Congress was out and Washington was empty, but that didn’t stop news from breaking during our annual August publication break. As chronicled in the Weapons Complex Morning Briefing, here are a few stories that we’ve been following.
GAO Challenges NNSA’s Plutonium Pit Production Plans
The National Nuclear Security Administration (NNSA) may have overstated the cost savings of its updated plutonium analysis strategy, which may not meet the agency’s planned rates of plutonium pit production for nuclear weapons life-extension programs, the Government Accountability Office determined in a report released earlier this month.
The NNSA approved the Los Alamos National Laboratory’s (LANL) Chemistry and Metallurgy Research Replacement (CMRR) project in 2005 to replace its Chemistry and Metallurgy Research Facility, which dates to the 1950s and hosts the agency’s plutonium analysis operations – testing the nuclear weapons cores to ensure their reliability.
The CMRR project initially involved construction of a large nuclear facility and separate radiological laboratory that would host plutonium analysis equipment, with an estimated cost range of $745 million to $975 million and completion due by 2017. By 2012, NNSA’s cost estimate for the project had increased to as much as $5.8 billion and operational date pushed back potentially to 2022, GAO found, noting that in a 2014 presentation to DOE, NNSA said the total cost would reach up to roughly $7 billion.
After spending $495 million on the project, DOE in 2014 canceled the CMRR construction plans and NNSA adopted a new strategy to maintain plutonium analysis capabilities without constructing the new site, using existing facilities instead. This would involve installing plutonium analysis equipment and using space in LANL’s radiological lab and Plutonium Facility, as well as “evaluating options” to build modular nuclear facility lab space at LANL at an estimated cost of $1.5 billion to $2 billion, and with a 2024 completion date. Last November DOE also approved implementation of a second part of the strategy, the Plutonium Modular Approach, to build modular nuclear facilities for $1.5 billion to $3 billion by 2027.
According to the GAO, NNSA did not outline the plutonium analysis capacity that the revised CMRR project should provide, an otherwise key performance parameter. “NNSA has determined that it needs sufficient analysis capacity to support producing pits, including at planned rates of 10 pits per year in 2024 and 50 to 80 pits per year by 2030, but an NNSA analysis shows that the revised CMRR project may not support these rates,” the GAO said.
Specifically, LANL’s management and operations contractor, Los Alamos National Security, in 2015 analyzed the pit production rate that the new CMRR project could support and found that it “may not provide sufficient analysis capacity to support a 10-pits-per-year production rate.” The GAO noted that the NNSA has taken some steps to increase plutonium analysis capacity, including approval of restructuring of the new CMRR project that involves upgrading the hazard category of the radiological facility to hold higher levels of plutonium.
NNSA said in its comments to the report that the GAO misinterpreted the relationship between plutonium pit production and the CMRR project, arguing that the assessment “incorrectly implies that the driver for the CMRR project and the project’s ultimate success depend on meeting plutonium pit production needs when the goal of the project is to replace specific plutonium analysis capabilities.”
The equipment being installed under the CMRR project “does not manufacture pits, and it is not feasible within the scope of the CMRR project to associate the performance of an individual piece of analytical laboratory equipment with a pit production requirement, as the report suggests,” NNSA spokeswoman Francie Israeli said by email.
The GAO also found that the NNSA’s estimated cost for the revised CMRR project is lower than the cost of the previously approved project, “but NNSA may have overstated its cost savings” because it did not account for work being deferred for now. Moreover, the revised project’s program schedule was limited to near-term work through 2017, and “NNSA does not plan to develop a complete schedule for the entire CMRR project until mid-2017,” the GAO found.
The GAO recommendations to the NNSA administrator include identifying plutonium analysis capacity performance parameters in the revised CMRR project documents; outlining plans for obtaining greater analysis capacity if the new project will fall short on NNSA’s pit production plans; and developing schedules for the new project, particularly an integrated master schedule for all activities.
The NNSA said in response that it will by next September update its plutonium strategy with “estimates of the requirements and additional means, if needed, to achieve the required [plutonium analysis] capacity.”
“NNSA is concerned that the report does not reflect the depth and breadth of steps taken in the last two years to improve project management in accordance with the Secretary of Energy’s new policies,” Israeli said. “As a result of these improvements, NNSA has high confidence in its budget estimates for the CMRR Project, so long as it receives consistent predictable funding for the project’s duration.”
Israeli noted that since the approval of the subprojects under the new CMRR strategy, “NNSA has been completing subprojects under budget and ahead of schedule.”
“NNSA is applying similar management improvements to the current subprojects, giving us confidence that we similarly can deliver these subprojects on budget and on schedule,” she said.
According to Israeli, “NNSA believes current actions will provide greater insight into the CMRR project’s anticipated impact on the Plutonium Strategy. The equipment associated with the CMRR project will support Los Alamos plutonium program needs for at least the next decade.”
GAO: DOE Yet to Use Special Authority to Bar Weapon Component Suppliers
Energy Secretary Ernest Moniz has yet to use a special authority given to the position two years ago by Congress to prohibit procurements from potentially risky nuclear-weapon component suppliers, the GAO found in a report released earlier this month.
The fiscal 2014 National Defense Authorization Act outlined an enhanced procurement authority allowing the energy secretary to exclude certain suppliers from procurements in the interest of national security, the report said, noting that “the U.S. government is concerned about the trend toward a non-domestic supply chain for nuclear weapons components, and the increasing sophistication of adversaries.”
The authority is intended to mitigate supply chain risks, which could involve adversaries’ sabotage or subversion of the design, integrity, and operation of nuclear-weapon components and nonproliferation and counterproliferation programs, the GAO said. The Department of Energy currently manages supply chain risk in part through its contractors’ lists of approved component suppliers and the department’s own intelligence and counterintelligence activities.
However, the energy secretary has not used the enhanced authority as of this May, the GAO found, nor has the Energy Department developed processes for employing the power, such as risk analyses and assessments, “as it had not fully assessed the circumstances under which the authority might be useful.”
“Some DOE and NNSA officials and M&O contractor representatives expressed uncertainty about whether the authority was needed,” the GAO said, noting that contractors are unlikely to request the procurement authority be used because they are “generally not required to disclose security-related reasons to explain why a particular supplier was not selected.”
Department officials also noted that federal agencies can via the Federal Acquisition Regulation already bar suppliers that could threaten their supply chain, the GAO said.
The report recommended the NNSA administrator work with the DOE’s Office of Intelligence and Counterintelligence to examine whether the procurement authority should be used in certain situations and, if so, establish processes for its application. Congress could then use this information to determine whether to extend the authority past its current June 2018 termination date, the report said. NNSA agreed to complete these activities by the end of this year.
The report also noted that the Kansas City National Security Campus and the Sandia National Laboratories lead NNSA supply chain risk management activities. The GAO said the National Security Campus makes or procures over 100,000 components each year and has increasingly purchased non-nuclear components from external suppliers.
NNSA spokeswoman Francie Israeli confirmed by email that the agency has not used the enhanced procurement authority.
“NNSA agrees with the auditor’s recommendations to evaluate situations that might warrant the use of the enhanced procurement authority and, should specific circumstances be identified to require use of the authority, develop a process for its use, including an assessment of resources supporting the process,” Israeli said.
AECOM 3Q Revenue Down 3%, Management Services Revenue Down 5.5%
AECOM reported earlier this month $4.4 billion in revenue for the third quarter of its fiscal 2016, down 3 percent from $4.5 billion the same period last year. It also reported net income of $67.4 million and earnings per share of $0.43 for the period ending June 30, an 11 percent and 10 percent increase, respectively, from the same period last year.
AECOM is a major player in facility management and nuclear cleanup for the NNSA and the Department of Energy, partnering in consortiums that manage the Los Alamos National Laboratory in New Mexico, the Lawrence Livermore National Laboratory in California, the Nevada National Security Site, and Washington Closure Hanford. It also leads the groups that offer liquid waste remediation at the Savannah River Site in South Carolina and transuranic waste storage at the Waste Isolation Pilot Plant in New Mexico.
AECOM’s Management Services business segment, which includes the company’s DOE and NNSA contracts, brought in $804 million in quarterly revenue, down from $851.7 million for fiscal third-quarter 2015. Adjusted operating income of $75 million – a combination of income from operations and amortization of intangible assets – was down from $93 million. The segment also reported a $39.3 million gross profit in the latest quarter.
Troy Rudd, AECOM executive vice president and chief financial officer, said during an earnings call Tuesday that the business segment’s revenue declined by 5.5 percent. “The operating margin declined to 9.3 percent from 10.9 percent last year but remained above our long-term expectations of approximately 8 percent,” he said. “This margin performance is driven by large, incentive-based contracts where we have a strong history of execution.”
“In Management Services, we delivered another solid quarter of profitability and further added to our already strong pipeline,” Chairman and CEO Michael Burke said during the call.
“We were selected for $400 million of new work after the quarter close, have submitted $15 billion of bids for client evaluation, and anticipate submitting another $10 billion of bids over the coming months,” Burke said, adding, “We are leveraging all of our capabilities to pursue large nuclear decommissioning work.”
The management and operations contract for LANL, currently held by a partnership of AECOM, Bechtel, BWX Technologies, and the University of California, will expire in 2018. Meanwhile, AECOM has expressed some interest in the SRS liquid waste contract currently held by its partnership with Bechtel, BWXT, and CH2M, which expires next June.
The company expects capital expenditures of approximately $150 million in this fiscal year and is “on track to achieve its $325 million run-rate synergy savings target by the end of fiscal 2017,” it said in an earnings announcement.
AECOM’s Design and Consulting Services business segment earned $1.9 billion in revenue in the third quarter and an adjusted operating income of $150 million. The company’s Construction Services segment earned $1.7 billion in revenue and $23 million in adjusted operating income.
The company is reiterating adjusted earnings per share guidance for the fiscal year of $3.00 to $3.40.
BWXT Revenue, Income Up in 2Q
Energy and Defense departments contractor BWX Technologies earlier this month reported year-over-year growth both in revenue and earnings for the second quarter of 2016. In the Technical Services segment, which partners with other contractors to manage and operate Department of Energy facilities and cleanup of legacy nuclear waste, year-over-year revenue spiked from $21.6 million to $23.1 million, while operating income was down from $5.5 million to $4.6 million.
The Technical Services business encompasses much of BWXT’s work with DOE labs, both in national security and environmental management. Sandy Baker, company president and CEO, noted during the call that in May the company “transitioned off the Advanced Mixed Waste Treatment Project [in Idaho] as expected, and benefited from favorable fees related to the successful transition of the project in the second quarter.”
“We expect to spend more on business development during the second half of the year, related to opportunities that will be awarded in 2017 and beyond,” he said.
Company revenue rose by 13% from $357.1 million in second-quarter 2015 to $402.4 million in the latest reporting period, according to the company. Generally accepted accounting principles (GAAP) earnings per share from continuing operations spiked from zero for last year’s quarter to $0.55 in the second quarter of 2016, while non-GAAP EPS from continuing operations were up from $0.32 to $0.44 over that same period.
“We booked over $1.6 billion worth of work, the highest quarterly booking for the history of the business,” BWXT executive chairman John Fees said during an earnings call Tuesday.
Fees also noted during the call that the company’s Nuclear Operations business “achieved its highest second quarter revenue in three years.” BWXT’s Nuclear Operations services include production of parts and fuel for naval reactors. The branch’s revenue rose about 12% year over year, from $291.8 million in second-quarter 2015 to $325.7 million this year, “due to favorable timing of long-lead material into the second quarter,” the company said. BWXT also reported a 5% spike in operating income, from $61.1 million to $64.4 million.
Nuclear Energy branch revenue rose from $45.5 million in second-quarter 2015 to $54.1 million in second-quarter 2016, a 19 percent growth; GAAP operating income hit $26.5 million and non-GAAP operating income $10.4 million in the latest reporting period, up from $2.4 million a year ago.
The Lynchburg, Va.-based company split off from Babcock & Wilcox in 2015. Along with work for the Pentagon and private sector, it is a major contractor for cleanup projects overseen by the DOE’s Office of Environmental Management. It is one of the parent companies of Savannah River Remediation, liquid waste management contractor at the Savannah River Site in South Carolina, and partners with Fluor in the decontamination and decommissioning of the Portsmouth Gaseous Diffusion Plant in Ohio. BWXT is also a teammate in the management and operation of the NNSA’s Los Alamos and Lawrence Livermore national laboratories, as well as the Nevada National Security Site.
LANL Saves $2.6M in Trinity Redesign
The Los Alamos National Laboratory (LANL) said last week that its High Performance Computing facilities team has performed a redesign for its Trinity supercomputer that saved the DOE facility approximately $2.6 million in material and labor costs.
In 2014 supercomputer company Cray Inc. received a $174 million, multiyear, multiphase contract to provide the NNSA with the Trinity system, which will deliver over eight times greater performance than the Cielo supercomputer currently installed at LANL. The redesign, which followed a re-engineering of the wiring diagram for the Trinity computer racks’ power feed, was adopted by Sandia National Laboratories for their corresponding supercomputing systems and is being considered by Lawrence Berkeley National Laboratory.
In addition to a new wiring configuration, the work involved using prefabricated copper tray cables and new aluminum power cables, “saving 20 percent in materials cost and a factor of three in weight,” LANL said in a press release. The latest redesign was funded by NNSA and its Advanced Simulation and Computing program, LANL noted.
LANL spokeswoman Nancy Ambrosiano said by email that the LANL saved costs specifically on the system’s installation and integration. “The $2M in savings compares to about $10M in project costs to upgrade the electrical infrastructure for supercomputing in general, and to attach Trinity in particular to that infrastructure,” she said.
LANL’s Trinity high-performance computer performs simulations and provides the NNSA with the capability “to improve geometric and physics accuracy in calculations that can be completed in weeks – not years,” LANL said.
Supercomputers support NNSA’s defense programs through simulations that certify the reliability of the U.S. nuclear deterrent in order to avoid a return to full-scale underground testing. Supercomputing allows scientists to assess the entire weapons life cycle and predict their functionality, model weapon systems to certify their performance, predict problems caused by weapon aging, model phenomena such as the behavior of high explosives, and simulate abnormal environments to test whether weapons meet safety requirements.
LANL Effectively Addressed Radiological Material Exposure Findings: DOE IG
LANL has taken effective corrective actions following a radiological material exposure incident at one of its facilities in 2012, the DOE Office of Inspector General found in an Aug. 2 report.
The report highlighted an August 2012 radiological incident at the Los Alamos Neutron Science Center in which 27 workers, along with their offices and/or personal items, were exposed to the nuclear isomer technetium-99, and some of the material was tracked outside the facility.
A LANL after-action report said this occurred during the irradiation of samples of material containing technetium-99; a sample canister that was not labeled as containing radioactive material was mistakenly opened to be used in aligning an experimental apparatus, the report said. This canister was later found to have been contaminated.
After assessing the affected property, LANL officials determined the contamination level was not a health risk, the report said. NNSA and LANL then developed and implemented corrective actions to address problems with control and containment of radioactive materials, changes the lab determined were “likely to be effective for the long term,” the report said.
LANL’s corrective actions included limiting access to the storage cabinets that hold radioactive materials, updating and operating an online sample inventory system, and using designated glove boxes for radioactive material containment. One remaining open NNSA recommendation for its Office of Emergency Operations involves “develop[ing] command, control, and coordination relationships between off- and on-site assets and leadership” through a DOE regulation on comprehensive emergency management. A draft of this DOE order entered an internal review and comment process in April, the report said.
