Shuttered K-25 nuclear enrichment facility in Tennessee. Department of Energy/AP
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Serious contractor-related problems at facilities that handle nuclear material have been disclosed by two new audits.

The most serious issues were raised in a report by the Department of Energy’s inspector general on the decontamination and decommissioning of K-25, a massive World War II-era nuclear enrichment facility that is a part of the East Tennessee Technical Park (ETTP) in Oak Ridge, Tenn. The audit found the K-25 project is $257 million over its initial estimated cost of $460 million and could potentially run some eight years behind schedule at a total cost of up to $1.2 billion.

“Problems with contract administration and project management likely impacted the Department’s ability to effectively manage the many technical challenges it encountered during its attempts to complete the K-25 [project],” the report explained. “Because of these issues, the Department, in our opinion, was not in a position to fully grasp the ultimate cost and time required [to complete it].”

The sprawling ETTP has been shut down since 1987. It is full of contaminated buildings once used to provide America’s Cold War nuclear arsenal with uranium. The half-mile long, U-shaped K-25 building is the biggest of these at more than 2 million square feet. It was built in 1943 and provided some of the uranium-235 used in the “Little Boy” atom bomb that destroyed the Japanese city of Hiroshima. Dismantling K-25 has proven to be a much more difficult task for DOE and the contractor it first hired in 1997 to complete the project, the Bechtel Jacobs Company LLC.

The decommissioning and decontamination of the massive building involves removing equipment containing fissile material, segregating asbestos, purging machines of radioactive gases, encapsulating equipment and piping used to enrich uranium in foam, and disposing of thousands of converters, motors, and compressors. This task has been complicated by the dangerously deteriorated state of the building, a fact that auditors noted years before the work had even begun. A 1998 report about ETTP warned that DOE could incur $34.5 million in unnecessary surveillance and maintenance costs by delaying the dismantling of old contaminated buildings like K-25 until 2002. As it turned out, Bechtel Jacobs did not begin work on K-25 until 2004, a year after it told DOE auditors that the number of damaged roof panels had increased by 546 percent and the number of damaged floor panels had almost doubled.

After the work began, inspectors found that DOE was not regularly auditing the contractor, which allowed costs to quickly spiral out of control. In the months leading up to DOE signing another multi-year contract with Bechtel Jacobs in August 2007, the inspectors found that the Department had only reviewed $85,000 worth of the $217 million payment increase requests the contractor had filed. The unexpected cost overruns included expenses like the $60 million spent on netting and barriers to catch debris falling from the dilapidated building. These safety measures were only installed in 2006 after a contractor fell 30 feet through an upper floor of the building.

This lack of timely auditing was partially due, in the IG’s opinion, to consistent understaffing issues at DOE. The project was overseen by the equivalent of nine full-time employees even though a May 2010 independent review calculated that it should have 22 DOE workers monitoring the K-25 project. DOE did its own auditing and found that effective oversight would require 63 additional workers. Nevertheless, it only requested funding for 10 new federal staff. Also, until January 2010 when the K-25 project got its own director, it was just one of many building closures overseen by the ETTP project director, a position that had to be filled four times since 2007 alone.

DOE largely agreed with the criticism of the IG and has implemented a series of changes to improve the performance of the new contractors it has hired to complete the K-25 decontamination and decommissioning.

URS Corporation and CH2M HILL Companies Ltd. signed a $2.2 billion, four-year deal to take over all of the ETTP work at end of July. Bechtel Jacobs spokesman Dennis Hill had no comment on the audit, but did confirm that the UCOR partnership will be taking over the contracting job on Aug. 1.

Problems with contractors were also found in the IG’s review of the Sandia National Laboratories, headquartered in Albuquerque, N.M. Sandia has run the labs since shortly after their creation in 1948, at which time the corporation was owned by AT&T Inc. It is now a wholly owned subsidiary of defense firm Lockheed Martin Corporation. According to the report, Sandia does not have adequate controls in place to ensure that its efforts do not unfairly benefit its parent company.

In a sample of 36 licenses, work, research, and contracts for Lockheed Martin, the inspectors could only find two clear instances where the required conflict of interest process was completed correctly. Its supervising agency, the National Nuclear Security Administration, was not notified of these actions in most cases. Sandia either claimed ignorance about the requirements of the process or told investigators it had alternative processes in place. Employees interviewed for the report also seemed unclear about how to properly deal with Lockheed Martin, in part due to a lack of training on the conflict of interest process.

In one case, a contractor violated the NNSA-approved procurement system in extending Lockheed Martin’s sole-provider contract by eight years and $2 million “without Sandia management review or NNSA review and approval,” the report notes. Conflict of interest reviews are required for any procurement over $100,000, or when the period or dollar amount of the contract exceeds the original deal.

Sandia disputed many of the claims in what it considered to be a spotty inspection. “[This] report paints an incomplete picture of this broad program that will mislead the reader,” the company wrote. “The broad, absolute assertions based on a portion of the overall [conflict of interest] program negatively implicate the quality of [the] program in its entirety; this negative implication is factually inaccurate and causes the report to be fundamentally flawed.”

Yet when contacted for an additional comment on the report, Sandia spokesman Jim Danneskiold took a different tact to defend his company’s conflict of interest performance. He called the report an “exhaustive review” that “did not find any evidence that Lockheed Martin received any unfair advantage over other companies.”

NNSA officials were broadly supportive of the corporation in their statement on the report, but the inspectors wrote that they said the un-approved contract extensions “[call] into question Sandia’s ability to provide the necessary assurances that they are performing objectively and without bias, preventing [Lockheed Martin] and its affiliates from receiving an unfair competitive advantage.”

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