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NNSA Issues ‘Demand’ Letter, Promises Accountability

A major project to upgrade security at Los Alamos National Laboratory has stalled out just short of completion because of significant construction problems, and lab and National Nuclear Security Administration officials are scrambling to come up with additional funds to cover the issue, which NW&M Monitor has learned could cost “tens of millions of dollars.” The $213 million project—the second phase of a security overhaul at the lab—was specifically designed to upgrade physical security systems, protection strategies and security requirements in the lab’s Technical Area-55 and Plutonium Facility. But NNSA and laboratory officials confirmed this week that major issues—most notably fiber optic cable that was incorrectly installed—have caused significant cost overruns. NW&M Monitor has learned the fiber optic cables essential to the operation of security systems were supposed to be physically separated, but were instead routed together. Other issues include problems with the perimeter lighting system and a perimeter denial system.

As a result of those problems, five subcontractors working on the project, including Kiewit New Mexico Company, have been ordered to stand down, and lab personnel working on the project have been shifted to other work. In addition, NNSA issued a pointed “demand” letter to LANL contractor Los Alamos National Security LLC Oct. 24 requesting information about the project’s problems. Included in the demand letter was a request for full disclosure of accounting on the project, documentation of the lab’s plan to hold subcontractors accountable for the problems as well as information about available funding or fee sources that could be used for the project and a demonstration that special nuclear materials continue to be protected at the lab. The lab’s response is due by Oct. 31. “Clearly, LANS’ inability to complete the NMSSUP II project, inability to know the project’s EAC [estimate at completion], inability to know the precise project’s financial status, and having to suspend project construction activities before the project is complete is unacceptable,” Federal Project Director Herman LeDoux and Contractor Officer Robert Poole wrote in an Oct. 24 “demand” letter to Paul Henry, the lab’s Associate Director for Capital Projects, that was obtained by NW&M Monitor. “It calls into question everything from the ability of LANS to manage line item construction projects to the validity of LANS’ certified EVMS [earned value management system]. NNSA is exploring all avenues of cost recovery and contractual performance actions within its pervue [sic].”

The NNSA also appeared to be unhappy that the lab this week ordered subcontractors to stand down on the project. The agency went out of its way to note that LANS “unilaterally” issued a Suspension of Work to Kiewit. “This action was not formally coordinated prior to issuance with the Federal Project Director (FDP), Acquisition Executive, or affected NNSA organizations,” LeDoux and Poole wrote in the demand letter. Kiewit New Mexico Company did not respond to a request for comment.

$21-25 Million Could be Needed

The NNSA also notified Congress this week that an emergency reprogramming of funds would be necessary to rescue the project, suggesting that an additional $21 to $25 million might be needed. However, LeDoux and Poole chastised the lab for not providing an exact estimate of what it will take to rescue the project. “NNSA has made repeated requests for information on the precise financial status of the project and an accurate estimate at completion (EAC),” LeDoux and Poole wrote. “That estimate has been repeatedly promised and then not provided. LANS is directed to provide NNSA with an EAC with accompanying details of magnitudes to include all (accounted and unaccounted) risks and trends, level of confidence of the EAC, and bounding cost and schedule parameters.” The officials also ordered LANS to provide a “full accounting of the funds spent, accrued and remaining for LANS and each subproject by subcontractor.”

Much of the cost is believed to be tied to maintaining extra security at the site that would have been unnecessary had the upgrades been completed on time. As the NNSA scrambles to figure out a way to pay for the cost overruns, it seemed especially intent on holding LANS and other contractors financially accountable for the problems, which reflects a recent effort to take a hard line on contractors with respect to project management problems. Earlier this year, the NNSA went after fee paid for work on the Waste Solidification Building after it was revealed that project had significant cost overruns, and last week, the agency said it would explore all possible options to hold contractors accountable for design problems with the Uranium Processing Facility. In their Oct. 24 letter, LeDoux and Poole ordered LANS to provide “documentation on how they plan to ensure work already paid for is completed” and said the contractor should also provide a “complete plan on how re-work is being addressed, controlled, and fully recouped financially.” October 26, 2012 Nuclear Weapons & Materials Monitor # ExchangeMonitor Publications, Inc. 3

NNSA: ‘We Will Hold LANS Fully Accountable’

NNSA spokesman Josh McConaha emphasized that cost recovery would be a priority for the agency, and the NNSA is sending a forensic team to the lab Oct. 29 to analyze the financial and management issues that may have created the problem. “The performance on this project has been unacceptable and we will hold LANS fully accountable for all costs,” McConaha said in a statement. “We take our responsibility to protect taxpayer dollars seriously, and we will use all the tools available to correct the situation. As always, protection of Category 1 material is our top priority, and we will ensure that the project is completed while maintaining full compliance with all protection requirements.” In a separate statement, lab spokesman Fred DeSousa said the lab was working to fix the problems and was maintaining security at the site in the meantime. “This delay does not impact the site’s security of its nuclear materials. The laboratory is working with NNSA to develop a solution that keeps the delay as short as practical and the cost as low as possible. The lab remains committed to its national security mission,” DeSousa said.

One of the big questions that remains to be answered revolves around who knew what about the project, and when. Both NNSA and the lab say that problems with the project initially surfaced in 2010, and Performance Evaluation Reviews for LANS over the last two years have suggested problems with the project loomed. In its Fiscal Year 2010 PER, NNSA reduced LANS’ fee for problems with the security upgrade project and coordination with the now-deferred Chemistry and Metallurgy Research Replacement-Nuclear Facility. “NNSA had to engage for a second time in the interface between the NMSSUP2 and CMRR projects to derive a best value solution. Failure to evaluate incremental design and requirement changes in near real time manner has resulted in cascading impacts and cost estimate surprises and reduced HQ and DOE confidence,” the agency wrote. In its FY 2011 PER, LANS continued to have problems, and was dinged for “continued PM [project management] execution challenges,” though it’s impossible to tell how much the contractor’s fee was reduced.

‘What Possibly Took So Long?’

However, the NNSA hasn’t said exactly what was known in 2010, and why problems weren’t corrected in the meantime. That question has been forefront in the minds of Congressional staff that follow the project. Updates included with the NNSA’s annual budget submission gave no signs that there were problems with the project, which was expected to be completed in June and ready to operate in January. “What possibly took so long?” one Congressional aide told NW&M Monitor. “This is not UPF, which is much more complicated. Here, it’s does the fence go all around the perimeter and do the sensors work and so forth. It’s hard to understand why it took so long to discover the problem, and if it was discovered early, why it wasn’t addressed earlier by LANS or the site office.” The staffer said the problems raised additional questions about NNSA’s project management capabilities. “At a higher level what concerns us the most is the fact that this was a simple project: small scale and standard,” the staffer said. “There are PIDAS’ all across the complex. This was not a large construction project, defined as anything about $750 million. It was not one-of-a-kind, it was not a nuclear construction build, yet they failed to properly execute this. This is just a fence with some alarms and cameras. So what confidence do we have on them being able to execute on a large complicated project if they can’t even finish a simple project.” —Todd Jacobson

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