Nuclear security made some news on Capitol Hill in 2018, but the biggest news in the enterprise concerned another hill in New Mexico, where the Department of Energy formally ended the abortive experiment of running the Los Alamos National Laboratory for profit.
On Nov. 1, the nonprofit Triad National Security took over as the National Nuclear Security Administration’s (NNSA) prime contractor for the nation’s oldest nuclear-weapon laboratory, ending Los Alamos National Security’s historic tenure as the facility’s first for-profit manager.
The move gave Battelle Memorial Institute — a Triad senior partner along with the University of California and Texas A&M University — yet another toe-hold at DOE. The company is now on the job at Los Alamos for at least five years, with the NNSA holding five one-year options that would stretch the deal through most of 2028. Including those options, the contract is worth more than $20 billion, and Triad could make up to $50 million annually in fees.
Los Alamos is one of six DOE nuclear- or nuclear-adjacent labs Battelle runs or helps run. The lab has an annual budget of about $2.5 billion, which supports some 10,000 employees working in missions including nuclear deterrence and stockpile management, energy security, nanotechnology, and biosurveillance, to name just a few. The vast majority of these now are employed by Triad.
Adding an exclamation mark to Battelle’s dashing foray into the crucible of U.S. nuclear security, longtime company executive Thomas Mason got the coveted job of director at Los Alamos. Mason, a nuclear physicist, was previously director of the Battelle-managed Oak Ridge National Laboratory in Tennessee.
Along for the ride at Los Alamos are Triad’s integrated industry subcontractors, Fluor and Huntington Ingalls Industries. The two replaced a trio of their competitors from the former incumbent: AECOM, Bechtel National, and BWX Technologies.
Los Alamos National Security came on the job in 2006. It paired the University of California, which until then had managed the lab on its own, with industry partners led by the nominally coequal Bechtel
The team reflected the mood of the day: that NNSA could course-correct the university’s perceived administerial weaknesses by introducing some lean-running business savvy to the lab.
To hear Triad tell the tale, this for-profit experiment failed because Los Alamos National Security’s upper management let representatives of its for-profit parent companies cloister themselves in different parts of the lab, then run things there with minimal oversight. That, Mason has said publicly, left the door open for big problems.
Eventually, in walked a problem so large that it led to a national public tarring of DOE in 2014.
On Valentine’s Day that year, an improperly packaged barrel of Cold War-era nuclear waste from Los Alamos exploded underground at the agency’s Waste Isolation Pilot Plant near Carlsbad, N.M. Not long after DOE traced the bad packing job to a Los Alamos National Security subcontractor, the agency announced it would put the prized lab management contract back on the street. In doing so, the department passed on more than 10 years worth of options in Los Alamos National Security’s deal.
Triad will not have to worry about managing Los Alamos’ legacy nuclear waste. In the fallout of the drum accident, DOE severed environmental remediation from the Los Alamos lab management pact and farmed the work out to industry under a new contract with N3B-Los Alamos, which is administered by the agency’s Office of Environmental Management.
Not to say that Triad has an easy road.
The company is on the hook to give the United States back its ability to produce, on an industrial scale, the fissile nuclear-warhead cores called plutonium pits. The White House wants the NNSA to make at least 80 pits a year by 2030, and the agency wants Los Alamos to make at least 30 annually by 2026 — two years before Triad’s contract would run out.
So, the nonprofit triumvirate must safely construct a pit factory, turn it on, and use it to crank out large quantities of the technically sophisticated W87 pit design used on intercontinental ballistic missiles. The schedule envisioned by the NNSA provides little room for maneuvering. The customer wants its contractor to produce 10 war-usable pits in 2024 — what would be Triad’s first option year — then 20 in 2025, and 30 in 2026 and beyond.
Just upgrading Los Alamos’ Plutonium Facility (PF-4) to handle the planned pit workload by 2024 will require $3 billion or so in construction and glove box additions, the NNSA estimates. Triad will draw heavily on industry experts, provided from the for-profit world, to build PF-4 and crank out pits there. Integrated subcontractor Fluor is responsible for construction projects, while Huntington Ingalls Industries has charge of nuclear operations and plutonium manufacturing.
Outside the gates, meanwhile, Triad has a challenge to negotiate with Los Alamos County and the state of New Mexico: whether, and how much, of the state’s gross receipts tax the new lab manager will pay.
A gross receipts tax is essentially a tax on revenue. When the nonprofit, tax-exempt University of California ran Los Alamos solo, that revenue was off-limits to New Mexico.
When the for-profit Los Alamos National Security stepped in, it was game on. The former incumbent coughed up $25 million to $30 million a year in state gross receipts taxes, and the state and local governments want to keep collecting. The county estimated its take at around $20 million.
Triad, for its part, wants to accommodate its hosts. The NNSA, though, might force Triad to dodge the tax.
In August, Triad unilaterally asked the New Mexico Taxation and Revenue Department to appraise the company’s gross receipts liabilities. The state determined Triad owed about a 7-percent cut.
A couple months later, NNSA Administrator Lisa Gordon-Hagerty informed Los Alamos County that the agency might force Triad to seek tax-exempt status with the Internal Revenue Service. The company, Gordon-Hagerty said, had an obligation under U.S. contracting law to maximize savings.
Triad says it was still paying the tax, as of deadline for Nuclear Security & Deterrence Monitor.
“Triad has not applied for federal tax-exempt 501(c)3 status, and has been paying New Mexico Gross Receipt Tax since it assumed responsibility for the management and operation of Los Alamos National Laboratory,” a lab spokesperson said by email Thursday.
While the NNSA has not mandated that Triad seek tax-exempt status, “We continue to explore options and expect to reach a decision on this matter during the first half of 2019,” an agency spokesman said by email Friday.
Los Alamos County Manager Henry Burgess said the county is holding its breath for news after the holidays.
“We have not heard of any change in [Triad’s tax] status to date, but we have been told that we should hear something early in the new year,” Burgess said by email Thursday.
So, after helping to close a brief chapter of history on the hill, Triad faces a set of generational, if not unique, challenges. Like Los Alamos National Security, the company plants its flag with a mandate to change the lab’s culture and clean up after somebody’s mess.
The particulars are different this time, but the lab and the mission remain the same.
