B&W Y-12
Latest conceptual image of the Uranium Processing Facility released by the National Nuclear Security Administration.

For the past couple of years, the government has stood behind a cost range of $4.2 billion to $6.5 billion for the Uranium Processing Facility, but that range may not be able to contain the giant project's growing costs as the schedule gets pushed into the future and funding gets stretched out.

Todd Jacobson of Nuclear Weapons & Materials Monitor this week reported that, based on a Government Accountability Office briefing prepared for congressional committees, the cost of UPF could go beyond the $6.5 billion estimated cap and perhaps go well beyond it.

According to information in the GAO's 27-page briefing package, the "space/fit" problem that forced the UPF team to re-do the building's design to accommodate more equipment is a big part of the cost escalation. The GAO cited NNSA documents that say the space problem will add $540 million to the project's cost, delay the start of construction and delay the start of facility operations by 13 months.

A bigger impact on the overall cost, however, appears to be the possibility of the project getting significantly lengthened due to funding constraints.

The price tag for the Uranium Processing Facility, one of the biggest government projects proposed in recent times and often referenced as the largest construction project in Tennessee history, remains a source of attention and speculation.

The NNSA declined to comment on the GAO analysis or discuss any updates on the estimated cost range for the Uranium Processing Facility.

The GAO briefing notes that UPF cost estimates made in 2010-2011 timeframe were based on annual appropriations not subject to budget constraints. The NNSA, which placed the cost range at $4.2 billion to $6.5 billion in that time frame, also planned on potentially changing the year-to-year funding to meet the needs as the UPF moved from design to site prepration to construction to operations.

In the same period, the Army Corps of Engineers challenged the NNSA's estimated cost range for UPF and came up with a range that went up to to $7.5 billion. The Corps also did not foresee budgetary constraints, with the idea of the biggest funding load coming with $900 per million per year for UPF in four consecutive fiscal years.

Now, however, with schedules getting lengthened and some work getting deferred, the overall costs are reportedly climbing.

Under less-optimum funding profiles, with limited appropriations (between $200 million and $500 million annually), the overall cost of UPF could go up to $11.6 billion and stretch the project out until FY 2035 -- the GAO analysis of Corps of Engineers data suggests.

The GAO said the current cost range (up to $6.5 billion) for UPF does not include significant portions of the original scope.

The briefing report said the NNSA in October 2012 updated its point estimate -- the closest estimate to actual cost of UPF -- from $5.2 billion to $5.8 billion. The NNSA reportedly said it did not update the cost range, which includes contingency for unknowns, at that time because it's scheduled to get a complete review when the cost baseline is established for the Critical Decision-2 process (which the contractor plans to submit in September 2013).

The GAO concluded by saying it is "unclear" if the project's current cost range of $4.2B to $6.5B remains valid because:

-- NNSA's current "point estimate" is $6B as design cost for certain processing equipment has increased.

-- The space/fit issue ate up about 45 percent of the NNSA's contingency for the project and the NNSA had not accounted for such a risk.

-- Several identified project risks, "including all risks related to construction activities," are still out there and could require funding to overcome in the future.

"It is possible that additional funds will be needed to ensure there is sufficient contingency to complete the UPF within a cost range that meets NNSA's 85 percent confidence level," the GAO briefing states. "As part of the CD-2 process, NNSA plans to establish a firm cost baseline by June 2014."

Posted by Frank Munger on May 21, 2013 at 3:23 PM |