Midway through the fiscal year, Consolidated Nuclear Security — the manager of two nuclear weapons plants, including Y-12 in Oak Ridge — is reportedly well within its budget and meeting its production goals.
However, the federal contractor’s spending accounts are out of balance, with weapons work, security and other “direct-funded” activities well below anticipated cost levels while indirect or overhead costs — such as procurement activities, human resources, finance, and environment, safety and health — are at or exceeding projections.
As a result, CNS is having to make a bunch of changes to straighten things out, including cutbacks on travel and other activities that are charged to indirect accounts and shifting work to direct accounts where possible.
In a message Thursday to employees, CNS President Morgan Smith said it did not appear that layoffs will be necessary.
The News Sentinel last week asked the contractor about reports of overspending, and CNS provided a brief response Thursday explaining the situation. The newspaper also obtained a copy of Smith’s message to employees.
CNS communications chief Jason Bohne said the contractor is meeting production goals and “working well within its federal funding allotment.” But he confirmed that CNS was “experiencing an imbalance” in its direct and indirect costs.
“This is primarily the result of the significant increase in hiring at both sites (Y-12 and Pantex) and the prolonged security clearance process,” Bohne said.
He said the situation is not expected to impact the current workforce or the contractor’s plans to hire more people to do the “growing mission work.”
Bohne described it as an “accounting issue” that CNS is trying to work out in conjunction with the National Nuclear Security Administration, the semi-autonomous part of the Department of Energy that oversees the nuclear weapons complex.
Steven Wyatt, a spokesman in the NNSA’s Production Office, said the federal office is working with CNS to “address the imbalance.” He said the NNSA is confident the issue will be resolved over the course of Fiscal Year 2016, which concludes Sept. 30.
He declined further comment.
In his message to CNS employees at Y-12 and Pantex, Smith explained how the contractor puts together its budget projections and the role of indirect costs to support all programs.
The hiring of more people to increase production at the weapons plants has affected the cost ratios. Many new employees are still waiting on their security clearances, and they can’t do production work or be charged to direct-funding accounts until they’ve been approved.
“Since the clearance process is now taking much longer than originally anticipated and the problem will not be resolved anytime soon, this clearly impacts our situation,” Smith said.
Bohne said it takes an average of 7 to 10 months to get a clearance approved.
Another contributing factor has been the contractor’s aggressive efforts to clean up the old sites, Smith said, noting that much of that work is done with indirect funds.
“While this is positive and necessary, it also has an adverse impact from a ratio perspective,” Smith said.
The contractor’s leadership team may put some indirect-funded projects on hold and move additional personnel from indirect- to direct-funded work “where we have the right skills mix and work scope,” he said.
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