Feb. 22, 2018 —
We determined whether the Program Executive Office for Assembled Chemical Weapons Alternatives (PEO ACWA), the executive agent, effectively managed program cost, schedule, and performance for the ACWA program.
The ACWA program is a major defense acquisition program, estimated to cost $12.1 billion as of June 2017. Congress tasked the ACWA program with destroying the last 10 percent of U.S.-stockpiled chemical weapons. The PEO ACWA is responsible for the destruction of the final two chemical weapon stockpiles in the United States. The final two stockpiles in the United States are located at Pueblo Chemical Agent-Destruction Pilot Plant (PCAPP) in Pueblo, Colorado and Blue Grass Chemical Agent-Destruction Pilot Plant (BGCAPP) in Bluegrass, Kentucky. Army Contracting Command–Rock Island awarded separate contracts for PCAPP and BGCAPP, which required the contractors to destroy the U.S.-stockpiled chemical weapons. As of June 2017, the PCAPP and BGCAPP contracts are valued at $3.4 billion and $3.0 billion, respectively. However, the PCAPP Closure phase and the BGCAPP Operations and Closure phases have not been added to the contract.1 Each contract phase is proposed, negotiated, and awarded before the start of each contract phase.
As of May 2017, the PEO ACWA was complying with ACWA program requirements. However, the PEO did not effectively manage the ACWA program cost and schedule of the contract phases. Specifically, as of May 2017, the PEO ACWA contracts were projected to be $653.9 million over budget.2 In addition, the PCAPP and BGCAPP contractors may not meet the contract schedule completion dates for the PCAPP Operations phase and BGCAPP Systemization phase because of schedule delays.3 The ACWA program increase in cost and schedule delays occurred because the PEO ACWA and the PCAPP and BGCAPP contracting officers did not provide adequate contract oversight. Specifically, PEO ACWA officials and the PCAPP and BGCAPP contracting officers:
- did not effectively manage contractor performance through incentive fee and award fee contracts,
- paid about $23 million to the contractors to correct quality deficiencies, and
- did not provide sufficient quality assurance oversight related to ductwork, boilers, and welds.
As a result, the ACWA program has significantly exceeded (by 21.6 percent) its baseline cost estimate. In addition, PCAPP has deviated (by 16 months) from its approved baseline schedule estimate to complete destruction of all chemical weapons and close PCAPP. Furthermore, the BGCAPP schedule may not meet the congressionally mandated deadline of December 31, 2023, for the destruction of all U.S.-stockpiled chemical weapons because the PEO ACWA used a lower standard of confidence to estimate the time needed to complete destruction.
We recommend that the Program Executive Officer, Assembled Chemical Weapons Alternatives, in coordination with the Executive Director, U.S. Army Contracting Command–Rock Island:
a. Determine award fees based on the contractor’s actual performance during the award fee period, not on projected cost, schedule, and performance in later periods as required by the award fee plan.
b. Convene a working group of DoD subject matter experts to help determine the best way to structure the additional incentive to motivate the contractors to reduce costs at PCAPP and BGCAPP and achieve an accelerated safe destruction of the remaining chemical weapons.
c. Analyze all of the rework performed at PCAPP and BGCAPP to determine the cost of additional rework.
d. Based on the cost of additional construction rework, either recoup funds paid by the Government or obtain other appropriate consideration.
e. Increase quality assurance monitoring and validate the contractors’ test and inspection processes and procedures at PCAPP and BGCAPP.
We also recommend that the Director, Cost Assessment and Program Evaluation prepare an independent cost estimate for the ACWA program.
Management Comments and Our Response:
The PEO ACWA, in coordination with the Executive Director, U.S. Army Contracting Command-Rock Island, agreed with the recommendation and convened a working group to determine the best way to motivate the contractors to reduce costs and accelerate destruction of the remaining chemical weapons and the recommendation to increase quality assurance monitoring and validate contractor processes and procedures. Therefore, these recommendations are resolved but will remain open. We will close these recommendations once we receive confirmation of finalized incentive plan and documentation supporting the increased quality assurance monitoring at PCAPP and BGCAPP.
The PEO ACWA, in coordination with the Executive Director, U.S. Army Contracting Command-Rock Island, disagreed with the recommendations to determine award fees based on the contractor’s actual performance, analyze rework performed at PCAPP and BGCAPP, and either recoup paid funds or obtain other appropriate consideration for additional construction rework.
According to the PEO ACWA, the recommendation to determine award fees based on the contractor’s actual performance during the award fee period would only allow the Government to consider the impact of actions taken by the contractor during the current period, and would provide little motivation for the contractor to pursue innovative cost and schedule savings measures. However, as stated in our report, the ACWA Deputy Program Executive Officer increased the contractor’s BGCAPP evaluation period rating based on a projected reduction to the contractor’s performance schedule that PEO ACWA later determined was unaffordable. This not only increased the contractor’s overall rating from satisfactory to good, but allowed the contractor to receive a bonus that increased the total award fee from $2.8 million to $4.9 million. This is not in accordance with the award fee plan.
In addition, the PEO ACWA, in coordination with the Executive Director, U.S. Army Contracting Command-Rock Island, stated that payments to correct quality deficiencies were not erroneous, but allowable costs. However, the PCAPP and BGCAPP contracts contain Federal Acquisition Regulation clauses for supplies, services, and construction, and the construction clause states the contractor will replace or correct items free of charge.
Therefore, the recommendations to determine award fees based on the contractor’s actual performance, analyze rework performed at PCAPP and BGCAPP, and either recoup paid funds or obtain other appropriate consideration for additional construction rework are unresolved and remain open.
The Director, Cost Assessment and Program Evaluation, agreed with the recommendation to prepare an independent cost estimate for the ACWA program. Specifically, the Director, Cost Assessment and Program Evaluation, agreed to perform an independent cost estimate of the ACWA program in 2018. This recommendation is resolved but will remain open. We will close this recommendation once the independent cost estimate is complete.
In the Operations phase, contractors destroy chemical weapons after completing testing and demonstrating compliance with all safety requirements and environmental permits. In the Closure phase, contractors shut down the facilities and dismantle, decontaminate, and remove the equipment in accordance with agreements between the states and the Army.
The total projected cost overrun of $653.9 million comes from the combined figures at Table 1: PCAPP total cost overrun of $443,673 ($443.7 rounded) and Table 2: BGCAPP total cost overrun of $210,153 ($210.2 rounded).
In the Systemization phase, contractors operate and test all machinery, equipment, and processes with water or simulants, which encompasses all the planning, technical work, training, and testing activities required to make sure destruction operations run safely and smoothly.
This report is a result of Project No. D2016-D000AE-0190.000.