March 17, 2014

FEASIBILITY QUESTIONS RAISED ABOUT Y-12/PANTEX PROPOSED COST SAVINGS

By ExchangeMonitor

None of the cost savings proposals submitted by the three bidders in the National Nuclear Security Administration’s Y-12/Pantex contract competition were judged to reach the 80 percent mark for cost feasibility, according to protest documents obtained by NW&M Monitor that raise questions about the likelihood of savings on the contract merger being realized. The Government Accountability Office sustained protests by Babcock & Wilcox-led Nuclear Production Partners and Jacobs/Fluor-led Integrated Nuclear Production Solutions earlier this year, forcing the NNSA to take a harder look at the cost savings proposed by each bidder, including Bechtel-led Consolidated Nuclear Security, who was selected by the NNSA for the $22.8 billion contract award after proposing $3.27 billion in cost savings over the 10-year life of the contract.

Details in the latest protest by Nuclear Production Partners—filed after the NNSA reaffirmed its selection of CNS last month—indicated that a more rigorous analysis of cost savings proposed by each team revealed that less than 80 percent were feasible in each proposal. The NNSA did not respond directly to questions about the cost feasibility issue. In a statement, Babcock & Wilcox Technical Services Group Vice President Ken Camplin said, “We believe there are a number of serious flaws with this procurement. It would make sense to take a second look at the process to determine if it is the best path forward for both Y-12 and Pantex.”

NP2 revealed the details of NNSA’s cost savings analysis as it argued that the agency should have engaged in discussions with NP2, and the other bidders, to address any concerns with the feasibility of NP2’s proposed cost savings. “Why have corrective action at all if you do not give offerors the opportunity to discuss and address the billions of dollars in proposed cost savings that NNSA believed were not feasible?” NP2 said in its protest. “Nevertheless, that is what NNSA did. And, in the context of this procurement, that did not afford meaningful discussions to NP2.”

The cost feasibility issue is important because when the NNSA initially awarded the contract to CNS in January, it said the company had to come through on 80 percent of its cost savings targets during the first three years of the contract—which amounts to approximately $523 million—to be eligible for any extensions. According to the latest protest, the chair of the Source Evaluation Board emphasized the importance of the cost feasibility threshold during a hearing on the first protest, saying, “We certainly wouldn’t want to set the contractor up for failure” in response to a question about whether a proposal would be considered unacceptable if it did not meet the 80 percent cost savings feasibility threshold. He also said that not meeting the 80 percent threshold would be viewed as a “significant failure,” according to the protest documents. “In light of NNSA’s finding that no offeror proposed cost savings that would satisfy the ‘gateway’ provision of the RFP, NNSA’s decision to award without discussions was arbitrary,” NP2 said in the protest.

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