Audit criticizes management of $5.6 billion Hanford contract

December 28, 2012 

The contract for CH2M Hill Plateau Remediation Co. at Hanford was not aligned with required environmental cleanup work for three years, according to results of a Department of Energy Office of Inspector General audit.

"The extensive length of time it took is indicative of a troubling weakness in the contract administration process," said a report on the audit results.

Because of problems with cost projections, DOE has not been able to consistently monitor CH2M Hill's cost performance on its $5.6 billion contract for cleanup of central Hanford and contaminated groundwater, according to the office.

The Hanford nuclear reservation is contaminated from the past production of plutonium for the nation's nuclear weapons program.

DOE disagreed with several of the conclusions in the report, which the Inspector General's Office issued as a letter with suggestions for improvement rather than a more serious audit report with findings.

Recommendations in the report have been implemented and the report no longer reflects how the contract is currently being administered, DOE told the Office of Inspector General.

The report said CH2M Hill did not always meet contract and federal regulation requirements for submitting timely or well-supported proposals for contract changes.

Also, DOE did not always formally notify the contractor quickly of needed changes on work to be done, which contributed to delays, the report said.

DOE was to resolve differences between the work included in a request for bids for the central Hanford contract and the work identified when work by CH2M Hill began by March 29, 2009, which was 180 days after CH2M Hill started work.

But the contract and work scope were not aligned until March 2012, the report said.

CH2M Hill and DOE were slow to address changes that totaled about $1.1 billion, the report said.

CH2M Hill completed and submitted several proposals for a change to the K Basins radioactive sludge treatment project before DOE reviewed a $300 million change in September 2010. That was at least 20 months after the need for the change was identified, the report said.

In another example, CH2M Hill notified DOE in October 2010 -- almost 19 months after DOE's goal for resolving contract differences -- that cost estimates for work that had not changed were $575 million low, according to the report.

CH2M Hill said that estimating errors and information that changed as more information was known about cleanup requirements were to blame.

Required independent audits for contract negotiations were delayed for months because of cost proposals that had insufficient information to support them, according to the report.

CH2M Hill said that uncertainty about documentation requirements to support cost estimates and uncertainty about the cost of work that would be done several years in the future prevented it from providing adequate supporting information, according to the report.

However, the report said contractors must have financial systems capable of meeting federal contracting requirements to receive a government contract.

Because CH2M Hill did not provide timely and supported contract change proposals, DOE had trouble measuring its success in meeting cost goals, the report said.

To limit DOE's risk, DOE did not give CH2M Hill a performance payment for the work that had not been agreed upon, and the report did not specifically identify any improper award of payment.

DOE disagreed with the report's assertion that it could not accurately assess contractor performance, according to information in the report.

The CH2M Hill contract allows DOE to adjust the work required to fit the available budget, according to DOE.

However, the report said that is a reactive rather than a proactive measure.

"It was clear to us, especially in a contract of this size and scope, that the preferable contract management strategy is to start with valid cost estimates for agreed-upon work and measure against that continuously over the life of the contract," the report said.

The issues found in the audit were not unique to the central Hanford contract, the report found.

It recommended that DOE work at environmental cleanup sites across the nation to make sure contractors fully support cost change proposals with detailed costs that can be audited.

Also, DOE contract management officials need to quickly and formally notify contractors of required changes on work to be done to help with contract change proposals, it said.

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