URS Warns Total Project Cost Could Exceed $300M
Mike Nartker
WC Monitor
5/16/2014
As URS’ potential financial liability at the Separations Process Research Unit (SPRU) D&D project continues to rise, a document obtained by WC Monitor through a Freedom of Information Act request shows the company has, at least on one occasion, asked for its contract to be terminated altogether after reaching an agreement with the Department of Energy to be largely responsible for cost increases that have occurred since a set of contamination incidents significantly disrupted work at the site. As of April 4, URS has incurred a total project cost of $271 million at SPRU, according to a filing with the Securities and Exchange Commission this week—an increase of approximately $10 million from a previous January estimate. A final price tag for completing the SPRU D&D project has yet to be determined—DOE has said it expects to complete a final cost-and-schedule baseline by the end of this fiscal year, while URS warned in its filing this week that “due to continuing delays and disagreements about the responsibilities for the scope of the remaining project completion costs,” it is unable to determine its responsibility for the remaining project costs, “which may exceed $300 million.”
URS’ warning of the potential cost to complete the SPRU D&D project, which entails the removal of two buildings used in the 1950s to research chemical processes for separating plutonium and uranium from irradiated materials, stands in sharp contrast to initial estimates for the work. In late 2007, DOE awarded Washington Group (since acquired by URS) a task order worth $67 million over four years for the project. In the fall of 2010, however, a set of contamination incidents occurred during open-air demolition activities at one of the two SPRU buildings that resulted in the spread of low levels of contamination to the broader Knolls Atomic Power Laboratory, where SPRU is located, as well as to a local river. A subsequent DOE investigation into the incidents attributed their cause to URS’s failure to understand and control the radiological hazard present and poor work control processes.
In the wake of the contamination incidents, DOE moved in 2011 to reach a contract modification with URS to set up a cost-sharing approach for completing work. That approach entails DOE being responsible for all project costs up to $105 million; DOE and URS splitting all costs incurred from $105-145 million; and URS being fully responsible for covering all costs exceeding $145 million.
URS Pursuing REAs
Since the contract modification was finalized, though, URS has been pushing back against being held responsible for a significant portions of the costs to date incurred at SPRU, which have included, among other issues, addressing the impacts of bad weather at the site. In its SEC filing this week, URS said, “Due to unanticipated requirements and permitting delays by federal and state agencies, as well as delays and related ground stabilization activities caused by Hurricane Irene, WGI Ohio has been required to perform work outside the scope of the Task Order Modification. In April 2013, WGI Ohio submitted claims against the DOE pursuant to the Contracts Disputes Acts seeking recovery of $118 million in unfunded requests for equitable adjustments (“REAs”), including additional fees on expanded work scope. Through April 4, 2014, the DOE has approved one of the REAs for $1 million and has authorized $32 million of additional funding primarily related to the hurricane-caused impacts.” The filing adds, “As of April 4, 2014, WGI Ohio has recorded $91 million in accounts receivable for project costs incurred to date in excess of the DOE contracted amount that may not be collected unless and until the claims are favorably resolved.”
Did DOE ‘Mislead’ URS?
Notably, though, URS appears to have gone even further last summer and sought to be removed from the SPRU project entirely. In an Aug. 28, 2013 letter, obtained by WC Monitor, DOE rejected an Aug. 15, 2013, request from URS to have the SPRU D&D project contract terminated “for convenience.” According to the DOE letter, URS had claimed that the Department was responsible for the “substantial extra cost” incurred at the project. As of June 28, 2013, URS had incurred total project costs at SPRU of $244.4 million, according to a filing with the SEC.
While the exact details as to why URS sought to be removed from the SPRU D&D project are unclear, the DOE letter says the Department denied that it “mislead” URS. The letter suggests that URS’ concerns were tied, at least in part, to an Environmental Protection Agency investigation conducted after the 2010 contamination incidents that resulted in Clean Air Act violations. While the EPA investigation did not result in financial penalties, DOE did agree to some changes in how work would be performed, including seeking EPA approval for a set of tent enclosures equipped with ventilation systems that were constructed around the two SPRU buildings as part of efforts to resume D&D activities. “Both DOE and URS were in communications with U.S. Environmental Protection Agency (EPA), Region II, throughout their investigation and both parties were on notice that the EPA considered the SPRU site NESHAPs [National Emission Standards for Hazardous Air Pollutants] non-compliant prior to the execution of Mod 035,” the DOE letter says. “As the contractor with expertise in such regulatory matters, URS should have understood EPA’s inferences on the SPRU’s NESHAPS compliance status. Thus, both parties entered into Mod 035 with the mutual recognition of acceptable risk,” the DOE letter says.
The Department’s letter goes on to say, “Additionally, after it became evident that URS could not meet the expected physical completion date, DOE and URS executed bi-lateral modifications to the task order to extend the physical completion date. URS has not provided documentation to support its contention that performance was impossible because the physical completion date has been extended multiple times. In addition, to date URS has not submitted documentation to support its contention that the lack of a NESHAPs permit caused delays in completing the tent enclosures.”
DOE, URS Largely Silent on SPRU
The DOE Office of Environmental Management refused to answer a number of SPRU-related questions this week, citing ongoing “contract discussions,” including what is the Department’s view of URS’ performance at the site to date; how many times URS has asked to be removed from the project; when DOE expects to have a final baseline in place; and when the Department expects to reach a resolution over cost responsibility with URS. “The Department of Energy continues to work with URS to make progress on the safe cleanup of SPRU. Discussions regarding requests for equitable adjustments are ongoing,” a DOE spokesperson said in a written response.
URS also refused to answer a number of SPRU-related questions, including why it sought last summer to be removed from the D&D project; how many times it has sought to be removed from SPRU; the status of negotiations with DOE; and when it expects to complete work at the site. “URS is committed to working with the U.S. Department of Energy toward successful completion of the Separations Process Research Unit (SPRU) project,” company spokesman Keith Wood said in a written response.
Will Project be Completed Next Year?
With the absence of a final cost-and-schedule baseline, questions persist as to when the SPRU D&D project will be completed. In its Fiscal Year 2015 budget request, the Department said it expects the project to be completed by the end of the next fiscal year. Notably, URS’s original task order for the project projected completion at the end of 2011, though DOE had sought to push that schedule up to Sept. 30, 2011, through the use of Recovery Act funds. In February, DOE and URS achieved a significant accomplishment with the removal of the remaining radioactive sludge at the SPRU site. Since then, URS has been working to demobilize the sludge equipment and remove debris from one of the two site buildings—H2—as well as moving forward with efforts to remove water from the building’s basement. URS has also been removing hazardous materials from SPRU’s other building, G2.
