Congress originally ordered destruction of all U.S. chemical arms by
1996 and thought it would cost $1.7 billion. Recently, after a long
string of revised estimates, the Army projected it will really cost
$27.8 billion and not be finished until 2023.
Now, Pentagon inspectors worry even that may be too optimistic.
They say big delays and cost overruns "will likely continue, making it
difficult or impossible for the program to meet scheduled deadlines" --
unless significant changes are made.
That is according to a report issued five months ago by the Army
Audit Agency. The Deseret Morning News just obtained the report through
a Freedom of Information Act request.
The report complains that contracts inadvertently reward
contractors for delays and that contractors often receive performance
bonuses when not earned. The Army also fails to investigate whether
past delays and overruns will likely repeat, and it often fails to
incorporate lessons from problems into projections for later work, the
document said.
The findings are important to Utah, home of Deseret Chemical Depot and
its Tooele Chemical Agent Disposal Facility. Before incineration of
arms began at the disposal site, the depot stored 44.5 percent of the
nation's chemical-arms stockpile -- with smaller amounts scattered at
eight other facilities nationally.
As of Feb. 7, the depot had destroyed 58 percent of its original
stockpile. Pentagon budgets project continued funding for destruction
work there through 2016 -- although work schedules estimate the
destruction could be completed there as early as 2012. Work at other
bases could last until 2023.
Pentagon inspectors wrote that program projections may be too
optimistic -- mostly because the Army is not keeping close enough watch
on contractors running destruction plants, nor giving them enough
incentives to complete work on time.
In fact, inspectors say, the Army is doing the opposite --
inadvertently giving contractors financial incentives to delay.
In part, they said, that is because contracts now cover their
costs plus extra fees for administration. The longer facilities
operate, the more contractors make -- even if they miss some bonuses
designed to reward on-time and environmentally sound work.
"Contractors had little incentive to -- and weren't sufficiently
penalized for failing to -- prevent or minimize cost and schedule
growth," inspectors complained.
They said they found that incentive bonuses for on-time and safe
work are often given anyway, even when not earned, making the situation
worse.
For example, the contractor running a destruction plant in Pine
Bluff, Ark., received 87 percent of available award fees for four
years, despite continuing, significant delays.
"One delay extended the originally scheduled April 2004 start of
operations date to February 2005, because the contractor wasn't able to
hire a sufficient work force," auditors wrote.
Similarly, they complained that contractors were sometimes
rewarded for environmental compliance when they did not meet the
required goals.
For Tooele to receive such bonuses, it was supposed to achieve a
numerical rating of 61 or above for environmental compliance in 2002
and 70 or above in 2003.
However, it received only "ratings of 38.96 and 65 respectively,
yet still earned an award fee above the base fee," the report said.
"By not withholding award fees from contractors who didn't
control costs and schedules" or perform well environmentally, the Army
"may have signaled that they didn't view cost and schedule containment
as a top priority," the auditors noted.
Inspectors complained that while reasons for delays and overruns
were generally known, the Army "didn't fully ascertain, investigate or
report the likelihood that similar delays and increases would recur"--
making budgets and schedules shaky.
Auditors said Tooele expected to require only four months to
change over from processing arms filled with nerve agent GB to those
filled with VX. But it actually took more than a year.
"Yet site managers continued to report an estimated five-month
time frame to complete their next agent changeover from VX to mustard
agent," the auditors complained, saying Tooele should have expected it
to take longer.
Worse, the report said, managers at other facilities "didn't
adjust their agent changeover schedules to incorporate the actual
experience gained at Tooele." Inspectors complained the Army never
asked contractors to explain why they didn't adjust schedules and cost
estimates.
They added that because no state-based facility "has completed an
agent changeover within schedule ... managers should direct all
facility managers to reassess current changeover schedules," the report
said.
Inspectors also complained that the Army never held contractors
responsible for delays or cost overruns that were their fault, and
often failed to investigate them well.
They complained official reports used only vague wording to
explain overruns. For example, to explain why operations at Pine Bluff
cost $1.6 million more than expected in one period, an Army report said
merely that it was from the "impact of using additional resources"
without giving details. That also made it more likely that problems
could recur.
Similarly, inspectors complained that the Army was not ensuring
that contractors responded well and quickly to state notices of
environmental violations, nor ensure for itself that problems were
corrected -- which could also lead to delays and overruns.
It said that happened even though regulators in Utah, Oregon and
Alabama had sent notices of such problems as "processing hazardous
materials with disabled instrumentation," "failing to notify the state
of system modifications," and "storing hazardous waste for more than 90
days without a permit."
Auditors said delays and overruns will continue unless oversight
improves and contracts are revised to do away with inadvertent
incentives for delay. They called for possibly paying a flat fee per
munition destroyed.
They noted that similar calls for better oversight had been made
for years by a variety of inspecting agencies, but delays and cost
overruns have continued.
In its official written response to the audit, the Army said that
its Chemical Materials Agency has taken steps that "meet the intent" of
auditor recommendations, and it considers issues raised in the report
to be resolved.
The Army also said said the CMA said is pursuing "shared-savings
contracting mechanisms to better reward contractors for exceptional
cost and schedule performance."
