Kimberly A. Chaney and Jeffrey A. Williams
U.S.
Department of Energy; Office of Waste Management
Washington DC 20585
ABSTRACT
In 1989, the Department of Energy established the Environmental Restoration and Waste Management Program, now called the Environmental Management (EM) Program, to consolidate ongoing activities and accelerate efforts to deal with inactive nuclear and non-nuclear production facilities and sites and the accumulated waste, contamination, and materials resulting from 45-years of weapons development and production. Roughly eight years later, the program has tripled in size and assumed responsibility for stabilization and consolidation of nuclear material and spent fuel; maintenance, surveillance, and deactivation of surplus facilities and site infrastructure at all inactive DOE sites; as well as the traditional waste management and environmental restoration activities. The EM program is one of the largest environmental stewardship programs in the world, with over 150 sites in about 30 states and Puerto Rico.
As EM-programmatic responsibilities grew, so did the financial requirements necessary to accomplish the mission while maintaining public and worker safety and compliance, and minimizing impacts to the environment. With an almost $6 billion budget in Fiscal Year 1996, and total cleanup projections ranging from $235-270 billion over a number of decades, better, faster, cheaper became a mandate. Privatization of activities promises to get work done more efficiently. This paper will describe privatization "EM-style". It will define what EM means by privatization, benefits to be achieved, status of major efforts, and lessons learned.
INTRODUCTION
Since last summer, the EM program has been assembling its Ten-Year Plan (TYP) to complete cleanup at most Department of Energy (DOE) sites within a decade. Cleaning up the DOE complex in this post cold war era is a job of monumental proportions. The Ten-Year vision is for an improved and more efficient program to reduce the mortgage of today's environmental problems.
A number of initiatives within DOE have made it possible to achieve major cost savings and mortgage reductions. Most importantly, contract reform has been going on for about three years. The Department's contract reform philosophy is to emphasize financial incentives as the contractual basis for getting work done at its sites. History shows where work incentives are performance-based, improved results follow. Contract reform has emphasized competition. Where DOE has competed (vs renewed) contracts, improvements have taken place. A significant number of Management and Operating (M&O) contracts have been competed and placed with new contractor teams. The competition has resulted in considerable government leverage in extending ongoing contracts under more favorable terms.
With contract reform now a success and new companies doing business with DOE, a complex-wide attitude of competitiveness has been established. A climate of experimentation and innovation has also evolved. This paradigm shift has been the underpinning of successful privatization of programs, projects, and initiatives at all levels of Departmental operations. Privatization is essential to accomplishing the EM Ten-Year vision.
PRIVATIZATION DEFINED
Privatization, broadly defined, substitutes, in whole or in part, private market mechanisms for the traditional Government roles of employer, financier, owner, operator, and/or regulator of a product or service. It is a strategic management tool to be used only where it is cost-effective and appropriate. The contractor or supplier takes on risk and responsibility for performance against a specification. A waste management strategy, for example, would be a private sector treatment of specified wastes to meet clearly defined acceptance criteria. Failing to meet standards means the contractor doesn't get paid. When a contractors' own resources are at stake, there is a strong incentive to perform.
Contractors are selected through open competition, usually on a fixed-price basis. The contractor has the responsibility to provide facilities, equipment, and financing. In defining the specifications, DOE will also define the regulatory environment. The contractor is at risk if environmental regulations or permit conditions are not met. There could be a need for vendors to build a facility and have a Nuclear Regulatory Commission license. DOE pays for the specified product when it is delivered.
In any discussion of privatization within DOE it is necessary to describe what privatization isn't. First, it is not shifting responsibility and accountability for accomplishing the EM mission -- this is clearly a Federal responsibility. Privatization concerns how the job gets done and how the provider gets paid. It is not a war on our dedicated and highly proficient work force. Neither is it the solution to every management problem or program failure. Rather, it is a strategic management tool to achieve strategic objectives:
BENEFITS
The Department is convinced the privatization concept is a winner. The size of the environmental mortgage in an era of declining budgets makes privatization an imperative! The cleanup mission goals can only be accomplished through new and innovative business practices.
As mentioned earlier, new contracts replacing the old M&Os are in place and working. At Idaho for example, one new contract replaced 5 separate contracts. The Waste Isolation Pilot Plant contract was renewed but with greatly improved terms. The statement of work is results oriented with performance measures specified. There are cost-sharing incentives for reducing the cost of work and requirements for specific fixed-price work scope.
LANDMARK PROJECTS
EM privatization began a few years ago with concepts developed under contract reform and focused initially on smaller projects with strong possibilities for success, such as services for cleaning contaminated laundry. The business strategy was later applied to waste treatment services. From modest beginnings with relatively small waste treatment ventures, the Department is now taking on large scale cleanup projects where the performance envelope can be completely defined and competition can significantly reduce cost. EM has made breakthrough progress on two very large waste treatment projects -- one at Hanford and the other at Idaho. A brief discussion of these two projects will demonstrate just how far "privatization EM-style" can go.
Richland Tank Waste Remediation System
Radioactive waste (HLW) has been stored in large underground storage tanks at the Hanford Site since 1944 (1). Approximately 55 million gallons of waste are currently being stored in 177 tanks. These caustic wastes consist of many different chemicals in the form of liquids, slurries, saltcakes, and sludges. In 1992, the Tank Waste Remediation System (TWRS) Program was established to manage, retrieve, treat, immobilize, and dispose of these wastes in a safe, environmentally-sound, and cost-effective manner. Since its inception, the TWRS Program contracting strategy has been a government-owned, contractor-operated (GOCO) facility under a cost-plus-award-fee contract. Under this arrangement, the Department of Energy (DOE), and therefore the taxpayer, bears the full responsibility, accountability, and liability for development work, design, permitting, construction, and operations of the facilities. Within this context, the Department pays for and will continue to pay for activities until the remediation process is complete, no matter how long it takes to complete the effort. Since 1993, a number of considerations are driving the privatization of the TWRS. These include: Vice President Gore's initiative to reinvent government; the DOE contract reform initiative; declining federal budgets; subproject costs of the TWRS baseline program; and, an unsolicited concept by industry to perform part of the TWRS functions on a fixed-price basis. The Department has determined it is feasible to privatize portions of the TWRS.
Within the context of privatization described in this paper, not all the functions within the TWRS are suitable for privatization. The functions considered for privatization include the retrieval, transfer, pretreatment, low-activity waste immobilization, high-level waste immobilization, and interim storage of the immobilized high-level waste. Under the Tri-Party Agreement (TPA) between DOE, the State of Washington, and the Environmental Protection Agency, the 149 single-shell tanks must be emptied by 2018 and the 28 double-shell tanks must be emptied by 2028. All processing must be completed by 2028. Other benchmark milestones include the following: Low-activity waste pretreatment must begin by 2002, low-activity waste immobilization must begin by 2002, and high-level waste immobilization must begin by 2009.
The current baseline concept for the TWRS is to put in place, full-scale facilities on a centralized basis to meet these schedules. Under a privatized approach, vendors are unwilling to commit immediately to full-scale facilities on a fixed-price basis because of the current uncertainties with regard to waste characteristics, the effectiveness of their technology with Hanford waste, and the regulatory framework for protection of workers and the general public. The Department is also faced with uncertainties including the specifications against which to purchase the deliverables, the basis for accepting the deliverables, the structure of the contract, and the basis for handling change orders. Consequently, the approach to privatization will be conducted in two phases. The first phase will be a Proof-of-Concept/Commercial Demonstration Phase.
Based upon the feasibility study, the first phase will involve pretreatment and low-activity waste immobilization of approximately 6-13 percent of the waste over a five year period (2). High-level waste separated in the pretreatment process would either be stored on an interim basis until sufficient quantities are collected to make it cost effective to process, or immobilized as an option in the initial phase. On September 25, 1996, DOE announced award of Proof-of-Concept/Commercial Demonstration Phase contracts to two contractor teams, assuring competition and cost control. The teams are headed by BNFL Inc. and Lockheed Martin Advanced Environmental Systems.
Following sufficient design activities resulting in acceptable permit application, none, one or multiple contractors will be authorized to construct, operate and eventually deactivate their proposed facilities. The objectives of the Proof-of-Concept/Commercial Demonstration Phase (Phase I) are to: demonstrate technologies and processes in a production-level environment, and treat and immobilize sufficient waste to demonstrate early progress in remediating the tank waste. Additional Phase I objectives are to: better understand the costs, risks, and benefits of a fixed-price privatization framework; ascertain the financial viability of the private marketplace to accomplish the TWRS mission; establish conditions for the Department to be a "smart buyer" and for private industry to be a "smart provider" of treated waste products for Phase II; and to balance the private vendors' objectives with DOE objectives.
The second phase will be the Full-Scale Production Phase. Facilities will be sized so all the remaining waste can be processed and immobilized on a schedule that will accommodate removing the waste in single-shell tanks by 2018. Objectives of the Full-Scale Production Phase (Phase II) are: to implement the lessons learned from Phase I; to process all tank waste into forms suitable for final disposal while meeting environmental, health, and safety requirements; and to meet or exceed the TPA benchmark performance milestones. Additional Phase II objectives are to achieve price competition and cost savings throughout the Full-Scale Production Phase, and to balance the private vendor's objectives with the DOE objectives.
Idaho Advanced Mixed Waste Treatment
In another large privatization effort, the Department, on December 20, 1996, announced (3) it has awarded a $1.18 billion contract to a team led by BNFL, Inc. to treat transuranic and mixed waste at the Idaho National Engineering Laboratory (INEL). The contractor's team includes BNFL, Inc., as the prime contractor with teaming partners of BNFL Engineering Ltd., GTS Duratek, Inc., Manufacturing Sciences Corp., and Morrison Knudsen Corp.; and subcontracts with Pajarito Scientific Corp., Rocky Mountain Remediation Services, and Science Applications International Corp. This privatization initiative allows DOE to take advantage of market place trade-offs for innovative technical approaches. It shifts more of the operational liability and risk to the contractor through a fixed-price contract and provides for payment upon contract deliverables during Phase I, and for actual waste treated during Phase III.
BNFL will treat at least 65,000 cubic meters of waste with the option to treat up to an additional 120,000 cubic meters of waste generated by future INEL cleanup and decontamination efforts, as well as some waste generated at other DOE sites. The contract technical approach includes retrieval, characterization, sorting and segregation of the waste into separate streams for custom treatment, destruction of organic and combustibles via thermal desorption, vitrification of ash and non-combustible sludges, and encapsulation of bulk metals and amalgamation of mercury. BNFL has performed similar work in the United Kingdom.
The contract will be executed in three phases. During the first phase, BNFL will complete detailed designs, provide DOE environmental data and obtain necessary regulatory permits. The second phase is construction and testing of the treatment facility. The final phase is waste retrieval, characterization, and treatment; RCRA closure, and facility decontamination and decommissioning. Under the terms of a settlement agreement with the State of Idaho, the treatment is expected to begin in January 2003, and end by a target date of 2015. RCRA closure and D&D are to be completed after that.
The contract award is an important step toward fulfilling one of DOE's major commitments in its spent fuel settlement agreement with the State of Idaho. There now is a definitive path forward to remove and permanently dispose of the huge quantities of transuranic waste stored in Idaho.
The Idaho agreement stipulates that all transuranic-contaminated waste now stored at the INEL must be shipped to a permanent repository by 2018. The agreement also requires the mixed waste treatment facility to be on line by 2003. DOE awarded the mixed waste treatment contract six months earlier than required by the settlement agreement date of June 1997. This "mixed waste" is waste contaminated with both hazardous and radioactive constituents. Over 95% of the INEL waste that will be treated under this contract was generated at the Rocky Flats Plant near Denver, Colo. The waste consists of things like clothing, rags, equipment, tools and sludge that were contaminated by plutonium during the manufacture of nuclear weapons components. The wastes were sent to the INEL for storage during the 1970s and 1980s.
LESSONS LEARNED (4)
As with most new initiatives, privatization has been a learning process. A host of problems and impediments have been encountered and dealt with, and valuable lessons have been learned. Some of the more important include:
Labor -- unions must be brought into the process early, before the RFP so there are no surprises. Conflicts with unions can be avoided by involving union officials early, for example, allowing a comment period on the draft RFP prior to release to the public.
Budget and Financing -- a successful project depends on the ability of vendors to obtain financing, which is directly related to financial risk. DOE can do much to control performance and cost in this area by sharing risk (in limited cases). A big challenge for DOE in the near term is to create and retain managers with a high degree of understanding of financial markets and corporate mentality.
Regulatory Considerations -- the regulatory aspects of each project executed to date have differed significantly. This is primarily due to the willingness of DOE and the demand of the vendors to limit regulatory control and oversight to that which is required by statute. This new dynamic in DOE business practices alone may result in significant cost savings with little or no additional quantifiable risk.
Communication with Stakeholders -- there are two major categories of stakeholders considered in this discussion, those internal to the Department and its contractors, and those external to DOE and its prime contractors. Communications with each of these groups early and often will enhance the privatization process.
Source Evaluation Board -- the source evaluation board and staff are key to a successful contract. The team should maximize the use of Federal staff, with support as needed from support contractors, and minimal M&O involvement. To ensure high performance, the team should be co-located and dedicated to the job, with minimal part-time participants. Only top performers should be used, and excellence should be expected and rewarded. The main difficulty DOE faces is gathering dedicated technical, legal, financial, cost and procurement talent. These resources are in short supply.
Request for Proposals -- RFP's should be released in draft after a bidders conference is held to hear concerns of vendors. Comments on RFPs need to be carefully considered, since, depending on the situation, final offering prices could be affected. Allowing for multiple awards on all phases may increase cost savings through continued competition.
Contracting Strategy -- the RFP should be focused on performance specifications, with minimal design or other mandatory criteria. This maximizes the freedom of the contractor to be innovative. Further, DOE needs to hold contractors accountable for regulatory and stakeholder aspects of the project. To ensure contractor performance, negotiation with the contractors to properly tailor the contract, is necessary. Some changes to the RFP may optimize the deal for both sides -- a win-win mentality pays.
Major Contract Components/Structure -- by phasing the contract, DOE can purchase desired products and the vendors can lower financial risk by shortening the payback period for invested capital. For example, a facility design-and-license phase allows DOE to reevaluate a contractors' likelihood of success at a very early stage. This structure may also allow for renegotiations to occur based on actual design and permits which may further reduce risk, and therefore price.
Contract Execution -- during execution, extra caution must be exercised by DOE project managers to ensure that M&O type relations are not formed. This will jeopardize the effectiveness of the contract by allowing observations to be perceived as constructive changes.
Institutional Barriers -- one of the barriers to privatization that EM's Private Sector Working Group and others have discovered is an unwillingness on the part of DOE and its management contractors to consider privatization seriously as an alternative business strategy. DOE must continue to strive to overcome the "inertia" in implementing privatization as a standard business practice.
CONCLUSION
We have clear evidence that project costs can be driven down by more competition. There are also benefits through private sector vendors bringing new competency, efficiency, innovation, and methods to bear in solving complex environmental problems. Privatization is not a panacea but certainly an important tool in cleaning up nuclear and hazardous wastes and ensuring the most cost-effective means of doing so.
REFERENCES