Audit Report: DOE-OIG-18-11

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December 13, 2017

NNSA’s Oversight of the Consolidated Nuclear Security, LLC, Cost Savings Program at the Y-12 National Security Complex and the Pantex Plant

In December 2011, the National Nuclear Security Administration (NNSA) issued a request for proposals for a consolidated management and operating contract for the Y-12 National Security Complex (Y-12) in Oak Ridge, Tennessee and the Pantex Plant (Pantex) near Amarillo, Texas.  NNSA awarded the new contract to Consolidated Nuclear Security, LLC (CNS) in January 2013.  The contract has a 5-year base period and three option periods that may extend the period of performance to 10 years.

In its Merger and Transformation Plan, CNS identified a series of actions that were projected to save the Government about $3.27 billion over the 10-year base and option period.  In return for reducing costs, NNSA agreed to pay CNS 35 percent of the net savings achieved for each approved Cost Reduction Initiative item for 2 years.  CNS expected to earn about $250 million in cost savings incentive fee payments over a 10-year contract period.

We found that NNSA was actively engaged in overseeing the implementation of the Cost Savings Program under the CNS contract. NNSA cited delays in receiving an acceptable Merger and Transformation Plan, cost reduction proposals, and baselines; delays in implementing a single financial management system for both sites; and a failure to track all costs associated with executing the Cost Savings Program as problematic.  

We noted that in 2016 CNS requested NNSA to provide relief from the contract’s target cumulative cost savings, citing delayed contract start from their original proposal assumptions as well as differing conditions from information provided by NNSA in the request for proposals.  NNSA agreed to lower the contract’s cost savings target and directed CNS to revise the Merger and Transformation Plan.  In addition, after we concluded our audit a subsequent event occurred that changed certain aspects of the CNS contract and the associated Cost Savings Program.  Our findings and conclusions do not reflect changes made to the Cost Savings Program as a result of the contract modification as it would have significantly delayed the issuance of the final report.

Topic: Management & Administration