Audit: DOE-OIG-23-34

September 28, 2023

Bechtel National, Inc.’s Cost Proposal Estimates for Baseline Change Proposal 02 and Its Contract Modification 384 Counterpart for the Waste Treatment and Immobilization Plant

After initial issuance of this report on September 28, 2023, the Department requested the opportunity to provide revised Management Comments that conformed to DOE Order 224.3A, Audit Coordination, Resolution, and Follow-up. Those revised comments dated October 5, 2023, are attached to this report.

In February 2014, the Department of Energy, Office of River Protection requested Bechtel National, Inc. (Bechtel) prepare a cost proposal for designing modifications to the Waste Treatment and Immobilization Plant to enable a direct feed to the Low-Activity Waste Facility and completing and commissioning the Low-Activity Waste Facility, Balance of Facilities, and Analytical Laboratory by December 31, 2021.

The Office of River Protection received Bechtel’s proposal in September 2014.  We initiated this audit to determine whether Bechtel utilized reasonable cost proposal estimates for baseline change proposal 02 and its contract modification 384 counterpart.

We found that Bechtel did not utilize reasonable cost proposal estimates for baseline change proposal 02 and its contract modification 384 counterpart at the Waste Treatment and Immobilization Plant.  First, Bechtel did not always use adequate estimating practices.  Second, Bechtel was unable to reconcile management reserve amounts to identified risks and demonstrate how estimates reconciled to the Risk Management Plan.  Finally, Bechtel’s use of its Monte Carlo simulation was not consistent with industry practice, which resulted in overstated hours and costs.

We attributed these issues to inadequacies in Bechtel’s estimating system and Department oversight.  We identified several weaknesses related to Bechtel’s labor hour estimates.  The labor hour estimates account for approximately $1.8 billion of the total proposed $4.5 billion.

These issues resulted in estimates that were likely unreasonable, could not be adequately supported, and potentially benefited Bechtel improperly and disadvantaged the taxpayer.  In addition, the issues identified indicate an inadequate estimating system could impact every future estimate Bechtel makes on this project.  We identified over 1 million direct labor hours added through Bechtel’s questionable application of Monte Carlo.

To address the issues identified in this report, we have made eight recommendations that, if fully implemented, should help ensure that the Department receives cost proposal estimates that are based on reasonable estimates.

In response to our final report on Bechtel National, Inc.’s Cost Proposal Estimates for Baseline Change Proposal 02 and Its Contract Modification 384 Counterpart for the Waste Treatment and Immobilization Plant, one contractor provided written responses for the purpose of clarifying or providing additional context to specific references in the report.  The contractor agreed with the Office of River Protection response to the report. The contractor stated the report did not recognize some factual issues raised in the Department’s response nor in the comments the contractor provided during the course of the report’s drafting and finalization.