects were divided into four categories: strategic systems; major systems; general plant projects; and other use the print version of this publication as the authoritative version for attribution.

OCR for page 11
About this PDF file: This new digital representation of the original work has been recomposed from XML files created from the original paper book, not from the original typesetting files. Page breaks are true to the original; line lengths, word breaks, heading styles, and other typesetting-specific formatting, however, cannot be retained, and some typographic errors may have been accidentally inserted. Please DOE'S CONSTRUCTION PROGRAM AND PROCEDURES 13 projects. Strategic systems are acquisitions for which the total project cost (TPC)2 exceeds $400 million. Major systems are acquisitions for which TPCs range from $100 million to $400 million. General plant projects (GPPs) have TPCs of less than $5 million. Other projects include all other line item projects for which TPCs are between $2 million and $100 million. The process that has been established for planning and constructing major fixed-asset projects has four phases: preconceptual; conceptual; execution; and close out. The preconceptual phase includes activities that take place prior to the formal definition of a project. Preconceptual activities include the identification of an idea and a preliminary evaluation of its feasibility and document the need for the project. Costs in the preconceptual phase do not accrue to the TPC. The conceptual phase defines the technical criteria and project configuration and identifies the specific resources necessary to accomplish the objectives of the project. In this phase of the project, a conceptual design report and project execution plan are prepared. These documents are the foundation for the scope, cost, and schedule baselines. Costs for the conceptual phase of the project are included in the TPC. The execution phase includes design and construction of the facility and the transition to operations (start-up and acceptance). A close out decision may be made at any time during the life of the project and may entail the termination of an incomplete project, the retirement of a facility at the end of its useful life, or, usually, after the project is completed and has been turned over for operations. These phases and their related decision sequence are shown in Figure 2-1. Figure 2-1. Construction project phases and critical decisions use the print version of this publication as the authoritative version for attribution. 2Total project cost (TPC) includes all costs specific to a project incurred prior to the start-up of operations, including research and development, operating, plant, and capital equipment costs. The TPC includes the total estimated cost. Total estimated cost (TEC) is an estimate of the total cost of a task, demonstration, or program. The TEC differs from a planning estimate in that it is based on definitive information regarding technical scope, contracting methods, schedule, and resource requirements. It is closely related to actual construction cost.

OCR for page 11
About this PDF file: This new digital representation of the original work has been recomposed from XML files created from the original paper book, not from the original typesetting files. Page breaks are true to the original; line lengths, word breaks, heading styles, and other typesetting-specific formatting, however, cannot be retained, and some typographic errors may have been accidentally inserted. Please DOE'S CONSTRUCTION PROGRAM AND PROCEDURES 14 Activities related to the project management of environmental restoration are organized into three phases: the assessment/remedial investigation/feasibility study (RIFS); remediation/cleanup; and close out. Environmental restoration projects are subject to regulatory or other legally binding requirements and decision- making processes. Critical decisions for environmental restoration projects are appropriately integrated with legally binding requirements. PRIVATIZATION A subset of projects in the environmental management category is classified as privatization projects. In the FY98 budget request, there are 12 privatization projects, the largest of which is the Hanford Tank Waste Treatment project, a mammoth and challenging undertaking. The term privatization in the case of DOE projects is not consistent with the traditional use of the term because the government retains ownership of the facility and is still accountable to regulating bodies and laws. Nevertheless, the privatization concept is very different from the cost-reimbursement contracts that have traditionally been used for environmental restoration and waste management projects. The privatization concept involves competitively bid fixed-price contracts, performance specifications, and delayed reimbursements based on the satisfactory cleanup of unit quantities. The disadvantage of the traditional cost-reimbursement contracts for environmental restoration is that they provide little incentive, if any, for controlling costs or introducing competing technologies (although DOE is experimenting with alternative contract forms that do not require DOE, as the owner, to assume the full risk and do not require the contractor to include the full risk in a fixed price). The more recent M&O contracts awarded by DOE contain incentive and penalty features that are designed to share the risks and rewards between DOE and its contractors. The advantage of cost-reimbursement contracts is that risk costs are not introduced into the bid price. The success of a fixed- price contract is largely dependent on a project having a precise scope and definitive specifications. If the specifications are imprecise or incomplete, the fixed price is subject to renegotiation. Performance specifications may be used, and may even be preferable to definitive specifications, if the goal is a condition that is reasonably attainable by the current state-of-the-art technology. Performance specifications may even push the state of the art somewhat. Privatization is being proposed at several DOE sites. A perceived benefit of the privatization approach is that it could encourage the development of competing technologies for solving environmental problems. At first glance, this competition should produce cost savings. If it is properly conceived and administered, and the risks are understood, it could become a meaningful use the print version of this publication as the authoritative version for attribution.

OCR for page 11
About this PDF file: This new digital representation of the original work has been recomposed from XML files created from the original paper book, not from the original typesetting files. Page breaks are true to the original; line lengths, word breaks, heading styles, and other typesetting-specific formatting, however, cannot be retained, and some typographic errors may have been accidentally inserted. Please DOE'S CONSTRUCTION PROGRAM AND PROCEDURES 15 contracting approach. It remains to be seen, however, if the savings will be realized because competitors will include the cost of added risk and the opportunity cost of money in their unit prices. Estimated cost savings from privatization contracts are still mostly conjectural. Even under the best of circumstances, environmental restoration projects involve some uncertainties and unsuccessful approaches and cost overruns can easily occur. Privatization projects warrant sizable up-front investments in project and contract definitions. An independent review of privatization projects could ensure that the acquisition and funding strategies are appropriate, that the Requests for Proposals (RFPs) and subsequent contract documents are properly constituted, that the risks are fairly distributed for the technology involved, that contractors proposals are responsive to the RFP, that the DOE management team is properly configured and staffed, and that proposed solutions are viable. Independent reviews could also assess whether potential contingencies have been recognized and whether a system for promptly resolving disputes is in place. From the standpoint of quality assurance, independent reviews of the RFP, the contractor's proposal, and periodic oversight of the work plan would be in order. use the print version of this publication as the authoritative version for attribution.

OCR for page 11
About this PDF file: This new digital representation of the original work has been recomposed from XML files created from the original paper book, not from the original typesetting files. Page breaks are true to the original; line lengths, word breaks, heading styles, and other typesetting-specific formatting, however, cannot be retained, and some typographic errors may have been accidentally inserted. Please use the print version of this publication as the authoritative version for attribution. DOE'S CONSTRUCTION PROGRAM AND PROCEDURES 16